Exam 5: Accounting for Inventory

The FASB has rules that companies follow to determine standard costs.

The Nightingale Corp. makes and sells 200,000 chairs each year. The total fixed costs are $10,000,000. Its variable costs are: labor of $60 per chair; direct materials of $200 per chair; and variable overhead of $40 per chair. It normally sells its chairs at $500 per chair. Assuming that it does not have a capacity problem, what would be the effect on its profits if it accepted a special order to make an additional 100,000 chairs for $310 each?

If the Gu Corp. produced 3,000,000 units this year, at a variable cost of $3 per unit and with fixed costs of $1,000,000, and sold all 3,000,000 items at $5 each, its total contribution margin for the year would equal $6,000,000.

The Long Company pays its workers differently, depending on how long they have been employed. However, skill levels are similar for all the workers. A manager is trying to decide whether to consider all workers the same, and to use an average wage rate for purposes of a cost model. The concept involved here is best described as

The costs that are "relevant" to a short-term managerial decision include those costs that will change as a result of the decision.

The type of cost relationship that exists when costs vary in a straight-line manner with the level of a cost driver (within some relevant range of output) is

If a company has a decision involving whether or not to replace a machine, the cost of disposing of the old machine would be one of the relevant costs of the decision.

According to the IMA, "cost" is "A monetary measure of consuming a resource or its output to achieve a specific managerial objective or making a resource or its output available and not using it."

A graph with the amount of some cost driver on the "x" axis and the cost of production on the "y" axis that is a straight line, with an upward slope, starting at the origin, would indicate which type of cost relationship?

Jackie Corp. is considering investing $10 million in a project. It expects to receive net inflows for the project as follows: $3 million each in years 1 and 2; $2 million each in years 3 and 4; and $1 million each in years 5, 6, and 7. The payback period for this project is

A factory manager is not sure how to associate the fixed value of the real estate taxes for the factory with the changes in the amounts of a particular product produced during the year. The concept most relevant to this problem is

The Ruth Bicycle Corp. is considering whether to continue to make gears for its bicycles, or whether to buy the gears from an outside supplier. It can buy the gears from outside suppliers at $12 per unit. It needs 100,000 units each year. The company has the following manufacturing costs: raw materials = $6 per unit; direct labor = $1 per unit; variable overhead = $2 per unit; avoidable fixed costs of $200,000 per year and non-avoidable fixed costs of $300,000 per year. The effect of stopping pr

The Gideon Corp. is considering making an investment in a project of $1,000,000. It expects to receive five payments of $300,000 each. Its discount rate is 8%. A table shows that the present value of an annuity of five payments of $1 each, at 8%, has a value of 4.1002. The net present value of this investment opportunity is approximately

One implication of cost-volume-profit analysis is that, when companies have significant fixed costs, total profits will always change proportionately with levels of output.

According to the IMA, managerial costing systems should be designed to focus on total costs, and should not be designed to provide information on marginal or incremental effects of alternative possible actions.

A company that sets "achievable" standard costs typically assumes some level of inefficiency in the production process.

Relevant costs are best described as

A "mixed cost" relationship exists when the costs include both a fixed and a variable component.

The Neils Corp. is considering making an investment in a project of $10,000,000. It expects to receive six payments of $2,500,000 each. Its discount rate is 6%. A table shows that the present value of an annuity of six payments of $1 each, at 6%, has a value of 4.91732. The net present value of this investment opportunity is approximately

Billey Corp. produced 5,000 units this year. The standard quantity of raw materials per unit was 2 kilograms, and the standard price per kilogram was $3. The company actually used 2.1 kilograms per unit, and paid $3.10 per kilogram. The raw materials usage variance was