Test Bank Fundamentals of Cost Accounting 5th Edition By William Lanen A+

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Test Bank Fundamentals of Cost Accounting 5th Edition By William Lanen A+
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Test Bank Fundamentals of Cost Accounting 5th Edition By William Lanen A+

$35.00
Test Bank Fundamentals of Cost Accounting 5th Edition By William Lanen A+

1.

The value chain comprises activities from research and development through the production process, but does not include activities related to the distribution of products or services.

True False

2.

Administrative functions are not included as part of the value chain because they are implicitly included in every business function.

True False

3.

Under the value chain concept, value-added activities are those that firms perform and that customers perceive as adding utility to the goods they purchase.

True False

4.

The value chain is comprised of the activities that take place only during the production process.

True False

5.

If a poor facility layout exists and work-in-process inventory must be moved during the production process, the company is likely to be performing value-added activities.

True False

6.

Cost information itself is a product with its own customers.

True False

7.

Financial accounting information is sufficient for making operational decisions.

True False

8.

Cost accounting information is commonly used in developing financial accounting information.

True False

9.

Financial accounting information is designed for decision-makers who are directly involved in the daily management of the firm.

True False

10.

It is more important for financial accounting information to be comparable between firms than to be useful for managerial decision-making.

True False

11.

Cost accounting information developed for managers to use in making decisions must comply with generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS).

True False

12.

A cost driver is a factor that causes costs.

True False

13.

A cost can be considered a differential cost for one particular course of action but not for another course of action.

True False

14.

A responsibility center can be a department, division, or segment, but not a subsidiary of the parent company.

True False

15.

It is important that the manager assigned to lead a responsibility center be held accountable for its operations.

True False

16.

Budgeting is primarily used to determine year-end bonuses based on managerial and organizational performance.

True False

17.

Managers are usually responsible for the revenues needed to achieve the targets set during the budgeting process, but not the resources consumed to achieve those targets.

True False

18.

In general, if activities that do not add value to the company can be eliminated, then costs associated with them will also be eliminated.

True False

19.

Accounting systems are important because they are a primary source of information for managers.

True False

20.

Benchmarking is a continuous process of measuring a company's products, services, or activities against competitors' performance.

True False

21.

Activity-based costing (ABC) is a management tool that focuses on the continuous improvement of all dimensions of a business.

True False

22.

Lean manufacturing techniques are used only in the production process.

True False

23.

Typical ERP systems integrate information systems that link production, purchasing, human resources, and finance into a single comprehensive information system.

True False

24.

Managers face ethical situations on a daily basis, while accountants face them infrequently.

True False

25.

Compliance with Sarbanes-Oxley does not mean that the manager has met all of his or her ethical responsibilities.

True False

26.

Ethical behavior depends more on a firm's code of conduct than the individual's personal beliefs.

True False

27.

Cost accounting information can be used by managers to defraud customers, creditors, and owners.

True False

28.

The boundary between what is cost accounting and what belongs in another discipline is often blurred.

True False


Multiple Choice Questions

29.

The set of activities that transforms raw resources into the goods and services end users purchase and consume is called the:


A.

value chain.

B.

supply chain.

C.

demand chain.

D.

cost-benefit analysis.

30.

Which of the following activities would not be considered a value-added activity?


A.

Production

B.

Marketing

C.

Accounting

D.

Distribution

31.

Which of the following statements is false?


A.

In essence, the value chain and the supply chain are similar; each creates something for which the customer is willing to pay.

B.

Financial accounting information is important because it is sufficient to provide all the information for operational decisions commonly made by managers.

C.

The supply or distribution chain is a linked set of organizations that exchange goods and services in combination to provide a final product or service to the customer.

D.

Eliminating nonvalue-added activities always reduces costs without affecting the value of the product to customers.

32.

Managers do not make decisions about future events based on:


A.

Perfect information.

B.

Estimated information.

C.

Actual information.

D.

Financial information.

33.

Which of the following is a nonvalue-added activity?


A.

Product design

B.

Customer service

C.

Research and development

D.

Rework of defective items

34.

(CMA adapted) A costing method that first assigns costs to activities and then assigns them to products based on the products' consumption of those activities is:


A.

full-absorption costing.

B.

activity-based costing.

C.

variable costing.

D.

benchmarking.

35.

(CMA adapted) Cost drivers are


A.

activities that cause costs to increase as the activity increases.

B.

accounting techniques and practices used to control costs.

C.

accounting reimbursements used to evaluate whether performance is proceeding according to plan.

D.

a mechanical basis, such as machine hours, computer time, or factory square footage, used to assign costs to activities.

36.

During 2016, the Beach Restaurant had sales revenues and food costs of $800,000 and $600,000, respectively. During 2017, Beach plans to introduce a new menu item that is expected to increase sales revenues by $100,000 and food costs by $40,000. Assuming no changes are expected for the other food items, operating profits for 2017 are expected to increase by


A.

$260,000.

B.

$100,000.

C.

$60,000.

D.

$40,000.

37.

(CMA adapted) The process of creating a financial plan of the revenues and resources needed to carry out activities and meet financial goals is referred to as:


A.

budgeting.

B.

benchmarking.

C.

cost-benefit analysis.

D.

value-added analysis.

38.

The field of accounting that reports according to generally accepted accounting principles (GAAP) is called:


A.

cost accounting.

B.

financial accounting.

C.

managerial accounting.

D.

responsibility accounting.

39.

The field of accounting that focuses on the criterion of relevant information rather than comparability of firms is:


A.

Cost accounting

B.

Financial accounting

C.

Responsibility accounting

D.

International accounting

40.

The just-in-time (JIT) method of production focuses on


A.

increasing sales revenue.

B.

reducing inventories.

C.

increasing customer service.

D.

reducing operating expenses.

41.

(CIA adapted) The primary reason for adopting total quality management (TQM) is to achieve


A.

reduced delivery time.

B.

reduced delivery charges.

C.

greater customer satisfaction.

D.

greater employee participation.

42.

According to the Institute of Management Accountants (IMA), the final step in resolving an ethical dilemma is to


A.

consult your own attorney as to legal obligations and rights concerning the ethical conflict.

B.

clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethical Counselor, an appropriate and confidential ethics hotline, or other impartial advisor.

C.

consult with the local police.

D.

discuss the situation with an immediate supervisor.

43.

According to the Institute of Management Accountants (IMA), the first step in resolving an ethical dilemma is to


A.

consult your own attorney as to legal obligations and rights concerning the ethical conflict.

B.

call the IMA's ethics hotline.

C.

clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethical Counselor or other impartial advisor.

D.

discuss the situation with an immediate supervisor, except when it appears that the supervisor is involved, or with the next level supervisor, if involvement of the immediate supervisor is suspected.

44.

Which of the following is not one of the basic standards of the Institute of Management Accountants (IMA) Code of Ethics?


A.

Competence

B.

Confidentiality

C.

Honesty

D.

Integrity

45.

Which of the following is not one of the overarching ethical principles of the Institute of Management Accountants (IMA) Code of Ethics?


A.

Competence

B.

Responsibility

C.

Honesty

D.

Objectivity

46.

A general term for a metric that indicates how well an individual, business, product, or firm is working is called


A.

a performance measure.

B.

benchmarking.

C.

a budget.

D.

a responsibility center.

47.

The cost accounting system that minimizes wasteful or unnecessary transaction processes is


A.

performance measure.

B.

benchmarking.

C.

budgeting.

D.

lean accounting.

48.

Continual process of measuring a company's own products, services or activities against competitors' performance is


A.

performance measure.

B.

benchmarking.

C.

budgeting.

D.

responsibility center.

49.

The costing method that first assigns costs to activities and then assigns them to products based on the products' consumption of activities is called


A.

lean accounting.

B.

responsibility centers.

C.

activity-based costing.

D.

budgeting.

50.

Having one or more of the firms' activities performed by another firm or individual in the supply or distribution chain is called


A.

lean accounting.

B.

responsibility centers.

C.

activity-based costing.

D.

outsourcing.

51.

Systems that identify the costs of producing defective units as well as low-quality items that lose sales are called


A.

customer relationship management systems.

B.

distribution chains.

C.

enterprise resource planning systems.

D.

cost of quality systems.

52.

Systems that allow firms to target profitable customers by assessing customer revenue and costs are called


A.

customer relationship management systems.

B.

distribution chains.

C.

enterprise resource planning systems.

D.

cost of quality systems.

53.

Information technology that links the various processes of the company into a single comprehensive information system is called


A.

a customer relationship management system.

B.

a distribution chain.

C.

a cost of quality system.

D.

an enterprise resource planning system.

54.

A management method by which the organization seeks to excel on all dimensions of quality is called


A.

customer relationship management.

B.

a just-in-time method.

C.

total quality management.

D.

cost of quality.

55.

Which of the following is not a key financial manager in an organization?


A.

Chief financial officer

B.

Treasurer

C.

External auditor

D.

Controller

56.

Which of the following is not normally considered part of the value chain?


A.

Research and development

B.

Purchasing

C.

Administration

D.

Distribution

57.

In 2016, the TransUnion Company had consulting revenues of $1,000,000 while costs were $750,000. In 2017, TransUnion will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in costs. Assuming no changes are expected for the other services, operating profits are expected to increase between 2016 and 2017 by:


A.

$250,000.

B.

$150,000.

C.

$90,000.

D.

$60,000.

58.

In 2016, the Merkel Company had revenues of $2,000,000 and costs of $1,500,000. During 2017, Merkel will be introducing a new product line that is expected to increase sales revenue by $200,000 and costs by $160,000. Assuming no changes are expected for the other products, the operating profits are expected to increase by


A.

$540,000.

B.

$200,000.

C.

$160,000.

D.

$40,000.

59.

Moving of inventory is an example of a(n):


A.

cost-benefit analysis.

B.

value-added activity.

C.

activity-based cost.

D.

nonvalue-added activity.

60.

Costs that differ among or between two or more alternative courses of action are


A.

differential costs.

B.

cost-benefit analysis.

C.

activity-based costs.

D.

cost drivers.

61.

Which of the following activities would not be included in the value chain of a manufacturing company?


A.

Research and Development

B.

Customer Service

C.

Design

D.

Accounting

62.

A firm's replies to customers' questions via email would be an example of which element of the value chain?


A.

Customer Service

B.

Marketing

C.

Design

D.

Supply

63.

The delivery of products or services to customers is an example of which element in the value chain?


A.

Production

B.

Design

C.

Marketing

D.

Distribution

64.

Which of the following provides much of the information necessary for the coordination of the value chain?


A.

the distribution chain.

B.

the financial accounting system.

C.

the cost accounting system.

D.

the supply chain.

65.

Advertising costs would be associated with which of the following value chain components?


A.

Production.

B.

Research and Development.

C.

Distribution.

D.

Marketing and sales.

66.

Which part of the value chain is outside the firm?


A.

The Design component

B.

The Research and Development component

C.

The Production activity

D.

The Distribution chain

67.

Which of the following statements regarding the value chain is true?


A.

Service firms benefit from the value chain more than do manufacturing firms.

B.

Value chain components do not overlap.

C.

Value is not created until after the research and development stage.

D.

Administrative functions are not included as part of the value chain.

68.

Which of the following statements concerning the value chain is false?


A.

The goal of a value chain is to find areas where a company can either add value or reduce cost.

B.

The value chain focuses on the entire production process, as well as the sale of the product and service after the sale.

C.

If a company cannot compete in a specific area of the value chain, it might outsource that portion of the value chain to another entity which can perform it better.

D.

Successful firms are ones that operate within the entire value chain, thereby overseeing every aspect of the value chain for the customer.

69.

Which of the following could be considered part of the value chain in a service firm?


A.

Inspection of product

B.

Advertising

C.

Raw materials

D.

Distribution

70.

Place the four components in the order they appear along the value chain: A = Customer service; B = Design; C = Distribution; and D = Production.


A.

ABDC

B.

ACDB

C.

BDCA

D.

BADC

71.

Managers evaluate value-added activities to determine how they contribute to the final product's


A.

service only.

B.

quality only.

C.

cost only.

D.

service, quality, and cost.

72.

Which of the following is the best reason why cost accounting information does not need to be comparable to similar information in other organizations?


A.

Because it is only used by investors and creditors.

B.

Because no publicly traded companies use cost accounting.

C.

Because IFRS and cost accounting are converging which eliminates the need for comparability.

D.

Because managers that use this information are making decisions only for their organization.

73.

Financial accounting


A.

focuses on the future.

B.

must comply with GAAP (generally accepted accounting principles).

C.

reports include detailed information on the various operating segments of the business.

D.

is prepared for the use of management.

74.

The individual who would most likely use only financial accounting information in making decisions is a


A.

vice president of marketing.

B.

factory supervisor.

C.

department manager.

D.

company stockholder.

75.

The financial accounting system is the primary source of information for


A.

decision making on the factory floor.

B.

improving the performance level of customer service.

C.

planning the budget for next year.

D.

preparing the income statement for stockholders.

76.

Managerial decisions using cost accounting are more appropriate for which types of costs?


A.

future costs.

B.

historical costs.

C.

current costs.

D.

externally reported costs.

77.

At the middle management level, where managers supervise work and make operating decisions, cost information highlights


A.

the company's overall performance.

B.

comparability across firms.

C.

financial position and income according to accounting rules.

D.

some aspect of operations that is different from expectations.

78.

Financial accounting provides a historical perspective, while cost accounting emphasizes


A.

reporting to stockholders.

B.

a current perspective.

C.

the future.

D.

past transactions.

79.

The concept of considering both the costs and benefits of a proposal is known as:


A.

Cost-benefit analysis

B.

Performance measurement

C.

Nonvalue-added analysis

D.

Preparation of financial statements

80.

Department managers at Boswell Department Store are allowed considerable discretion in both sourcing and pricing of products, based on local tastes and competition, as well as being responsible for departmental staffing. Based on the concept of the responsibility center, which of the following would not be a performance measure that would be useful in evaluating the performance of departmental managers at the stores?


A.

Departmental profit compared to budgeted departmental profit.

B.

Trends in general and administrative expenses for each store.

C.

Growth in department sales compared to the prior period sales.

D.

Departmental customer satisfaction.

81.

Snuggle Toys, Inc. had the following summarized results for the month ending July 31:

Actual

Budget

Revenues

$60,000

$52,000

Costs

53,600

45,600

Operating profits

$6,400

$6,400


As the cost accountant, which single note to the above financial results is most appropriate in the report to management?


A.

The departmental manager is performing to expectations because budgeted income equals actual income.

B.

Revenues are above budget and a bonus based on this increase should be considered.

C.

Costs as a percentage of revenues are above budget and a further scrutiny of the results might be appropriate.

D.

Costs are 17.5% above budget and the department manager's position should be critically evaluated by senior management.

82.

CraftMaster Corporation purchased a machine 7 years ago for $339,000 when it launched product X05K. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 360 machine costing $353,000 or by a new model 280 machine costing $332,000. Management has decided to buy the model 280 machine. It has less capacity than the model 360 machine, but its capacity is sufficient to continue making product X05K. Management also considered, but rejected, the alternative of dropping product X05K and not replacing the old machine. If that were done, the $332,000 invested in the new machine could instead have been invested in a project that would have returned a total of $426,000. In making the decision to buy the model 280 machine rather than the model 360 machine, the differential cost was:


A.

$21,000.

B.

$87,000.

C.

$7,000.

D.

$14,000.

83.

When comparing activity-based costing with conventional costing methods, which of the following is the key benefit of the method?


A.

It is cheaper to implement.

B.

It is based on only one or two factors, generally volume-related.

C.

It is simpler.

D.

It provides more accurate cost numbers.

84.

Geno's Body Shop had sales revenues and operating costs in 2016 of $650,000 and $525,000, respectively. In 2017, Geno's plans to expand the services it provides to customers to include detailing services. Revenues are expected to increase by $85,000 and operating costs by $50,000 as a result of this expansion. Assuming that there are no changes to the existing body shop business, operating profits would be expected to increase during 2017 by


A.

$125,000.

B.

$85,000.

C.

$160,000.

D.

$35,000.

85.

Geno's Body Shop had sales revenues and operating costs in 2016 of $650,000 and $525,000, respectively. In 2017, Geno's plans to expand the services it provides to customers to include detailing services. Revenues are expected to increase by $85,000 and operating costs by $50,000 as a result of this expansion. Assuming that there are no changes to the existing body shop business, what is the amount of operating profits that are expected be earned in 2017?


A.

$125,000

B.

$85,000

C.

$160,000

D.

$35,000

86.

The goals and objectives of establishing budgeting in an organization include all of the following except:


A.

the ability to decide whether goals can be achieved.

B.

the resources needed to carry out its tasks.

C.

anticipated revenues to be generated.

D.

the consistent application of generally accepted accounting principles.

87.

In 2016, the Allen Company had consulting revenues of $1,000,000 while operating costs were $750,000. In 2017, Allen will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in operating costs. Assuming no changes are expected for the other services, the differential operating costs for 2017 will be


A.

$250,000.

B.

$150,000.

C.

$90,000.

D.

$60,000.

88.

In 2016, the Allen Company had consulting revenues of $1,000,000 while operating costs were $750,000. In 2017, Allen will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in operating costs. Assuming no changes are expected for the other services, the differential revenue for 2017 will be


A.

$250,000.

B.

$150,000.

C.

$90,000.

D.

$60,000.

89.

San Juan, Inc. is considering two alternatives: A and B. The costs associated with the alternatives are listed below:

Alternative A

Alternative B

Material costs

$35,000

$57,000

Processing costs

36,000

57,000

Building costs

12,000

28,000

Equipment rental

19,000

19,000


Are the materials costs and processing costs differential in the choice between alternatives A and B? (Ignore the building costs and equipment rental in this question.)


A.

Neither materials costs nor processing costs are differential.

B.

Both materials costs and processing costs are differential.

C.

Only processing costs are differential.

D.

Only materials costs are differential.

90.

San Juan, Inc. is considering two alternatives: A and B. The costs associated with the alternatives are listed below:

Alternative A

Alternative B

Material costs

$35,000

$57,000

Processing costs

36,000

57,000

Building costs

12,000

28,000

Equipment rental

19,000

19,000


If only the differential costs of the two decisions are considered, the total cost of Alternative B is


A.

$161,000.

B.

$131,500.

C.

$59,000.

D.

$102,000.

91.

Two alternatives, identified X and Y, are under consideration at Hayden Corporation. Costs associated with the alternatives are listed below.

Alternative X

Alternative Y

Material costs

$44,000

$56,000

Processing costs

37,000

59,000

Building costs

14,000

14,000

Equipment rental

11,000

11,000


Are the materials costs and processing costs differential in the choice between alternatives X and Y? (Ignore the building costs and equipment rental in this question.)


A.

Both materials costs and processing costs are differential

B.

Only materials costs are differential

C.

Only processing costs are differential

D.

Neither materials costs nor processing costs are differential

92.

Two alternatives, identified X and Y, are under consideration at Hayden Corporation. Costs associated with the alternatives are listed below.

Alternative X

Alternative Y

Material costs

$44,000

$56,000

Processing costs

37,000

59,000

Building costs

14,000

14,000

Equipment rental

11,000

11,000


What is the differential cost of Alternative Y over Alternative X?


A.

$140,000

B.

$123,000

C.

$34,000

D.

$106,000

93.

Marcus Roberts is putting together a training session about value chain components. Which of the following would be a good example of a cost for the component of purchasing?


A.

Advertising

B.

Warranty repairs

C.

Vendor certification

D.

Patent applications

94.

Anna Potts is putting together a training session about value chain components. Which of the following would be a good example of a cost for the component of distribution?


A.

Advertising

B.

Warranty repairs

C.

Vendor certification

D.

Website creation, hosting, and maintenance

95.

Megan Towe is putting together a training session about value chain components. Which of the following would be a good example of a cost for the component of research and development?


A.

Advertising

B.

Warranty repairs

C.

Vendor certification

D.

Patent applications

96.

An Enterprise Resource Planning System can best be described as


A.

a collection of programs that use a variety of unconnected databases.

B.

a single database that collects data and feeds it into applications that support each of the company's business activities, such as purchases, production, distribution, and sales.

C.

a database that is primarily used by a purchasing department to determine the correct amount of a particular supply item to purchase.

D.

a sophisticated means of linking two or more companies to facilitate their planning processes.

97.

The approaches and activities of managers in short-run and long-run planning and control decisions that increase value for customers and lower costs of products and services are known as


A.

value chain management.

B.

enterprise resource planning.

C.

cost management.

D.

customer value management.

98.

R&D, production, and customer service are business functions that are all included as part


A.

of the value chain.

B.

of benchmarking.

C.

of marketing.

D.

of the supply chain.

99.

All of the following words describe benchmarking except:


A.

on-going.

B.

one-time event.

C.

continuous.

D.

measuring process.

100.

All of the following are examples of total quality management practices except:


A.

redesign of a product to reduce its parts by 50 percent.

B.

reduction in the movement required in a manufacturing job.

C.

separating the sales and services functions.

D.

raising raw material quality standards.

101.

Which area(s) of a business can be improved by using a just-in-time (JIT) system?


A.

Production, purchasing, and delivery

B.

Production only

C.

Purchasing only

D.

Production and purchasing only

102.

Examples of the controller's functions include all except:


A.

cost accounting policies.

B.

budgeting.

C.

investor relations.

D.

general ledger.

103.

Cost accounting is an integral part of the ________ function in an organization.


A.

treasurer's

B.

controller's

C.

internal auditor's

D.

president's

104.

All of the following actions enhance the new focus on making cost accounting information more relevant in helping a firm achieve strategic goals except:


A.

increasing emphasis on the management accountant as a business partner.

B.

increasing emphasis on external financial reporting.

C.

decreasing emphasis on financial statement inventory cost valuation.

D.

increasing emphasis on timely and useful information.

105.

All of the following are examples of total quality management practices except:


A.

redesign of a product to reduce its parts by 50 percent.

B.

reduction in the movement required in a manufacturing job.

C.

separating the sales and services functions.

D.

raising raw material quality standards.

106.

The Institute of Management Accountants' (IMA) standards of ethical conduct for management accountants includes the elements of


A.

competence, confidentiality, integrity, and relevance.

B.

competence, confidentiality, integrity, and credibility.

C.

competence, confidentiality, independence, and objectivity.

D.

competence, accuracy, integrity, and independence.

107.

According to the IMA Code of Ethics, what should a management accountant do if a significant ethical situation can't be resolved?


A.

The accountant should confront the guilty party and demand the unethical action be stopped.

B.

The accountant should try to rationalize and understand the position of the other party.

C.

The accountant should say nothing about the matter until he or she has retired.

D.

The accountant should first discuss the matter with the immediate supervisor.

108.

With the enactment of the Sarbanes-Oxley Act of 2002, all public companies are now required by the SEC to disclose whether or not the company has


A.

an audit committee.

B.

human resources guidelines.

C.

a code of ethics.

D.

a management compensation plan.

109.

The Sarbanes Oxley Act of 2002 requires an effective internal control system for publicly owned firms. Therefore, with regards to strategic investment decisions, it is important that management consider including


A.

internal audits of strategic decisions.

B.

a code of ethics.

C.

a system of preparing and reporting on investment decisions.

D.

All of the above.

110.

Where there is a lack of good performance measures, it is difficult to motivate managers by using


A.

performance-based incentives.

B.

monetary rewards.

C.

compensation.

D.

rewards for products.

111.

Which of the following is a true statement regarding performance evaluation?


A.

Managers should be evaluated on those things over which they have influence.

B.

Managers should be evaluated on the performance of the entire organization.

C.

Sales personnel do not have complete control over the level of sales.

D.

Managers should not be evaluated on those things over which they have influence, if they do not have complete control over them.


Essay Questions

112.

Carley Inc. incurs many types of costs in its operations. Place the number of the appropriate stage in the value chain in Column 2 in the blank next to each cost in column 1.

Cost

Stage in the Value Chain

Transportation costs to ship vans to customers

1. Customer Service

Labor costs for factory workers

2. Distribution

Overtime costs for scientists working on new engine technology

3. Research & Development

Utilities cost for the design testing center

4. Marketing

Costs to survey customers about their satisfaction

5. Production

Costs to sponsor a sporting event

6. Design







113.

SuperMax is an integrated provider of genetically engineered corn. Many types of costs are incurred in its operations. Place the number of the appropriate stage in the value chain in Column 2 in the blank next to each cost in column 1.

Cost

Stage in the Value Chain

Warehouse costs to store seed awaiting shipment to customers

1. Customer Service

Utility costs for seed mill

2. Distribution

Equipment costs in genetics laboratory

3. Research & Development

Labor costs to run help line call center

4. Marketing

Costs to prepare advertising campaign in national agriculture magazine

5. Production

Costs to contract with growers to provide seed

6. Purchasing







114.

Travon's Limo Service provides transportation services in and around Bentonville. Its profits have been declining, and management is planning to add a package delivery service that is expected to increase revenue by $275,000 per year. The total cost to lease additional delivery vehicles from the local dealer is $60,000 per year. The present manager will continue to supervise all services. However, labor and utilities costs will increase by 40% and rent and other costs will increase by 15% when the package delivery service is added.

Travon’s Limo Service
Annual Income Statement
Before Expansion

Sales Revenue

$960,000

Costs:

Vehicle leases

$400,000

Labor

290,000

Utilities

50,000

Rent

100,000

Other Costs

60,000

Manager’s Salary

120,000

Total Costs

1,020,000

Operating Profit (Loss)

($60,000)



a. Prepare a report of the differential costs and revenues if the delivery service is added.
b. Should management start up the delivery service? Explain your answer.




115.

Morris Inc. is a management consulting firm that specializes in management training programs. Tackle Manufacturing Inc. has approached Morris to contract for management training for a one-year period. Last year's income statement for Morris is as follows:

Sales Revenue

$360,000

Costs:

Labor

$120,000

Equipment Lease

12,000

Rent

24,000

Utilities

8,400

Supplies

23,600

Other Costs

14,400

Manager’s Salary

80,000

Total Costs

282,400

Operating Profit (Loss)

$77,600


To satisfy the Tackle contract, another part-time trainer will need to be hired at $42,000. Supplies will increase by 12% and other costs will increase by 15%. In addition, new equipment will need to be leased at a cost of $2,500.

a. What are the differential costs that would be incurred if the Tackle contract is signed?
b. If Tackle will pay $55,000 for one year, should Morris accept the contract? Explain your answer.





116.

The Arielle Company reported the following results for the manufacture and sale of one of its products known as Controllers during the most recent year.

Sales (6,500 Controllers at $130 each)

$845,000

Cost of sales

390,000

Distribution costs

65,000

Advertising expense

275,000

Salaries

25,000

Building costs

145,000

Operating loss

($55,000)


The Arielle Company is trying to determine whether or not to discontinue the manufacture and sale of Controllers. The operating results reported above for last year are expected to continue in the foreseeable future if the product is not dropped. The building costs represent the costs of production facilities and equipment that the Controllers product shares with other products produced by Arielle. If the Controllers product were dropped, there would be no change in the building costs of the company. Management has determined that discontinuing the manufacture and sale of Controllers will have no effect on the company's other product lines. Determine the change in operating profits that will happen if the manufacture and sale of Controllers is discontinued.





117.

The management of Parachute Corporation is considering dropping product ABC123. Data from the company's accounting system appear below:

Sales

$260,000

Cost of goods sold

125,000

Building expenses

88,000

Selling and administrative expenses

75,000


All building expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $42,000 of the building expenses and $48,000 of the selling and administrative expenses will not be incurred if product ABC123 is discontinued.

a. According to the company's accounting system, what are the operating profits earned by product ABC123?
b. What would be the impact on the company's overall operating profits if product ABC123 is dropped? Should the product be dropped?





118.

The management of Marvel Corporation has been concerned for some time with the financial performance of its product EX123 and has considered discontinuing it on several occasions. Data from the company's accounting system appear below:

Sales

$650,000

Cost of goods sold

$293,000

Building expenses

$221,000

Selling and administrative expenses

$150,000


In the company's accounting system all building expenses of the company are fully allocated to products. Further investigation has revealed that $95,000 of the building expenses and $85,000 of the selling and administrative expenses will not be incurred if product EX123 is discontinued.

a. According to the company's accounting system, what are the operating profits (losses) earned by product EX123?
b. What would be the effect on the company's overall operating profits if product EX123 is dropped?





119.

Place the letter of the appropriate element of an organization's value chain in Column 2 in the blank next to each operation in Column 1.

Column 1

Column 2

___

Macy’s replies to customers' questions on merchandise.

A.

Research and Development

___

Updating PetSmart’s electronic Internet catalogue of chew bones and leash merchandise.

B.

Design

___

Development of new software applications at Apple.

C.

Production

___

Contracting with United Parcel Services to ship computers to customers at Best Buy

D.

Marketing

___

Writing of software programs at QuickBook's Professional Accountant Division.

E.

Distribution

___

Creation of new movie ideas at Universal Studios.

F.

Customer Service







120.

Old-Fashion Flavors is a local ice cream shop. The company currently is showing an operating loss, as evidenced by the income statement below:

Sales

$75,000

Costs:

Food supplies

20,000

Labor

16,000

Utilities

4,000

Rent

12,000

Other

4,000

Manager’s salary

25,000

Total Costs

81,000

Operating Profits (Losses)

($6,000)


The President of the company is considering adding sandwiches to the menu. Sales will be expected to increase by $60,000. The cost of sandwich supplies would be $30,000. Labor costs would increase 40% and other costs 10%. The current manager will continue to manage the operation.

a. Prepare a quantitative analysis of the decision to add sandwiches to the menu.
b. What qualitative considerations should the company consider in this decision?





121.

The Brogan family currently lives in a suburb of a major city. They have a lovely home close to major routes of transportation. Both Mr. and Mrs. Brogan have convenient commutes of 30 minutes or less. Because the school system in their town does not have a quality reputation, they currently send their daughter to private school, conveniently located less than one mile from their home. The family's current monthly living expenses are listed below:

Monthly
Budget

Mortgage, including taxes and insurance

$5,000

Other utilities, including water, heat and telephone

500

Costs of running automobiles

800

Cost of private school

2,000

Total monthly budget

$8,300


The Brogans are considering moving to a town approximately 20 minutes away. Because of the desirability of the local schools and strict zoning, housing is very expensive in this town. Their daughter would attend public schools. The Brogans estimate that their monthly mortgage, taxes and insurance would increase to $7,000 per month, while the cost of running automobiles would increase 20% and other utilities 10%. Mortgage interest costs are tax deductible and the Brogans are in the 25% tax bracket. Assume that $700 of the increase in their monthly budget is for mortgage interest. What are the costs and benefits of moving? Which can be quantified and which cannot?




122.

Place the letter of the appropriate business function of the value chain in Column 2 in the blank next to each cost item in Column 1.

Column 1

Column 2

___

cost of customer order forms

A

Research and development

___

cost of paper used in manufacture of books

B

Design

___

cost of paper used in packing cartons to ship books

C

Production

___

cost of paper used in display at national trade show

D

Marketing

___

depreciation of trucks used to transport books to college bookstores

E

Distribution

___

cost of the wood used to manufacture paper

F

Customer service

___

salary of the scientists attempting to find another source of printing ink

___

cost of defining the book size so that a standard-sized box is filled to capacity







123.

Morgantown Manufacturing produces electronic storage devices, and uses the following three-part classification for its manufacturing costs: materials, labor, and support costs. Total support costs for June were $300 million, and were allocated to each product on the basis of labor costs of each line. Summary data (in millions) for June for the most popular electronic storage device, the Giant Watt, was:

Material costs

$9,000,000

Labor costs

$3,000,000

Support costs

$8,500,000

Units produced

40,000


a. Compute the manufacturing cost per unit for each product produced in June.

b. Suppose production will be reduced to 30,000 units in July. Speculate as to whether the unit costs in July will most likely be higher or lower than unit costs in June; it is not necessary to calculate the exact July unit cost. Briefly explain your reasoning.





124.

The list of representative cost drivers in the right column below are randomized with respect to the list of functions in the left column. That is, they do not match.

Function

Representative Cost Driver

Purchasing

A.

Number of employees

Billing

B.

Number of shipments

Shipping

C.

Number of customers

Computer Support

D.

Number of invoices

Personnel

E.

Number of desktop computers

Customer Service

F.

Number of purchase orders


Required:

Match each business function with its representative cost driver.

Function

Insert letter of appropriate driver (A through F)

1.

Purchasing

2.

Billing

3.

Shipping

4.

Computer Support

5.

Personnel

6.

Customer Service







125.

A restaurant is deciding whether it wants to update its image or not. It currently has a cozy appeal with an outdated décor that is still in good condition, menus and carpet that need to be replaced anyway, and loyal customers. Identify the following for the restaurant management:

a. Costs that are relevant to this decision.
b. Costs that would not be differential to this decision.
c. Any qualitative factors that should be considered.





126.

You have been employed as an entry-level management accountant for a little under a year. You suspect that your immediate supervisor is involved in a significant fraud involving diverting of company assets to personal use. Briefly describe the steps you might take to resolve this dilemma.





127.

Snacking Macs, Inc., currently manufactures three different types of scientifically balanced dog food. The firm is considering eliminating one of the three products. What factors should be taken into account in making this decision?





128.

Clancy Mining Company mines iron ore for production into various metal products. During recent years, the company had large fluctuations in its inventories of metal ingots. Much of the volatility of the inventory levels is due to the variability of demand by the company's largest customers, automobile manufacturers. For large orders, the company has the technology to quickly shift production from one product to another. Explain how the company can improve its inventory control system and give the advantages of whatever you recommend.





129.

MegaStores is a large, publicly held Corporation. The company does about 80% of its work in government contracts. All contracts use a cost plus fixed fee basis; costs of jobs are agreed upon by contract. Any overruns will result in losses to the company. The company controller, Ricky Bowers CPA, CMA, is discussing two current jobs with the Job Supervisor, Leslie Dawn. Job 100 is currently coming in under budget, but due to construction problems, Job 102 is 20% over budget. Bowers is considering the possibility of having employees who work on Job 102 record their time to Job 101. What are the implications of this decision?





130.

The owner of a small retail business asks, "Why do I need cost accountants? My CPA produces financial statements, which are sufficient for me to discover my costs. Look at my Income Statement. I expect sales to increase by 10% next year, so I am planning on a 10% increase in profits. I don't need a cost accountant to tell me that."

Income Statement for the Year
Ending December 31

Sales Revenue

$457,234

Cost of Goods Sold

296,348

Gross Margin

160,886

Selling Costs

(76,234)

Administrative Costs

(62,350)

Profit before Taxes

$22,302


Use your knowledge of the concept of differential costs and explain why a cost accountant would question the conclusion that a 10% increase in sales would yield a 10% increase in profit.





131.

Create a diagram of the value chain by putting the following components into the correct order: a) purchasing; b) marketing and sales; c) research and development; d) customer service; e) distribution; f) design; g) production.





132.

Explain the difference between a value chain, a supply chain, and a distribution chain.





133.

Compare financial accounting and cost accounting using the following concepts: users of the information; important criteria; who establishes or defines the system; and how to determine an accounting treatment.





134.

The IMA Code of Ethics describes three basic steps a cost accountant should take when faced with an ethical conflict: Discuss, clarify, and consult. Describe each of these three steps.





135.

Respond to this comment: "Since cost accountants just prepare accounting data for internal management, cost accountants do not need to be concerned with GAAP or IFRS."

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