Question 1

A company that uses a balanced scorecard has established a KPI for product quality. If the actual warranty claims are higher than expected it indicates that the quality standards have been met.

Accepted Answer

A) True 
 B)False  False

Question 2

Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts. The direct material cost is $95 and each ceiling fan requires 2.5 hours of machine time to manufacture. Additional information is as follows: $\begin{array}{|l|l|c|}
\hline{\text { Activity }} & {\text { Allocation Base }} & \text { Cost Allocation Rate } \$ \
\hline \text { Materials handling } & \text { Number of parts } & 0.08 \
\hline \text { Machining } & \text { Machine hours } & 7.20 \
\hline \text { Assembling } & \text { Number of parts } & 0.35 \
\hline \text { Packaging } & \text { Number of finished units } & 2.70 \
\hline
\end{array}$
- What is the cost of machining per ceiling fan?

Accepted Answer

A)   $18
B)   $180
C)   $30
D)   $144  A

Question 3

A lag indicator is a performance measure that forecasts future performance.

Accepted Answer

A) True 
 B)False  False

Question 4

Orlando Avionics makes three types of radios for small aircraft: Model A, Model B, and Model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows: $$\begin{array} { | l | l | } 
\hline \text { Model A } & \$ 28 \
\hline \text { Model B } & \$ 32 \
\hline \text { Model C } & \$ 40 \
\hline
\end{array}$$ Orlando has three activities: assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2015 were estimated as follows:
$$\begin{array} { | l | c | c | c | } 
\hline & \text { Total cost } & \text { Total units } & \text { Cost Driver } \
\hline \text { Assembly } & \$ 780,000 & 120,000 & \text { Machine hours } \
\hline \text { Materials management } & \$ 120,000 & 80,000 & \text { Parts } \
\hline \text { Testing } & \$ 22,500 & 5,000 & \text { Units } \
\hline
\end{array}$$ The Model A radio requires 12 parts to construct, and requires 16 machine hours of processing. What is the manufacturing cost to make one unit of Model A?

Accepted Answer

A)   $150.00
B)   $132.00
C)   $126.50
D)   $154.50

Question 5

Operating income alone does not indicate how efficiently a segment is using its assets.

Accepted Answer

A) True 
 B)False

Question 6

The payroll department of a manufacturing company is most likely to be a(n):

Accepted Answer

A)   cost center.
B)   revenue center.
C)   investment center.
D)   profit center.

Question 7

The flexible budget uses budgeted costs at the actual level of activity.

Accepted Answer

A) True 
 B)False

Question 8

The manager of a cost center is responsible for controlling costs and generating revenues of the company.

Accepted Answer

A) True 
 B)False

Question 9

The predetermined overhead allocation rate is an estimated overhead cost per unit of the allocation base and is calculated at the beginning of the accounting period.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is the last step in developing an activity-based costing system?

Accepted Answer

A)   estimate the total quantity of the cost driver
B)   estimate the total indirect costs of each activity
C)   identify the activities
D)   allocate indirect costs to the cost object

Question 11

Which of the following statements is correct regarding the activity-based costing system?

Accepted Answer

A)   It uses separate indirect cost allocation rates for each activity.
B)   It is not as accurate or precise as traditional costing systems.
C)   It accumulates overhead costs by processing departments.
D)   It is less complex and, therefore, less costly than traditional systems.

Question 12

The ROI (Return on Investment) formula focuses on the amount of operating income earned before other revenue/expense items, such as interest expense, by utilizing the average total assets employed for the year.

Accepted Answer

A) True 
 B)False

Question 13

For a pharmaceutical company, the most suitable base for allocating research and development costs to the finished products would be:

Accepted Answer

A)   direct labor hours.
B)   cost of raw materials purchased.
C)   number of new patents filed.
D)   number of set ups.

Question 14

In a balanced scorecard, which of the following is a key performance indicator of the internal business perspective?

Accepted Answer

A)   hours of employee training
B)   number of warranty claims
C)   percentage of market share
D)   return on investment

Question 15

The performance measurement system should provide incentives to segment managers for coordinating activities of the subunits and focusing them toward the overall company objectives. Which of the following performance measurement goals has been described by this statement?

Accepted Answer

A)   Motivating segment managers
B)   Promoting goal congruence
C)   Providing feedback
D)   Benchmarking

Question 16

Regardless of the type of responsibility center, responsibility reports should focus on information, not blame.

Accepted Answer

A) True 
 B)False

Question 17

Archid, a manufacturer of spare parts, has two production departments: Assembling and Packaging. The Assembling department is machine oriented, while the Packaging department is labor oriented. Estimated manufacturing overhead costs for the year 2015 were $15,000,000 for Assembling and $10,000,000 for Packaging. Calculate departmental wide allocation rates if total estimated machine hours were 30,000 and labor hours were 20,000 for the year.

Accepted Answer

A)   $250, $300
B)   $500, $500
C)   $300, $300
D)   $450, $540

Question 18

When a division is operating at full capacity, the transfer price must be:

Accepted Answer

A)   based on opportunity cost.
B)   a market-based transfer price.
C)   a cost-based transfer price.
D)   total manufacturing cost.

Question 19

Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts. The direct material cost is $95 and each ceiling fan requires 2.5 hours of machine time to manufacture. Additional information is as follows: $\begin{array}{|l|l|c|}
\hline{\text { Activity }} & {\text { Allocation Base }} & \text { Cost Allocation Rate } \$ \
\hline \text { Materials handling } & \text { Number of parts } & 0.08 \
\hline \text { Machining } & \text { Machine hours } & 7.20 \
\hline \text { Assembling } & \text { Number of parts } & 0.35 \
\hline \text { Packaging } & \text { Number of finished units } & 2.70 \
\hline
\end{array}$ 
-What is the cost of materials handling per ceiling fan?

Accepted Answer

A)   $1.60
B)   $7.20
C)   $6.00
D)   $5.00

Question 20

Increased number of repeat customers and increased rate of on-time deliveries are the indicators of:

Accepted Answer

A)   product quality.
B)   market share.
C)   customer satisfaction.
D)   skills and knowledge of the employees.

Exam 7: Cost Allocation and Responsibility Accounting

A company that uses a balanced scorecard has established a KPI for product quality. If the actual warranty claims are higher than expected it indicates that the quality standards have been met.

A lag indicator is a performance measure that forecasts future performance.

Operating income alone does not indicate how efficiently a segment is using its assets.

The payroll department of a manufacturing company is most likely to be a(n) :

The flexible budget uses budgeted costs at the actual level of activity.

The manager of a cost center is responsible for controlling costs and generating revenues of the company.

The predetermined overhead allocation rate is an estimated overhead cost per unit of the allocation base and is calculated at the beginning of the accounting period.

Which of the following is the last step in developing an activity-based costing system?

Which of the following statements is correct regarding the activity-based costing system?

The ROI (Return on Investment) formula focuses on the amount of operating income earned before other revenue/expense items, such as interest expense, by utilizing the average total assets employed for the year.

For a pharmaceutical company, the most suitable base for allocating research and development costs to the finished products would be:

In a balanced scorecard, which of the following is a key performance indicator of the internal business perspective?

The performance measurement system should provide incentives to segment managers for coordinating activities of the subunits and focusing them toward the overall company objectives. Which of the following performance measurement goals has been described by this statement?

Regardless of the type of responsibility center, responsibility reports should focus on information, not blame.

When a division is operating at full capacity, the transfer price must be:

Increased number of repeat customers and increased rate of on-time deliveries are the indicators of: