MBA 737 Advanced Cost Concepts Final Exam Winter 2015 ANSWER
Part 1 Multiple Choice: There are 15 questions each are worth 2 points. You get to skip any one of your choice by putting any X on the answer sheet. It is two free points. You cannot get extra credit by doing all 15, you can only hurt yourself. If you do not pick a skip, I will pick number 15 for you. Please put your answers in the summary sheet below:126.96.36.199.188.8.131.52.184.108.40.206.13.14.15. 737 Final Pages
- Cost drivers are:
- activities that cause costs to increase as the activity increases.
- accounting techniques and practices used to control costs.
- 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.
- None of the above.
- Which of the following costs is both a prime cost and a conversion cost? direct materials
- direct labour
- manufacturing overhead
- administrative costs
- marketing costs
737 Final Page 33. The cost of the direct labour will be treated as an expense on the income statement when the resulting:
- payroll costs are paid
- .B. payroll costs are incurred
- .C. products are completed
- .D. products are sold
- None of the above.
- A Company incurred a total cost of $8,600 to produce 400 units of pulp. Each unit of pulp required five (5) direct labour hours to complete. What is the total fixed cost if the variable cost was $1.50 per direct labour hour?
- None of above.
- The term “relevant range” as used in cost accounting means the range over which: 737 Final Page 4
- relevant costs are incurred.
- costs may fluctuate.
- cost relationships are valid.
- cost data is available
- none of the above
- Cost A is a fixed cost, while B is a variable cost. During the current year, the volume of output has decreased. In terms of cost per unit of output, we would expect that:
- cost A has remained unchanged. cost
B has decreased.
- cost A has decreased.
- cost B has remained unchanged. All costs will change
- Which of the following changes to a company’s contribution income statement will always lower the break-even point (either in units or in dollars)?
- Sales price increases by 10%
.B. Sales price decreases by 5%
.C. Variable costs increase by 10% and fixed costs decrease by 5%.
- Variable costs decrease by 5% and fixed costs increase by 10%
.E. This answer cannot be determined.
737 Final pg 5 8.. What are the transfers-out from the Finished Goods Inventory called?
- Cost of Goods Manufactured.
- Cost of Goods Available.
- Cost of Goods Completed.
- Cost of Goods Sold
.E. The Balance sheet
- An equivalent unit of conversion costs is equal to the amount of conversion costs required to:
- starts a unit.
- starts and completes a unit.
- transfers a unit in.
- transfers a unit out.
- The what is considered the main benefit and risk of a standard costing approach?
- Standard costs are a way to reduce conversion cost but risk non compliance with GAAP
- Standard costs typically simplify job costing, but create the risk of overstating WIP inventory
- Standard costs simplify the accounting for large scale process costing, but risk more over/under applications of Direct and Conversion costs
- Standard costing is only appropriate if combined with ABC and risks significantly overstating finished goods inventory Continued
737 final page 6E. Standard costing is extremely time consuming and increase accounting workload while risking incanting poor spending behaviour by managers
- In an ABC costing system there are many potential benefits, but there can be many reasons why they fail. Which of the following is typically NOT a reason for failure:
- ABC reveals that there are activities being performed that provide no value and should be stopped
- A lack of support by the CFO
- Managers “gaming” the system to get the lowest possible overhead
- Too much complexity with too little systems support
- The information is not actually used to change the costing of allocated overhead
- Internal controls include all of the following except:
A using contingent compensation plans
.B. requiring management authorization for use of a company’s assets
- reconciling various sets of accounting records
- requiring employees to take vacations
- Internal audit reviews
- Residual income is a performance evaluation that is used in conjunction with, or instead of, return on investment (ROA). In many cases, residual income is preferred to ROA because:
- residual income is a measure over time, while ROA represents the results for one period.
- residual income concentrates on maximizing absolute dollars of income rather than a percentage return, as with ROA. Continued on next page 737 final pg 7
- the imputed interest rate used in calculating residual income is more easily derived than the target rate that is compared to the calculated ROA
- average investment is employed with residual income while year-end investment is employed with ROA.
14.. Fenway Telecom has three divisions, commercial, retail, and consumer, that share the common costs of the company’s computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year: What is the allocation rate for the upcoming year, assuming Fenway Telecom uses the single-rate method and allocates common costs based on the number of connections?
- Why would GM want to transfer price products between sub component and production divisions?
- Creates more accurate accounting records continued on next page 737 final pg 8
- Is required under GAAP
- Increases the income of the company as you have more sales among divisions
- Allows for a better view of competitive performance with other brands cars
- Incants the component division to charge the highest cost