FINAL EXAMS FINAL ANSWERS FINAL QUESTIONS

1. ACC 434 FINAL EXAMS
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1. (TCO 1) A significant limitation of activity-based costing is the (Points: 5)
A). attention given to indirect cost allocation.
B). many necessary calculations.
C). operations staff's attitude toward the accounting staff.
D). use it makes of technology.
2. (TCO 1) Ireland Company produces a special spray nozzle. The budgeted indirect total cost of
inserting the spray nozzle is $180,000. The budgeted number of nozzles to be inserted is 80,000.
What is the budgeted indirect cost allocation rate for this activity? (Points : 5)
A). $0.50
B). $1.00
C). $1.50
D). $2.25
3. (TCO 2) Overhead costs have been increasing due to all of the following except (Points : 5)
A). product proliferation.
B). tracing more costs as direct costs with the help of technology.
C). more complexity in distribution processes.
D). increased automation.
4. (TCO 2) Information pertaining to Brenton Corporation's sales revenue is presented in the
following table:
February March April
Cash Sales $160,000 $150,000 $120,000

2. Credit Sales 300,000 400,000 280,000
Total Sales $460,000 $550,000 $400,000
Management estimates that 5% of credit sales are not collectible. Of the credit sales that are
collectible, 75% are collected in the month of sale and the remainder in the month following the
sale. Cost of purchases of inventory each month are 80% of the next month's projected total
sales. All purchases of inventory are on account; 50% are paid in the month of purchase, and the
remainder is paid in the month following the purchase.
Brenton's budgeted total cash payments in March for inventory purchases are
A). $385,000.
B). $505,000.
C). $306,250.
D). $280,000.
5. (TCO 2) Budgeting provides all of the following EXCEPT
A). a means to communicate the organization's short-term goals to its members.
B). support for the management functions of planning and coordination.
C). a means to anticipate problems.
D).an ethical framework for decision making.
6. (TCO 3) The cost components of an air conditioner include $35 for the compressor, $15 for
the sheet-molded compound frame, and $100 per unit for assembly. The factory machines-and-
tools cost is $80,000. The company expects to produce 1,500 air conditioners in the coming
year. What cost function best represents these costs?
A). y = 1500 + 126.5X
B). y = 1,500 + 55,000X
C). y = 80,000 + 150X
D). y = 55,000 + 126.50X

3. 7. (TCO 3) Which cost estimation method uses a formal mathematical method to develop cost
functions based on past data?
A). Quantitative analysis method
B). Industrial engineering method
C). Account analysis method
D). Conference method
8. (TCO 4) Sunk costs
A).have future implications.
B). are ignored when evaluating alternatives.
C). are differential.
D). are relevant.
9. (TCO 5) In the theory of constraints, the only direct costs are
A). direct material, direct labor, and variable overhead costs.
B). investment costs.
C). direct material.
D). direct material and direct labor.
10. (TCO 5) Producing more non bottleneck output
A). allows for the maximization of overall contribution.
B). creates less pressure for the bottleneck workstations.
C). creates more inventory and increases throughput contribution.
D). creates more inventory, but does not increase throughput contribution.

4. 11. (TCO 6) which of the following methods of allocating costs use market-based data?
A). Sales value at split off method
B). Estimated net realizable value method
C). Constant gross-margin percentage method
D). All of the above
12. (TCO 6) the benefits-received criteria for allocating joint costs indicates market-based
measures are preferred because
A). physical measures such as volume are a clearer basis for allocating cost than other measures.
B). other measures are more difficult to calculate.
C). revenues are usually the best indicator of the benefits received.
D). None of the above
13. (TCO 7) Life-cycle budgeting is particularly important when
A). the development period for R&D is short and inexpensive.
B). there are significant nonproduction costs.
C). most costs are locked in during production.
D). a low percentage of costs are incurred before any revenues are received.
14. (TCO 7) Pritchard Company manufactures a product that has a variable cost of $30 per unit.
Fixed costs total $2,000,000, allocated on the basis of the number of units produced. Selling
price is computer by adding a 12% markup to full cost. How much should the selling price be
per unit for 300,000 units?
A). $49
B). $43.75
C). $42
D). $41.07

5. 15. (TCO 8) The costs used in cost-based transfer prices
A). are actual costs.
B). are budgeted costs.
C). can either be actual or budgeted costs.
D). are lower than the market-based transfer prices.
16. (TCO 8) Division A sells soybean paste internally to Division B, which in turn, produces
soybean burgers that sell for $5 per pound. Division A incurs costs of $0.80 per pound while
Division B incurs additional costs of $3 per pound.
What is Division A's operating income per pound, assuming the transfer price of the soybean
paste is set at $1.25 per pound?
A). $0.45
B). $0.875
C). $1.25
D). $1.625
17. (TCO 8) Transferring products or services at market prices generally leads to optimal
decisions when
A). the market for the intermediate product is perfectly competitive.
B). the interdependencies of the subunits are minimal.
C). there are no additional costs or benefits to the company in buying or selling in the external
market.
D). All of the above
18. (TCO 9) To guide cost allocation decisions, the benefits-received criterion
A). may use an allocation base of division revenues to allocate advertising costs.

6. B). is the primarily used criterion in activity-based costing.
C). results in subsidizing products that are not profitable.
D). generally uses the cost driver as the cost allocation base.
19. (TCO 9) The Hassan Corporation has an electric mixer division and an electric lamp
division. Of a $50,000,000 bond issuance, the electric mixer division used $24,000,000 and the
electric lamp division used $26,000,000 for expansion. Interest costs on the bond totaled
$1,500,000 for the year. What amount of interest costs should be allocated to the electric mixer
division?
A). $4,200,000
B). $14,000,000
C). $1,050,000
D). $720,000
20. (TCO 10) A "what-if" technique that examines how a result will change if the original
predicted data are not achieved or if an underlying assumption changes is called
A). adjusted rate-of-return analysis.
B). internal rate-of-return analysis.
C). sensitivity analysis.
D). net-present-value analysis.
21. (TCO 10) Upper Darby Park Department is considering a new capital investment. The cost
of the machine will be $200,000. The annual cost savings if the new machine is acquired will be
$40,000. The machine will have a five-year life, at which time the terminal disposal value is
expected to be $20,000. Upper Darby Park Department is assuming no tax consequences.
If Upper Darby Park Department has a required rate of return of 10%, which of the following is
closest to the present value of the project?
A). -$35,950
B). -$150,000

7. C). $14,060
D). -$12,418
22. (TCO 11) nonfinancial measures for internal quality performance include all but which of the
following?
A). Employee empowerment
B). Process yields
C). Feedback
D). Product defect levels
23. (TCO 11) Regal Products has a budget of $900,000 in 20X6 for prevention costs. If it
decides to automate a portion of its prevention activities, it will save $60,000 in variable costs.
The new method will require $18,000 in training costs and $120,000 in annual equipment costs.
Management is willing to adjust the budget for an amount up to the cost of the new equipment.
The budgeted production level is 150,000 units. Appraisal costs for the year are budgeted at
$600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure
costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3%
of all completed items. The proposed changes will cut the internal failure rate by one-third.
Internal failure units are destroyed. External failure costs average $54 per failed unit. The
company's average external failures average 3% of units sold. The new proposal will reduce this
rate by 50%. Assume all units produced are sold and there are no ending inventories.
How much will appraisal costs change, assuming the new prevention methods reduce material
failures by 40% in the appraisal phase?
A). $60,000 increase
B). $12,000 decrease
C). $30,000 decrease
D). $240,000 decrease
24. (TCO 12) Obsolescence is an example of which cost category?
A). Ordering costs

8. B). Carrying costs
C). Labour costs
D). Quality costs
25. (TCO 12) Liberty Celebrations, Inc., manufactures a line of flags. The annual demand for its
flag display is estimated to be 100,000 units. The annual cost of carrying one unit in inventory is
$1.60, and the cost to initiate a production run is $100. There are no flag displays on hand but
Liberty had scheduled 70 equal production runs of the display sets for the coming year, the first
of which is to be run immediately. Liberty Celebrations has 250 business days per year.
Assume that sales occur uniformly throughout the year and that production is instantaneous.
The estimated total setup cost for the flag displays for the coming year is
A). $2,000.
B). $3,000.
C). $7,000.
D). $12,500.