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Kenney Company uses activity-based costing

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1. Kenney Company uses activity-based costing to account for its manufacturing process. Kenney Company produces tires, and each tire has $.50 of direct materials, includes 20 parts and requires 2 hours of machine time.

There is no direct labor. Additional information follows:
Activity Allocation Base Cost Allocation Rate
Materials handling Number of parts $.16
Machining Machine hours $14.40
Assembling Number of parts $.70
Packaging Number of finished units $5.40
What is the cost of machining per tire?
A) $28.80
B) $26.40
C) $25.80
D) $29.50

2. Which of the following is not a criticism of traditional costing systems?
A. They tend to be more expensive
B. They can distort product costs
C. They tend to use too few cost pools
D. They are designed to allocate only manufacturing costs

3. Which of the following are period costs?
A) Current assets on the balance sheet
B) Costs incurred and expensed during the accounting period
C) Costs related to the manufacture of products
D) Current liabilities on the balance sheet

4. A traditional cost allocation system tends to misallocate manufacturing costs because
a) Direct labor costs are misallocated

b) Direct material costs are misallocated
c) Indirect manufacturing costs are misallocated
d) Period costs are misallocated

5. Morley Manufacturing is considering the manufacture of a new product. Morley was hoping to sell the
product for $168 per unit and estimated the total cost per unit to be $120. Morley conducted market research and found out that the market is only willing to pay $154 for the new product. Using the target costing approach, what does the total per unit cost of the new product have to be if Morley wants to achieve the same amount of profit as originally planned?
A) $110
B) $106
C) $109
D) $100

6. Lisbon Manufacturing is considering the manufacture of a new product. Lisbon was hoping to sell the product for $588 per unit and estimated the total cost per unit to be $420. Lisbon conducted market research and found out that the market is only willing to pay $539 for the new product. Using the target costing approach, what does the total per unit cost of the new product have to be if Lisbon wants to achieve a 40% markup on total cost?
A) $215.60
B) $385.00
C) $257.60
D) $420.00

7. A standard costing system that starts with output completed and works backward to apply manufacturing costs to units sold and to inventories is called what?
A) Just-in-time costing
B) Traditional costing
C) Backflush costing
D) Value-added costing

8. In a just-in-time costing system, any remaining balance in the conversion costs account at the end of an
accounting period is usually charged to which account?
A) Raw and in process inventory
B) Cost of goods sold
C) Work in process inventory
D) Finished goods inventory

9. which of the following companies would be most likely to use a just-in-time system?
a) A steel mill
b) A delivery company
c) a custom computer manufacturer
d) a paper mill

10. What do you call the costs incurred to avoid production of poor quality goods or services?
A) External failure costs
B) Internal failure costs
C) Appraisal costs
D) Prevention costs

11. The cost of warranty work within the total quality management philosophy is a(n):
A) External failure costs
B) Internal failure costs
C) Appraisal costs
D) Prevention costs

12. Which of the following costs change in direct proportion to a change in volume?
A) total Fixed cost
B) total Variable cost
C) Average mixed cost
D) Average variable cost

13. Which of the following is NOT a fixed cost?
A) Property taxes
B) Salary of plant manager
C) Indirect materials
D) Straight-line depreciation

14. Which of the following costs do NOT go directly into the work in process account?
A) Factory overhead
B) Indirect labor
C) Factory janitorial costs
D) The purchase of raw materials

15. Jenny was reviewing the water bill for her doggy day spa and determined that her highest bill, $3,000, occurred in July when she washed 2,000 dogs and her lowest bill, $2,000, occurred in November when she washed 1,000 dogs.
What was the variable cost per dog associated with Jenny's water bill?
A) $0.67
B) $1.00
C) $0.50
D) $2.00

16. Jenny was reviewing the water bill for her doggy day spa and determined that her highest bill, $3,000, occurred in July when she washed 2,000 dogs and her lowest bill, $2,000, occurred in November when she washed 1,000 dogs.
What was the fixed cost associated with Jenny's water bill?
a) 2,000
b) 1,000
c) 1,500
d) 3,000

17. Dakota Company provides the following information about its single product:
Targeted operating income $40,000
Selling price per unit $3.50
Variable cost per unit $1.05
Total fixed costs $90,000
What is the contribution margin ratio?
A) 0.70
B) 0.44
C) 0.56
D) 0.30

18. f the sale price per unit is $7, the unit contribution margin is $3, and total fixed expenses are $19,500, what are the breakeven sales in units?
a) 6,500 (19500/3)
b) 4,874
c) 2,786
d) 5,850

19. Belton Company currently sells its products for $25 per unit. Management is contemplating a 20% increase in sale price for the next year. Variable costs are currently 30% of sales revenue and are not expected to change next year. Fixed expenses are $150,000. What is the breakeven point in units at the current sales price?
a. 6,667 units
b. 7,143 units
c. 8,571 units
d. 16,667 units

20. On a CVP graph, what does the horizontal line intersecting the dollar axis at the level of total cost represent?
a) total fixed costs
b) total variable costs
c) breakeven point
d) total costs

21. Which of the following is an underlying assumption of the cost-volume-profit graph?
a) total fixed expenses will change during the accounting
b) inventory levels are constantly changing
c) volume is the only cost driver
d) the sales mix of products is constantly changing

22. Dakota Company provides the following information about its single product:
Targeted operating income $40,000
Selling price per unit $3.50
Variable cost per unit $1.05
Total fixed costs $90,000

How many units must be sold to earn the targeted operating income
a. 37,143
b. 53,061
c. 123,810
d. 36,735

23. Which of the following changes would normally increase the contribution margin per unit the most
a) a 25% increase in thes sales price per unit
b) a 25% increase in the variable cost per unit
c) a 25% increase in the variable cost per unit
d) a 20% decrease in fixed costs

24. McDaniel, Inc. sells two products-J and B. McDaniel predicts that it will sell 7,200 units of J and 5,600 units of B in the next period. The unit contribution margins are $2.85 and $6.30, respectively. What is the weighted-average unit contribution margin?
A) $5.15
B) $4.58
C) $4.99
D) $4.36

25. A merchandiser’s purchases are equivalent to what for a manufacturer?
a) materials inventory
b) cost of goods manufactured
c) work in process inventory
d) cost of goods sold

26. The racquet store has provided the following information for a recent month regarding the three styles of racquest that it sells:
sales 300,000 150,000 120,000
variable expenses 150,000 111,000 36,000
Fixed expenses: 360,000

If sales were to increase 200,000 next month, how much would operating income increase assuming that the sales mix remains the same?
a) 100,000
b) 80,000
c) 120,000
d) 200,000

27. The following information pertains to Bright Toy Company's operating activities for 2009. The company sells light box toys and sold 10,000 units in 2009.
Purchases $126,000
Selling and Administrative Expenses 90,000
Merchandise inventory, 1/1/2012 14,000
Merchandise inventory, 12/31/2012 10,000
Sales Revenue 250,000

What is the cost per light box sold in 2009
A) $13.00
B) $12.40
C) $14.00
D) $10.40

28. Which of the following equals of goods manufactured?
a) Total manufacturing costs plus ending materials inventory less beginning materials inventory
b) Total manufacturing costs plus beginning work in process inventory less ending work in process inventory
c) Total manufacturing costs plus ending work in process inventory less beginning work in process inventory
d) Cost of goods sold plus beginning work in process inventory less ending in process inventory.

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