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chapter 23
Reporting Techniques in
Support of Managerial Decision Making
goals discussion goals achievement fill in the blanks multiple choice problems check list and key terms
Select the appropriate response:
1. Which of the following statements is incorrect?
a.
Absorption costing is also known as product costing.
b. Variable costing is not GAAP.
c. Only variable manufacturing costs are assigned to
products under the variable costing approach.
d. When using a variable costing system, the
contribution margin discloses the excess of revenues over variable costs.
2. Income computed by the absorption costing method will tend to exceed income computed by the variable costing method if:
a.
Fixed manufacturing costs decrease.
b. Units sold exceed units produced.
c. Variable manufacturing costs decrease.
d. Units produced exceed units sold.
3. Wang Company provides the following information for their first year of operation:
| Sales | 5,000 units @ $10 |
| Selling and administrative costs: | |
|
Fixed |
$1,000 |
|
Variable |
$1 per unit |
| Variable production costs per unit: | |
|
Direct materials |
$2 |
|
Direct labor |
$2 |
|
Variable overhead |
$1 |
| Fixed factory overhead | $7,500 |
| Production | 7,500 units |
If Wang uses absorption costing, cost of goods sold would be:
a.
$20,000
b. $25,000
c. $30,000
d. $36,000
4. Wang Company provides the following information for their first year of operation:
| Sales | 5,000 units @ $10 |
| Selling and administrative costs: | |
|
Fixed |
$1,000 |
|
Variable |
$1 per unit |
| Variable production costs per unit: | |
|
Direct materials |
$2 |
|
Direct labor |
$2 |
|
Variable overhead |
$1 |
| Fixed factory overhead | $7,500 |
| Production | 7,500 units |
If Wang uses variable costing, operating income would be:
a.
$11,500
b. $14,000
c. $16,500
d. $20,000
5. Manson Company produces fishing boats. From the production supervisor's perspective, depreciation on the factory is:
a.
Uncontrollable and fixed.
b. Uncontrollable and variable.
c. Controllable and fixed.
d. Controllable and variable.
6. Strickland Company prepared segment information relative to its office furniture manufacturing division. The controllable contribution margin differed from the segment margin by $100,000. This amount corresponds to the:
a. Total variable costs.
b. Controllable fixed costs.
c. Uncontrollable fixed costs.
d. Non-traceable costs.
7. Maverick Corporation had four operating segments. Information for each segment is included in the following table. Maverick has a threshold rate of return of 7%. Which segment has the largest residual income?
| Segment A | Segment B | Segment C | Segment D | |
| Operating Income | $100,000 | $200,000 | $300,000 | $400,000 |
| Operating Assets | $200,000 | $300,000 | $300,000 | $5,000,000 |
a. Segment A
b. Segment B
c. Segment C
d. Segment D
8. Nina Company has two production departments -- fabrication and assembly. These departments are supported by janitorial and engineering service units. Janitorial costs are allocated to the production departments based on square footage while engineering is allocated based on machines in use within each department. The following table reveals relevant facts about the various departments.
Assuming Nina uses the direct method of allocating service department costs, how much is the total cost attributable to the fabrication department?
a. $5,000,000
b. $5,700,000
c. $5,837,500
d. $6,200,000
9. Nina Company has two production departments -- fabrication and assembly. These departments are supported by janitorial and engineering service units. Janitorial costs are allocated to the engineering, fabrication, and assembly departments based on square footage. Engineering is allocated to productive departments based on machines in use within each department. The following table reveals relevant facts about the various departments.
Assuming Nina uses the step method of allocating service department costs, how much is the total cost attributable to the assembly department?
a. $3,000,000
b. $3,350,000
c. $3,362,000
d. $4,200,000
10. The management of Ahad Engineering Services has been approached about purchasing a new management information system. The perceived advantages of the system include each of the following, except:
a.
The new system will reduce confusion by doing away with dual presentations of
information by line item and object of expenditure.
b. The new system will enable customized business
dashboards, with each executive having real-time reports of critical business
information.
c. The new system will enable automatic preparation
of both internal variable costing information and external absorption costing
information.
d. The new system will facilitate disaggregation of
overall results into business segment information.
1. a. Absorption costing is also known as full costing. Product costing can be conducted by either absorption or variable costing methods. The other statements are all correct.
2. d. When the units produced exceed the units sold, absorption costing income tends to be higher than variable costing income. This results because some of the fixed manufacturing costs are allocated to unsold inventory at the end of the period; whereas, with variable costing all such costs would be expensed in the period incurred.
3. c. $30,000. The 5,000 units have a per unit cost of $6 each, computed as follows:
| Variable production cost ($2 + $2 + $1) | $5 |
| Fixed factory overhead ($7,500/7,500 units) | 1 |
| Total | $6 |
4. a. $11,500. Operating income is computed as follows:
| Sales (5,000 units X $10) |
$50,000 |
|
| Less variable costs: | ||
| Cost of goods sold (5,000 X $5) | $25,000 | |
| Selling and administrative (5,000 X $1) | 5,000 | 30,000 |
| Contribution margin | $20,000 | |
| Less fixed costs | ||
| Manufacturing | $ 7,500 | |
| Selling and administrative | 1,000 | 8,500 |
| Operating income | $11,500 |
5. a. Factory depreciation is an uncontrollable cost which is fixed in amount.
6. c. Uncontrollable fixed costs are subtracted from the controllable contribution margin to arrive at the segment margin. Total variable costs are subtracted from sales to achieve the contribution margin. Controllable fixed costs are subtracted from the contribution margin to calculate the controllable contribution margin. Nontraceable costs are not considered in calculating the individual business unit's segment margin.
7. c. Segment C's residual income is the highest:
| Segment A | Segment B | Segment C | Segment D | |
| Operating Income | $100,000 | $200,000 | $300,000 | $400,000 |
| 7% of Assets | (14,000) | (21,000) | (21,000) | (350,000) |
| Residual Income | $86,000 | $179,000 | $279,000 | $50,000 |
| Operating Assets | $200,000 | $300,000 | $300,000 | $5,000,000 |
8. c. $5,837,500, as revealed by the following table:
9. b. $3,350,00, as revealed by the following table:
10. a. The ability to prepare dual presentations of information by line item and object of expenditure is an advantage (not disadvantage) of modern information systems.