Quiz 5 review

1) When only direct manufacturing costs and variable manufacturing overhead costs are included
as inventoriable costs, the method being used is
a. Absorption costing
b. Fixed overhead costing
c. Manufacturing overhead costing
d. Variable costing

2) One possible way of determining the difference between absorption and variable costing based
operating income is
a. To add fixed manufacturing costs to the variable costing based operating income
b. B
c. By subtracting the $ amount of fixed manufacturing overhead in beginning inventory
from the $ amount of fixed manufacturing overhead in ending inventory

3) Normal capacity is the denominator-level concept that

a. Is based on the level of capacity utilization that satisfies average customer demand
over periods generally longer than one year
b. Is the maximum level operations at maximum efficiency
c. Reduced theoretical capacity for unavoidable operating interruptions
d. Is based on anticipated levels of capacity utilization for the coming budget period

4)

A manufacturing firm can produce 300 pairs of shoes per hour and operate three 8 hour shifts
at maximum efficiency. Due to unavoidable operating interruptions, feasible production is
actually 250 pairs of shoes per hour with the plant operating 300 days per year with 3
shifts/day. Annual Practical capacity?
a. A
b. 1,800,000
250x24x300
c. 2,628,000

5) Pricing for 1 time only special order is a type of

a. A
b. Short-run pricing decision

6) For setting long-term prices, a company should ideally use full product costs. Full product cots
for pricing purposes typically should
a. A
b. B
c. Included all direct costs plus an appropriate allocation of the indirect cost of all
business functions

7) In summary form, the steps in sequences for implementing target pricing and target costing are
a. Estimate price based on customer willingness to pay derived target cost by subtracting
target operating income from estimated price, perform cost analysis of value

8) The cost-plus pricing approach is generally of the form

a. Cost base + mark up component = Prospective selling Price

9) Seneca Company has invested $1,000,000 in a plant to make gas pumps for service stations.
The average long run pre-tax annual return desired from this investment is 30%. The full
manufacturing cost per unit at a sale level of 1,000 pumps is $1,000 per pump. The full cost
does not include $200,000 fixed annual admin cost. Mark up?
a. 50%
1,000 x 1,000

10) Transfer price for a product exchanged between two divisions

a. A
b. B
c. Should at a minimum be the sum of incremental cost up to the point transfer and
opportunity cost for the selling division