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Q:
Under absorption costing, a company had the following unit costs when 8,000 units were produced.
Direct labor $8.50 per unit
Direct material $9.00 per unit
Variable overhead $6.75 per unit
Fixed overhead ($60,000/8,000 units) $7.50 per unit
Total production cost $31.75 per unit
Compute the total production cost per unit under variable costing if 25,000 units had been produced.
A. $31.75
B. $27.25
C. $26.25
D. $24.25
E. $17.50
Q:
One of the advantages of simulation is that
A) real-world complications can be included that most OM models cannot permit
B) it always generates a more accurate solution than a mathematical solution
C) it is a trial-and-error approach that may produce different solutions in repeated runs
D) model development is less time consuming than for mathematical models
E) model solutions are transferable to a wide variety of problems
Q:
Under absorption costing, a company had the following unit costs when 9,000 units were produced.
Direct labor $7.25 per unit
Direct material $8.00 per unit
Variable overhead $5.50 per unit
Fixed overhead ($67,500/9,000 units) $7.50 per unit
Total production cost $28.25 per unit
Compute the total production cost per unit under variable costing if 30,000 units had been produced.
A. $31.75
B. $28.25
C. $23.45
D. $15.25
E. $20.75
Q:
One of the advantages of simulation is that
A) it is much less expensive than a mathematical solution
B) it always generates a more accurate solution than a mathematical solution
C) it can study the interactive effects of individual components or variables
D) model development is less time consuming than for mathematical models
E) model solutions are transferable to a wide variety of problems
Q:
One of the disadvantages of simulation is that it
A) does not allow for very complex problem solutions
B) produces solutions and inferences that are not usually transferable to other problems
C) cannot study the interactive effects of individual components or variables
D) is very limited in the type of probability distribution that can be used
E) interferes with the production systems while the program is being run
Q:
Under absorption costing, a company had the following unit costs when 9,000 units were produced.
Direct labor $7.25 per unit
Direct material $8.00 per unit
Variable overhead $5.50 per unit
Fixed overhead ($67,500/9,000 units) $7.50 per unit
Total production cost $28.25 per unit
Compute the total production cost per unit under absorption costing if 25,000 units had been produced.
A. $28.25
B. $23.45
C. $26.25
D. $20.75
E. $15.25
Q:
Mentor Corp. has provided the following information for the current year:
Units produced 3,500 units
Sale price $200 per unit
Direct materials $70 per unit
Direct labor $55 per unit
Variable manufacturing overhead $20 per unit
Fixed manufacturing overhead $350,000 per year
Variable selling and administrative costs $30 per unit
Fixed selling and administrative costs $150,000 per year
Calculate the unit product cost using variable costing.
A. $245
B. $275
C. $55
D. $145
Q:
One of the disadvantages of simulation is that it
A) does not allow for very complex problem solutions
B) is not very flexible
C) may be very expensive and time-consuming to develop
D) is very limited in the type of probability distribution that can be used
E) interferes with the production systems while the program is being run
Q:
The effects of OM policies over many months or years can be obtained by computer simulation in a short time. This phenomenon is referred to as
A) time suppression
B) time suspension
C) time compression
D) time inversion
E) time conversion
Q:
One of the disadvantages of simulation is that it
A) does not allow for very complex problem solutions
B) is not very flexible
C) is a trial-and-error approach that may produce different solutions in different runs
D) is very limited in the type of probability distribution that can be used
E) interferes with the production systems while the program is being run
Q:
When the number of units sold exceed the number of units produced, income reported under absorption costing will be lower under absorption than under variable costing. Which of the following gives the best justification of the above statement?
A. Income under absorption costing is always less than income reported using variable costing, regardless of the number of units produced.
B. Income under absorption costing is always more than income reported using variable costing, regardless of the number of units produced.
C. The fixed overhead cost deferred in ending inventory is greater than the fixed overhead cost recognized from beginning inventory.
D. The fixed overhead cost deferred in ending inventory is less than the fixed overhead cost recognized from beginning inventory.
Q:
One of the advantages of simulation is that
A) it is much less expensive than a mathematical solution
B) it always generates a more accurate solution than a mathematical solution
C) the policy changes may be tried out without disturbing the real-life system
D) model development is less time consuming than for mathematical models
E) model solutions are transferable to a wide variety of problems
Q:
Under absorption costing, which of the following statements is not true?
A. Over production and inventory buildup can occur because of how managers are evaluated and rewarded.
B. The fixed costs per unit decline as more units are produced.
C. Variable inventory costs are treated in the same manner as they are under variable costing.
D. Fixed inventory costs are treated in the same manner as they are under variable costing.
E. All manufacturing costs are assigned to products.
Q:
Which of the following statements is true?
A. Under variable costing, direct materials and direct labor are expensed as period expenses.
B. Under variable costing, fixed manufacturing overhead is expensed as period expenses.
C. Fixed manufacturing overhead costs are treated the same under both absorption costing and variable costing.
D. Reported income under absorption costing is not affected by production level changes.
E. Under absorption costing, fixed manufacturing overhead is expensed as period expenses.
Q:
Simulation is used for several reasons, including
A) model development is a fast process
B) it is inexpensive
C) the models are usually simple
D) it can handle large and complex real-world problems
E) it always generates optimal solutions
Q:
Which of the following is true regarding the use of simulation?
A) It is always very easy to build a simulation model.
B) It is very inexpensive to use a simulation model.
C) It always yields optimum solutions.
D) It allows time-compression in testing major policy decisions.
E) Few constraints, if any, have to be considered.
Q:
Which of the following would be a line item for a variable costing income statement?
A. Gross margin
B. Cost of goods available for sale
C. Total cost of goods sold
D. Contribution margin
E. Work-in-process inventory
Q:
Which of the following is true regarding simulation?
A) If an analytical model can't solve a problem, neither can a simulation.
B) Simulation can only be done by computer.
C) Monte Carlo simulation requires the use of random numbers.
D) Simulation models are inexpensive.
E) All of the above are true.
Q:
Which of the following statements is true?
A. Variable costing treats fixed overhead as a period cost.
B. Absorption costing treats fixed overhead as a period cost.
C. Absorption costing treats fixed overhead as an expense in the period it is incurred.
D. Variable costing excludes all overhead from product costs.
E. Managers can manipulate earnings more easily under variable costing by varying the production level.
Q:
Which of the following is true regarding simulation?
A) Small problems can be done by hand.
B) Most simulations are computerized.
C) Real-world complications can be included in simulation models.
D) Simulation is most suitable where standard analytical models are too complex.
E) All of the above are true.
Q:
Which of the following statements is true regarding variable costing?
A. It is a traditional costing approach.
B. Only manufacturing costs that change in total with changes in production level are included in product costs.
C. It is not permitted to be used for managerial reporting.
D. It treats overhead in the same manner as absorption costing.
E. It makes it easier to manipulate earnings with changes in production levels.
Q:
Which of the following are advantages to simulation?
I. Time compression
II. What-if questions are possible
III. Flexibility
IV. Trial and Error approach
V. Input must be user generated
A) I, III, V
B) I, II, V
C) II, III, IV, V
D) I, II, IV, V
E) I, II, III
Q:
Which of the following statements is true regarding absorption costing?
A. It is not the traditional costing approach.
B. It is not permitted to be used for financial reporting.
C. It is not permitted to be used for tax reporting.
D. It assigns all manufacturing costs to products.
E. It requires only variable costs to be treated as product costs.
Q:
Which of the following is not a disadvantage to simulation?
A) Time compression
B) Expensive, can take months to develop
C) Trial and error approach
D) All input must be user generated
E) All of these are disadvantages to simulation
Q:
Using a traditional costing approach, which of the following manufacturing costs are assigned to products?
A. Direct materials and direct labor.
B. Direct labor and variable manufacturing overhead.
C. Fixed manufacturing overhead, direct materials, and direct labor.
D. Variable manufacturing overhead, direct materials, and direct labor.
E. Variable manufacturing overhead, direct materials, direct labor, and fixed manufacturing overhead.
Q:
Which of the following is not an idea behind simulation?
A) to imitate a real-world situation mathematically
B) study the properties and operating characteristics
C) draw conclusions and make decisions based on the results
D) both A and B
E) A, B, and C are all ideas behind simulation,
Q:
Which of the following is not considered a product cost?
A. Direct materials.
B. Research and development costs.
C. Direct labor.
D. Inventoriable costs.
E. Indirect manufacturing costs.
Q:
The seven steps in the use of simulation include all but which of the following?
A) define the problem
B) construct a mathematical model
C) introduce important variables associated with the problem
D) find the optimal solution
E) run the experiment
Q:
Which of the following costing methods charges all manufacturing costs to its products?
A. Direct costing
B. ABC costing
C. Variable costing
D. Absorption costing
Q:
Which of the following is not an application of simulation in the area of operations?
A) personnel scheduling
B) truck dispatching
C) plant (or facility) layout
D) inventory management using EOQ principles
E) inventory planning and control
Q:
To convert variable costing income to absorption costing income, management will need to add fixed overhead cost deferred in ending inventory and subtract fixed overhead cost recognized from beginning inventory.
TRUE
Q:
Which of the following statements regarding simulation is true?
A) Simulation can be physical or mathematical.
B) Simulation has numerous areas of application in operations.
C) Simulation attempts to duplicate a real system.
D) Monte Carlo simulation is a chance-based mathematical model of a real system.
E) All of these are true.
Q:
It is not possible to convert reports prepared using variable costing to absorption costing reports.
Q:
Simulation can use any probability distribution that the user defines.
Q:
Information presented in a variable costing format can assist management when making short-term pricing decisions.
Q:
The Las Vegas method is a simulation technique that uses random elements when chance exists in their behavior.
Q:
One reason for using simulation rather than an analytical model in an inventory problem is that the simulation is able to handle probabilistic demand and lead times.
Q:
When the number of units produced exceeds the number of units sold, absorption costing defers some of the fixed costs incurred.
Q:
Absorption costing results in expensing of fixed manufacturing overhead based on the number of units produced, rather than units sold.
Q:
In most real-world inventory problems, lead time and demand vary in ways that make simulation a necessity because mathematical modeling is extremely difficult.
Q:
Variable costing results in expensing of fixed manufacturing overhead based on the number of units produced.
Q:
A reason for the use of simulation in queuing is that the four standard queuing models do not allow for unusual arrival and service distributions.
Q:
Results of simulation experiments with large numbers of trials or long experimental runs will generally be better than those with fewer trials or shorter experimental runs.
Q:
The bottom line of a contribution margin report is net income.
Q:
Simulation is the attempt to duplicate the features, appearance, and characteristics of a real system, usually by means of a computerized model.
Q:
Variable costing is the only acceptable basis for both external reporting and tax reporting.
Q:
Random number intervals are based on cumulative probability distributions.
Q:
Contribution margin is the excess of sales over total variable costs.
Q:
A simulation is "Monte Carlo" when the elements of a system being simulated exhibit chance in their behavior.
Q:
Reporting contribution margin by market segment is useful in assessing the profitability of each segment.
Q:
The seventh unit of production took 63.423 minutes while the ninth unit of production took 59.8 minutes. What is the improvement rate?
Q:
Income under absorption costing will always be different than income under variable costing.
Q:
The fourth unit of production took 80 minutes while the ninth unit of production took 50 minutes. How long did the first unit take?
Q:
When units produced are less than units sold, income under absorption costing is higher than income under variable costing.
Q:
A product was priced assuming an 80% learning rate. How much extra labor (in $) will be required on the 4th product if the learning rate is actually 90%? Assume that labor costs $10/hour and the first unit cost $100 to produce.
Q:
When units produced exceed the units sold, income under absorption costing is higher than income under variable costing.
Q:
A product was priced assuming an 80% learning rate. How much extra labor (in %) will be required on the 4th product if the learning rate is actually 90%?
Q:
Sales less total variable costs equals manufacturing margin.
Q:
Using the arithmetic concept determine how long it will take to make the 64th unit of a product if it took 1 hour to complete the first product with a 50% learning rate.
Q:
When units produced equal units sold, reported income is identical under absorption costing and variable costing.
Q:
A metal works fabricator is about to release a new model of his firm's copper sculpture and fountain. The operations manager estimates that this product is subject to a 90 percent learning rate on labor onlythe material bill is not affected by experience. The firm prices its work based on costthe sum of materials plus 30 percent and labor plus 50 percent. (This allows the firm to practice a little "demand management" for its very popular works.) The first item has already been finished; the material bill was $800 and labor totaled 40 hours. The firm pays its metalworking artisans an average of $18 per hour. What should be the asking price of the first unit? The second?
Q:
A variable costing income statement focuses attention on the relationship between costs and sales that is not evident from the absorption costing format.
Q:
You are a cost accountant for a firm that specializes in "small" (under 10 billion dollars) defense contracts for specialty electronics products, such as fully portable, miniaturized CD-ROM imaging stations and global positioning transmitters/transponders. Your company is well respected in this field. One project up for competitive bids is a Field Service, Hands-Free, Individual Multi-Protocol Secure Communicator (a battlefield version of a cellular telephone, but built into each soldier's helmet, and containing necessary encryption technology). The Department of Defense wants 8 of these experimental devices to test their practicality. You have reviewed the contract specifications, and estimated that the first FSHFIMPSC should require 2350 hours, and that the product is subject to a 75% learning rate. All costs of the project (machine purchase, machine time, direct and indirect labor, and materials) have been bundled (allocated) into an hourly labor rate of $172 per hour. Determine the total project cost using the provided data.
Q:
Under a traditional income statement format, prepared using absorption costing, expenses are grouped according to cost behavior.
Q:
A small manufacturer builds wooden pleasure boats in a craftsman manner by traditional labor-intensive methods. The first boat is estimated to take 650 hours of skilled labor, which cost $40 per hour. They currently have three workers that can work 2,000 hours a year. They assume that there is a 90% learning rate. How many boats can they make in their first year?
Q:
Contribution margin is another way to refer to gross margin.
Q:
A company is preparing a bid on a government contract for 40 units of a certain product. The operations manager estimates the assembly time required for the first two units to be 10.4 hours and 8.3 hours, respectively.
a. What is the appropriate learning curve?
b. What is the average time per unit for the 40 units?
c. Which unit, if any, will require approximately one-half the time of the first unit?
Q:
Joe's Manufacturing is considering bidding on a small order for 5 units. Based on similar products that they have made in the past, they believe that the first unit will take 500 labor hours. They also believe that there will be an 80% learning rate. How many hours of labor should Joe include for his bid?
Q:
The variable costing income statement classifies costs based on cost behavior rather than function.
Q:
Sally suspects strongly that there is a learning curve associated with solving problems assigned for operations management. She notes that it took her approximately 33 minutes to solve the first problem and 20 minutes to solve the fifth problem.
a. Estimate Sally's learning percentage.
b. Using your answer from part a, estimate how much longer it will take Sally to finish the three problems that remain.
Q:
Given the following data, total product cost per unit under absorption costing will be $400 greater than total product cost per unit under variable costing.
Direct labor $1.50 per unit
Direct materials $1.50 per unit
Overhead
Total variable overhead $900,000
Total fixed overhead $1,200,000
Expected units to be produced 3,000 units
Q:
Your company is making experimental turbochargers for a new design of high-powered farm tractors. The production schedule for these new components is contained in the table below. Month
Turbochargers 1
4 2
6 3
7 4
8 5
5 The first turbocharger, a trial unit, took 900 hours to produce. Based on your experience with similar products, the learning factor is 85%. You have 20 employees, and each employee works 160 hours per month. How many hours will be required in each month? In which month(s) will overtime be required to meet the production schedule?
Q:
A small manufacturer that offers "hand crafted" furniture has developed a new style of desk that they believe will be very successful in the marketplace. It is expected that the first desk will take about 60 hours of craftsmen's time to complete. They expect a 90% learning curve for this desk.
How long will it take to make the 20th desk? The firm is considering accepting an order for 25 desks. How many hours of labor will this require for all 25?
Q:
A contractor builds large ships for the Department of Defense. A recent contract called for 12 amphibious landing platforms. It was originally estimated that the first of these would cost $1 billion and that 80 percent learning would be appropriate. In fact, the first ship cost $1.6 billion and the second $1.12 billion. What is the revised learning rate? What will be the total cost of the twelve ships? Is it higher or lower than the original estimates? If the defense department cuts the contract from 12 ships to 9, what happens to the average cost per ship?
Q:
Given the following data, total product cost per unit under variable costing will be greater than total product cost under absorption costing.
Direct labor $2 per unit
Direct materials $8 per unit
Overhead
Total variable overhead $37,500
Total fixed overhead $249,000
Expected units to be produced 15,000 units
Q:
A certain product under development took 200 hours for the production of its 2nd unit and 180 hours for its 4th unit.
a. What is the learning rate?
b. How much time did the first unit take?
c. How much time would the production of the 10th unit take? (Use both the logarithmic and the Table E.3 approach. Do the two versions agree?)
Q:
You are about to undertake manufacture of a labor-intensive electronics component. The first unit took 300 hours. You are not sure whether the learning rate is 70% or 80%. The initial phase of the contract calls for 6 of these components.
a. How much time will it take to complete all six at 70% learning?
b. How much time will it take to complete all six at 80% learning?
Q:
Your firm has expertise with a special type of hand-finished furniture. The learning rate is known to be 82%. If the first piece of furniture took 6 hours, how long will it take to do the second? How long will it take to do the fourth?
Q:
The first unit took 79 hours; the tenth took 46 hours. What learning rate is implied by the data?
Q:
The data needed for cost-volume-profit analysis is readily available if the income statement is prepared using a contribution format.