1. A company shows the following unit costs for its product:
Direct materials ....$40
Direct labor ......30
Variable overhead ...2
Fixed overhead ....5
The company started the year with 8,000 units in inventory, produced 50,000 units during the year, and sold 55,000 units. The value of ending inventory is
a. Greater under absorption costing than variable costing.
b. Greater under variable costing than absorption costing.
c. The same under both variable and absorption costing.
d. There is no ending inventory.
e. This situation cannot happen.

2. In a segmented income statement, which of the following statements is true?
a. Segment margin is greater than contribution margin.
b. Common fixed expenses must be allocated to each segment.
c. contribution margin is equal to sales less all variable and direct fixed expenses of a segment.
d. Segment margin is equal to contribution margin less direct fixed expenses.
e. Segment margin is equal to contribution margin less direct and common fixed expenses.

3. The EOQ for Part B-22 is 2,500 units, and four orders are placed each year.
The total annual ordering cost is $1,200.Which of the following is true?
a. The total carrying cost is $1,200.
b. The annual demand for the part is 2,500 units.
c. The cost of placing one order is $1,200.
d. The cost of placing one order is $4,800.
e. It is impossible to calculate the annual carrying cost given the above information.


4. Which of the following is a reason for carrying inventory?
a. To balance setup and carrying costs
b. To satisfy customer demand
c. To avoid shutting down manufacturing facilities
d. To take advantage of discounts
e. All of the above

5. Suppose that a material has a lead time of three days and that the average usage of the material is 12 units per day. What is the reorder point?
a. 12
b. 15
c. 36
d. 45
e. 3

6. Suppose that a material has a lead time of three days and that the average usage of the material is 12 units per day. The maximum usage is 15 units per day. What is the safety stock?
a. 3
b. 9
c. 12
d. 15
e. 5

7. A segment could be which of the following?
a. Product
b. Customer type
c. Geographic region
d. All of the above
e. None of the above

8. Many companies use absorption costing because it
a. Accords with GAAP.
b. Is most useful for management decision making.
c. Provides the contribution margin.
d. Provides the segment margin.
e. None of the above.

9. Albert Company provided the following information:

Common fixed cost totaled $46,000. Albert allocates common fixed cost to product 1 and product 2 on the basis of sales. If product 2 is dropped, which of the following is true?
a. Sales will increase by $300,000.
b. Overall operating income will increase by $2,600.
c. Overall operating income will decrease by $25,000.
d. Overall operating income will not change.
e. Common fixed cost will decrease by $27,600.

10. Shulman Company produces a number of products and provides the following information:
Annual demand for Product C ...........20,000
Cost of setting up to make Product C ...........$45
Cost of carrying one unit of Product C in inventory ......$5
Currently, Shulman produces 1,000 units of Product C per production run.
Inventory-related cost for Product C under the current inventory policy is
a. $900.
b. $2,500.
c. $45,000.
d. $3,400.
e. $100,000.

11. Refer to the information in Multiple-Choice Exercise 8-10. The economic order quantity (EOQ) for Product C is
a. 500.
b. 600.
c. 700.
d. 800.
e. 1,000.

12. Refer to the information in Multiple-Choice Exercise 8-10. What is the total inventory-related cost at the EOQ? (HINT: Round the number of setups to the nearest whole number.)
a. 3,030
b. 1,500
c. 3,400
d. 2,985
e.5,000

Transcribed Image Text:

Product 1 Product 2 Units sold Price Variable cost per unit Direct fixed cost 10,000 $20 $10 $35,000 20,000 $15 $10 $75,000