ACC 305 Test 1

ACC 305 Test 1


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1) The ideal database for estimating cost functions contains ________.

A) Numerous cost driver observations

B) Only the independent variable and not the dependent variable

C) Cost driver observations spanning a narrow range

D) A few values of the cost driver that are grouped closely together


2) A cost function is a ________.

A) Process of calculating present value of projected cash flows

B) Process of allocating costs to cost centers or cost objects

C) Mathematical description of how a cost changes with changes in the level of an activity relating to that cost

D) Is a very thorough and detailed way to identifying a cost object when there is a physical relationship between inputs and outputs


3) Tony Manufacturing produces a single product that sells for $80. Variable costs per unit equal $30. The company expects total fixed costs to be $78,000 for the next month at the projected sales level of 2,500 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. Suppose management believes that a $75,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by ________ to justify this additional expenditure?

A) 1,698 units

B) 1,500 units

C) 1,550 units

D) 1,339 units


4) The stand-alone revenue-allocation method ________.

A) uses product-specific information on the products in the bundle as weights for allocating the bundled revenues to the individual products

B) ranks individual products in a bundle according to criteria determined by management

C) ranks individual products in a bundle according to costs allocated to the products

D) survey customers about the importance of each of the individual products in their purchase decision


5) Furniture, Inc. estimates the following number of mattress sales for the first four months of 2016:

Month Sales
January 22,000
February 30,800
March 28,600
April 35,200

Finished goods inventory at the end of December is 6,600 units. Target ending finished goods inventory is 20% of the next month’s sales.

How many mattresses should be produced in the first quarter of 2016?

A) 88,880 mattresses

B) 81,840 mattresses

C) 60,280 mattresses

D) 51,920 mattresses


6) What would be the total variable maintenance cost at an activity level of 8,600 machine-hours in a month? Assume that this level of activity is within the relevant range.

A) $777,212

B) $220,448

C) $576,888

D) $228,416





7) Wilde Corporation budgeted the following costs for the production of its one and only product for the next fiscal year.


Direct materials

Direct labor 775,000
Manufacturing overhead
Variable 840,000
Fixed 645,000
Selling and administrative
Variable 360,000
Fixed 480,000
Total costs $4,225,000



Wilde has an annual target operating income of $900,000.

The markup percentage for setting prices as a percentage of the full cost of the product is ________.

A) 328.9%

B) 36.6%

C) 228.5%

D) 21.3%


8) Which of the following statements is true of activity-based costing?

A) Activity-based costing ignores the allocation of marketing and distribution costs.

B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.

C) Activity-based costing classifies some of the indirect costs as direct costs.

D) Chances of product-cost cross-subsidization are higher in activity-based costing compared to traditional costing systems.


9) In capital budgeting, a project is accepted only if the internal rate of return equals or ________.

A) exceeds the required rate of return

B) exceeds the inflation rate

C) exceeds the risk-free rate

D) exceeds the accrual accounting rate of return


10) In analyzing transfer prices, the ________.

A) buyer will not willingly purchase a product for less than the incremental costs incurred to manufacture the product internally

B) seller will not willingly sell a product for less than the incremental costs incurred to make the product

C) buyer will willingly pay more than the ceiling transfer price

D) buyer will not pay less than the ceiling transfer price


11) Vision Company manufactures digital cameras. For May, there were no beginning inventories of direct materials and no beginning or ending work-in -process. Conversion costs is the only indirect manufacturing cost category currently used. Journal entries are recorded when materials are purchased and when units are sold.

Conversion costs – May$ 100,625

Direct materials purchased – May$253,575

Units produced – May80,500 units

Units sold – May77,500 units

Selling price$20 each

Which of the following journal entries properly reflects the purchase of materials under backflush costing?

A) Inventory Control $253,575

Accounts Payable Control $253,575

B) Accounts Payable Control $253,575

Allocated Costs: Direct Materials $253,575

C) Accounts Payable Control $253,575

Materials Inventory $253,575

D) Allocated Costs: Direct Materials $253,575

Inventory: Raw and Material $253,575


12) Stark Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways.

Car Rental Truck Rental
Number of Vehicles in fleet 850 430
Number of employees 125 75
Sales $750,000 $375,000

If the facility lease expense of $384, 000 is allocated on the basis of vehicles in the fleet, the amount allocated to the Car Rental Department would be ________.

A) $249,000

B) $255,000

C) $267,000

D) $261,000