ACCOUNTING 106 FINALS 2nd Sem SY 2020- 2022

Choose the best answer:

Use the following information for questions 01 and 02.

Tuttle Motorcycles Inc. manufactures and sells high-priced motorcycles. The Engine Division
produces and sells engines to other motorcycle companies and internally to the Production
Division. It has been decided that the Engine Division will sell 20,000 units to the Production
Division at $700 a unit. The Engine Division, currently operating at capacity, has a unit sales
price of $1,700 and unit variable costs and fixed costs of $700 and $500, respectively. The
Production Division is currently paying $1,600 per unit to an outside supplier. $60 per unit can
be saved on internal sales from reduced selling expenses.
01.What is the minimum transfer price that the Engine Division should accept?
a. $1,640
b. $1,700
c. $1,600
d. $1,000

02.What is the increase/decrease in overall company profits if this transfer takes place?
a. Decrease $800,000
b. Increase $1,680,000
c. Decrease $2,000,000
d. Increase $18,000,000

Use the following information for questions 03 and 04.

The Can Division of Fruit Products Inc. manufactures and sells tin cans externally for $0.50 per
can. Its unit variable costs and unit fixed costs are $0.20 and $0.07, respectively. The Packaging
Division wants to purchase 50,000 cans at $0.27 a can. Selling internally will save $0.02 a can.

03. Assuming the Can Division has sufficient capacity, what is the minimum transfer price it
should accept?
a. $0.20
b. $0.27
c. $0.18
d. $0.25

04.Assuming the Can Division is already operating at full capacity, what is the minimum transfer
price it should accept?
a. $0.48
b. $0.55
c. $0.24
d. $0.28

Use the following information for questions 05 and 06.

The Dairy Division of Famous Foods, Inc. produces and sells milk to outside customers. The
operation has the capacity to produce 250,000 gallons of milk a year. Last year’s operating
results were as follows:
Sales (200,000) gallons $500,000
Variable costs 312,000
Contribution margin 188,000
Fixed costs 100,000
Net Income $ 88,000
05. Assume the Yogurt Division wants to purchase 30,000 gallons of milk from the Dairy
Division. The minimum price that will increase the Dairy Division’s profit is
a. $2.50 per gallon.
b. $0.94 per gallon.
c. $1.56 per gallon.
d. $0.44 per gallon.

06. Assume the Dairy Division is operating at capacity. If the Yogurt Division wants to
purchase 30,000 gallons of milk from the Dairy Division, what is the minimum price that
will allow the Dairy Division to maintain its current net income?
a. $2.50 per gallon
b. $0.94 per gallon
c. $1.56 per gallon
d. $0.44 per gallon

07. The price used to record a sale between divisions within the same vertically integrated
company is called the
a. sales price.
b. integrated price.
c. transfer price.
d. bargain price.

08. The overall objective in the determination of a transfer price is to

a. maximize the return of the selling division.
b. minimize the cost to the purchasing division.
c. minimize the return of the selling division.
d. maximize the return to the whole company.

9. Which two methods are used most often when establishing a transfer price?
a. Negotiated transfer pricing and cost-based transfer pricing
b. Cost-based transfer pricing and market-based transfer pricing
c. Negotiated transfer pricing and market-based transfer pricing
d. Cost-based transfer pricing and standard-based pricing

10. Variable costs of units sold internally will always be

a. lower than the variable costs of units sold externally.
b. higher than the variable costs of units sold externally.
c. the same as the variable costs of units sold externally.
d. Variable costs of units sold internally may be either higher or lower than for units
sold externally.

Ellis Company
Ellis Company uses activity-based costing. The company produces two products: IPods and MP3
players. The annual production and sales volume of IPods is 8,000 units and of MP3 players is
6,000 units. There are three activity cost pools with the following expected activities and
estimated total costs:

Activity Estimated Expected Activity Expected Activity

Cost Pool Cost IPods MP3 players
Total
Activity 1 $20,000 100 400 500
Activity 2 $37,000 800 200 1,000
Activity 3 $91,200 800 3,000 3,800
11. Refer to Ellis Company. Using ABC, the cost per unit of IPods is approximately:
a. $ 2.40
b. $ 3.90
c. $ 6.60
d. $10.59

12. Refer to Ellis Company. Using ABC, the cost per unit of MP3 players is approximately:
a. $ 2.40
b. $ 3.90
c. $12.00
d. $15.90

Glassman Company
Glassman Company produces two products: A and B. The company has three overhead functions
that are required for both products.

Below is production information for Products A and B:

Product Prime Costs Direct Overhead Overhead Overhead
(Direct Labor Function Function Function
Materials + Hours #1 #2 #3
Direct
Labor)
A $35 4 hrs 2 hrs 1 hr 6 hrs
B $22 1.5 hrs 1 hr 8 hrs 1 hr

The company produces 800 units of Product A and 8,000 units of Product B each period.
The overhead functions have the following hourly costs:

Function Hourly
Rate
1 $10
2 7
3 18

13. Refer to Glassman Company If total overhead is assigned to A and B on the basis of units
produced, Product A will have an overhead cost per unit of
a. $ 88.64.
b. $123.64.
c. $135.00.
d. None of the responses are correct.

14. Refer to Glassman Company If total overhead is assigned to A and B on the basis of units
produced, Product B will have an overhead cost per unit of
a. $84.00.
b. $88.64.
c. $110.64.
d. None of the responses are correct.

15. Refer to Glassman Company If total overhead is assigned to A and B on the basis of direct labor
hours, Product A will have an overhead cost per unit of
a. $51.32
b. $205.26
c. $461.88
d. None of the responses are correct.
16. Refer to Glassman Company If total overhead is assigned to A and B on the basis of direct labor
hours, Product B will have an overhead cost per unit of
a. $76.97
b. $87.75
c. $88.64
d. None of the responses are correct.

17. Refer to Glassman Company If total overhead is assigned to A and B on the basis of direct labor
hours, Product B will have an overhead cost per unit of
a. $76.97
b. $87.75
c. $88.64
d. None of the responses are correct.

18. Refer to Glassman Company If total overhead is assigned to A and B on the basis of overhead
activity hours used, the total product cost per unit assigned to Product A will be
a. $86.32.
b. $95.00.
c. $115.50.
d. None of the responses are correct.

19. Refer to Glassman Company If total overhead is assigned to A and B on the basis of overhead
activity hours used, the total product cost per unit assigned to Product B will be
a. $115.50
b. $73.32
c. $34.60
d. None of the responses are correct.

20. The term cost driver refers to

a. any activity that can be used to predict cost changes.
b. the attempt to control expenditures at a reasonable level.
c. the person who gathers and transfers cost data to the management accountant.
d. any activity that causes costs to be incurred.

21. A total variance is best defined as the difference between total

a. actual cost and total cost applied for the standard output of the period.
b. standard cost and total cost applied to production.
c. actual cost and total standard cost of the actual input of the period.
d. actual cost and total cost applied for the actual output of the period.

22. The term “standard hours allowed” measures

a. budgeted output at actual hours.
b. budgeted output at standard hours.
c. actual output at standard hours.
d. actual output at actual hours.

23. A large labor efficiency variance is prorated to which of the following at year-end?
WIP FG
Cost of Goods Sold Inventory Inventory

a.   no no no
b.   no yes yes
c.   yes no no
d.   yes yes yes
24. Which of the following factors should not be considered when deciding whether to investigate a
variance?
a. magnitude of the variance
b. trend of the variances over time
c. likelihood that an investigation will reduce or eliminate future occurrences of the
variance
d. whether the variance is favorable or unfavorable

25. At the end of a period, a significant material quantity variance should be

a. closed to Cost of Goods Sold.
b. allocated among Raw Material, Work in Process, Finished Goods, and Cost of
Goods Sold.
c. allocated among Work in Process, Finished Goods, and Cost of Goods Sold.
d. carried forward as a balance sheet account to the next period.

26. When computing variances from standard costs, the difference between actual and standard price
multiplied by actual quantity used yields a
a. combined price-quantity variance.
b. price variance.
c. quantity variance.
d. mix variance.

27. The material price variance (computed at point of purchase) is

a. the difference between the actual cost of material purchased and the standard cost
of material purchased.
b. the difference between the actual cost of material purchased and the standard cost
of material used.
c. primarily the responsibility of the production manager.
d. both a and c.

28. A favorable fixed overhead volume variance occurs if

a. there is a favorable labor efficiency variance.
b. there is a favorable labor rate variance.
c. production is less than planned.
d. production is greater than planned.

29. The fixed overhead application rate is a function of a predetermined activity level. If standard
hours allowed for good output equal the predetermined activity level for a given period, the
volume variance will be
a. zero.
b. favorable.
c. unfavorable.
d. either favorable or unfavorable, depending on the budgeted overhead.

30. Actual fixed overhead minus budgeted fixed overhead equals the
a. fixed overhead volume variance.
b. fixed overhead spending variance.
c. noncontrollable variance.
d. controllable variance.

Patterson Company
The following information is for Patterson Company’s July production:

Standards:
Material 3.0 feet per unit @ $4.20 per foot
Labor 2.5 hours per unit @ $7.50 per hour
 Actual:
Production 2,750 units produced during the month
Material 8,700 feet used; 9,000 feet purchased @ $4.50 per foot
Labor 7,000 direct labor hours @ $7.90 per hour
(Round all answers to the nearest dollar.)

31. Refer to Patterson Company. What is the material price variance (calculated at point of
purchase)?
a. $2,700 U
b. $2,700 F
c. $2,610 F
d. $2,610 U

32. Refer to Patterson Company. What is the material quantity variance?

a. $3,105 F
b. $1,050 F
c. $3,105 U
d. $1,890 U

33. Refer to Patterson Company. What is the labor rate variance?

a. $3,480 U
b. $3,480 F
c. $2,800 U
d. $2,800 F

34. Refer to Patterson Company. What is the labor efficiency variance?

a. $1,875 U
b. $ 938 U
c. $1,875 F
d. $1,125 U

35. In analyzing manufacturing overhead variances, the volume variance is the difference between
the
a. amount shown in the flexible budget and the amount shown in the debit side of the
overhead control account.
b. predetermined overhead application rate and the flexible budget application rate
times actual hours worked.
c. budget allowance based on standard hours allowed for actual production for the
period and the amount budgeted to be applied during the period.
d. actual amount spent for overhead items during the period and the overhead amount
applied to production during the period.

36. Variance analysis for overhead normally focuses on

a. efficiency variances for machinery and indirect production costs.
b. volume variances for fixed overhead costs.
c. the controllable variance as a lump-sum amount.
d. the difference between budgeted and applied variable overhead.

Jenkins Manufacturing
The following information is available for Jenkins Manufacturing Company for the month of
June when the company produced 2,100 units:

Standard:
Material 2 pounds per unit @ $5.80 per pound
Labor 3 direct labor hours per unit @ $10.00 per hour
 Actual:
Material 4,250 pounds purchased and used @ $5.65 per pound
Labor 6,300 direct labor hours at $9.75 per hour

37. Refer to Jenkins Manufacturing Company. What is the material price variance?
a. $638 U
b. $638 F
c. $630 U
d. $630 F

38 Refer to Jenkins Manufacturing Company. What is the material quantity variance?

a. $275 F
b. $290 F
c. $290 U
d. $275 U

39. Refer to Jenkins Manufacturing Company. What is the labor rate variance?
a. $1,575 U
b. $1,575 F
c. $1,594 U
d. $0

40. Refer to Jenkins Manufacturing Company. What is the labor efficiency variance?
a. $731 F
b. $731 U
c. $750 F
d. none of the answers are correct

41. Scrap is defined as a

a. finished unit of product that has no sales value.
b. residual of the production process that has limited sales value.
c. residual of the production process that can be reworked for sale as an irregular unit
of product.
d. residual of the production process that has no sales value.

42. Which of the following is/are synonyms for joint products?

Main products Co-products

a.  no no
b.  yes yes
c.  yes no
d.  no yes

43. By-products are

a. items resulting from a joint process that have no further value.
b. not sufficient alone, in terms of sales value, for management to justify undertaking
the joint process.
c. also known as scrap.
d. the primary reason management undertook the production process.

44. Which of the following statements is true regarding by-products or scrap?

a. Process costing is the only method that should result in by-products or scrap.
b. Job order costing systems will never have by-products or scrap.
c. Job order costing systems may have instances where by-products or scrap result
from the production process.
d. Process costing will never have by-products or scrap from the production process.
45. The split-off point is the point at which
a. output is first identifiable as individual products.
b. joint costs are allocated to joint products.
c. some products may first be sold.
d. all of the above.

46. A product may be processed beyond the split-off point if management believes that
a. its marketability will be enhanced.
b. the incremental cost of further processing will be less than the incremental revenue
of further processing.
c. the joint cost assigned to it is not already greater than its prospective selling price.
d. both a and b.

47. The definition of a sunk cost is

a. a cost that cannot be recovered regardless of what happens.
b. a cost that relates to money poured into the ground.
c. considered the original cost of an item.
d. also known as an opportunity cost.

48. The net realizable value approach mandates that the NRV of the by-products/scrap be treated as
a. an increase in joint costs.
b. a sunk cost.
c. a reduction of joint costs.
d. a cost that can be ignored totally.

49. Approximated net realizable value at split-off for joint products is computed as
a. selling price at split-off minus further processing and disposal costs.
b. final selling price minus further processing and disposal costs.
c. selling price at split-off minus allocated joint processing costs.
d. final selling price minus a normal profit margin.

50. In joint-product costing and analysis, which of the following costs is relevant in the decision
when a product should be sold to maximize profits?
a. Separable costs after the split-off point
b. Joint costs to the split-off point
c. Sales salaries for the production period
d. Costs of raw materials purchased for the joint process.

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