Deck 10: Understanding Insurance

Question 1

When a production process involves 10 steps, there is often a different maximum amount that it can be processed through each of these steps in a day. The theory of constraints focuses managers' attention on

A) The average (mean) amount processed by these 10 steps
B) The median amount processed by these 10 steps
C) The slowest of the 10 steps
D) The fastest of the 10 steps

Answer 1

C

Question 2

Typically, "throughput" would be measured as the selling price of the amount of products processed through the binding constraint minus

A) Totally variable costs
B) Totally variable costs plus all factory labor costs
C) Totally variable costs plus all factory labor and machinery costs
D) Nothing-no costs are subtracted in the computation of throughput

Answer 2

A

Question 3

With regard to joint costs, economists generally believe that:

A) For product pricing decisions, joint costs should be allocated based on relative sales value.
B) For product pricing decisions, joint costs should be allocated based on relative physical quantities produced.
C) For product pricing decisions, joint costs should be allocated based on relative net realizable value.
D) For product pricing decisions, the allocation of joint costs is not relevant.

Answer 3

D

Question 4

The Laino Corp. takes a single ingredient and makes it into three different products. The joint costs of buying the ingredient and dividing it into these three products are $10,000 per metric ton of the ingredient. From every metric ton of ingredients, the company produces 400 kilograms of Product A, 400 kilograms of Product B, and 200 kilograms of Product C. Product A can be sold at the split-off point for $10 per kilogram, B can be sold for $15 per kilogram, and C can be sold for $20 per kilog

A) 2000
B) 3333
C) 4000
D) 4285

Question 5

The Lake Corp. takes a single ingredient and makes it into three different products. The joint costs of buying the ingredient and dividing it into these three products are $10,000 per metric ton of the ingredient. From every metric ton of ingredients, the company produces 400 kilograms of Product A, 400 kilograms of Product B, and 200 kilograms of Product C. Product A can be sold at the split-off point for $10 per kilogram, B can be sold for $15 per kilogram, and C can be sold for $20 per kilogr

A) 2000
B) 3333
C) 4000
D) 4285

Question 6

Hazan Corp. started the year with $200,000 in inventory. During the year, it applied the following costs to inventory: direct labor of $1,000,000; raw materials of $2,000,000; and overhead of $1,000,000. The ending inventory had a cost of $300,000. Find the cost of goods sold. (Assume the cost of goods sold includes any shrinkage.)______

Question 7

Tabby Co. had beginning inventory of $200 and ending inventory of $300. Tabby Co. had cost of goods sold amounting to $800. Based on this information, Tabby Co. must have purchased inventory amounting to: $ _________

Question 8

Ilyas Corp. started the year with $2,000,000 in inventory. During the year, it applied the following costs to inventory: direct labor of $6,000,000; raw materials of $2,000,000; and overhead of $10,000,000. The total cost of goods sold and shrinkage was $17,000,000. Find the ending inventory.______

Question 9

Kovacs Corp. started the year with $3,000,000 in inventory. During the year, it applied the following costs to inventory: direct labor of $1,000,000; raw materials of $7,000,000; and overhead of $4,000,000. The ending inventory had a cost of $3,000,000. Find the cost of goods sold. (Assume the cost of goods sold includes any shrinkage.)______

Question 10

Ontario Corp. has budgeted to spend $130,000 on manufacturing overhead in 2016. Compute the predetermined overhead rates per hour that it would use if the computation is based on budgeted direct labor hours of 65,000.______

Question 11

Explain what is meant by the terms. Give an example.

Question 12

The text discusses both traditional full absorption costing methods, and activity-based costing ("ABC").

Question 13

Explain why transfer prices between subsidiaries are, or are not, a problem from the perspective of:

Question 14

37 Assume that a car manufacturing company has two different suppliers, Rose and Garfield, for an ignition switch that it uses in its cars. Problems with the suppliers can cause two types of problems: warranty claims for defective products, and delay costs due to late shipments of parts from the suppliers. Some data related to the company is provided below:

Question 15

40 The Lamb Corp. takes a single ingredient and makes it into three different products. The joint costs of buying the ingredient and dividing it into these three products are $10,000 per metric ton of the ingredient. From every metric ton of ingredients, the company produces 400 kilograms of Product A, 400 kilograms of Product B, and 200 kilograms of Product C. Product A can be sold at the split-off point for $10 per kilogram, B can be sold for $15 per kilogram, and C can be sold for $20 per kilogr

Question 16

A cheese-making factory buys milk, and turns the milk into two major products: cheese and butter. Here are some facts regarding its production during the year:
Pounds of cheese produced 3,000,000
Pounds of butter produced 3,000,000
Selling price per pound of butter $2
Selling price per pound of cheese $3
Joint costs of making the butter and the cheese $14,000,000

Question 17

Managerial costing should aid managers in their analysis and decision-making.

Question 18

In the cost hierarchy, examples of product level costs might include product design and development costs.

Question 19

The amount of allocation effort needed to properly assign costs is lowest for the facility level costs, and greatest for the unit level costs.

Question 20

The amount of allocation effort needed to properly assign costs is highest for the facility level costs, and lowest for the unit level costs.

Question 21

A "job cost system" is typically used in businesses that produce a large amount of identical items on a continuous basis.

Question 22

A "process cost system" is typically used in a business that produces a large number of identical items on a continuous basis.

Question 23

"Throughput" is the selling price of the amount processed through the binding constraint, minus the "totally variable cost" of producing this output.

Question 24

"Throughput" is the selling price of the amount processed through the binding constraint, minus the "full absorption cost" of producing this output.

Question 25

When a company allocates joint costs using the relative net realizable values method, it will usually compute equal gross margin percentages for each of the joint products.

Question 26

"Work in process" consists of items that a company has started to work on, but has not yet finished.

Question 27

"Work in process" inventory consists of items that a company has finished manufacturing, but has not yet sold.

Question 28

In the cost hierarchy, "batch level costs" would include both unit level costs and facility level costs.

Question 29

The methods of allocating costs of by-products are exactly the same as the methods of allocating costs among joint products.

Question 30

The accounting profession has agreed upon a single best and most appropriate approach for organizations to measure and report costs for managerial decisions.

Question 31

According to the IMA, some costing systems provide suboptimal information to managers, which can lead to poor decisions.

Question 32

Over the last century, direct labor costs have become relatively larger, and overhead costs have become relatively smaller, as a fraction of total production costs.

Question 33

Fixed overhead costs do not vary, in the short term, with levels of production.

Question 34

Variable overhead costs do not vary, in the short term, with levels of production.

Question 35

A factory supervisor's salary is an example of the direct labor costs of making a product.

Question 36

The cost of car engines is an example of the overhead costs involved in making cars.

Question 37

The "split-off point" is the time in the production process after which joint products start incurring different costs.

Question 38

Economists believe that allocation of joint costs to individual products is necessary to make rational internal economic decisions about the products, such as their selling prices.

Question 39

By-products are items that are not produced as the main purpose of the manufacturing process, but may have some minor sales value.

Question 40

Under GAAP, the cost of manufacturing an item is an expense as soon as the cost is incurred.

Question 41

Under GAAP, costs of manufacturing products are considered part of inventory until the items are sold or disposed of.

Question 42

In a manufacturing company, allocating overhead costs based on direct labor hours, machine hours, or units produced will always lead to the same amounts allocated per unit produced.

Question 43

One advantage of traditional full absorption costing is that it allocates fixed costs to products, which leads to basing short-term decisions on more relevant information.

Question 44

Improperly set transfer prices between divisions of a company can lead to incorrect judgments of the relative profitability of the divisions.

Question 45

The method of setting transfer prices among subsidiaries of a corporation never affects creditors of the different subsidiaries.

Question 46

One advantage of using market prices as transfer prices between subsidiaries of a large company is that the people involved will usually see these prices as fair and objective.

Question 47

One disadvantage of using market prices as transfer prices between subsidiaries of a large company is that some subsidiaries may buy their materials from outside companies when, for the group as a whole, it would be better if they bought from other members of the group.

Question 48

A term for a variety of types of loss of inventory, including theft, spoilage, and other unexplained factors that reduce the inventory is

A) Cost driver
B) Allocated cost
C) Inventory shrinkage
D) Work in process

Question 49

At the end of business, on December 31, the Ford Motor Company has some cars that are only partly completed. For example, some of these cars do not yet have the motors installed. What types of costs would Ford likely have allocated to these cars in its work in process inventory?

A) Only raw materials costs
B) Only labor costs
C) Only overhead costs
D) Raw materials and labor, but not overhead
E) Raw materials, overhead, and labor costs

Question 50

The Bronikowski Company makes many colors of paint in its factory. The paint is sold in one-gallon containers. It typically makes 5,000 gallons of a color at a time. Then, it needs to clean the equipment before making paint of another color. The cost of cleaning the equipment would be considered a

A) Unit level cost
B) Batch level cost
C) Product level cost
D) Facility level cost

Question 51

The Carminio Company makes many colors of paint in its factory. Each new type of paint the company comes up with has to be tested to ensure the chemical formula works and that it meets standards for durability. The paint is sold in one-gallon containers. It typically makes 10,000 gallons of a color at a time. The cost of testing a new formula would be considered a

A) Unit level cost
B) Batch level cost
C) Product level cost
D) Facility level cost.

Question 52

A disadvantage of resource consumption accounting is that it may lead managers to overproduce, in order to avoid showing underutilized production capacity.

Question 53

A major benefit of resource consumption accounting is that it focuses attention on underutilization of production capacity.

Question 54

"Full absorption costing" methods assign direct labor and materials costs (but not overhead) to the units produced.

Question 55

"Direct costing" methods assign direct labor and materials costs (but not overhead) to the units produced.

Question 56

FASB rules require companies to use full absorption cost methods, and do not allow the use of direct costing methods, for financial reporting purposes.

Question 57

FASB rules require companies to use direct costing methods, and do not allow the use of full absorption costing methods, for financial reporting purposes.

Question 58

In general, the traditional full absorption method is simper to use than the ABC or resource consumption methods.

Question 59

In general, the traditional full absorption method is more complicated to use than the ABC or resource consumption methods.

Question 60

In general, if we compare the traditional full absorption method with ABC, the traditional full absorption method will tend to assign more costs to simple, high-volume products, and less costs to complicated, low-volume products.

Question 61

In general, if we compare the traditional full absorption method with ABC, the traditional full absorption method will tend to assign less costs to simple, high-volume products, and less costs to complicated, low-volume products.

Question 62

A major benefit of resource consumption accounting is that, by separating out fixed and proportional costs, it provides managers with more relevant information for making decisions.

Question 63

A major benefit of activity-based costing is that it focuses attention on underutilization of production capacity.

Question 64

The Collet Company makes many colors of paint in its factory. The paint is sold in one-gallon containers. It typically makes 10,000 gallons of a color at a time, then switches to making paint of another color. The cost of heating the factory would be considered a

A) Unit level cost
B) Batch level cost
C) Product level cost
D) Facility level cost