Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
B2. Corporate Governance （36問）
問題編
1. Corporate Governance
1. CPA-06663 Newly Released 2010 B1 Page 6
According to the Sarbanes-Oxley Act of 2002,
which of the following statements is correct
regarding an issuer's audit committee financial
expert?
a. The issuer's current outside CPA firm's
audit partner must be the audit committee
financial expert.
b. If an issuer does not have an audit
committee financial expert, the issuer
must disclose the reason why the role is
not filled.
c. The issuer must fill the role with an
individual who has experience in the
issuer's industry.
d. The audit committee financial expert must
be the issuer's audit committee
chairperson to enhance internal control.
2. CPA-06739 B1 Page 3
The Sarbanes Oxley Act of 2002 was enacted in
response to corporate scandals that largely
centered on the quality of corporate financial
disclosure and highlighted the inadequate
oversight of management, auditors and the Board
of Directors. The Sarbanes Oxley Act addresses
the problems related to inadequate board
oversight by requiring public companies to have
an:
a. Annual audit for all issuers.
b. Independent Board of Directors.
c. Audit committee.
d. Internal auditor.
3. CPA-06740 B1 Page 6
The Sarbanes Oxley Act of 2002 requires that one
or more members of the audit committee be a
financial expert and that the financial reports
disclose:
a. The name of the Board member(s)
serving as financial expert(s).
b. The existence of financial expert(s) on the
audit committee or the reasons why the
audit committee does not have a financial
expert.
c. Confirmation of the audit opinion by the
financial expert.
d. Certification of independence of the
financial expert.
4. CPA-06741 B1 Page 6
The primary benefit of having a financial expert on
a company's audit committee is:
a. The financial expert checks the auditor's
work and verifies the appropriateness of
the audit opinion.
b. The enhanced level of financial
sophistication of the financial expert can
serve as a resource for the audit
committee.
c. The expert designation conveys a higher
level of due diligence on the expert and
shields audit committee members and the
corporation from most liabilities.
d. The financial expert certifies compliance
with SEC requirements and thereby
reduces audit fees.
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5. CPA-06742 B1 Page 6
Arnold Astor, CPA, is a local tax practitioner who
has been asked to sit on the Board of BigLarge
Corporation, a multinational issuer. Astor has
never had any involvement either as an employee
or as an auditor with publically traded companies
but does teach an accounting principles class at
the community college. Under the provisions of
Sarbanes Oxley Act of 2002:
a. Astor qualifies as a financial expert based
on achievement of a CPA certificate.
b. Astor must petition the SEC for a waiver
of prior experience requirements to be
considered a financial expert.
c. The Board of Directors would likely
evaluate Astor's qualifications to serve on
the audit committee and be designated as
a financial expert based on mix of
knowledge and experience.
d. The audit committee would immediately
certify Astor's qualifications as a financial
expert based on his CPA license and
academic experience with GAAP and
experience with internal control.
6. CPA-06743 B1 Page 5
The Sarbanes Oxley Act of 2002 requires that the
financial officers of a corporation be held
accountable to a code of ethics. According to the
Act, codifications of ethical standards should
include provisions except for:
a. Honest and ethical conduct.
b. Full, fair, accurate, and timely disclosure
in periodic financial statements.
c. Compliance with laws, rules and
regulations.
d. Prompt internal reporting of code
provisions and accountability for
adherence to the code.
2
7. CPA-06744 B1 Page 5
The Sarbanes Oxley Act of 2002 requires that the
management report on internal control include all
of the following, except:
a. A statement of management's
responsibilities for establishing and
maintaining adequate internal controls.
b. A conclusion about the effectiveness of
the company's internal controls.
c. A statement that there are no
disagreements between management
and the auditor as to the effectiveness of
internal controls.
d. A statement that the auditor has attested
and reporting on management's
evaluation of internal controls.
8. CPA-06745 B1 Page 4
The Sarbanes Oxley Act of 2002 seeks to improve
investor confidence by providing greater
transparency for all of the following issues, except:
a. Competency of audit committees.
b. Compliance of senior financial officers
with a code of ethics.
c. Adequacy of internal controls.
d. Means and methods for balancing risk
and growth.
9. CPA-06746 B1 Page 5
The Sarbanes Oxley Act of 2002 requires that all
of the following adhere to a code of ethics, except:
a. Chief Executive Officer.
b. Chief Financial Officer.
c. Controller.
d. Chief Accounting Officer.
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10. CPA-06747 B1 Page 11
The Gotham Corporation regularly produces
budget vs. actual data for its managers. The
company is particularly sensitive to personnel
costs, and division variances of greater than five
percent for any period are promptly investigated to
determine if there have been unfilled positions, or
if there has been extraordinary overtime. Timely
exception resolution of this character illustrates
the information and communication principles
typically associated with:
a. Financial Reporting Information.
b. Internal Control Information.
c. Internal Communication.
d. External Communication.
11. CPA-06748 B1 Page 10
The external auditors for the Horace Company
assess the achievement of internal control
objectives each year and communicate the
assessment to management and the Board.
Communication by the external auditor illustrates
which principle of the information and
communication component of the Committee on
Sponsoring Organization's Integrated
Framework?
a. Financial Reporting Information.
b. Internal Control Information.
c. Internal Communication.
d. External Communication.
12. CPA-06749 B1 Page 9
The Instafab Corporation regularly assesses
whether the financial statements of the company
fairly state the financial position, results of
operations and cash flows associated with the
underlying transactions. Leases, for example are
regularly evaluated for their status as a capital or
operating lease and, if capital, the valuation of the
asset and liability are evaluated for fairness,
depreciation methods and interest rates are
properly computed and inclusion or exclusion of
activity from the statement of cash flows is
carefully evaluated. The regular evaluation of
transactions as part of the risk assessment
component of the Committee on Sponsoring
Organization's Framework reflects the principle of:
a. Financial Reporting Objectives.
b. Financial Reporting Risks.
c. Fraud Risk.
d. Assessment Risk.
13. CPA-06750 B1 Page 9
Jasper International considers cash receipting and
cash disbursement processes as part of their risk
assessment. The consideration of processes
relates to the:
a. Financial Reporting Objectives.
b. Financial Reporting Risks.
c. Fraud Risk.
d. Assessment Risk.
14. CPA-06751 B1 Page 7
The Treadway Commission was established to
study factors that lead to fraudulent financial
reporting. The Treadway Commission was
established by:
a. Sarbanes Oxley Act of 2002.
b. Securities and Exchange Commission.
c. Private sponsoring organizations.
d. Treadway Foundation.
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15. CPA-06752 B1 Page 7
The Committee on Sponsoring Organizations
prepared the Internal Control Integrated
Framework:
a. To help businesses assess internal
control.
b. To respond to the internal control
assessment requirements of the
Sarbanes Oxley Act of 2002.
c. As part of the Congressional task force
known as the Treadway Commission.
d. To compliment the overarching concepts
of the enterprise risk management
framework.
18. CPA-06755 B1 Page 19
Able Corporation owns numerous businesses
along the coast of Florida. The company's
management has identified business interruption
events as a potential risk resulting from storm
damages caused by hurricanes. The company
elects to balance its portfolio of risk with property
investments on the cost of other states and in
Florida's interior. Able's response to potential
risks is known as:
a. Avoidance.
b. Reduction.
c. Sharing.
d. Acceptance.
16. CPA-06753 B1 Page 19
Able Corporation owns numerous businesses
along the coast of Florida. The company's
management has identified business interruption
events as a potential risk resulting from storm
damages caused by hurricanes. Management is
so fearful of the possibility of storm damage that
they elect to divest the company of virtually all
properties on the Florida coast. Able's response
to potential risks is known as:
a. Avoidance.
b. Reduction.
c. Sharing.
d. Acceptance.
19. CPA-06756 B1 Page 19
Able Corporation owns numerous businesses
along the coast of Florida. The company's
management has identified business interruption
events as a potential risk resulting from storm
damages caused by hurricanes. The company
elects to treat the potential damages from
hurricanes as part of their business model.
Able's response to potential risks is known as:
a. Avoidance.
b. Reduction.
c. Sharing.
d. Acceptance.
17. CPA-06754 B1 Page 19
Able Corporation owns numerous businesses
along the coast of Florida. The company's
management has identified business interruption
events as a potential risk resulting from storm
damages caused by hurricanes. The company
elects to not only insure its properties but to "buy
down" standard deductibles with additional
premium. Able's response to potential risks is
known as:
a. Avoidance.
b. Reduction.
c. Sharing.
d. Acceptance.
4
20. CPA-06757 B1 Page 17
Barker Healthcare Corporation's management is
developing their risk assessment as they review
plans to expand their nursing home chain into
various states in the southeast. The
management team has consulted published
industry sources to evaluate both population
trends and affluence in the region as a means of
evaluating both demand, the ability to pay and the
risk that populations may either not seek
healthcare or may not be able to afford it.
Barker's listing of risks from industry sources is a
technique for risk assessment known as a(n):
a. Facilitated workshop.
b. Event Inventory.
c. Questionnaire/Survey.
d. Process Flow Analysis.
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21. CPA-06758 B1 Page 14
Kamp Sporting Goods seeks to establish a code
of conduct that will communicate the "tone at the
top" to all employees. The contents of the code
will likely include all of the following, except:
a. Prohibitions against conflicts of interest
and self dealing.
b. Prohibitions or limits on gifts and gratuities
or establishes required reporting.
c. Descriptions of the organization's
commitment to compliance and
confidentiality.
d. Definitions of common sense approaches
to software piracy to ensure that the
company is competitive.
22. CPA-06759 B1 Page 16〈参考〉
Dollar Bus Company has set an objective to fully
comply with published bus schedules to ensure
consistent on-time service. The company knows
that shorter routes per bus minimize delays
caused by unforeseen issues. Shorter routes
require a greater investment in the fleet. The
company currently achieves an 83% compliance
rate with the schedule and does not expect a
significant increase or decrease in ridership or
revenue as compliance improves to 100% but
does see revenues fall off significantly when
buses are late more that 20% of time. The
company's objective setting would logically
develop as follows:
a. Compliance with the bus schedule would
be reviewed in relation to the risk of lost
ridership within tolerable compliance
percentages above 80%.
b. Additional busses would be acquired to
achieve the objective and incentives
would be provided to drivers who
consistently meet requirements.
c. Tolerable levels of variation from
compliance with stated bus schedules are
established as a means of establishing
realistic compliance objectives.
d. Compliance rates of 80% would become
the objective and additional investments
in buses would be required to reduce risk.
23. CPA-06760 B1 Page 17〈参考〉
Extra Edge Sporting Goods has set a strategic
objective of being in the upper quartile of sporting
goods retailers. The company identified a related
objective of increasing its sales force by 50 new
staff members while maintaining staff cost at .194
cents per sales dollar. Events identified by the
management of Extra Edge that might interfere
with achievement of their related objective would
include all of the following, except:
a. Product demand may fall if sporting
goods become less popular.
b. Job markets may heat up and cause
fewer offers to be accepted for the
expanded sales force.
c. Inadequate needs assessments may
result in bad staffing decisions.
d. Job markets may slow down and result in
more staff accepting positions than there
are available positions.
24. CPA-06761 B1 Page 18
Management has carefully evaluated the
likelihood and impact of events on its foreign
operations. In the event of a 3% variation in
exchange rate, the impact is estimated at $10
million without any action taken by management
and $4 million if the company purchases a hedge
instrument. The impact of the inherent risk of
changes in foreign currency exchange on
achieving company's business objectives is:
a. $14 million.
b. $10 million.
c. $ 6 million.
d. $ 4 million.
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25. CPA-06762 B1 Page 18
Management has carefully evaluated the
likelihood and impact of events on its foreign
operations. In the event of a 3% variation in
exchange rate, the impact is estimated at $10
million without any action taken by management
and $4 million if the company purchases a hedge
instrument. The impact of the residual risk of
changes in foreign currency exchange on
achieving company's business objectives is:
a. $14 million.
b. $10 million.
c. $ 6 million.
d. $ 4 million.
26. CPA-06763 B1 Page 20
Control activities are most closely related to:
a. Risk responses.
b. Risk assessments.
c. Inherent risks.
d. Residual risks.
27. CPA-06764 B1 Page 23
For the components of Enterprise Risk
Management to be functioning effectively, there
cannot be:
a. Material weaknesses in internal control.
b. Operating losses in the last three fiscal
periods.
c. Reliance on unconsolidated subsidiaries.
d. Extraordinary losses.
29. CPA-06664 Newly Released 2010 B1 Page 13
According to COSO, which of the following
components of enterprise risk management
addresses an entity's integrity and ethical values?
a. Information and communication.
b. Internal environment.
c. Risk assessment.
d. Control activities.
30. CPA-06770 B1 Page 11
The Daphne Corporation evaluates employees
with responsibilities for financial reporting for
fulfillment of those responsibilities for
compensation and promotion purposes. The
company's policies support the idea that:
a. Management's philosophy and operating
style support achieving effective internal
control over financial reporting.
b. Management and employees are
assigned appropriate levels of authority
and responsibility to facilitate effective
internal control over financial reporting.
c. The company's organizational structure
supports effective internal control over
financial reporting.
d. Human resources practices should be
designed to facilitate effective internal
control over financial reporting.
28. CPA-06765 B1 Page 23
The criteria for evaluating the effectiveness of
enterprise risk management are:
a. The components of the internal control
integrated framework.
b. The principles supporting the components
of the internal control integrated
framework.
c. The components of the enterprise risk
management framework.
d. The key elements supporting the
components of the enterprise risk
management framework.
6
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2. Control Environment
31. CPA-06766 B1 Page 27
The Committee on Sponsoring Organizations
(COSO) recommends that the number of
organizational layers between the Chief Financial
Officer and those involved in financial reporting
should not exceed:
a. One.
b. Two.
c. Three.
d. Four.
32. CPA-06767 B1 Page 26
As a matter of policy, all correspondence to or
from regulatory auditors received by the
management of the Barclay Corporation is
provided to the Barclay Corporation audit
committee and the corporation's full board as
needed. In assessing entity wide controls,
management might conclude:
a. The Board of Directors understands and
exercises oversight responsibility related
to financial reporting and related internal
control.
b. Management's philosophy and operating
style support achieving effective internal
control over financial reporting.
c. The company's organization structure
supports effective internal control over
financial reporting.
d. Management and employees are
assigned appropriate levels of authority
and responsibility to facilitate effective
internal control over financial reporting.
33. CPA-06768 B1 Page 25
Auburndale Corporation has a corporate
compliance program that allows employees the
option of anonymously reporting violations of laws,
rules, regulations, policies or other issues of
abuse through a hotline. Reported issues are
reviewed by the internal auditor and either
immediately forwarded to the CEO or summarized
and reported to the CEO each month. The
program also provides opportunities to report
through supervisory channels and includes a
biannual training class that all employees must
complete. The corporate compliance program
demonstrates that:
a. Sound integrity and ethical values are
developed and understood and set the
standard of conduct for financial reporting.
b. The Board of Directors understands and
exercises oversight responsibility related
to financial reporting and related internal
control.
c. Management's philosophy and operating
style support achieving effective internal
control over financial reporting.
d. Management and employees are
assigned appropriate levels of authority
and responsibility to facilitate effective
internal control over financial reporting.
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34. CPA-06769 B1 Page 25
The Carlton Corporation publishes an Employee
Handbook that contains employee responsibilities
for moral behavior including a code of conduct.
Each year, employees must acknowledge their
receipt of the handbook, their understanding of the
code, and if they have any awareness of noncompliance within the company. The policies
would indicate:
a. Sound integrity and ethical values are
developed and understood and set the
standard of conduct for financial reporting.
b. Human resources practices are designed
and implemented to facilitate effective
internal control over financial reporting.
c. Management's philosophy and operating
style support achieving effective internal
control over financial reporting.
d. Management and employees are
assigned appropriate levels of authority
and responsibility to facilitate effective
internal control over financial reporting.
36. CPA-06772 B1 Page 30〈参考〉
All of the following management activities of the
Falco Insurance Group, Inc. are evidence of the
ongoing monitoring of internal controls built into
the company's system, except:
a. The CFO updates the audit committee on
status of internal control.
b. The CEO and CFO are required to
formally authorize all major
disbursements such as for claims and
reinsurance premiums.
c. The CFO reviews changes in liability
reserves in excess of a specified
threshold.
d. The CEO and CFO review monthly
disaggregated gross margin and
operating margin data by line of coverage.
35. CPA-06771 B1 Page 28〈参考〉
As a matter of practice, the Epoch Company has
formalized its finance department organizational
chart and developed job descriptions for each
position identified on the chart. The
organizational chart is reviewed by the Board of
Directors each year. Epoch's practice
demonstrates:
a. Management's philosophy and operating
style support achieving effective internal
control over financial reporting.
b. Management and employees are
assigned appropriate levels of authority
and responsibility to ensure effective
internal control over financial reporting.
c. The company's organizational structure
supports effective internal control over
financial reporting.
d. Human resources practices should be
designed to facilitate effective internal
control over financial reporting.
8
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B2. Corporate Governance
解答編
1. Corporate Governance
1. CPA-06663
Choice "b" is correct. Sarbanes Oxley Section
407 requires that an issuer's audit committee have
at least one financial expert, or disclose why that
role is not filled. Section 407 requires that the
financial expert have an understanding of GAAP
and financial statements, be able to assess the
application of accounting principles, have
comparable experience applying accounting
principles to entities that present a similar level of
complexity of the issuer, and understand both
internal controls and audit committee functions.
Choice "a" is incorrect. The audit committee is
charged with negotiating the engagement of the
external auditor and supervising their work. The
auditor is accountable to the audit committee.
The partner in charge of the audit firm engaged to
do the audit should not be the financial expert on
the audit committee.
Choice "c" is incorrect. Section 407 requires that
the audit committee's financial expert understand
the application of accounting principles to the
issues representative of the complexity of the
issuer but does not require specific experience in
the industry. Section 407 defines four ways in
which the necessary attributes of a financial
expert can be achieved: education, experience
supervising a financial officer, experience
overseeing auditors, or other relevant experience.
Choice "d" is incorrect. Section 407 does not
require that the audit committee's chairman be its
financial expert.
2. CPA-06739
Choice "c" is correct. Public companies are
required to establish an audit committee that is
directly responsible for the appointment,
compensation and oversight of the work of the
public accounting firm employed by that public
company. The separation of audit supervision
from the Board of Directors addresses the
problem of inadequate board oversight.
Choice "a" is incorrect. An annual audit provides
meaningful information about financial reporting
but it does not address the issue of board
oversight.
Choice "b" is incorrect. The independence of the
Board of Directors may provide some assurance
about the objectivity of the board but does not
address the issue of board oversight.
Choice "d" is incorrect. An internal audit function
improves the control environment but it does not
engage the Board of Directors in oversight.
3. CPA-06740
Choice "b" is correct. In the financial reports, the
issuer must disclose the existence of financial
expert(s) on the committee or the reasons why the
committee does not have a financial expert.
Choice "a" is incorrect. Although the SEC
proposed requirements that the name of the
financial expert be disclosed, the Sarbanes Oxley
Act only requires that the existence of a financial
expert(s) (or lack thereof) be disclosed.
Choice "c" is incorrect. The financial expert is not
required to report on the audit opinion.
Choice "d" is incorrect. Although audit
committee members are required to be
independent and the SEC has proposed
disclosure of independence, certification of
independence is not required in financial reports
under the Act.
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4. CPA-06741
Choice "b" is correct. The benefits of a financial
expert on the audit committee relate to the
expertise that the board can bring to its oversight
function.
Choice "a" is incorrect. The audit committee
provides oversight of the annual audit; however,
the audit committee and its financial expert do not
verify the auditor's work.
Choice "c" is incorrect. The term "expert" within
the context of the Sarbanes Oxley Act does not
convey the same requirements as SEC
regulations and does not convey either a higher
level of due diligence or provide insulation to other
board members. The Act is silent as to the
meaning of expert outside of the qualifications to
be deemed an expert.
Choice "d" is incorrect. The financial expert does
not certify compliance with SEC regulations.
5. CPA-06742
Choice "c" is correct. Qualification as a financial
expert is a judgmental issue is typically made by
the Board of Directors. The Sarbanes Oxley Act
is silent as to what group has the authority to
designate an individual a financial expert but in
practice, the board most often makes that
decision. The Act provides some guidance but
does not prescribe specific qualifications.
Choice "a" is incorrect. The Act provides some
guidance but does not prescribe specific
qualifications. The achievement of the CPA
license generally does not qualify an individual as
a financial expert.
Choice "b" is incorrect. The Act provides some
guidance but does not prescribe specific
qualifications. The idea of a petition to the SEC
is a distracter.
Choice "d" is incorrect. The Act provides some
guidance but does not prescribe specific
qualifications. In addition, the audit committee
would likely not regulate or evaluate the expertise
of its own membership. The Board of Directors
would likely make the decisions regarding the
designation of financial experts.
10
6. CPA-06743
Choice "d" is correct. Although the SEC
proposed standards for codes of ethics that
include internal reporting of code provisions and
accountability for adherence to the code, the
Sarbanes Oxley Act itself does not have this
requirement.
Choice "a" is incorrect. The Act specifically
requires that the code of ethics include provisions
for honest and ethical conduct.
Choice "b" is incorrect. The Act specifically
requires that the code of ethics include provisions
for full, fair, accurate and timely disclosure in
periodic financial statements.
Choice "c" is incorrect. The Act specifically
requires that the code of ethics include provisions
for compliance with laws, rules and regulations.
7. CPA-06744
Choice "c" is correct. Financial statement
disclosures include management's assumption of
responsibility for internal control, management's
assessment of internal control effectiveness and a
statement that the auditor has reported on
management's evaluation. Management does
not describe disagreements, if any, between
management and the auditor.
Choices "a", "b", and "d" are incorrect, based on
the above explanation.
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8. CPA-06745
Choice "d" is correct. The issues surrounding
risk and growth are significant to investors and
generally addressed by enterprise risk
management concepts; however, the Sarbanes
Oxley Act focuses less on strategic operations
and more on the financial reporting issues
impacted by the audit committee's competence,
the ethical behavior of the financial officers and
the adequacy of internal controls.
Choices "a", "b", and "c" are incorrect. The
Sarbanes Oxley Act focuses on the financial
reporting issues impacted by the audit
committee's competence, the ethical behavior of
the financial officers and the adequacy of internal
controls as a means of improving investor
confidence. Competency of audit committees,
compliance of senior financial officers with a code
of ethics, and adequacy of internal controls are all
issues addressed by Sarbanes Oxley.
9. CPA-06746
Choice "a" is correct. The Sarbanes Oxley Act
insists on compliance with a code of ethics by
senior financial officials but is silent as to the Chief
Executive Officer.
Choice "b" is incorrect. Senior financial officers
are subject to a code of ethics adopted by the
issuer. The Chief Financial Officer would be
included on the list of senior financial officers.
Choice "c" is incorrect. Senior financial officers
are subject to a code of ethics adopted by the
issuer. The controller would be included on the
list of senior financial officers.
Choice "d" is incorrect. Senior financial officers
are subject to a code of ethics adopted by the
issuer. The Chief Accounting Officer would be
included on the list of senior financial officers.
10. CPA-06747
Choice "b" is correct. Internal control information
is needed to facilitate the function of control
components and is identified, captured, used and
distributed in a timely manner that enables
personnel to fulfill their responsibilities.
Reporting that triggers prompt exception
resolution, root cause analysis, and control
updates illustrates this principle.
Choice "a" is incorrect. Financial reporting
information principles anticipate that information is
identified, captured, used at all levels of the
company and distributed in a manner that
supports the achievement of financial reporting
objectives. Variance analysis supports control
more so than effective financial reporting.
Choice "c" is incorrect. Internal communications
anticipate that communications enable and
support understanding and execution of internal
control objectives, processes, and individual
responsibilities. Variance analysis specifically
supports internal control, not simply internal
communications generally.
Choice "d" is incorrect. External communications
anticipate that matters affecting the achievement
of financial reporting are communicated with
outside parties.
11. CPA-06748
Choice "d" is correct. The principle of external
communications says that matters affecting the
achievement of financial reporting should be
communicated with outside parties.
Choice "a" is incorrect. The principle of financial
reporting information principles says that
information should be identified, captured, used at
all levels of the company, and distributed in a
manner that supports achievement of financial
reporting objectives.
Choice "b" is incorrect. Internal control
information is needed to facilitate the function of
control components and is identified, captured,
used and distributed in a timely manner that
enables personnel to fulfill their responsibilities.
Choice "c" is incorrect. The principle of internal
communications says that communications should
enable and support understanding and execution
of internal control objectives, processes and
individual responsibilities.
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12. CPA-06749
Choice "a" is correct. The assessment of
whether the financial statements reflect the
underlying transactions and events in a manner
that is fairly stated is a financial reporting objective.
Choice "b" is incorrect. The determination of
what might interrupt a company's ability to present
their financial statements in accordance with
GAAP is a financial reporting risk. Instafab's
analysis of capital lease recording relates to
financial reporting objectives, not risks.
Choice "c" is incorrect. The fraud risk principle
considers incentives and pressures to commit
fraud and the responsibility and accountability for
fraud policies. Instafab's analysis of capital lease
recording relates to financial reporting objectives,
not fraud risks.
Choice "d" is incorrect. The risk assessment
component of the framework does not
contemplate an "assessment" risk. This term
has no definition.
13. CPA-06750
Choice "b" is correct. The determination of what
might interrupt a company's ability to present their
financial statements in accordance with GAAP is
financial reporting risk.
Choice "a" is incorrect. The assessment of
whether the financial statements reflect the
underlying transactions and events in a manner
that is fairly stated is a financial reporting objective.
Financial reporting objectives relate more to the
substance of transactions and fair presentation
than internal controls over processes and the
resulting financial reporting risks.
Choice "c" is incorrect. The fraud risk principle
considers incentives and pressures to commit
fraud and the responsibility and accountability for
fraud policies. Jasper's analysis of cash
transaction processing relates to financial
reporting risks, not fraud risk.
Choice "d" is incorrect. The risk assessment
component of the framework does not
contemplate an "assessment" risk. This term
has no definition.
12
14. CPA-06751
Choice "c" is correct. The Committee on
Sponsoring Organizations (COSO), an
independent private sector initiative, was initially
established in the mid 1980's to study the factors
that can lead to fraudulent financial reporting.
The COSO is sometimes referred to as the
Treadway Commission after its original Chairman,
James Treadway, Jr., an executive in the private
sector. The private "sponsoring organizations"
included the five major financial professional
associations in the United States: the American
Accounting Association (AAA), the American
Institute of Certified Public Accountants (AICPA),
the Financial Executives Institute (FEI), the
Institute of Internal Auditors (IIA), and the Institute
of Management Accountants (IMA).
Choices "a", "b", and "d" are incorrect, based on
the above explanation.
15. CPA-06752
Choice "a" is correct. In 1992, the Committee on
Sponsoring Organizations (COSO) issued Internal
Control - Integrated Framework (the Framework)
to assist organizations in developing
comprehensive assessments of internal control
effectiveness. The Framework is widely
regarded as an appropriate and comprehensive
basis to document the assessment of internal
controls over financial reporting.
Choice "b" is incorrect. The Framework was
developed in 1992, ten years before the Sarbanes
Oxley Act of 2002.
Choice "c" is incorrect. The Treadway
Commission was a private initiative and was not
part of a congressional task force.
Choice "d" is incorrect. Although the internal
control framework does complement the
enterprise risk management framework, the
internal control literature was prepared in 1992
while the enterprise risk management literature
was developed in 2004. The internal control
framework could not have been developed to
complement the enterprise risk management
framework.
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16. CPA-06753
Choice "a" is correct. A response to risk that
involves the disposal of a business unit, product
line, or geographical segment is called risk
avoidance. When Able sells all of its businesses
in Florida, the company eliminates its exposure to
named storms that hit Florida.
Choice "b" is incorrect. A response to risk that
involves the diversification of product offerings
rather than the elimination of product offerings is
called reduction. Leaving the state is avoidance,
not reduction.
Choice "c" is incorrect. Insuring against losses or
entering into joint ventures to address risk is
known as risk sharing. Leaving the state is
avoidance, not sharing.
Choice "d" is incorrect. Self insuring or simply
tolerating full exposure to risk is known as
acceptance. Leaving the state is not acceptance
of risk.
17. CPA-06754
Choice "c" is correct. Insuring against losses or
entering into joint ventures to address risk is
known as risk sharing.
Choice "a" is incorrect. A response to risk that
involves the disposal of a business unit, product
line or geographical segment is called risk
avoidance. Obtaining appropriate insurance is
not avoidance.
Choice "b" is incorrect. A response to risk that
involves the diversification of product offerings
rather than elimination of product offerings is
called reduction. Obtaining appropriate
insurance is not reduction, it is sharing (the risk
has not changed; it has been shifted to another
party).
Choice "d" is incorrect. Self insuring or simply
tolerating the full exposure to risk is known as
acceptance. Obtaining appropriate insurance is
not acceptance of risk.
18. CPA-06755
Choice "b" is correct. A response to risk that
involves the diversification of product offerings
rather than elimination of product offerings is
called reduction.
Choice "a" is incorrect. A response to risk that
involves the disposal of a business unit, product
line or geographical segment is called risk
avoidance. Adjustments to the portfolio do not
represent avoidance.
Choice "c" is incorrect. Insuring against losses or
entering into joint ventures to address risk is
known as risk sharing. Adjustments to the
portfolio do not represent sharing.
Choice "d" is incorrect. Self insuring or simply
tolerating the full exposure to risk is known as
acceptance. Adjustments to the portfolio do not
represent acceptance.
19. CPA-06756
Choice "d" is correct. Self insuring or simply
tolerating the full exposure to risk is known as
acceptance.
Choice "a" is incorrect. A response to risk that
involves disposal of a business unit, product line
or geographical segment is called risk avoidance.
Accepting risk as part of a business model does
not represent avoidance.
Choice "b" is incorrect. A response to risk that
involves diversification of product offerings, rather
than elimination of product offerings, is called
reduction. Accepting risk as part of a business
model does not represent reduction.
Choice "c" is incorrect. Insuring against losses or
entering into joint ventures to address risk is
known as risk sharing. Accepting risk as part of
a business model does not represent sharing.
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20. CPA-06757
Choice "b" is correct. When management uses
listings of potential events common to a specific
industry as a means of identifying risks or
opportunities, the method is known as event
inventory.
Choice "a" is incorrect. Gathering management
together to discuss or even brainstorm ideas in a
structured manner is a facilitated workshop.
Common industry lists or inventories are not
techniques associated with facilitated workshops.
Choice "c" is incorrect. Sending out
questionnaires to affected parties requesting
opinions on potential events is the
questionnaire/survey approach. Common
industry lists or inventories are not questionnaires
or surveys.
Choice "d" is incorrect. A flow chart of activities
used to identify potential risks is a process flow
analysis. Common industry lists or inventories
are not part of the process flow analysis.
21. CPA-06758
Choice "d" is correct. Codes of conduct likely will
not condone exceptions to ethical behavior or the
law in the name of competition.
Choice "a" is incorrect. Codes of conduct
frequently include prohibitions against conflicts of
interest.
Choice "b" is incorrect. Codes of conduct often
include guidance on gifts and gratuities.
Choice "c" is incorrect. Codes of conduct will
generally stipulate that information is privileged
and should be kept confidential.
22. CPA-06759
Choice "a" is correct. Objectives are aligned with
risk appetite, which drives risk tolerance levels.
Choice "b" is incorrect. Acquisition of additional
busses is a response to risks and would not be
part of objective setting.
Choice "c" is incorrect. Tolerable limits would not
be used to back into objectives.
Choice "d" is incorrect. Risk responses
(purchase of buses) would not be derived from
objectives.
14
23. CPA-06760
Choice "a" is correct. Although product demand
is a legitimate concern, the related objective is
associated with staffing levels. The drop in
product demand would not be an event identified
regarding the objective of hiring staff within certain
cost constraints.
Choice "b" is incorrect. An overheated job
market that creates a reduced pool of job
applicants is an event that would affect Extra
Edge's objective of adding 50 new staff members.
Choice "c" is incorrect. Inadequate needs
assessments is an event that could impact the
quality of the new staff added by Extra Edge and
would impact the objective of adding 50 new staff
members.
Choice "d" is incorrect. A sluggish job market is
an event that could not only result in an
abundance of staff but could also produce
acceptance of more offers than there are available
positions and would impact Extra Edge's objective
of adding 50 new staff members.
24. CPA-06761
Choice "b" is correct. Inherent risk is the risk to
an entity in the absence of any actions
management might take to alter either the risk's
likelihood or impact. The $10 million exposure
identified in the problem is the risk exposure
without management's intervention.
Choice "a" is incorrect. The inherent risk is not
the sum of the inherent risk of $10 million and the
residual risk of $4 million.
Choice "c" is incorrect. The inherent risk is not
the difference between the inherent risk of $10
million and the residual risk of $4 million.
Choice "d" is incorrect. The $4 million risk
exposure, after management purchases the
hedge, is the residual risk. Residual risk is the
risk that remains after management responds to
the risk.
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25. CPA-06762
Choice "d" is correct. The $4 million risk
exposure, after management purchases the
hedge, is the residual risk. Residual risk is the
risk that remains after management responds to
the risk.
Choice "a" is incorrect. The inherent risk is not
the sum of the inherent risk of $10 million and the
residual risk of $4 million.
Choice "b" is incorrect. Inherent risk is the risk to
an entity in the absence of any actions
management might take to alter either the risk's
likelihood or impact. The $10 million exposure
identified in the problem is the risk exposure
without management's intervention.
Choice "c" is incorrect. The inherent risk is not
the difference between the inherent risk of $10
million and the residual risk of $4 million.
26. CPA-06763
Choice "a" is correct. Control activities are the
methods used to implement the response to risk.
Sometimes the control activity is also, effectively,
the risk response.
Choice "b" is incorrect. Risk assessments
involve the determination of the likelihood and
impact of events on the achievement of objectives.
Choice "c" is incorrect. Inherent risk is the risk to
an entity in the absence of any actions
management might take to alter either the risk's
likelihood or impact. Risk responses are
developed to deal with inherent risk.
Choice "d" is incorrect. Residual risk is the risk
that remains after management responds to the
risk. The residual risk still remains after the
response to the risk and the control activities are
in place.
27. CPA-06764
Choice "a" is correct. In order for the operating
efficiencies contemplated by enterprise risk
management to operate effectively, there cannot
be material weaknesses in internal control.
Choices "b", "c", and "d" are incorrect. Enterprise
risk management is associated with the
identification and evaluation of risk and the
balancing of those risks with profitability and
growth objectives. Recent operating losses,
reliance on unconsolidated subsidiaries, and
extraordinary losses would not preclude the
effective operation of enterprise risk management
concepts.
28. CPA-06765
Choice "c" is correct. The components of the
enterprise risk management framework are the
criteria used to evaluate its effectiveness.
Choice "a" is incorrect. The enterprise risk
management framework embrace many of the
concepts and objectives of the internal control
framework, but they are not the criteria used to
evaluate its effectiveness.
Choice "b" is incorrect. The enterprise risk
management framework embrace many of the
concepts and objectives of the internal control
framework, but they are not the criteria used to
evaluate its effectiveness.
Choice "d" is incorrect. The enterprise risk
management framework embraces all of the key
elements supporting enterprise risk management
components, but they are not the criteria used to
evaluate its effectiveness.
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29. CPA-06664
Choice "b" is correct. Integrity and ethical values
are addressed in the Internal Environment
component of the Committee on Sponsoring
Organizations Enterprise Risk Management
Integrated Framework. Other elements of
internal environment include risk management
philosophy, risk appetite, organizational structure,
assignment of authority and responsibility, and
human resources standards.
Choice "a" is incorrect. The information and
communication component of the Committee on
Sponsoring Organizations Enterprise Risk
Management Integrated Framework includes
information and communications standards, not
ethical values.
Choice "c" is incorrect. The risk assessment
component of the Committee on Sponsoring
Organizations Enterprise Risk Management
Integrated Framework includes the identification of
inherent and residual risk, the evaluation of
likelihood and impact of risk, and data sources.
Ethical values are not a primary component of this
area.
Choice "d" is incorrect. The control activities
component of the Committee on Sponsoring
Organizations Enterprise Risk Management
Integrated Framework includes types of control
activities, policies and procedures, and integration
of control issues with risk responses. Ethical
values are not a primary component of this area.
16
30. CPA-06770
Choice "d" is correct. The regular evaluation of
employees for their competence in financial
reporting is an important link between human
resources policies and the achievement of
financial reporting objectives.
Choice "a" is incorrect. Management's operating
style relates more to work ethic and commitment
to effective financial reporting than the recruitment,
retention, and evaluation of employees.
Choice "b" is incorrect. Appropriate delegation
relates to the organization's assignment of duties
rather than to the recruitment, retention, and
evaluation of employees.
Choice "c" is incorrect. The organizational
structure principle typically involves the
appropriate alignment of reporting relationships to
ensure that controls are not undermined (e.g.,
internal auditors should not report to the CFO)
rather than to the recruitment, retention and
evaluation of employees.
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2. Control Environment
31. CPA-06766
Choice "c" is correct. According to the
organization structure principle supporting the
control environment component of the COSO's
Framework document, no more than three layers
of organization should exist between the CFO and
the individuals involved in financial reporting.
Choice "a" is incorrect. According to the
organization structure principle supporting the
control environment component of the COSO's
Framework document, no more than three layers
of organization should exist between the CFO and
the individuals involved in financial reporting.
One is too restrictive.
Choice "b" is incorrect. According to the
organization structure principle supporting the
control environment component of the COSO's
Framework document, no more than three layers
of organization should exist between the CFO and
the individuals involved in financial reporting.
Two is too restrictive.
Choice "d" is incorrect. According to the
organization structure principle supporting the
control environment component of the COSO's
Framework document, no more than three layers
of organization should exist between the CFO and
the individuals involved in financial reporting.
Four is too distant.
32. CPA-06767
Choice "a" is correct. Active engagement by an
audit committee in representing the Board of
Directors relative to all matters of internal and
external audits is evidence of the board's
understanding of their oversight responsibility over
financial reporting.
Choice "b" is incorrect. Management's operating
style typically relates to the manner in which
employees regard the importance of internal
controls. Qualified personnel actively engaged in
ensuring effective financial reporting relate to
management's operating style.
Choice "c" is incorrect. The organizational
structure principle typically involves the
appropriate alignment of reporting relationships to
ensure that controls are not undermined (e.g.,
internal auditors should not report to the CFO).
Choice "d" is incorrect. The authority and
responsibility principle is typically related to
defining staff responsibilities in a manner that is
compatible with their authority and consistent with
effective financial reporting.
33. CPA-06768
Choice "a" is correct. The existence of a
compliance program that includes both ethics
training and a hotline for anonymous reporting is
evidence of development of ethical values and
ensuring that those values are understood and
taken seriously.
Choice "b" is incorrect. Board oversight relates
more to overall leadership than to the specifics of
ethical behavior.
Choice "c" is incorrect. Management's operating
style relates more to work ethic and commitment
to effective financial reporting rather than the
specifics of ethical behavior.
Choice "d" is incorrect. Appropriate delegation
relates to the organization's assignment of duties
rather than to the specifics of ethical behavior.
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34. CPA-06769
Choice "a" is correct. The existence of a
published code of ethics and a periodic
acknowledgment that ethical values are
understood is evidence of development of ethical
values and ensuring that those values are
understood and taken seriously.
Choice "b" is incorrect. Human resources
standards generally relate to hiring practices and
appropriate placement of individuals within the
organization based on job descriptions, rather
than the specifics of ethical behavior.
Choice "c" is incorrect. Management's operating
style relates more to work ethic and commitment
to effective financial reporting than the specifics of
ethical behavior.
Choice "d" is incorrect. Appropriate delegation
relates to the organization's assignment of duties
rather than to the specifics of ethical behavior.
18
35. CPA-06771
Choice "b" is correct. Formalized organizational
charts and job descriptions are evidence that
senior and functional management have taken
responsibility for employees' understanding of
their responsibilities for achieving financial
reporting goals through adherence to internal
control policies and procedures.
Choice "a" is incorrect. Management's operating
style typically relates to the manner in which
employees regard the importance of internal
controls. Qualified personnel actively engaged in
ensuring effective financial reporting relate to
management's operating style. Authority and
responsibility issues relate to assigned tasks of
individuals within the organization.
Choice "c" is incorrect. The organizational
structure principle typically involves the
appropriate alignment of reporting relationships to
ensure that controls are not undermined (e.g.,
internal auditors should not report to the CFO).
Authority and responsibility issues relate to
assigned tasks of individuals within the
organization.
Choice "d" is incorrect. Regularly evaluating
responsible employees for their competence in
financial reporting is an important link between
human resources policies and the achievement of
financial reporting objectives. Human resources
principles relate to hiring, retention, and evaluation
of employees while authority and responsibility
issues relate to assigned tasks of individuals
within the organization.
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36. CPA-06772
Choice "a" is correct. Regular reporting to the
audit committee represents reporting of
deficiencies, not ongoing monitoring.
Choice "b" is incorrect. Ongoing monitoring of
internal controls include such functions as
authorization of major disbursements, reviews of
large or unusual transactions and high level
reviews of disaggregated information. Formal
authorization of all major disbursements such as
for claims and reinsurance premiums represents
an ongoing control.
Choice "c" is incorrect. Ongoing monitoring of
internal controls include such functions as
authorization of major disbursements, reviews of
large or unusual transactions and high level
reviews of disaggregated information. Reviews
of changes in liability reserves in excess of a
specified threshold represent ongoing monitoring.
Choice "d" is incorrect. Ongoing monitoring of
internal controls include such functions as
authorization of major disbursements, reviews of
large or unusual transactions and high level
reviews of disaggregated information. Monthly
reviews of disaggregated gross margin and
operating margin data by line of coverage
represents ongoing monitoring.
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B1. Operations Management (154問）
問題編
1. Operations Management: Performance
Management and Impact of Measures on
Behavior
1. CPA-03875 3C.C02 - 3 B1 Page 35
Quality programs normally include a number of
techniques to find and analyze problems. The
technique commonly used to determine zero
defects and goalpost conformance is called a:
a. Control Chart.
b. Pareto Diagram.
c. Fishbone Diagram.
d. Value Chain Analysis.
2. CPA-03878 3C.C02 - 5 B1 Page 36
Quality programs normally include a number of
techniques to find and analyze problems. The
technique commonly used to analyze the source
of potential problems and their locations within a
process is called a:
a. Control Chart.
b. Pareto Diagram.
c. Fishbone Diagram.
d. Value Chain Analysis.
3. CPA-05801 Released 2009 B1 Page 34
The management of a company would do which
of the following to compare and contrast its
financial information to published information
reflecting optimal amounts?
a. Budget.
b. Forecast.
c. Benchmark.
d. Utilize best practices.
4. CPA-03985 D94 - 1.15 B1 Page 33
The goals and objectives upon which an annual
profit plan is most effectively based are:
a. Quantitative measures such as growth in
unit sales, number of employees, and
manufacturing capacity.
b. Qualitative measures of organizational
activity such as product innovation
leadership, product quality levels, and
product safety.
c. Financial and quantitative measures.
d. A combination of financial, quantitative,
and qualitative measures.
5. CPA-04124 A97 - 1.91 B1 Page 34
Which of the following is a true statement
regarding nonfinancial measures of a process?
a. They are best viewed as attention
directors.
b. They are best viewed as problem solvers.
c. They are an effective substitute for
financial measures.
d. All of the above are true.
6. CPA-04126 A97 - 1.93 B1 Page 34
Which of the following will most likely encourage
the use of nonfinancial measures by a manager?
a. Tying incentives to the overall profit of the
firm.
b. Tying incentives to the manager's
individual effort.
c. Tying incentives to the salary level of the
manager.
d. All of the above can be equally effective.
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7. CPA-06773 B1 Page 33
All of the following statements about Return on
Investment (ROI) are correct, except:
a. ROI is expressed as a percentage of
profit to investment.
b. ROI is an outstanding performance
measure since it motivates managers to
delay or avoid investing in new plant,
property, & equipment (PP&E).
c. Delayed investment in new plant, property,
& equipment (PP&E) generally makes
achievement of ROI targets easier.
d. ROI targets are designed to motivate
managers to achieve target levels of net
earnings on company resources.
8. CPA-06774 B1 Page 33
Which of the following Performance Management
Measures integrates both financial and nonfinancial measures of performance?
a. Return on Investment.
b. Control Charts.
c. Balanced Scorecard.
d. Variance Analysis.
9. CPA-06775 B1 Page 34
Which of the following is true regarding
Productivity Ratios?
a. Total productivity ratios (TPRs) consider
all inputs simultaneously as well as the
prices of the inputs.
b. Partial productivity ratios (PPRs) consider
the quality and price of a single input.
c. TPR is calculated as the quantity of
output produced in a given period divided
by the sales price of outputs during the
same period.
d. PPR is calculated as the quantity of
output produced divided by cost of the
single input used.
2
10. CPA-06776 B1 Page 35
Which of the following is true regarding Pareto
diagrams?
a. They graphically display the impact of
measuring goalpost conformance.
b. They provide a framework for a manager
to analyze the problems that contribute to
the occurrence of defects.
c. Quality control issues are displayed in
order of least to most frequent.
d. They display the individual and
cumulative frequency of quality issues,
defects, or problems.
11. CPA-06777 B1 Page 36
Which of the following is not an element of the
manufacturing process typically presented on a
cause and effect (Fishbone) diagram?
a. Manpower.
b. Machinery.
c. Manufacturing Overhead.
d. Method.
12. CPA-06778 B1 Page 39
Which of the following design choices for
management incentive compensation would most
likely emphasize future performance?
a. Incentive programs that are formula
driven.
b. Bonus programs that depend on
company-wide performance.
c. Restricted stock option programs.
d. Competitive incentive plans in which
commission rates increase as thresholds
are met.
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13. CPA-06779 B1 Page 34
Which of the following is not a characteristic of
effective performance measures?
a. The measure is under the control of the
employee.
b. The measure is objective and easily
measured.
c. The measure relates to the goals of the
organization.
d. The measure emphasizes long-term over
short-term issues.
14. CPA-06780 B1 Page 37〈参考〉
Good Stuff Vitamin Corporation is trying to locate
customers that will likely be interested in their
range of health related products. The company
is promoting their products to active adults and
active seniors and has obtained a list of older
adults from retirement associations and the
names of individuals using other health related
products such as athletic footwear. Future
promotions are tailored to individual needs based
on past orders. Good Stuff's marketing practices
could best be characterized as:
a. Transaction marketing.
b. E-marketing.
c. Network marketing.
d. Database marketing.
15. CPA-06781 B1 Page 40〈参考〉
Arnold Construction Company uses the
completed contract method to account for its jobs.
The company has significant international
business and is planning for an early conversion
to International Financial Reporting Standards
(IFRS). As a result of this conversion, Arnold
would expect to see:
a. Increased revenue.
b. Decreased revenue.
c. No change in revenue.
d. Indeterminate results.
16. CPA-06782 B1 Page 41〈参考〉
Baker Retailers uses LIFO to account for its
inventory and is planning for an early conversion
to International Financial Reporting Standards
(IFRS). Baker is operating in numerous
international markets where prices are rising. As
a result of the conversion to IFRS, Arnold would
expect to see the following impact on the
balances of the accounts shown below:
a.
b.
c.
d.
Inventory
Higher
Higher
Lower
Lower
Income
Higher
Lower
Higher
Lower
17. CPA-06804 B1 Page 34
Return on investment (ROI) is criticized as a
performance measure since it is not a well
balanced measure. What characteristic of
effective performance measures does the ROI
lack?
a. ROI is not easily measured.
b. ROI is not understood.
c. ROI does not balance long and shortterm issues.
d. ROI is not controlled or influenced by the
manager.
18. CPA-04200 J97 - 1.26 B1 Page 34
Fabro, Inc. produced 1,500 units of Product RX-6
last week. The inputs to the production process
for Product RX-6 were as follows.
450 pounds of Material A at a cost of $1.50
per pound.
300 pounds of Material Z at a cost of $2.75
per pound.
300 labor hours at a cost of $15.00 per hour.
What is the best productivity measure for the firstline supervisor in Fabro, Inc.'s production plant?
a. 5.00 units per labor hour.
b. 0.33 units per dollar input.
c. 2.00 units per pound.
d. $15.00 per labor hour.
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19. CPA-04218 3C.C02 - 4 B1 Page 35
Quality programs normally include a number of
techniques to find and analyze problems. The
technique commonly used to rank and analyze
the individual and cumulative causes of defects is
called a:
a. Control Chart.
b. Pareto Diagram.
c. Fishbone Diagram.
d. Value Chain Analysis.
20. CPA-06805 B1 Page 38
Executive perks are often criticized since the
compensation provided to the manager:
a. Occurs without Board of Director's
approval.
b. Is not taxable.
c. Can be excessive.
d. Unfairly reduces traditional compensation.
4
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2. Operations Management: Cost
Measurement Methods and Techniques
21. CPA-03465 D94 - 1.03 B1 Page 48
Huron Industries has recently developed two new
products, a cleaning unit for laser discs and a tape
duplicator for reproducing home movies taken
with a video camera. However, Huron has only
enough plant capacity to introduce one of these
products during the current year. The company
controller has gathered the following data to assist
management in deciding which product should be
selected for production.
Huron's fixed overhead includes rent and utilities,
equipment depreciation, and supervisory salaries.
Selling and administrative expenses are not
allocated to products.
Tape Duplicator
Raw materials
$
44.00
22. CPA-03484 D96 - 1.30 B1 Page 55
Lankip Company produces two main products and
a byproduct out of a joint process. The ratio of
output quantities to input quantities of direct
material used in the joint process remains
consistent from month to month. Lankip has
employed the physical-volume method to allocate
joint production costs to the two main products.
The net realizable value of the byproduct is used
to reduce the joint production costs before the joint
costs are allocated to the main products. Data
regarding Lankip's operations for the current
month are presented in the chart below. During
the month, Lankip incurred joint production costs
of $2,520,000. The main products are not
marketable at the split-off point and, thus, have to
be processed further.
Cleaning Unit
$
Machining @ $12/hr.
18.00
15.00
Assembly @ $10/hr.
30.00
10.00
in pounds
Variable overhead @ $8/hr.
36.00
18.00
Selling price
Fixed overhead @ $4/hr.
18.00
9.00
Total cost
$ 146.00
$
88.00
Suggested selling price
$ 169.95
$
99.98
$ 240,000
$ 175,000
$ 500,000
$ 350,000
Actual research and
development costs
Proposed advertising and
promotion costs
First Main
Second Main
Product
Product
36.00
The total overhead cost of $27.00 for Huron's
laser disc cleaning unit is a:
a. Carrying cost.
b. Sunk cost.
c. Mixed cost.
d. Committed cost.
Byproduct
Monthly output
per pound
Process costs
90,000
$
30
$ 540,000
150,000
$
14
60,000
$
2
$ 660,000
The amount of joint production cost that Lankip
would allocate to the Second Main Product by
using the physical-volume method to allocate joint
production costs would be:
a. $1,260,000
b. $1,500,000
c. $1,575,000
d. $1,650,000
23. CPA-03498 ARE Nov 95 #48 B1 Page 54
For purposes of allocating joint costs to joint
products, the sales price at point of sale, reduced
by cost to complete after split-off, is assumed to
be equal to the:
a. Joint costs.
b. Total costs.
c. Net sales value at split-off.
d. Sales price less a normal profit margin at
point of sale.
OPERATIONS MGMT PICKUP
5
Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
24. CPA-03503 ARE May 95 #43 B1 Page 55
Kode Co. manufactures a major product that
gives rise to a by-product called May. May's only
separable cost is a $1 selling cost when a unit is
sold for $4. Kode accounts for May's sales by
deducting the $3 net amount from the cost of
goods sold of the major product. There are no
inventories. If Kode were to change its method
of accounting for May from a by-product to a joint
product, what would be the effect on Kode's
overall gross margin?
a. No effect.
b. Gross margin increases by $1 for each
unit of May sold.
c. Gross margin increases by $3 for each
unit of May sold.
d. Gross margin increases by $4 for each
unit of May sold.
25. CPA-03506 Th May 93 #42 B1 Page 54
For purposes of allocating joint costs to joint
products, the sales price at point of sale, reduced
by cost to complete after split-off, is assumed to
be equal to the:
a. Total costs.
b. Joint costs.
c. Sales price less a normal profit margin at
point of sale.
d. Relative sales value at split-off.
26. CPA-03510 PII May 92 #42 (Adapted) B1
Page 46
Fab Co. manufactures textiles. Among Fab's
Year 1 manufacturing costs were the following
salaries and wages:
Loom operators
Factory foremen
Machine mechanics
27. CPA-03513 J90 - 1.06 B1 Page 54
Sonimad Sawmill manufactures two lumber
products from a joint milling process. The two
products developed are mine support braces
(MSB) and unseasoned commercial building
lumber (CBL). A standard production run incurs
joint costs of $300,000 and results in 60,000 units
of MSB and 90,000 units of CBL. Each MSB
sells for $2 per unit, each CBL sells for $4 per unit.
Assuming no further processing work is done after
the split-off point, the amount of joint cost
allocated to commercial building lumber (CBL) on
a physical quantity allocation basis would be:
a. $75,000
b. $180,000
c. $225,000
d. $120,000
28. CPA-03541 J90 - 1.07 B1 Page 54
Sonimad Sawmill manufactures two lumber
products from a joint milling process. The two
products developed are mine support braces
(MSB) and unseasoned commercial building
lumber (CBL). A standard production run incurs
joint costs of $300,000 and results in 60,000 units
of MSB and 90,000 units of CBL. Each MSB
sells for $2 per unit, each CBL sells for $4 per unit.
If there are no further processing costs incurred
after the split-off point, the amount of joint cost
allocated to the mine support braces (MSB) on a
relative sales value basis would be:
a. $75,000
b. $180,000
c. $225,000
d. $120,000
$120,000
45,000
30,000
What was the amount of Fab's Year 1 direct
labor?
a. $195,000
b. $165,000
c. $150,000
d. $120,000
6
OPERATIONS MGMT PICKUP
Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
29. CPA-03549 J90 - 1.08 B1 Page 54
Sonimad Sawmill manufactures two lumber
products from a joint milling process. The two
products developed are mine support braces
(MSB) and unseasoned commercial building
lumber (CBL). A standard production run incurs
joint costs of $300,000 and results in 60,000 units
of MSB and 90,000 units of CBL. Each MSB
sells for $2 per unit, each CBL sells for $4 per unit.
Continuing with the previous data, assume the
commercial building lumber is not marketable at
split-off but must be further planed and sized at a
cost of $200,000 per production run. During this
process, 10,000 units are unavoidably lost; these
spoiled units have no discernable value. The
remaining units of commercial building lumber are
saleable at $10.00 per unit. The mine support
braces, although saleable immediately at the splitoff point, are coated with a tar-like preservative
that costs $100,000 per production run. The
braces are then sold for $5 each.
Using the net realizable value (NRV) basis, the
completed cost assigned to each unit of
commercial building lumber would be:
a. $2.92
b. $5.625
c. $5.3125
d. Some amount other than those given
above.
30. CPA-03557 J90 - 1.09 B1 Page 53
Sonimad Sawmill manufactures two lumber
products from a joint milling process. The two
products developed are mine support braces
(MSB) and unseasoned commercial building
lumber (CBL). A standard production run incurs
joint costs of $300,000 and results in 60,000 units
of MSB and 90,000 units of CBL. Each MSB
sells for $2 per unit, each CBL sells for $4 per unit.
Continuing with the previous data, assume the
commercial building lumber is not marketable at
split-off but must be further planed and sized at a
cost of $200,000 per production run. During this
process, 10,000 units are unavoidably lost; these
spoiled units have no discernable value. The
remaining units of commercial building lumber are
saleable at $10.00 per unit. The mine support
braces, although saleable immediately at the splitoff point, are coated with a tar-like preservative
that costs $100,000 per production run. The
braces are then sold for $5 each.
If Sonimad Sawmill chose not to process the mine
support braces beyond the split-off point, the
contribution from the joint milling process would
be:
a. $50,000 higher.
b. $180,000 lower.
c. $100,000 higher.
d. $80,000 lower.
31.CPA-03561 ARE May 95 #42 B1 Page 52
Companies in what type of industry may use a
standard cost system for cost control?
Mass production
industry
a.
Yes
b.
Yes
c.
No
d.
No
OPERATIONS MGMT PICKUP
Service
industry
Yes
No
No
Yes
7
Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
32.CPA-04795 Released 2005 B1 Page 53
Mighty, Inc. processes chickens for distribution to
major grocery chains. The two major products
resulting from the production process are white
breast meat and legs. Joint costs of $600,000
are incurred during standard production runs each
month, which produce a total of 100,000 pounds
of white breast meat and 50,000 pounds of legs.
Each pound of white breast meat sells for $2 and
each pound of legs sells for $1. If there are no
further processing costs incurred after the split-off
point, what amount of the joint costs would be
allocated to the white breast meat on a relative
sales value basis?
a. $120,000
b. $200,000
c. $400,000
d. $480,000
35.CPA-05312 Released 2006 B1 Page 45
Which of the following is assigned to goods that
were either purchased or manufactured for
resale?
a. Relevant cost.
b. Period cost.
c. Opportunity cost.
d. Product cost.
33.CPA-04824 Released 2005 B1 Page 46
Which of the following types of costs are prime
costs?
a. Direct materials and direct labor.
b. Direct materials and overhead.
c. Direct labor and overhead.
d. Direct materials, direct labor, and
overhead.
37.CPA-03576 ARE R01 #19 B1 Page 54
One hundred pounds of raw material W is
processed into 60 pounds of X and 40 pounds of
Y. Joint costs are $135. X is sold for $2.50 per
pound and Y can be sold for $3.00 per pound or
processed further into 30 pounds of Z (10 pounds
are lost in the second process) at an additional
cost of $60. Each pound of Z can then be sold
for $6. What is the effect on profits of processing
product Y further into product Z?
a. $60 increase.
b. $30 increase.
c. No change.
d. $60 decrease.
34.CPA-05322 Released 2006 B1 Page 53
A company manufactures two products, X and Y,
through a joint process. The joint (common)
costs incurred are $500,000 for a standard
production run that generates 240,000 gallons of
X and 160,000 gallons of Y. X sells for $4.00 per
gallon, while Y sells for $6.50 per gallon. If there
are no additional processing costs incurred after
the split-off point, what is the amount of joint cost
for each production run allocated to X on a
physical-quantity basis?
a. $200,000
b. $240,000
c. $260,000
d. $300,000
8
36.CPA-05783 Released 2009 B1 Page 48
Which of the following costs would decrease if
production levels were increased within the
relevant range?
a. Total fixed costs.
b. Variable costs per unit.
c. Total variable costs.
d. Fixed costs per unit.
38.CPA-03625 ARE Nov 95 #45 B1 Page 66
Gram Co. develops computer programs to meet
customers' special requirements. How should
Gram categorize payments to employees who
develop these programs?
a.
b.
c.
d.
Direct
costs
Yes
Yes
No
No
OPERATIONS MGMT PICKUP
Value-adding
costs
Yes
No
No
Yes
Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
39.CPA-05796 Released 2009 B1 Page 43
Which of the following topics is the focus of
managerial accounting?
a. Financial statements and other financial
reports.
b. Historical cost principles.
c. The needs of creditors.
d. The needs of the organization's internal
parties.
41.CPA-03590 ARE R03 #21 B1 Page 63
Kerner Manufacturing uses a process cost system
to manufacture laptop computers. The following
information summarizes operations relating to
laptop computer model #KJK20 during the quarter
ending March 31:
Direct
Direct materials issued to production
Indirect materials issued to production
Manufacturing overhead incurred
Manufacturing overhead applied
Direct labor costs
$ 90,000
8,000
125,000
113,000
107,000
Pick had neither beginning nor ending work-inprocess inventory. What was the cost of jobs
completed in January Year 1?
a. $302,000
b. $310,000
c. $322,000
d. $330,000
Labor
100
$ 50,000
Work-in-process inventory,
January 1
40.CPA-03586 ARE May 94 #42 (Adapted) B1
Page 57
Under Pick Co.'s job order costing system
manufacturing overhead is applied to work in
process using a predetermined annual overhead
rate. During January Year 1, Pick's transactions
included the following:
Units
Started during the quarter
500
Completed during the quarter
400
Work-in-process inventory,
March 31
Costs added during the quarter
200
$ 720,000
Beginning work-in-process inventory was 50%
complete for direct labor costs. Ending work-inprocess inventory was 75% complete for direct
labor costs. What is the total value of direct labor
costs in ending work-in-process inventory using
the weighted-average unit cost inventory valuation
method?
a. $183,000
b. $194,000
c. $210,000
d. $216,000
OPERATIONS MGMT PICKUP
9
Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
42.CPA-03594 ARE R03 #22 B1 Page 63
Kerner Manufacturing uses a process cost system
to manufacture laptop computers. The following
information summarizes operations relating to
laptop computer model #KJK20 during the quarter
ending March 31:
44.CPA-03606 ARE R02 #25 B1 Page 59
Kerner Manufacturing uses a process cost system
to manufacture laptop computers. The following
information summarizes operations relating to
laptop computer model #KJK20 during the quarter
ending March 31:
Direct
Units
Materials
100
$ 50,000
Work-in-process inventory,
January 1
Direct
Units
Materials
100
$ 50,000
Work-in-process inventory,
January 1
Started during the quarter
500
Started during the quarter
500
Completed during the quarter
400
Completed during the quarter
400
Work-in-process inventory,
March 31
Costs added during the quarter
Work-in-process inventory,
200
March 31
$ 720,000
Costs added during the quarter
200
$ 720,000
Beginning work-in-process inventory was 50%
complete for direct materials. Ending work-inprocess inventory was 75% complete for direct
materials. What is the total value of material
costs in ending work-in-process inventory using
the weighted-average unit cost inventory valuation
method?
a. $183,000
b. $194,000
c. $210,000
d. $216,000
Beginning work-in-process inventory was 50%
complete for direct materials.
Ending work-in-process inventory was 75%
complete for direct materials. What is the total value
of material costs in ending work-in-process inventory
using the FIFO unit cost, inventory valuation
method?
a. $183,000
b. $194,000
c. $210,000
d. $216,000
43.CPA-03598 ARE R02 #21 B1 Page 65
Which of the following is true about activity-based
costing?
a. It should not be used with process or job
costing.
b. It can be used only with process costing.
c. It can be used only with job costing.
d. It can be used with either process or job
costing.
45.CPA-03608 ARE R01 #13 B1 Page 65
A basic assumption of activity-based costing
(ABC) is that:
a. All manufacturing costs vary directly with
units of production.
b. Products or services require the
performance of activities, and activities
consume resources.
c. Only costs that respond to unit-level
drivers are product costs.
d. Only variable costs are included in
activity-cost pools.
10
OPERATIONS MGMT PICKUP
Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
46.CPA-03611 D95 - 1.19 B1 Page 59
Madtack Company's beginning and ending
inventories for the month of November Year 1 are:
Direct materials
Work-in-process
Finished goods
November 1
$ 67,000
145,000
85,000
November 30
$ 62,000
171,000
78,000
Production data for the month of November
follows.
47.CPA-03616 D95 - 1.20 (Adapted) B1 Page 59
Madtack Company's beginning and ending
inventories for the month of November Year 1 are:
Direct materials
Work-in-process
Finished goods
November 1
$ 67,000
145,000
85,000
November 30
$ 62,000
171,000
78,000
Production data for the month of November
follows.
Direct labor
$200,000
Actual factory overhead
132,000
Direct materials purchased
163,000
Transportation in
4,000
Purchase returns and allowances
2,000
Direct labor
$200,000
Actual factory overhead
132,000
Direct materials purchased
163,000
Transportation in
4,000
Purchase returns and allowances
2,000
Madtack uses one factory overhead control
account and charges factory overhead to
production at 70 percent of direct labor cost. The
company does not formally recognize
over/underapplied overhead until year-end.
Madtack Company's prime cost for November is:
a. $370,000
b. $363,000
c. $170,000
d. $368,000
Madtack uses one factory overhead control
account and charges factory overhead to
production at 70 percent of direct labor cost. The
company does not formally recognize
over/underapplied overhead until year-end.
Madtack Company's total manufacturing cost for
November is:
a. $502,000
b. $503,000
c. $495,000
d. $510,000
OPERATIONS MGMT PICKUP
11
Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
48.CPA-03618 D95 - 1.21 (Adapted) B1 Page 59
Madtack Company's beginning and ending
inventories for the month of November Year 1 are:
Direct materials
Work-in-process
Finished goods
November 1
$ 67,000
145,000
85,000
November 30
$ 62,000
171,000
78,000
Production data for the month of November
follows.
49.CPA-03621 D95 - 1.22 (Adapted) B1 Page 59
Madtack Company's beginning and ending
inventories for the month of November Year 1 are:
Direct materials
Work-in-process
Finished goods
November 1
$ 67,000
145,000
85,000
November 30
$ 62,000
171,000
78,000
Production data for the month of November
follows.
Direct labor
$200,000
Actual factory overhead
132,000
Direct materials purchased
163,000
Transportation in
4,000
Purchase returns and allowances
2,000
Direct labor
$200,000
Actual factory overhead
132,000
Direct materials purchased
163,000
Transportation in
4,000
Purchase returns and allowances
2,000
Madtack uses one factory overhead control
account and charges factory overhead to
production at 70 percent of direct labor cost. The
company does not formally recognize
over/underapplied overhead until year-end.
Madtack Company's cost of goods transferred to
finished goods inventory for November is:
a. $469,000
b. $495,000
c. $484,000
d. $476,000
Madtack uses one factory overhead control
account and charges factory overhead to
production at 70 percent of direct labor cost. The
company does not formally recognize
over/underapplied overhead until year-end.
Madtack Company's cost of goods sold for
November is:
a. $484,000
b. $491,000
c. $502,000
d. $476,000
12
OPERATIONS MGMT PICKUP
Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
50.CPA-03623 D95 - 1.23 B1 Page 58
Madtack Company's beginning and ending
inventories for the month of November Year 1 are:
Direct materials
Work-in-process
Finished goods
November 1
$ 67,000
145,000
85,000
November 30
$ 62,000
171,000
78,000
Production data for the month of November
follows.
Direct labor $200,000
Actual factory overhead
Direct materials purchased
Transportation in
Purchase returns and allowances
132,000
163,000
4,000
2,000
Madtack uses one factory overhead control
account and charges factory overhead to
production at 70 percent of direct labor cost. The
company does not formally recognize
over/underapplied overhead until year-end.
Madtack Company's net charge to factory
overhead control for the month of November is:
a. $8,000 debit, overapplied.
b. $8,000 debit, underapplied.
c. $8,000 credit, overapplied.
d. $8,000 credit, underapplied.
51.CPA-03630 ARE May 95 #41 (Adapted) B1
Page 62
In its April Year 1 production, Hern Corp., which
does not use a standard cost system, incurred
total production costs of $900,000, of which Hern
attributed $60,000 to normal spoilage and
$30,000 to abnormal spoilage. Hern should
account for this spoilage as:
a. Period cost of $90,000.
b. Inventoriable cost of $90,000.
c. Period cost of $60,000 and inventoriable
cost of $30,000.
d. Inventoriable cost of $60,000 and period
cost of $30,000.
52.CPA-03632 ARE May 95 #44 B1 Page 65
In an activity-based costing system, what should
be used to assign a department's manufacturing
overhead costs to products produced in varying lot
sizes?
a. A single cause and effect relationship.
b. Multiple cause and effect relationships.
c. Relative net sales values of the products.
d. A product's ability to bear cost allocations.
53.CPA-03634 J95 - 1.01 (Adapted) B1 Page 63
Kimbeth Manufacturing uses a process cost
system to manufacture Dust Density Sensors for
the mining industry. The following information
pertains to operations for the month of May:
Units
Beginning work-in-process inventory, May 1
Started in production during May
16,000
100,000
Completed production during May
92,000
Ending work-in-process inventory, May 31
24,000
The beginning inventory was 60 percent complete
for materials and 20 percent complete for
conversion costs. The ending inventory was 90
percent complete for materials and 40 percent
complete for conversion costs.
Costs pertaining to the month of May are as
follows:
● Beginning inventory costs are: materials,
$54,560; direct labor $20,320; and factory
overhead, $15,240.
● Costs incurred during May are: materials used,
$468,000; direct labor, $182,880; and factory
overhead, $391,160.
Using the first-in, first-out (FIFO) method, the
equivalent units of production for materials are:
a. 104,000 units.
b. 107,200 units.
c. 108,000 units.
d. 113,600 units.
OPERATIONS MGMT PICKUP
13
Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
54.CPA-03637 J95 - 1.02 (Adapted) B1 Page 63
Kimbeth Manufacturing uses a process cost
system to manufacture Dust Density Sensors for
the mining industry. The following information
pertains to operations for the month of May:
55.CPA-03640 J95 - 1.03 (Adapted) B1 Page 63
Kimbeth Manufacturing uses a process cost
system to manufacture Dust Density Sensors for
the mining industry. The following information
pertains to operations for the month of May:
Units
Units
Beginning work-in-process inventory, May 1
Started in production during May
16,000
100,000
Beginning work-in-process inventory, May 1
Started in production during May
16,000
100,000
Completed production during May
92,000
Completed production during May
92,000
Ending work-in-process inventory, May 31
24,000
Ending work-in-process inventory, May 31
24,000
The beginning inventory was 60 percent complete
for materials and 20 percent complete for
conversion costs. The ending inventory was 90
percent complete for materials and 40 percent
complete for conversion costs.
Costs pertaining to the month of May are as
follows:
● Beginning inventory costs are: materials,
$54,560; direct labor $20,320; and factory
overhead, $15,240.
● Costs incurred during May are: materials used,
$468,000; direct labor, $182,880; and factory
overhead, $391,160.
Using the FIFO method, the equivalent units of
production for conversion costs are:
a. 88,800 units.
b. 95,200 units.
c. 98,400 units.
d. 101,600 units.
14
The beginning inventory was 60 percent complete
for materials and 20 percent complete for
conversion costs. The ending inventory was 90
percent complete for materials and 40 percent
complete for conversion costs.
Costs pertaining to the month of May are as
follows:
● Beginning inventory costs are: materials,
$54,560; direct labor $20,320; and factory
overhead, $15,240.
● Costs incurred during May are: materials used,
$468,000; direct labor, $182,880; and factory
overhead, $391,160.
Using the FIFO method, the equivalent unit cost of
materials for May is:
a. $4.50
b. $4.60
c. $4.80
d. $5.46
OPERATIONS MGMT PICKUP
Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
56.CPA-03641 J95 - 1.04 (Adapted) B1 Page 63
Kimbeth Manufacturing uses a process cost
system to manufacture Dust Density Sensors for
the mining industry. The following information
pertains to operations for the month of May:
57.CPA-03642 J95 - 1.05 (Adapted) B1 Page 64
Kimbeth Manufacturing uses a process cost
system to manufacture Dust Density Sensors for
the mining industry. The following information
pertains to operations for the month of May:
Units
Units
Beginning work-in-process inventory, May 1
Started in production during May
16,000
100,000
Beginning work-in-process inventory, May 1
Started in production during May
16,000
100,000
Completed production during May
92,000
Completed production during May
92,000
Ending work-in-process inventory, May 31
24,000
Ending work-in-process inventory, May 31
24,000
The beginning inventory was 60 percent complete
for materials and 20 percent complete for
conversion costs. The ending inventory was 90
percent complete for materials and 40 percent
complete for conversion costs.
Costs pertaining to the month of May are as
follows:
● Beginning inventory costs are: materials,
$54,560; direct labor $20,320; and factory
overhead, $15,240.
● Costs incurred during May are: materials used,
$468,000; direct labor, $182,880; and factory
overhead, $391,160.
Using the FIFO method, the equivalent unit
conversion cost for May is:
a. $5.65
b. $5.83
c. $6.00
d. $6.20
The beginning inventory was 60 percent complete
for materials and 20 percent complete for
conversion costs. The ending inventory was 90
percent complete for materials and 40 percent
complete for conversion costs.
Costs pertaining to the month of May are as
follows:
● Beginning inventory costs are: materials,
$54,560; direct labor $20,320; and factory
overhead, $15,240.
● Costs incurred during May are: materials used,
$468,000; direct labor, $182,880; and factory
overhead, $391,160.
Using the FIFO method, the total cost of units in
the ending work-in-process inventory at May 31 is:
a. $153,168
b. $154,800
c. $155,328
d. $156,960
OPERATIONS MGMT PICKUP
15
Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
58.CPA-03644 J95 - 1.06 (Adapted) B1 Page 63
Kimbeth Manufacturing uses a process cost
system to manufacture Dust Density Sensors for
the mining industry. The following information
pertains to operations for the month of May:
59.CPA-03645 J95 - 1.07 (Adapted) B1 Page 64
Kimbeth Manufacturing uses a process cost
system to manufacture Dust Density Sensors for
the mining industry. The following information
pertains to operations for the month of May:
Units
Units
Beginning work-in-process inventory, May 1
Started in production during May
16,000
100,000
Beginning work-in-process inventory, May 1
Started in production during May
16,000
100,000
Completed production during May
92,000
Completed production during May
92,000
Ending work-in-process inventory, May 31
24,000
Ending work-in-process inventory, May 31
24,000
The beginning inventory was 60 percent complete
for materials and 20 percent complete for
conversion costs. The ending inventory was 90
percent complete for materials and 40 percent
complete for conversion costs.
Costs pertaining to the month of May are as
follows:
● Beginning inventory costs are: materials,
$54,560; direct labor $20,320; and factory
overhead, $15,240.
● Costs incurred during May are: materials used,
$468,000; direct labor, $182,880; and factory
overhead, $391,160.
Using the weighted-average method, the
equivalent unit cost of materials for May is:
a. $4.50
b. $4.60
c. $5.03
d. $5.46
16
The beginning inventory was 60 percent complete
for materials and 20 percent complete for
conversion costs. The ending inventory was 90
percent complete for materials and 40 percent
complete for conversion costs.
Costs pertaining to the month of May are as
follows:
● Beginning inventory costs are: materials,
$54,560; direct labor $20,320; and factory
overhead, $15,240.
● Costs incurred during May are: materials used,
$468,000; direct labor, $182,880; and factory
overhead, $391,160.
Using the weighted-average method, the
equivalent unit conversion cost for May is:
a. $5.65
b. $5.83
c. $6.00
d. $6.41
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60.CPA-03648 J95 - 1.08 (Adapted) B1 Page 63
Kimbeth Manufacturing uses a process cost
system to manufacture Dust Density Sensors for
the mining industry. The following information
pertains to operations for the month of May:
Units
Beginning work-in-process inventory, May 1
Started in production during May
16,000
100,000
Completed production during May
92,000
Ending work-in-process inventory, May 31
24,000
The beginning inventory was 60 percent complete
for materials and 20 percent complete for
conversion costs. The ending inventory was 90
percent complete for materials and 40 percent
complete for conversion costs.
Costs pertaining to the month of May are as
follows:
● Beginning inventory costs are: materials,
$54,560; direct labor $20,320; and factory
overhead, $15,240.
● Costs incurred during May are: materials used,
$468,000; direct labor, $182,880; and factory
overhead, $391,160.
Using the weighted-average method, the total cost
of the units in the ending work-in-process
inventory at May 31, 1995, is:
a. $153,960
b. $154,800
c. $155,328
d. $156,960
61.CPA-03650 ARE May 94 #40 B1 Page 63
The following information pertains to Lap Co.'s
Palo Division for the month of April:
Number
of units
Beginning work-in-process 15,000
Started in April
40,000
Units completed
42,500
Ending work-in-process
12,500
Cost of
materials
$ 5,500
18,000
All materials are added at the beginning of the
process. Using the weighted-average method,
the cost per equivalent unit for materials is:
a. $0.59
b. $0.55
c. $0.45
d. $0.43
62.CPA-03656 Th Nov 93 #45 B1 Page 65
In an activity-based costing system, cost reduction
is accomplished by identifying and eliminating:
All cost drivers
a.
No
b.
Yes
c.
No
d.
Yes
Nonvalue-adding
activities
No
Yes
Yes
No
63.PA-03659 Th May 93 #41 B1 Page 58
In a traditional job order cost system, the issue of
indirect materials to a production department
increases:
a. Stores control.
b. Work in process control.
c. Factory overhead control.
d. Factory overhead applied.
OPERATIONS MGMT PICKUP
17
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64. CPA-03660 J90 - 1.05 B1 Page 58
Alex Company had the following inventories at the
beginning and end of the month of January.
Finished Goods
Work-in-process
Direct materials
January 1
$ 125,000
235,000
134,000
January 31
$ 117,000
251,000
124,000
The following additional manufacturing data was
available for the month of January.
Direct materials purchased
Purchase returns and allowances
Transportation in
Direct labor
Actual factory overhead
$189,000
1,000
3,000
300,000
175,000
Alex Company applies factory overhead at a rate
of 60 percent of direct labor cost, and any
overapplied or underapplied factory overhead is
deferred until the end of the year, December 31.
Alex Company's balance in factory overhead
control for January was:
a. $5,000 debit-overapplied.
b. $5,000 credit-underapplied.
c. $5,000 debit-underapplied.
d. $5,000 credit-overapplied.
65. CPA-04796 2005 Released B1 Page 63
Black, Inc. employs a weighted average method
in its process costing system. Black's work in
process inventory on June 30 consists of 40,000
units. These units are 100% complete with
respect to materials and 60% complete with
respect to conversion costs. The equivalent unit
costs are $5.00 for materials and $7.00 for
conversion costs. What is the total cost of the
June 30 work in process inventory?
a. $200,000
b. $288,000
c. $368,000
d. $480,000
18
66. CPA-05316 Released 2006 B1 Page 57
What is the required unit production level given
the following factors?
Projected sales
Beginning inventory
Desired ending inventory
Prior-year beginning inventory
a.
b.
c.
d.
Units
1,000
85
100
200
915
1,015
1,100
1,215
67. CPA-05321 Released 2006 B1 Page 58
Jonathon Mfg. adopted a job-costing system.
For the current year, budgeted cost driver activity
levels for direct labor hours and direct labor costs
were 20,000 and $100,000, respectively. In
addition, budgeted variable and fixed factory
overhead were $50,000 and $25,000, respectively.
Actual costs and hours for the year were as
follows:
Direct labor hours
Direct labor costs
Machine hours
21,000
$110,000
35,000
For a particular job, 1,500 direct-labor hours were
used. Using direct-labor hours as the cost driver,
what amount of overhead should be applied to
this job?
a. $3,214
b. $5,357
c. $5,625
d. $7,500
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68.CPA-05562 Released 2007 B1 Page 56
Card Bicycle Co. has prepared production and
raw materials budgets for next year. At the end
of this year, the finished product inventory is
expected to include 2,000 bicycles, and raw
material inventory is expected to include 3,000
bicycle tires. Each finished bicycle requires two
tires. The marketing department provided the
following data from the sales budget for the first
quarter:
January February
March
12,000
18,000
Expected bicycle sales
(units)
16,000
The company inventory policy is to have finished
product inventory equal to 20% of the following
month's sales requirements, and raw material
equal to 10% of the following month's production
requirements. In the January budget for raw
materials, how many tires are expected to be
purchased?
a. 24,200
b. 26,120
c. 26,600
d. 26,680
69.CPA-05574 Released 2007 B1 Page 56
What is the cost of ending inventory given the
following factors?
Beginning inventory
Total production costs
Cost of goods sold
Direct labor
a.
b.
c.
d.
$5,000
60,000
55,000
40,000
70.CPA-05578 Released 2007 B1 Page 56
Crisper, Inc. plans to sell 80,000 bags of potato
chips in June, and each of these bags requires
five potatoes. Pertinent data includes:
Bags of potato chips
Potatoes
15,000 bags
27,000 potatoes
18,000 bags
23,000 potatoes
Actual June 1
inventory
Desired June 30
inventory
What number of units of raw material should
Crisper plan to purchase?
a. 381,000
b. 389,000
c. 411,000
d. 419,000
71. CPA-05579 Released 2007 B1 Page 56
The following is selected information from the
records of Ray, Inc.:
Purchases of raw materials
Raw materials, beginning
Raw materials, ending
Work-in-process, beginning
Work-in-process, ending
Cost of goods sold
Finished goods, beginning
Finished goods, ending
$ 6,000
500
800
0
0
12,000
1,200
1,400
What is the total amount of conversion costs?
a. $5,500
b. $5,900
c. $6,100
d. $6,500
$5,000
$10,000
$45,000
$50,000
OPERATIONS MGMT PICKUP
19
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72. CPA-05581 Released 2007 B1 Page 67
Which of the following nonvalue-added costs
associated with manufactured work in process
inventory is most significant?
a. The cost of materials that cannot be
traced to any individual product.
b. The cost of labor that cannot be traced to
any individual product.
c. The cost of moving, handling, and storing
any individual product.
d. The cost of additional resources
consumed to produce any individual
product.
73. CPA-05798 Released 2009 B1 Page 46
Merry Co. has two major categories of factory
overhead: material handling and quality control.
The costs expected for these categories for the
coming year are as follows:
Material handling
Quality inspection
$120,000
200,000
The plant currently applies overhead based on
direct labor hours. The estimated direct labor
hours are 80,000 per year. The plant manager is
asked to submit a bid and assembles the following
data on a proposed job:
Direct materials
Direct labor (2,000 hours)
$4,000
6,000
What amount is the estimated product cost on the
proposed job?
a. $8,000
b. $10,000
c. $14,000
d. $18,000
20
74. CPA-05799 Released 2009 B1 Page 53
Which of the following is not a basic approach to
allocating costs for costing inventory in joint-cost
situations?
a. Sales value at split-off.
b. Flexible budget amounts.
c. Physical measures such as weights or
volume.
d. Constant gross margin percentage net
realizable value method.
75.CPA-05802 Released 2009 (Adapted) B1
Page 63
Weighted-average and first in, first out (FIFO)
equivalent units would be the same in a period
when which of the following occurs?
a. No beginning inventory exists.
b. No ending inventory exists.
c. Beginning inventory equivalent units
exceed 50% complete.
d. Beginning inventory equivalent units are
less than 50% complete.
76.CPA-05821 Released 2008 B1 Page 58
JacKue Co. plans to produce 200,000 pairs of
roller skates during January of next year.
Planned production for February is 250,000 pairs.
Sales are forecasted at 180,000 pairs for January
and 240,000 pairs for February. Each pair of
roller skates has eight wheels. JacKue's policy is
to maintain 10% of the next month's production in
inventory at the end of a month. How many
wheels should JacKue purchase during January?
a. 195,000
b. 205,000
c. 1,560,000
d. 1,640,000
OPERATIONS MGMT PICKUP
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77. CPA-04794 2005 Released B1 Page 56
In the past, four direct labor hours were required
to produce each unit of product Y. Material costs
were $200 per unit, the direct labor rate was $20
per hour, and factory overhead was three times
direct labor cost. In budgeting for next year,
management is planning to outsource some
manufacturing activities and to further automate
others. Management estimates these plans will
reduce labor hours by 25%, increase the factory
overhead rate to 3.6 times direct labor costs, and
increase material costs by $30 per unit.
Management plans to manufacture 10,000 units.
What amount should management budget for cost
of goods manufactured?
a. $4,820,000
b. $5,060,000
c. $5,200,000
d. $6,500,000
78. CPA-05253 Released 2006 B1 Page 63
During the current year, the following
manufacturing activity took place for a company's
products:
Beginning work-in-process,
70% complete
10,000 units
Units started into production
during the year
150,000 units
Units completed during the year 140,000 units
Ending work-in-process,
25% complete
20,000 units
What was the number of equivalent units
produced using the first-in, first-out method?
a. 138,000
b. 140,000
c. 145,000
d. 150,000
79. CPA-05875 Released 2008 B1 Page 57
DJ Co. has a job-order cost system. The
following debits (credits) appeared in the Work in
Process account for the month of March:
March 1, balance
March 31, direct materials
March 31, direct labor
March 31, manufacturing
overhead applied
March 31, to finished goods
$ 12,000
40,000
30,000
27,000
(100,000)
DJ Co. applies overhead at a predetermined rate
of 90% of direct labor cost. Job No. 101, the only
job still in process at the end of March, has been
charged with manufacturing overhead of $2,250.
What was the amount of direct materials charged
to Job No. 101?
a. $2,250
b. $2,500
c. $4,250
d. $4,725
80. CPA-03905 J93 - 1.03 B1 Page 43
A cost driver is defined as:
a. The largest cost in a manufacturing
process.
b. The significant factor in the development
of a new product.
c. An indirect cost that cannot be traced to a
particular cost objective but is essential to
the business.
d. A causal factor that increases the total
cost of a cost objective.
81. CPA-03907 J93 - 1.05 B1 Page 45
Inventoriable costs:
a. Include only the prime costs of
manufacturing a product.
b. Include only the conversion costs of
manufacturing a product.
c. Are regarded as assets before the
products are sold.
d. Exclude fixed factory overhead.
OPERATIONS MGMT PICKUP
21
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82. CPA-03908 D93 - 1.01 B1 Page 65
Cost drivers are:
a. Activities that cause costs to increase as
the activity increases.
b. Accounting measurements used to
evaluate whether or not performance is
proceeding according to plan.
c. A mechanical basis, such as machine
hours, computer time, size of equipment,
or square footage of factory, used to
assign to activities.
d. Costs linked to two or more other costs.
83. CPA-03911 J96 - 1.18 B1 Page 45
Conversion costs do not include:
a. Direct materials.
b. Indirect labor.
c. Indirect materials.
d. Direct labor.
84. CPA-03915 J97 - 1.01 B1 Page 65
Which one of the following best describes direct
labor?
a. A prime cost.
b. A product cost.
c. Both a period cost and a prime cost.
d. Both a product cost and a prime cost.
85. CPA-03917 A97 - 1.10 B1 Page 48
A cost that is fixed per unit is an example of a:
a. Fixed cost.
b. Variable cost.
c. Mixed cost.
d. Direct cost.
22
86. CPA-03918 J90 - 1.10 (Adapted) B1 Page 62
During May, Mercer Company completed 50,000
units costing $600,000, exclusive of spoilage
allocation. Of these completed units, 25,000
were sold during the month. An additional
10,000 units, costing $80,000, were 50 percent
complete at May 31. All units are inspected
between the completion of manufacturing and
transfer to finished goods inventory. Normal
spoilage for the month was $20,000, and
abnormal spoilage of $50,000 was also incurred
during the month.
The portion of total spoilage that should be
charged against revenue in May is:
a. $50,000
b. $20,000
c. $70,000
d. $60,000
87. CPA-03923 D96 - 1.03 B1 Page 48
Conversion cost pricing:
a. Places minimal emphasis on the cost of
materials used in manufacturing a
product.
b. Could be used when the customer
furnishes the material used in
manufacturing a product.
c. Places heavy emphasis on indirect costs
and disregards consideration of direct
costs.
d. Places heavy emphasis on direct costs
and disregards consideration of indirect
costs.
88. CPA-03924 D95 - 1.27 B1 Page 66
A cost that bears an observable and known
relationship to a quantifiable activity base is a(n):
a. Engineered cost.
b. Indirect cost.
c. Target cost.
d. Fixed cost.
OPERATIONS MGMT PICKUP
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89. CPA-03933 D93 - 1.09 B1 Page 59
An operation costing system is:
a. Identical to a process costing system
except that actual cost is used for
manufacturing overhead.
b. The same as a process costing system
except that materials are allocated on the
basis of batches of production.
c. The same as a job order costing system
except that materials are accounted for in
the same way as they are in a process
costing system.
d. The same as a job order costing system
except that no overhead allocations are
made as actual costs are used
throughout.
90. CPA-03935 A97 - 1.23 B1 Page 59
Which of the following is a true statement
regarding operation costing?
a. Operation costing has features of both job
and process costing.
b. It is a hybrid system that is usually applied
to batches of similar products.
c. It is similar to process costing except that
materials are allocated on the basis of
batches of production.
d. All of the above are true statements about
operation costing.
91. CPA-03936 J97 - 1.04 B1 Page 59
Smile Labs develops 35mm film using a four-step
process that moves progressively through four
departments. The company specializes in
overnight service and has the largest drug store
chain as its primary customer. Currently, direct
labor, direct materials, and overhead are
accumulated by department. The cost
accumulation system that best describes the
system Smile Labs is using is:
a. Operation costing.
b. Activity-based costing.
c. Job order costing.
d. Process costing.
92. CPA-03938 J93 - 1.02 B1 Page 65
Because of changes that are occurring in the
basic operations of many firms, all of the following
represent trends in the way indirect costs are
allocated, except:
a. Using throughput time as an application
base to increase awareness of the costs
associated with lengthened throughput
time.
b. Preferring plant-wide application rates
that are applied to machine hours rather
than incurring the cost of detailed
allocations.
c. Using several machine cost pools to
measure product costs on the basis of
time in a machine center.
d. Using cost drivers as application bases to
increase the accuracy of reported product
costs.
93. CPA-03940 A92 - 1.35 B1 Page 46
The distribution of overhead costs is known as:
a. Cost allocation.
b. Cost management.
c. Burden distribution.
d. Uncontrollable cost allocation.
94. CPA-03941 D92 - 1.01 B1 Page 46
Costs are allocated to cost objectives in many
ways and for many reasons. Which one of the
following is a purpose of cost allocation?
a. Evaluating revenue center performance.
b. Measuring income and assets for external
reporting.
c. Aiding in variable costing for internal
reporting.
d. Implementing activity-based costing.
OPERATIONS MGMT PICKUP
23
Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
95. CPA-03943 D93 - 1.15 B1 Page 65
Multiple or departmental overhead rates are
considered preferable to a single or plant-wide
overhead rate when:
a. Various products are manufactured that
do not pass through the same
departments or use the same
manufacturing techniques.
b. Cost drivers, such as direct labor, are the
same over all processes.
c. Individual cost drivers cannot accurately
be determined with respect to cause-andeffect relationships.
d. The single or plant-wide rate is related to
several identified cost drivers.
96. CPA-03945 J96 - 1.21 B1 Page 46
The appropriate method for the disposition of
underapplied or overapplied factory overhead:
a. Is to cost of goods sold only.
b. Is to finished goods inventory only.
c. Is apportioned to cost of goods sold and
finished goods inventory.
d. Depends on the significance of the
amount.
98. CPA-03947 D96 - 1.19 B1 Page 65
Generally, individual departmental rates rather
than a plant-wide rate for applying overhead
would be used if:
a. A company's manufacturing operations
are all highly automated.
b. A company's manufacturing operations
are basically labor based.
c. Manufacturing overhead is the largest
cost component of its product cost.
d. The manufactured products differ in the
resources consumed from the individual
departments in the plant.
99. CPA-03950 D92 - 1.02 B1 Page 65
In allocating factory service department costs to
producing departments, which one of the following
items would most likely be used as an activity
base?
a. Units of product sold.
b. Salary of service department employees.
c. Units of electrical power consumed.
d. Direct materials usage.
97. CPA-03946 A97 - 1.51 B1 Page 58
Which of the following would cause overhead to
be overapplied?
a. Actual overhead is greater than overhead
applied.
b. Actual overhead is less than overhead
applied.
c. Actual overhead was equal to the
budgeted amount but fewer items were
manufactured.
d. The number of units produced was the
budgeted amount but a larger amount of
overhead was actually incurred.
24
OPERATIONS MGMT PICKUP
Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
100. CPA-03952 J90 - 1.01 B1 Page 58
Alex Company had the following inventories at the
beginning and end of the month of January.
Finished Goods
Work-in-process
Direct materials
January 1
$125,000
235,000
134,000
January 31
$117,000
251,000
124,000
The following additional manufacturing data was
available for the month of January.
Direct materials purchased
Purchase returns and allowances
Transportation in
Direct labor
Actual factory overhead
$189,000
1,000
3,000
300,000
175,000
Alex Company applies factory overhead at a rate
of 60 percent of direct labor cost, and any
overapplied or underapplied factory overhead is
deferred until the end of the year, December 31.
Alex Company's prime cost for January was:
a. $501,000
b. $489,000
c. $201,000
d. $499,000
101. CPA-03953 J90 - 1.02 B1 Page 59
Alex Company had the following inventories at the
beginning and end of the month of January.
Finished Goods
Work-in-process
Direct materials
January 1
$125,000
235,000
134,000
January 31
$117,000
251,000
124,000
The following additional manufacturing data was
available for the month of January.
Direct materials purchased
Purchase returns and allowances
Transportation in
Direct labor
Actual factory overhead
$189,000
1,000
3,000
300,000
175,000
Alex Company applies factory overhead at a rate
of 60 percent of direct labor cost, and any
overapplied or underapplied factory overhead is
deferred until the end of the year, December 31.
Alex Company's total manufacturing cost for
January was:
a. $681,000
b. $669,000
c. $671,000
d. $679,000
OPERATIONS MGMT PICKUP
25
Copyright 2010. TAC Co., LTD. Through license from Becker CPA Review
102. CPA-03954 J90 - 1.03 B1 Page 59
Alex Company had the following inventories at the
beginning and end of the month of January.
Finished Goods
Work-in-process
Direct materials
January 1
$125,000
235,000
134,000
January 31
$117,000
251,000
124,000
The following additional manufacturing data was
available for the month of January.
Direct materials purchased
Purchase returns and allowances
Transportation in
Direct labor
Actual factory overhead
$189,000
1,000
3,000
300,000
175,000
Alex Company applies factory overhead at a rate
of 60 percent of direct labor cost, and any
overapplied or underapplied factory overhead is
deferred until the end of the year, December 31.
Alex Company's cost of goods manufactured for
January was:
a. $665,000
b. $689,000
c. $663,000
d. $687,000
26
103. CPA-03956 J90 - 1.04 B1 Page 57
Alex Company had the following inventories at the
beginning and end of the month of January.
Finished Goods
Work-in-process
Direct materials
January 1
$125,000
235,000
134,000
January 31
$117,000
251,000
124,000
The following additional manufacturing data was
available for the month of January.
Direct materials purchased
Purchase returns and allowances
Transportation in
Direct labor
Actual factory overhead
$189,000
1,000
3,000
300,000
175,000
Alex Company applies factory overhead at a rate
of 60 percent of direct labor cost, and any
overapplied or underapplied factory overhead is
deferred until the end of the year, December 31.
Alex Company's cost of goods sold for January
was:
a. $681,000
b. $673,000
c. $657,000
d. $671,000
OPERATIONS MGMT PICKUP
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104. CPA-03959 J94 - 1.25 B1 Page 59
Zeta Company is preparing its annual profit plan.
As part of its analysis of the profitability of
individual products, the controller estimates the
amount of overhead that should be allocated to
the individual product lines from the information
given below.
Wall
Specialty
Mirrors
Windows
Units produced
25
Material moves per product line
Direct labor hours per unit
25
5
15
200
200
Budgeted materials handling costs
$50,000
Under a costing system that allocates overhead
on the basis of direct labor hours, the materials
handling costs allocated to one unit of wall mirrors
would be:
a. $1,000
b. $500
c. $2,000
d. $5,000
105. CPA-03961 J94 - 1.26 B1 Page 65
Zeta Company is preparing its annual profit plan.
As part of its analysis of the profitability of
individual products, the controller estimates the
amount of overhead that should be allocated to
the individual product lines from the information
given below.
Wall
Specialty
Mirrors
Windows
Units produced
Material moves per product line
Direct labor hours per unit
Budgeted materials handling costs
25
25
5
15
200
200
$50,000
106. CPA-03963 J90 - 5B B1 Page 65
The benefit that management can expect from
traditional costing includes which of the following:
a. Leads to a more competitive position by
evaluating cost drivers, i.e., costs
associated with the complexity of the
transaction rather than the production
volume.
b. Streamlines production processes by
reducing non-value adding activities, e.g.,
reduced set-up times, optimal plant layout,
and improved quality.
c. Provides management with a more
thorough understanding of product costs
and product profitability for strategies and
pricing decisions.
d. Uses a common departmental or factory
wide measure of activity, such as direct
labor hours or dollars to distribute
manufacturing overhead to products.
107. CPA-03964 J90 - 5A B1 Page 65
Activity based costing refines product cost
information because the cost system:
a. Was designed to value inventory in the
aggregate and not relate to product cost
information.
b. Uses a common departmental or factory
wide measure of activity, such as direct
labor hours or dollars to distribute
manufacturing overhead to products.
c. Emphasizes long-term product analysis
(when fixed costs become variable costs).
d. Causes managers, who are aware of
distortions in the traditional cost system,
to make intuitive, imprecise adjustments
to the traditional cost information without
understanding the complete impact.
Under activity-based costing (ABC), the materials
handling costs allocated to one unit of wall mirrors
would be:
a. $1,000
b. $500
c. $1,500
d. $2,500
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108. CPA-03965 J90 - 5C B1 Page 65
The steps that a company, using a traditional cost
system, would take to implement activity-based
costing include:
I. Evaluation of the existing system to assess
how well the system supports the objective
of an activity-based cost system.
II. Identification of the activities for which cost
information is needed with differentiation
between value adding and non-value
adding activities.
a. Only I.
b. Both I and II.
c. Only II.
d. Neither I nor II.
109. CPA-03966 D92 - 1.06 B1 Page 65
The costing method that is properly classified for
both external and internal reporting purposes is:
a.
b.
c.
d.
Activity-based costing.
Job costing.
Variable costing.
Process costing.
External
Internal
Reporting
Reporting
No
No
Yes
No
Yes
Yes
No
Yes
110. CPA-03967 J93 - 1.01 B1 Page 65
Under ABC, the allocation of costs to particular
cost objectives allows a firm to analyze all of the
following, except:
a. Whether a particular department should
be expanded.
b. Why the sales of a particular product
have increased.
c. Whether a product line should be
discontinued.
d. Whether a particular manager earns a
bonus.
28
111. CPA-03968 D95 - 1.26 B1 Page 65
An accounting system that collects financial and
operating data on the basis of the underlying
nature and extent of the cost drivers is:
a. Direct costing.
b. Activity-based costing.
c. Target costing.
d. Variable costing.
112. CPA-03970 J96 - 1.30 B1 Page 67
New-Rage Cosmetics has used a traditional cost
accounting system to apply quality control costs
uniformly to all products at a rate of 14.5 percent
of direct labor costs. Monthly direct labor cost for
Satin Sheen makeup is $27,500. In an attempt
to more equitably distribute quality control costs,
New-Rage is considering activity-based costing.
The monthly data shown in the chart below have
been gathered for Satin Sheen makeup.
Quantity for
Activity
Cost Driver
Cost Rates Satin Sheen
Incoming
Type of
$11.50
12
material
material
per type
types
inspection
In-process
Number
$0.14
17,500
inspection
of units
per unit
units
Product
Per
$77
25
certification
order
per order
orders
The monthly quality control cost assigned to Satin
Sheen makeup using activity-based costing is:
a. $88.64 per order.
b. $525.50 lower than the cost using the
traditional system.
c. $525.50 higher than the cost using the
traditional system.
d. $3,987.50
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113. CPA-03972 D96 - 1.28 B1 Page 65
The use of activity-based costing normally results
in:
a. Substantially greater unit costs for lowvolume products than is reported by
traditional product costing.
b. Substantially lower unit costs for lowvolume products than is reported by
traditional product costing.
c. Decreased set-up costs being charged to
low-volume products.
d. Equalizing set-up costs for all product
lines.
114. CPA-03976 J96 - 1.29 B1 Page 57
Lucy Sportswear manufactures a specialty line of
T-shirts using a job order cost system. During
March, the following costs were incurred in
completing Job ICU2: direct materials $13,700;
direct labor $4,800; administrative $1,400; and
selling $5,600. Factory overhead was applied at
the rate of $25 per machine hour, and Job ICU2
required 800 machine hours. If Job ICU2
resulted in 7,000 good shirts, the cost of goods
sold per unit would be:
a. $6.50
b. $6.00
c. $5.70
d. $5.50
115. CPA-03978 D96 - 1.18 B1 Page 57
Which one of the following alternatives correctly
classifies the business application to the
appropriate costing system?
Job
Costing System
a. Wallpaper manufacturer
b. Aircraft assembly
Process
Costing System
Oil refinery
Public
accounting firm
c. Paint manufacturer
d. Print shop manufacturer
116. CPA-06639 Newly Released 2010 B1
Page 65
A CPA would recommend implementing an
activity-based costing system under which of the
following circumstances?
a. The client is a single-product
manufacturer.
b. Most of the client's costs currently are
classified as direct costs.
c. The client produced products that
heterogeneously consume resources.
d. The client produced many different
products that homogeneously consume
resources.
117. CPA-06661 Newly Released 2010 B1
Page 67
Boyle, Inc. makes two products, X and Y that
require allocation of indirect manufacturing costs.
The following data was compiled by the
accountant before making any allocations:
Quantity produced
Direct manufacturing
labor hours
Setup hours
Product X
10,000
Product Y
20,000
15,000
500
5,000
1,500
The total cost of setting up manufacturing
processes and equipment is $400,000. The
company uses a job-costing system with a single
indirect cost rate. Under this system, allocated
costs were $300,000 and $100,000 for X and Y,
respectively. If an activity-based system is used,
what would be the allocated costs for each
product?
a.
b.
c.
d.
Product X
$100,000
$150,000
$200,000
$250,000
Product Y
$300,000
$250,000
$200,000
$150,000
Retail banking
Beverage drink
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3. Operations Management: Process
Management
118. CPA-03550 D94 - 1.06 B1 Page 74
Companies that adopt just-in-time purchasing
systems often experience:
a. A reduction in the number of suppliers.
b. Fewer deliveries from suppliers.
c. A greater need for inspection of goods as
the goods arrive.
d. Less need for linkage with a vendor's
computerized order entry system.
119. CPA-03880 ARE R99 #24 B1 Page 74
Which of the following is not a typical
characteristic of a just-in-time (JIT) production
environment?
a. Lot sizes equal to one.
b. Insignificant setup times and costs.
c. Push-through system.
d. Balanced and level workloads.
120. CPA-03888 ARE May 95 #47 B1 Page 74
Which changes in costs are most conducive to
switching from a traditional inventory ordering
system to a just-in-time ordering system?
a.
b.
c.
d.
Cost per
purchase order
Increasing
Decreasing
Decreasing
Increasing
Inventory unit
carrying costs
Increasing
Increasing
Decreasing
Decreasing
121. CPA-03891 ARE May 94 #50 B1 Page 74
Bell Co. changed from a traditional manufacturing
philosophy to a just-in-time philosophy. What are
the expected effects of this change on Bell's
inventory turnover and inventory as a percentage
of total assets reported on Bell's balance sheet?
Inventory
turnover
a. Decrease
b. Decrease
c. Increase
d. Increase
Inventory
percentage
Decrease
Increase
Decrease
Increase
122. CPA-03895 Th May 93 #44 B1 Page 74
The benefits of a just-in-time system for raw
materials usually include:
a. Elimination of nonvalue adding operations.
b. Increase in the number of suppliers,
thereby ensuring competitive bidding.
c. Maximization of the standard delivery
quantity, thereby lessening the paperwork
for each delivery.
d. Decrease in the number of deliveries
required to maintain production.
123. CPA-03873 ARE R02 #28 B1 Page 75
Rework costs should be regarded as a cost of
quality in a manufacturing company's quality
control program when they are:
I. Caused by the customer.
II. Caused by internal failure.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
124. CPA-03881 J97 - 1.27 B1 Page 76
All of the following would generally be included in
a cost of quality report, except:
a. Warranty claims.
b. Design engineering.
c. Supplier evaluations.
d. Lost contribution margin.
30
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125. CPA-03886 ARE May 95 #46 B1 Page 70
Which measures would be useful in evaluating the
performance of a manufacturing system?
I. Throughput time.
II. Total setup time for machines/Total
production time.
III. Number of rework units/Total number of
units completed.
a. I and II only.
b. II and III only.
c. I and III only.
d. I, II, and III.
126. CPA-03893 J94 - 1.16 B1 Page 75
In Year 2, a manufacturing company instituted a
Total Quality Management (TQM) program
producing the report shown below:
Summary Cost of Quality Report
(in thousands)
Year 1
Year 2
%Change
$ 200
$ 300
+50
Appraisal costs
210
315
+50
Internal failure costs
190
114
−40
External failure costs
1,200
621
−48
Total quality costs
$1,800
$ 1,350
−25
Prevention costs
On the basis of this report, which one of the
following statements is most likely correct?
a. An increase in conformance costs
resulted in a higher quality product, and
therefore, resulted in a decrease in nonconformance costs.
b. An increase in inspection costs was solely
responsible for the decrease in quality
costs.
c. Quality costs such as scrap and rework
decreased by 48 percent.
d. Quality costs such as returns and repairs
under warranty decreased by 40 percent.
128. CPA-03896 J93 - 1.13 B1 Page 75
Product-quality-related costs are part of a total
quality control program. A product-quality-related
cost incurred in detecting individual products that
do not conform to specifications is an example of
a(n):
a. Prevention cost.
b. Appraisal cost.
c. Internal failure cost.
d. External failure cost.
129. CPA-03897 D92 - 1.20 B1 Page 75
In recent years, much attention has been placed
on product quality and total quality control.
Which one of the following items would not
normally be considered a cost of quality?
a. Costs incurred in detecting defective
products during production.
b. Costs incurred in detecting defective
products produced before they are
shipped to customers.
c. Costs incurred after defective products
have been shipped to customers.
d. Costs incurred in shortening production
lead times and achieving on-time
deliveries.
130. CPA-03898 J91 - 1.21 B1 Page 75
The four categories of cost associated with
product quality costs are:
a. External failure, internal failure,
prevention, and appraisal.
b. External failure, internal failure, training,
and appraisal.
c. Warranty, product liability, training, and
appraisal.
d. Warranty, product liability, prevention, and
appraisal.
127. CPA-03894 J94 - 1.17 B1 Page 75
An example of an internal failure cost is:
a. Maintenance.
b. Inspection.
c. Rework.
d. Product recalls.
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131. CPA-03900 J91 - 1.22 B1 Page 75
The cost of statistical quality control in a product
quality cost system is categorized as a(n):
a. Internal failure cost.
b. Training cost.
c. Prevention cost.
d. Appraisal cost.
136. CPA-06786 B1 Page 75
Which of the following is not an external failure
cost?
a. Lost customers.
b. Warranty costs.
c. Tooling changes.
d. Liability claims.
132. CPA-03902 J91 - 1.23 B1 Page 75
The cost of scrap, rework, and tooling changes in
a product quality cost system are categorized as
a(n):
a. External failure cost.
b. Internal failure cost.
c. Training cost.
d. Prevention cost.
137. CPA-06787 B1 Page 75
Which of the following is an example of internal
failure cost?
a. Lost customers.
b. Testing.
c. Tooling changes.
d. Preventive maintenance.
133. CPA-06783 B1 Page 73
Reducing inventory by ensuring that resources
arrive only when they are needed most accurately
reflects the idea behind which of the following
process management philosophies?
a. Total Quality Management.
b. Lean Management.
c. Just-in-time.
d. Activity-based Costing.
134. CPA-06784 B1 Page 75
All of the following are appraisal costs, except:
a. Statistical quality checks.
b. Employee training.
c. Testing.
d. Inspection.
135. CPA-06785 B1 Page 76
Which of the following costs are inversely related
to each other?
a. Employee training costs and inspection
expenses.
b. Preventative maintenance costs and
rework costs.
c. Warranty costs and liability claims.
d. Inspection expenses and redesign of
product expenses.
32
138. CPA-06788 B1 Page 75
Which of the following is an example of prevention
costs?
a. Lost customers.
b. Testing.
c. Tooling changes.
d. Redesign of processes.
139. CPA-06789 B1 Page 76
Which of the following represents an
organizational commitment to customer-focused
performance that emphasizes both quality and
continuous improvement?
a. Total Quality Management.
b. Lean Management.
c. Just-in-time.
d. Activity-based Costing.
140. CPA-06790 B1 Page 76
Which of the following is not a characteristic of
Total Quality Management (TQM)?
a. Customer Focus.
b. Continuous Improvement.
c. Quality Circles.
d. Waste Reduction.
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141. CPA-06791 B1 Page 78
Which of the following uses analysis of production
processes to ensure that resource uses stay
within target costs?
a. Kaizen.
b. Activity-based Costing.
c. Value Chain Analysis.
d. Just-in-time.
142. CPA-06792 B1 Page 74
Which one of the following is not a benefit of the
implementation of the Just-in-time management
strategy?
a. Cost reduction.
b. Variability increase.
c. Work-in-process reduction.
d. Quality improvement.
143. CPA-06793 B1 Page 74〈参考〉
Which one of the following is an example of justin-time being used for competitive advantage?
a. BAC Company has decreased the
number of job classifications to just a few.
b. Big Deal Car Manufacturer increases the
number of its suppliers to be less
dependent on just a few.
c. AJAX Cement Company has built a new,
huge warehouse to store inventory.
d. Acme Company tells its maintenance
department to intervene only if a machine
breaks down.
144. CPA-06794 B1 Page 73
Which one of the following is not a requirement of
just-in-time systems?
a. Supplies received as needed throughout
the day.
b. Reduced setup time.
c. Employee empowerment.
d. Strong job specialization.
145. CPA-06795 B1 Page 71
Which of the following is not a disadvantage of
outsourcing?
a. Risk mitigation.
b. Language barriers.
c. Security issues.
d. Quality of service.
146. CPA-06796 B1 Page 73
Unlike business process reengineering, business
process management:
a. Seeks incremental change.
b. Seeks radical change.
c. Increases the financial risk associated
with change.
d. Has a longer implementation time.
147. CPA-06797 B1 Page 78
Which of the following management philosophies
does not focus on quality?
a. Gap Analysis.
b. Total Quality Management.
c. Absolute conformance.
d. Lean.
148. CPA-04221 3C.C02 - 6 B1 Page 75
Quality programs that demand compliance with
the most rigorous standards apply the concept of:
a. Goalpost conformance.
b. Absolute conformance.
c. Conforming costs.
d. Nonconforming costs.
149. CPA-06798 B1 Page 79
The maximization of throughput is an inherent
concept in which of the following management
philosophies?
a. Theory of Constraints.
b. Total Quality Management.
c. Six Sigma.
d. Activity-based Costing.
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6. Operations Management: Project
Management
150. CPA-06799 B1 Page 85〈参考〉
Which of the following is not a major process
carried out by a project manager?
a. Risk.
b. Time.
c. Constraints.
d. Resources.
154. CPA-06803 B1 Page 86〈参考〉
All of the following statements regarding project
risk are correct, except:
a. Planning for risk management includes
risk assessment.
b. Risk control includes anticipating
everything that could go wrong
throughout the project plans.
c. There is always a tradeoff between risk
and reward.
d. Risk is inherent in every aspect of the
project management process.
151. CPA-06800 B1 Page 85
Which of the following is a responsibility of the
project manager?
a. Carrying out the work and producing the
deliverables.
b. Interfacing between the organization and
the project itself.
c. Approving project deliverables.
d. Identifying and managing internal and
external stakeholder expectations.
152. CPA-06801 B1 Page 85
Which of the following is a role of the project
sponsor?
a. Responsibility for overall project delivery.
b. Communicate project metrics to
stakeholders and team members.
c. Develop, implement, monitor, control and
end the plan when plan objectives have
been met.
d. Communicate project needs to the Board
of Directors.
153. CPA-06802 B1 Page 90
Which of the following is not a method for
estimating the cost of a project?
a. Judgment.
b. Reserve Analysis.
c. Project Management Simulation (PMS).
d. Vendor bid analysis.
34
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B1. Operation Management
解答編
1. Operations Management: Performance
Management and Impact of Measures on
Behavior
1. CPA-03875
Choice "a" is correct. A control chart shows the
performance of a particular process in relation to
acceptable upper and lower limits of deviation.
Performance within the limits is termed statistical
control. Processes are designed to ensure that
performance consistently falls within the
acceptable range of error.
Choice "b" is incorrect. A Pareto diagram
represents an individual and cumulative graphical
analysis of errors by type.
Choice "c" is incorrect. A fishbone diagram
describes a process, the contributions to the
process, and the potential problems that could
occur at each phase of a process. The
chronological sequence of events is represented
by a single horizontal line while the contributions
to the process are represented by diagonal lines
that create the image of a fishbone.
Choice "d" is incorrect. A value chain analysis is
a macro level flowchart that shows the relationship
between broad functional areas, the product
delivered by the organization, and manner in
which value is added at each link in the chain.
2. CPA-03878
Choice "c" is correct. A fishbone diagram
describes a process, the contributions to the
process, and the potential problems that could
occur at each phase of a process. The process
is represented by a single horizontal line while the
contributions to the process are represented by
diagonal lines that create the image of a fishbone.
Fishbone diagrams provide a framework for
managers to analyze the problems that contibute
to the occurrence of defects.
Choice "a" is incorrect. A control chart shows the
performance of a particular process in relation to
acceptable upper and lower limits of deviation.
Performance within the limits is termed statistical
control. Processes are designed to ensure that
performance consistently falls within the
acceptable range of error.
Choice "b" is incorrect. A Pareto diagram
represents an individual and cumulative graphical
analysis of errors by type. Individual error types
are represented on a histogram (bar graph), while
the cumulative number of errors is presented on a
line graph. The Pareto diagram is used to
prioritize process improvement efforts.
Choice "d" is incorrect. A value chain analysis is
a macro level flowchart that shows the relationship
between broad functional areas, the product
delivered by the organization, and manner in
which value is added at each link in the chain.
3. CPA-05801
Choice "c" is correct. Benchmarking would be
used by a company in comparing its financial data
to published information to determine if optimal.
Benchmarking is the process often used to
identify standards that define or quantify critical
success factors.
Choice "a" is incorrect. Budgets are internal
comparisons, not external.
Choice "b" is incorrect. Forecasts are internal
comparisons, not external.
Choice "d" is incorrect. Use of best practices
represents the implementation of procedures or
modifications to operations, not the comparison of
data to externally-published benchmarks.
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4. CPA-03985
Choice "d" is correct. The goals and objectives
upon which an annual profit plan (also known as
budgeted, targeted or estimated financial
statements) is most effectively based are a
combination of financial, quantitative (number of
units), and qualitative (e.g., to be the best)
measures. Not all goals and objectives can be
quantified.
Choice "a" is incorrect. To ignore qualitative
measures is to miss many important items.
Choice "b" is incorrect. Qualitative measures are
important, but financial and quantitative measures
are important, too.
Choice "c" is incorrect. Qualitative measures
should not be ignored.
5. CPA-04124
Choice "a" is correct. Nonfinancial measures are
an effective way to observe problems as they
occur. Thus, some action can be taken prior to
the release of financial information.
Choice "b" is incorrect. While nonfinancial
measures are good at directing management to a
problem, they often do not serve as good problem
solvers.
Choice "c" is incorrect. Nonfinancial measures
are a good complement to financial measures but
they are not a substitute.
Choice "d" is incorrect, per above.
6. CPA-04126
Choice "b" is correct. Managers are more likely
to react to incentives where the manager can
control the outcome. They therefore have less
risk to them.
Choice "a" is incorrect. Tying incentives to the
overall profit of the firm means the individual
manager has less control of the outcome and may
not be as motivated.
Choice "c" is incorrect. While a bonus on salary
is often very effective, tying the bonus to the
salary often makes persons in lower paying jobs
feel they are being treated unfairly and that their
supervisor will reap the rewards of their hard work.
Choice "d" is incorrect, per above.
36
7. CPA-06773
Choice "b" is correct. While it is true that ROI
can motivate managers to delay or avoid investing
in new PP&E, this is often an inappropriate
business decision. The company with very old
PP&E may have very high ROI measures but
could be more profitable with newer, more efficient
PP&E.
Choice "a" is incorrect. ROI is expressed as a
percentage of profit to investment or as the
product of asset turnover and gross margin. It is,
in either case, a percentage.
Choice "c" is incorrect. Delaying or avoiding
investing in new PP&E may make the
achievement of ROI targets easier simply
because the denominator remains low.
Choice "d" is incorrect. The return on investment
(ROI) measurement motivates achievement of
levels of net earnings on company resources.
8. CPA-06774
Choice "c" is correct. The balanced scorecard
seeks to fully integrate financial measures of
performance with non-financial measures of
performance.
Choice "a" is incorrect. ROI is a financial
measure of performance that gauges earnings as
a percentage of investment and can be further
analyzed to measure both margin on sales and
efficient use of assets.
Choice "b" is incorrect. Control charts graphically
display the impact of measuring goalpost
conformance with an attribute which could be
either financial or non-financial.
Choice "d" is incorrect. Variance analysis is
generally viewed as a financial measure of
performance. Although variances break out the
efficiency and usage components using the nonfinancial data required to develop standards,
variances are computed in a context that seeks to
explain financial results.
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9. CPA-06775
Choice "a" is correct. Total productivity ratios
consider all inputs and prices of those inputs.
Choice "b" is incorrect. Partial productivity ratios
are concerned only with the quantity of a single
input (e.g., direct material or direct labor) and do
not consider the price of the input.
Choice "c" is incorrect. TPR is calculated as the
quantity of output produced in a given period
divided by the cost of inputs in the same period,
not the sales price of outputs.
Choice "d" is incorrect. PPR is calculated as the
quantity of output produced divided by quantity of
the single input used, not the cost.
10. CPA-06776
Choice "d" is correct. Pareto diagrams combine
the elements of a histogram of quality control
issues displayed in order of most to least frequent
with a line graph that displays the cumulative
occurrence of the problems.
Choice "a" is incorrect. Control charts measure
conformance of operations within a standard
range known as a goalpost (an upper or lower
limit).
Choice "b" is incorrect. Cause and effect
(fishbone) diagrams typically analyze problems
that contribute to the occurrence of defects.
Pareto diagrams measure the cumulative impact
of identified quality issues.
Choice "c" is incorrect. On a Pareto diagram,
quality control issues are displayed in order of
most to least frequent.
11. CPA-06777
Choice "c" is correct. Manufacturing overhead is
not an element of the manufacturing processing
you would expect to see in a cause and effect
(fishbone) diagram. It is an allocated cost.
Choice "a" is incorrect. Manpower, machinery,
methods, and materials are commonly identified
elements of manufacturing processes that would
be used to evaluate the source of defects.
Manpower is an element of the manufacturing
process typically presented on a cause and effect
(Fishbone) diagram.
Choice "b" is incorrect. Manpower, machinery,
methods, and materials are commonly identified
elements of manufacturing processes that would
be used to evaluate the source of defects.
Machinery is an element of the manufacturing
process typically presented on a cause and effect
(Fishbone) diagram.
Choice "d" is incorrect. Manpower, machinery,
methods, and materials are commonly identified
elements of manufacturing processes that would
be used to evaluate the source of defects.
Method is an element of the manufacturing
process typically presented on a cause and effect
(Fishbone) diagram.
12. CPA-06778
Choice "c" is correct. Restricted stock option
programs may reward current performance but
also emphasize future performance. The
employee must typically stay through the option
strike period and the option is only valuable if the
stock price increases.
Choice "a" is incorrect. Fixed (formula driven)
plans may or may not emphasize future
performance.
Choice "b" is incorrect. Company-wide
performance based plans may or may not
emphasize future performance.
Choice "d" is incorrect. Competitive commission
plans tend to emphasize current performance.
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13. CPA-06779
Choice "d" is correct. Effective performance
measures should balance long and short-term
issues.
Choice "a" is incorrect. Effective performance
measures have a number of characteristics.
They should relate to the goals of organization, be
objective and easily measured, be under the
control of the employee, and understood by the
employees. Employee control of the
performance measured is a characteristic of an
effective performance measure.
Choice "b" is incorrect. Effective performance
measures have a number of characteristics.
They should relate to the goals of organization, be
objective and easily measured, be under the
control of the employee, and understood by the
employees. Objectivity and ease of
measurement is a characteristic of an effective
performance measure.
Choice "c" is incorrect. Effective performance
measures have a number of characteristics.
They should relate to the goals of organization, be
objective and easily measured, be under the
control of the employee, and understood by the
employees. Contribution to the goals of the
organization is a characteristic of an effective
performance measure.
14. CPA-06780
Choice "d" is correct. Database marketing
involves gathering information on customers and
using the information from that database to
segment customers into target markets for a more
effective selling effort. Good Stuff's marketing
research is locating customers based on traits
exhibited in a database.
Choice "a" is incorrect. Transaction marketing
involves attracting customers for a single sale.
Good Stuff is selectively marketing and looking for
repeat business.
Choice "b" is incorrect. E-marketing uses the
internet to accomplish marketing functions. The
fact pattern is silent about Good Stuff's
communications methods.
Choice "c" is incorrect. Network marketing,
sometimes referred to as multilevel marketing,
focuses on relationships and referrals to
accomplish marketing functions. Good Stuff is
not developing a distributor network with its
marketing efforts.
15. CPA-06781
Choice "a" is correct. IFRS requires the use of
the percentage of completion method, which
would recognize revenue faster than the
completed contract method. We would expect
higher earnings.
Choices "b", "c", and "d" are incorrect, based on
the above explanation.
16. CPA-06782
Choice "a" is correct. IFRS prohibits the use of
the LIFO method, which typically produces lower
inventory and lower income amounts in periods of
rising prices. The conversion from LIFO to
another method would likely produce higher
inventory and higher net income.
Choices "b", "c", and "d" are incorrect, based on
the above explanation.
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17. CPA-06804
Choice "c" is correct. ROI encourages
shortsighted behavior that defers or avoids
investment for the sake of current ROI
performance. Short-term benefits are
emphasized over long-term commitments.
Choice "a" is incorrect. ROI is a simple and
relatively objective computation that can be drawn
from accounting records.
Choice "b" is incorrect. ROI is a well understood
concept.
Choice "d" is incorrect. ROI is controlled or
influenced by managers and can be manipulated.
18. CPA-04200
Choice "a" is correct. The best productivity
measure for the production supervisor is 5.00
units per labor hour. This measures the
efficiency and productivity of plant labor, which is
within the supervisor's control.
Choice "b" is incorrect. Most of the cost factors
are outside the control of the production
supervisor.
Choice "c" is incorrect. The supervisor can affect
the efficiency of material usage but not the units
per pound.
Choice "d" is incorrect. The supervisor has no
control over the hourly cost of labor.
19. CPA-04218
Choice "b" is correct. A Pareto diagram
represents an individual and cumulative graphical
analysis of errors by type. Individual error types
are represented on a histogram (bar graph) while
the cumulative number of errors is presented on a
line graph. The Pareto diagram is used to
prioritize process improvement efforts.
Choice "a" is incorrect. A control chart shows the
performance of a particular process in relation to
acceptable upper and lower limits of deviation.
Performance within the limits is termed statistical
control. Processes are designed to ensure that
performance consistently falls within the
acceptable range of error.
Choice "c" is incorrect. A fishbone diagram
describes a process, the contributions to the
process and the potential problems that could
occur at each phase of a process. The
chronological sequence of events is represented
by a single horizontal line while the contributions
to the process are represented by diagonal lines
that create the image of a fishbone.
Choice "d" is incorrect. A value chain analysis is
a macro level flowchart that shows the relationship
between broad functional areas, the product
delivered by the organization and manner in which
value is added at each link in the chain.
20. CPA-06805
Choice "c" is correct. Executive perks (e.g.,
vacation homes, the use of company jets, etc.) are
often viewed as excessive.
Choice "a" is incorrect. The Board of Directors
approves perquisites (perks) provided to highlevel employees.
Choice "b" is incorrect. Perks are generally
taxable.
Choice "d" is incorrect. Few would argue that
perks unfairly reduce traditional compensation.
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2. Operations Management: Cost
Measurement Methods and Techniques
21. CPA-03465
Choice "c" is correct. The total overhead cost of
$27.00 is a mixed cost because it includes both
fixed and variable components.
Choice "a" is incorrect. Carrying costs are the
costs of carrying inventory.
Choice "b" is incorrect. Sunk costs are in the
past and unavoidable.
Choice "d" is incorrect. Committed costs are in
the future, but unavoidable.
22. CPA-03484
Choice "b" is correct. $1,500,000 joint cost is
allocated to the second main product by using the
physical-volume method.
Joint costs
Less net realizable value of
byproduct (60,000 × $2)
Net joint costs to be allocated
$2,520,000
(120,000)
$2,400,000
23. CPA-03498
Choice "c" is correct. Sales price less the cost to
complete is defined as the net sales value at splitoff. In other words, this is the additional
contribution to income generated by completing
the product.
Choice "a" is incorrect. Sales price at point of
sale reduced by cost to complete is the additional
contribution to income generated by completing
the product. It is not equal to joint costs. (If it
were, this would be a zero profit situation.)
Choice "b" is incorrect. Sales price at point of
sale reduced by cost to complete is the additional
contribution to income generated by completing
the product. It is not equal to total costs.
Choice "d" is incorrect. Selling price less a
normal profit margin is generally a cost figure. It
is not equal to sales price less the cost to
complete, which is the additional contribution to
income generated by completing the product. (If
it were, this would be a zero profit situation.)
150,000 pounds of
second main product
× $2,400,000 = $1,500,000
240,000 pounds of total
(first + second) main products
Choices "a", "c", and "d" are incorrect based on
the above explanation.
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24. CPA-03503
Choice "b" is correct. Changing the accounting
from by-product to joint product changes the
computation of gross margin because the $1
selling cost is treated differently under each
method. Using the by-product method, the $1
selling expense is netted against the $4 selling
price to arrive at a $3 deduction from cost of
goods sold. Since gross margin is calculated as
sales less cost of goods sold, the $1 does flow
into the gross margin amount using this method.
Using the joint product method, the $1 cost would
be a selling expense, which is not included in the
calculation of gross margin. Instead, selling
expenses are deducted from gross margin (after it
is computed) to arrive at net income. Although
the total net ncome is the same under both
methods, the joint product method results in an
increased gross margin of $1 per unit of May sold.
Choice "a" is incorrect. The $1 selling expense
would be deducted from gross margin using the
joint product method.
Choice "c" is incorrect. The $4 sales price is
included in the calculation of gross margin under
both methods.
Choice "d" is incorrect. The $4 sales price is
included in calculation of gross margin under both
methods.
25. CPA-03506
Choice "d" is correct. Sales price less the cost to
complete is defined as the relative sales value at
split-off. In other words, this is the additional
contribution to income generated by completing
the product.
Choice "a" is incorrect. Sales price at point of
sale reduced by cost to complete is the additional
contribution to income generated by completing
the product. It is not equal to total costs.
Choice "b" is incorrect. Sales price at point of
sale reduced by cost to complete is the additional
contribution to income generated by completing
the product. It is not equal to joint costs. (If it
were, this would be a zero profit situation.)
Choice "c" is incorrect. Selling price less a
normal profit margin is generally a cost figure. It
is not equal to sales price less the cost to
complete, which is the additional contribution to
income generated by completing the product. (If
it were, this would be a zero profit situation.)
26. CPA-03510
Choice "d" is correct. Direct labor represents the
cost of labor directly associated with the
manufacturing of the finished product. The loom
operators would qualify as direct labor, while the
factory foremen and the machine mechanics
would qualify as indirect labor, or overhead. Total
direct labor is $120,000.
Choices "a", "b", and "c" are incorrect based on
the above explanation.
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27. CPA-03513
Choice "b" is correct. $180,000. The question
requires allocation based on physical quantity, as
follows:
Total Units
MSB
CBL
Total units
60,000 units (60/150 = 40%)
90,000 units (90/150 = 60%)
150,000 units (100%)
Allocation of Joint Costs
MSB 40% ×$300,000 = $ 120,000
CBL 60% ×$300,000 = $ 180,000
$ 300,000
Choices "a", "c", and "d" are incorrect, per the
above calculation.
28. CPA-03541
Choice "a" is correct. $75,000. The question
requires allocation based on relative sales value,
as follows:
Relative Sales Value
MSB
60,000 units × $2/unit = $120,000 (120/480 = 25%)
CBL
90,000 units × $4/unit = $360,000 (360/480 = 75%)
Total sales value
$480,000 units (100%)
Allocation of Joint Costs
MSB 25% × $300,000 = $ 75,000
CBL 75% × $300,000 = $ 225,000
$ 300,000
Choices "b", "c", and "d" are incorrect based on
the above explanation.
29. CPA-03549
Choice "b" is correct. $5.625.
RULE: If net realizable value cannot be
deteriend at split-off, then additional costs added
after the split-off point (separable costs) must be
subtracted from the final selling price to arrive at
net realizable value. [Note: In this question, this
applies to CBL only, as MSB is saleable at $2
each at split-off.]
CBL sales value at split off
Units of CBL produced
Less: Spoilage
Units available for sale
90,000
(10,000)
80,000
Sales price at point of sale:
80,000 units × $10/unit =
Less: Processing cost to complete
Sales value at split off
$ 800,000
(200,000)
$ 600,000
MSB sales value at split off
60,000 units produced × $2 per unit sales price
= $120,000
(Note that the additional processing costs
incurred to generate a higher selling price of $5
per unit are not relevant to the sales value at
split off.)
Allocation of joint costs to CBL:
CBL sales value
at split off
$ 600,000 (600/720 = approx. 83.3%)
MSB sales value
at split off
120,000 (120/720 = approx. 16.7%)
Total sales value
at split off
$ 720,000 (100%)
$300,000 joint costs × 600/720 = $250,000
(Note that the percentages did not come out
"even" - in such cases, it is important to use the
exact computations on your calculator.)
Cost per unit of CBL:
Allocation of joint cost
Additional processing costs
Total costs
Divided by saleable units
Cost per unit
$ 250,000
200,000
$ 450,000
÷ 80,000
$ 5.625
Choices "a", "c", and "d" are incorrect based on
the above explanation.
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30. CPA-03557
Choice "d" is correct. $80,000 lower.
Sales price with coating
$5 per unit
Sales price without coating
(2) per unit
Additional revenue from coating
$3 per unit
Units of MSB
× 60,000 units
Additonal revenue from coating
$180,000
Less cost of applying coating
(100,000)
Contribution margin foregone
$80,000
Choices "a", "b", and "c" are incorrect based on
the above explanation.
31. CPA-03561
Choice "a" is correct. Manufacturing industries
such as mass production are typical areas where
standard cost systems are used. However,
service industries may also use a standard cost
system.
Choices "b", "c", and "d" are incorrect based on
the above explanation.
32. CPA-04795
Choice "d" is correct.
Joint costs allocated based upon relative sales
value at split off are allocated based upon the ratio
of individual sales values to sales value at split
off. The ratio is computed at 80% and 20% and
applied to the $600,000 in joint cost to arrive at the
joint cost allocation below. Be careful of the
question. This question asks for the amount of
allocated joint costs, but others may ask for total
costs. In those instances, you would add the
allocated costs to the direct costs that can be
traced to the product prior to split off.
Price/ Sales Value Relative Joint
Pounds Pound
Split off
Value Costs
White breast
meat
100,000 $2.00
Legs
Total
50,000 $1.00
$200,000
80%
$600,000
50,000
20%
$600,000
$250,000
100%
Joint Cost
Allocation
33. CPA-04824
Choice "a" is correct. Prime costs are normally
defined as direct materials and direct labor.
Choice "b" is incorrect. Direct materials and
overhead do not represent prime costs. Prime
costs are direct material and direct labor.
Choice "c" is incorrect. Direct labor and
overhead are normally referred to as conversion
costs, not prime costs.
Choice "d" is incorrect. Direct materials, direct
labor, and overhead comprise total costs, not
simply prime costs.
34. CPA-05322
Choice "d" is correct. Using a physical quantity
basis with no additional processing costs after the
split-off point, product X is 240,000 gallons and
product Y is 160,000 gallons, for a total of 400,000
gallons. That means that product X is allocated
60% (240,000 / 400,000) of the joint costs and
product Y is allocated 40% (160,000 / 400,000) of
the joint costs. Product X is thus allocated 60%
of the $500,000 joint costs, or $300,000. The
data about selling costs is a distracter because
the joint costs are allocated on a physical quantity
basis.
Choice "a" is incorrect. $200,000 is the amount
of the joint cost that is allocated to product Y, not
product X.
Choice "b" is incorrect, per the above calculation.
[$240,000 is $1 for each gallon of product X.
However, it is difficult to determine where the $1
comes from.]
Choice "c" is incorrect, per the above calculation.
[$260,000 is a nice round number, and $260,000
plus the $240,000 adds to the $500,000 joint cost.
However, that is about all it is worth.]
$480,000
120,000
$600,000
Choice "a" is incorrect. This selection represents
the allocation to legs.
Choice "b" is incorrect. This selection represents
the relative sales value of white breast meat at
split off.
Choice "c" is incorrect, per the above computation.
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35. CPA-05312
Choice "d" is correct. Product cost is assigned to
goods (products) that were either purchased or
manufactured for resale.
Choice "a" is incorrect. Relevant costs are costs
that are relevant to a particular decision.
Choice "b" is incorrect. Period costs are costs
that are expensed during a period. They are not
charged to a product (capitalized), which is why
they are expensed.
Choice "c" is incorrect. Opportunity costs are
costs that would have been saved or profits that
would have been earned if another decision
alternative had been selected.
36. CPA-05783
Choice "d" is correct. In the relevant range, fixed
costs are constant in total, but decrease per unit
as production levels increase.
Choice "a" is incorrect. Although total fixed costs
are constant in total in the relevant range, the call
of the question relates to per-unit fixed costs.
Fixed costs per unit decrease as production levels
increase.
Choice "b" is incorrect. Variable costs per unit
remain unchanged in the relevant range, but
increase in total as unit volume increases.
Choice "c" is incorrect. Total variable costs
increase as total unit volume increases in the
relevant range.
38. CPA-03625
Choice "a" is correct. Direct costs are easily
traceable to a product. Payments to employees
who develop computer programs are considered
part of direct labor. Value-added costs increase
the worth of the product or service to customers.
Employees who develop these programs are
adding value to the computer programs.
Choices "b", "c", and "d" are incorrect based on
the above explanation.
39. CPA-05796
Choice "d" is correct. Managerial accounting
focuses on the needs of internal users (managers)
and on data relevant for decision making.
Choice "a" is incorrect. Financial accounting
focuses on financial statements and other
reporting in conformity with GAAP.
Choice "b" is incorrect. Managerial accounting
focuses on future costs and the impact of
decisions on future profitability, not historical costs.
Financial accounting focuses on historical costs.
Choice "c" is incorrect. Financial, not managerial,
accounting focuses on the needs of external users
such as creditors and investors.
37. CPA-03576
Choice "c" is correct.
Note that the joint costs of $135 will not change
under either option and therefore are not used to
answer this question.
Choices "a", "b", and "d" are incorrect based on
the above explanation.
44
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40. CPA-03586
Choice "b" is correct. Cost of jobs completed (or
cost of goods manufactured) equals direct
materials used + direct labor + overhead applied +
beginning WIP − ending WIP. In this case, the
calculation is:
COGM = $90,000 + $107,000 + $113,000 + $0 − $0
= $310,000
Indirect materials ($8,000) are included in the
actual overhead incurred. COGM uses applied
overhead, not actual overhead. The
underapplied overhead of $12,000 ($125,000 −
$113,000) would normally be closed out to cost of
goods sold unless considered material and then it
would be allocated pro rata to the ending
balances of WIP, finished goods inventory, and
cost of goods sold.
Choice "a" is incorrect. Cost of jobs completed
(or cost of goods manufactured) equals direct
materials used + direct labor + overhead applied +
beginning WIP − ending WIP.
Choice "c" is incorrect. Cost of jobs completed
(or cost of goods manufactured) equals direct
materials used + direct labor + overhead applied +
beginning WIP − ending WIP.
Choice "d" is incorrect. Cost of jobs completed
(or cost of goods manufactured) equals direct
materials used + direct labor + overhead applied +
beginning WIP − ending WIP.
41. CPA-03590
Choice "c" is correct. Computation of total value
of direct labor costs in ending inventory using the
weighted average method applied to process
costing involves three steps:
1. Compute equivalent units of production
2. Compute the unit cost of production
3. Apply unit costs to the equivalent units in
ending inventory
Compute equivalent units of production
Total units to account for:
Units accounted for as follows:
Beginning WIP
100
Units completed 400
Units started
500
Ending WIP
Total
600
(75% complete) 200
Total
600
Equivalent units of production for the quarter are
550 computed as follows:
Units completed + completed portion of WIP
(400 + (200 × 75%)) = 550
Compute the unit cost of production
Total costs are computed as follows:
Prior month cost
Current month cost
Total
50,000
720,000
770,000
Cost per unit is computed as follows:
$770,000 ÷ 550 units = $1,400 per unit
Apply unit costs to the equivalent units in
ending inventory
Total units in ending inventory
200
Percent complete
× 75%
Equivalent units
150
Equivalent units × cost per unit equals value of
direct labor costs in ending inventory
150 units × $1,400 = $210,000
Proof:
B Beginning inventory
A Add: Costs added
during quarter
S Subtract: Costs of goods
completed (400 × $1,400)
E Ending Inventory
$ 50,000
720,000
(560,000)
$ 210,000
Choices "a", "b", and "d" are incorrect, per
computation above.
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42. CPA-03594
Choice "c" is correct, $210,000. Computation of
total value of direct material costs in ending
inventory using the weighted average method
applied to process costing involves three steps:
1. Compute equivalent units of production
2. Compute the unit cost of production
3. Apply unit costs to the equivalent units in
ending inventory
Units accounted for as follows:
Beginning WIP
100
Units completed 400
Units started
500
Ending WIP
Total
600
(75% complete) 200
Total
600
Equivalent units of production for the quarter are
550 computed as follows:
Units completed + completed portion of WIP
(400 + (200 × 75%)) = 550
Compute the unit cost of production
Total costs are computed as follows:
Prior month cost
Current month cost
Total
720,000
(560,000)
$ 210,000
50,000
720,000
770,000
43. CPA-03598
Choice "d" is correct. Activity-based costing
(ABC) assumes that the resource-consuming
activities of an enterprise that generate costs are
activities and not outputs. ABC is appropriate for
all types of cost accumulation systems, including
both job order and process costing.
Choices "a", "b", and "c" are incorrect. Activitybased costing (ABC) assumes that the resource
consuming activities of an enterprise that generate
costs are activities and not outputs. ABC is
appropriate for all types of cost accumulation
systems, including both job order and process
costing. It is inappropriate to state that it should
not be used with either system.
Cost per unit is computed as follows:
$770,000 ÷ 550 units = $1,400 per unit
Apply unit costs to the equivalent units in
ending inventory
Total units in ending inventory
200
Percent complete
× 75%
Equivalent units
150
Equivalent units × cost per unit equals value of
direct material costs in ending inventory
150 units × $1,400 = $210,000
46
$ 50,000
Choices "a", "b", and "d" are incorrect per
computation above.
Compute equivalent units of production
Total units to account for:
Proof:
B Beginning inventory
A Add: Costs added
during quarter
S Subtract: Costs of goods
completed (400 × $1,400)
E Ending Inventory
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44. CPA-03606
Choice "d" is correct. Under the FIFO method,
ending inventory is priced at the cost of
manufacturing during the period. Equivalent
units are composed of three parts: the
completion of units on hand at the beginning of
the period, units started and completed during the
period, and units partially completed at the end of
the period. Applying these principles to the given
fact pattern, the total equivalent units of production
for the quarter is detemined as follows:
Equivalent units for the first quarter:
Work in process, beginning
(100 units × 50% to complete)
Units started and completed:
Units completed and
transferred out
400
Units in beginning inventory
(100)
Work in process, ending
(200 units × 75% complete)
Equivalent units of production
50
300
150
500
Costs associated with first quarter production
January 1 Work-in-process
−
First quarter costs added
720,000
Total costs
720,000
Cost per unit ($720,000/500)
1,440
Ending inventory (150 × $1,440)
216,000
Choices "a", "b", and "c" are incorrect based on
the above explanation.
45. CPA-03608
Choice "b" is correct. Activity-based costing
divides the production process into activities
where costs are accumulated. The production
process assumes activities consume resources
(direct materials, direct labor, and manufacturing
overhead), and that the outcome of the production
process requires performance of the activities.
Choice "a" is incorrect. All manufacturing costs
do not vary directly with units of production.
Fixed manufacturing costs are an element in the
production process.
Choice "c" is incorrect. Product costs include all
manufacturing costs, regardless of whether the
costs respond to unit-level drivers.
Choice "d" is incorrect. Activity-based costing
divides the production process into activities
where costs are accumulated. The production
process assumes activities consume resources
(direct materials, direct labor, and manufacturing
overhead). Both variable and fixed
manufacturing costs are accumulated in the
activity-cost pools.
46. CPA-03611
Choice "a" is correct. Prime costs are the sum of
direct materials and direct labor. Direct material
is found by squeezing out the cost of goods in the
account analysis format
Beginning balance
direct materials
$ 67,000
Plus purchases
163,000
Plus transportation in
4,000
Less purchase returns
and allowances
2,000
Materials available
232,000
Less cost of materials used
170,000  SQUEEZE
Ending balance
direct materials
Direct materials
Direct labor (given)
Prime cost
$ 62,000
$ 170,000
200,000
$ 370,000
Choices "b", "c", and "d" are incorrect, per the
explanation above.
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47. CPA-03616
Choice "d" is correct. Total manufacturing cost is
the sum of direct material, direct labor, and
overhead applied.
Direct material
Direct labor
Overhead (70% of DL)
Total manufacturing cost
$ 170,000 [Note A]
200,000
140,000
$ 510,000
Note A:
Plus purchases
Plus transportation in
$ 67,000
163,000
4,000
Less purchase returns
2,000
Materials available
232,000
(170,000)  SQUEEZE
Ending balance
direct materials
$145,000
Plus total manufacturing cost
510,000 [Note A]
Goods available to transfer
655,000
finished goods
Ending balance of WIP
$ 62,000
Choice "a" is incorrect. $502,000 is found by
adding actual overhead to direct material and
direct labor, but overhead applied should be used.
Choices "b" and "c" are incorrect, per above.
484,000  SQUEEZE
$171,000
Note A:
Direct material
and allowances
Less cost of materials used
Beginning balance of WIP
Goods transferred to
Beginning balance
direct materials
48. CPA-03618
Choice "c" is correct. The cost of goods
transferred to finished goods is the total
manufacturing cost adjusted for the changes in
the WIP account.
Using the account analysis format.
Direct labor
Overhead (70% of DL)
Total manufacturing cost
$170,000 [Note B]
200,000
140,000
$510,000
Note B:
Beginning balance
direct materials
Plus purchases
Plus transportation in
$ 67,000
163,000
4,000
Less purchase returns
and allowances
2,000
Materials available
232,000
Less cost of materials used
(170,000)  SQUEEZE
Ending balance
direct materials
$ 62,000
Choices "a", "b", and "d" are incorrect, per above.
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49. CPA-03621
Choice "b" is correct. Cost of goods sold is found
by taking the cost of goods transferred to finished
goods and adjusting for the changes in the
finished goods account.
Using the account analysis format.
Beginning balance of
finished goods
$ 85,000
Plus goods transferred to
finished goods
484,000 [Note A]
Finished goods available
569,000
Cost of goods sold
491,000  SQUEEZE
Ending balance of
finished goods
$ 78,000
Note A:
Using the account analysis format.
Beginning balance of WIP
$145,000
Plus total manufacturing cost
510,000 [Note B]
Goods available to transfer
655,000
Goods transferred to
finished goods
Ending balance of WIP
484,000  SQUEEZE
$171,000
Note B:
Direct material
Direct labor
Overhead (70% of DL)
Total manufacturing cost
$170,000 [Note C]
200,000
140,000
$510,000
Note C:
Beginning balance
direct materials
Plus purchases
Plus transportation in
$ 67,000
163,000
4,000
Less purchase returns
and allowances
2,000
Materials available
232,000
Less cost of materials used
50. CPA-03623
Choice "c" is correct. The net charge to factory
overhead is the difference between actual factory
overhead and the amount of overhead applied.
Overapplied inventory occurs when more
inventory was applied than actually occurred and
underapplied inventory occurs when less
inventory was applied than was actually incurred.
Factory overhead applied
(70% of direct labor)
Actual overhead incurred
Amount of factory
overhead overapplied
$ 140,000
132,000
$
8,000
Because overhead was overapplied, there was a
larger amount of cost that went to WIP. To
correct this, overapplied overhead is credited to
reduce cost.
Choices "a", "b", and "d" are incorrect, per the
explanation above.
51. CPA-03630
Choice "d" is correct. Normal spoilage is
considered a necessary cost of production and is
a product (inventoriable) cost. Abnormal
spoilage is considered unnecessary and is a
period cost.
Choice "a" is incorrect. Normal spoilage is
considered a necessary cost of production and is
a product (inventoriable) cost.
Choice "b" is incorrect. Abnormal spoilage is
considered unnecessary and is a period cost.
Choice "c" is incorrect. Normal spoilage is a
normal product (inventory) cost. Abnormal
spoilage is considered unnecessary to production
and is expensed (period cost).
(170,000)  SQUEEZE
Ending balance
direct materials
$ 62,000
Choices "a", "c", and "d" are incorrect, per above.
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52. CPA-03632
Choice "b" is correct. Activity-based costing
assigns costs to activities or transactions and
allocates them to products according to their use
of each activity. This method means multiple
cause and effect relationships may exist.
Choice "a" is incorrect. Activity-based costing
assigns costs to activities or transactions and
allocates them to products according to their use
of each activity.
Choice "c" is incorrect. The essence of activitybased costing is determining the activities that are
involved in producing a product. Relative sales
value is not based on this approach.
Choice "d" is incorrect. Assigning costs to
departments should not be based on ability to
bear costs. It should be based on each
department's appropriate share of these costs,
based on cause and effect.
53. CPA-03634
Under the FIFO method, the equivalent units of
production is comprised of three parts: the
completion of units on hand at the beginning of
the period, the units started and completed during
the period, and the units partially completed at the
end of the period. Applying these principles to
the given fact pattern, the total equivalent units of
production for materials is determined as follows:
54. CPA-03637
Under the FIFO method, the equivalent units of
production is comprised of three parts: the
completion of units on hand at the beginning of
the period, the units started and completed during
the period, and the units partially completed at the
end of the period. Applying these principles to
the given fact pattern, the total equivalent units of
production for conversion costs is determined as
follows:
Equivalent units for the first quarter:
Work in process, beginning
(16,000 units × 80% to complete)
Units completed and
transferred out
Units in beginning inventory
(24,000 units × 40% complete)
Equivalent units of production
6,400
Units started and completed:
Units completed and
transferred out
92,000
(16,000)
76,000
Work in process, ending
(24,000 units × 90% complete)
Equivalent units of production
21,600
104,000
Choice "a" is correct. 104,000 equivalent units
for materials using FIFO (or 113,600 using
weighted average).
Choices "b", "c", and "d" are incorrect, per the
above explanation.
50
76,000
9,600
98,400
Choice "c" is correct. 98,400 equivalent units for
conversion costs using FIFO (or 101,600 using
weighted average).
Choices "a", "b", and "d" are incorrect, per the
above explanation.
Work in process, beginning
Units in beginning inventory
92,000
(16,000)
Work in process, ending
Equivalent units for the first quarter:
(16,000 units × 40% to complete)
12,800
Units started and completed:
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55. CPA-03640
Choice "a" is correct. $4.50 equivalent unit cost
of materials using the FIFO method.
56. CPA-03641
Choice "b" is correct. $5.83 equivalent unit
conversion cost using the FIFO method.
Cost of materials used
$ 468,000
Direct labor costs incurred
Equivalent units
÷ 104,000 [Note A]
Factory overhead incureed
391,160
Conversion costs incurred
$574,040
Equivalent units
÷ 98,400 [Note A]
Equivalent unit cost
of materials
$
4.50
Note A:
Under the FIFO method, the equivalent units of
production is comprised of three parts: the
completion of units on hand at the beginning of
the period, the units started and completed during
the period, and the units partially completed at the
end of the period. Applying these principles to
the given fact pattern, the total equivalent units of
production for materials is determined as follows:
Equivalent units for the first quarter:
Work in process, beginning
(16,000 units × 40% to complete)
6,400
Units completed and
transferred out
Equivalent units of production
of materials
$
5.83
Note A:
Under the FIFO method, the equivalent units of
production is comprised of three parts: the
completion of units on hand at the beginning of
the period, the units started and completed during
the period, and the units partially completed at the
end of the period. Applying these principles to
the given fact pattern, the total equivalent units of
production for conversion costs is determined as
follows:
Work in process, beginning
92,000
(16,000)
(16,000 units × 80% to complete)
76,000
Work in process, ending
(24,000 units × 90% complete)
Equivalent unit cost
Equivalent units for the first quarter:
Units started and completed:
Units in beginning inventory
$182,880
12,800
Units started and completed:
Units completed and
21,600
104,000
Choices "b", "c", and "d" are incorrect, per the
above explanation.
transferred out
Units in beginning inventory
92,000
(16,000)
76,000
Work in process, ending
(24,000 units × 40% complete)
9,600
Equivalent units of production
98,400
Choices "a", "c", and "d" are incorrect, per the
above explanation.
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57. CPA-03642
Choice "a" is correct. $153,168 total cost of units
in ending work-in-process inventory using the
FIFO method.
Materials
24,000
90%
21,600
4.50
$ 97,200
Conversion
Costs
24,000
40%
9,600
5.83
$ 55,968
Note 2:
Under the FIFO method, the equivalent units of
production is comprised of three parts: the
completion of units on hand at the beginning of
the period, the units started and completed
during the period, and the units partially
completed at the end of the period. Applying
these principles to the given fact pattern, the
total equivalent units of production for
conversion costs is determined as follows:
Ending
Inventory
24,000
$ 153,168
Equivalent units for the first quarter:
Ending Work-In-Process Inventory - FIFO
Actual
%
Equiv
Unit
Total
Units × Compl = Units × Cost = Cost
Note that the unit costs for materials ($4.50) and
conversion costs ($5.83) are calculated below in
Notes A and B.
Work in process, beginning
(16,000 units × 80% to complete)
12,800
Units started and completed:
Units completed and
Note A:
transferred out
Cost of materials used
$ 468,000
Equivalent units
÷ 104,000 [Note 1]
$
4.50
Note 1:
Under the FIFO method, the equivalent units of
production is comprised of three parts: the
completion of units on hand at the beginning of
the period, the units started and completed
during the period, and the units partially
completed at the end of the period. Applying
these principles to the given fact pattern, the
total equivalent units of production for materials
is determined as follows:
Equivalent units for the first quarter:
Work in process, beginning
(16,000 units × 40% to complete)
6,400
Units started and completed:
(16,000)
76,000
Work in process, ending
Equivalent unit cost
of materials
92,000
Units in beginning inventory
(24,000 units × 40% complete)
9,600
Equivalent units of production
98,400
Choices "b", "c", and "d" are incorrect, per the
above explanation.
58. CPA-03644
Actual
Units
Beginning
Inventory
Add:
Started
Materials
%
Equiv.
Compl.
Units
Total
Cost
Unit
Cost
16,000
60%
9,600
100,000
SQZ
104,000
468,000 $4.50 FIFO
113,600
522,560 $4.60 wtd-avg
Total
Available
116,000
Less:
Completed
(92,000)
100%
(92,000)
Ending
Inventory
24,000
90%
21,600
$ 54,560
$ 97,200 $4.50 FIFO
Units completed and
transferred out
92,000
Units in beginning inventory
(16,000)
76,000
Work in process, ending
(24,000 units × 90% complete)
21,600
Equivalent units of production
104,000
Choice "b" is correct. $4.60 equivalent unit cost
of materials using the weighted-average method
($54,560 beg inv + $468,000 additions =
$522,560 ÷ 113,600 total avail equivalent units).
Choices "a", "c", and "d" are incorrect, per the
above explanation.
Note B:
Direct labor costs incurred
$ 182,880
Factory overhead incureed
391,160
Conversion costs incurred
$ 574,040
Equivalent units
÷ 98,400 [Note 2]
Equivalent unit cost of materials $
52
5.83
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59. CPA-03645
Conversion Costs
Beginning
Inventory
Add:
Started
Actual
Units
%
Compl.
Equiv.
Units
16,000
20%
3,200
100,000
SQZ
98,400
Total
Available
116,000
Less:
Completed
(92,000)
100%
(92,000)
Ending
Inventory
24,000
40%
9,600
101,600
Total
Cost
Unit
Cost
$ 35,560
574,040 $5.83 FIFO
609,600 $6.00 wtd-avg
$ 55,968 $5.83 FIFO
Choice "c" is correct. $6.00 equivalent unit
conversion cost using the weighted-average
method ($35,560 beg inv + $574,040 additions =
$609,600 ÷ 101,600 total avail equivalent units).
Choices "a", "b", and "d" are incorrect, per the
above explanation.
60. CPA-03648
Ending Work-In-Process Inventory - Wtd. Avg.
Actual
Units
%
Compl.
Equiv.
Units
Materials
24,000
90%
21,600
Conversion
Costs
24,000
40%
9,600
24,000
61. CPA-03650
Choice "d" is correct. Using the weighted
average method, the cost per equivalent unit for
materials is calculated as follows:
Total
Cost
Unit
Cost
$ 99,360 $4.60 wtd-avg.
57,600 $6.00 wtd-avg.
$ 156,960
Choice "d" is correct. $156,960 total cost of units
in ending work-in-process inventory using the
weighted-average method.
Choices "a", "b", and "c" are incorrect, per the
above explanation.
Beg inv.
Started
Available
Units
15,000
40,000
55,000
Cost
$ 5,500
18,000
$ 23,500
Cost per equivalent unit is simply $23,500/55,000,
or $0.43. Note that in the question, all materials
are added at the beginning of the process, which
is why beginning inventory, plus "started", equals
"available." Note that units completed (42,500)
plus ending WIP (12,500) also equals the 55,000
available.
Choice "a" is incorrect. Calculate equivalent
units by adding the beginning inventory (100%
complete as to materials) and the started units
(100% complete as to materials).
Choice "b" is incorrect. Calculate equivalent
units by adding the beginning inventory (100%
complete as to materials) and the started units
(100% complete as to materials).
Choice "c" is incorrect. Calculate equivalent
units by adding the beginning inventory (100%
complete as to materials) and the started units
(100% complete as to materials).
62. CPA-03656
Choice "c" is correct. Eliminating all cost drivers
would eliminate all activity. Eliminating nonvalueadding activities would reduce costs, which is one
of the objectives of activity-based costing systems.
Choice "a" is incorrect. Eliminating all cost
drivers would eliminate all activity. Eliminating
nonvalue-adding activities would reduce costs.
Choice "b" is incorrect. Eliminating all cost
drivers would eliminate all activity. Eliminating
nonvalue-adding activities would reduce costs.
Choice "d" is incorrect. Eliminating all cost
drivers would eliminate all activity. Eliminating
nonvalue-adding activities would reduce costs.
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63. CPA-03659
Choice "c" is correct. Indirect materials are
included in factory overhead costs as they are
used in the production process. Therefore, the
issue of indirect materials would decrease stores
control and increase factory overhead control.
Choice "a" is incorrect. Indirect materials are a
component of stores prior to being issued to the
production department. When issued, the
amount would decrease stores control.
Choice "b" is incorrect. Indirect costs are
recorded in factory overhead control when they
are incurred, but these costs do not increase
work-in-process until the overhead is applied.
Choice "d" is incorrect. Factory overhead
applied is the allocated amount of factory
overhead that is applied to work-in-process based
on estimates of production and costs.
64. CPA-03660
Choice "d" is correct. $5,000 overapplied.
Actual factory overhead
Applied (300,000 × .6)
Overapplied
65. CPA-04796
Choice "c" is correct and is computed in the
following computation. The information provided
by this question purely requires you to convert
total production to equivalent units and multiply
those units by the equivalent unit costs.
Materials
June 30
60%
40,000
Equivalent Unit Costs × $
5.00
$ 200,000
Total
40,000
100% ×
Equivalent Units
24,000
× $
7.00
$168,000
$368,000
Choice "a" is incorrect. The value of equivalent
units of materials is not the value of WIP inventory.
Choice "b" is incorrect. This selection anticipates
a uniform percentage of completion at 60%.
Choice "d" is incorrect. This selection fails to
consider the percentage of completion of
conversion costs less than 100%.
175,000
(180,000)
(5,000)
Choice "a" is incorrect. When actual overhead
expenses are incurred, the factory overhead
control account is debited. As overhead is
applied, the account is credited. In this case, the
applied overhead exceeded the actual overhead
by $5,000, resulting in a credit balance in the
account.
Choices "b" and "c" are incorrect. Because
applied overhead exceeded the actual overhead
expenses incurred, overhead has been
overapplied.
54
40,000
Percent Complete ×
Total
Conversion
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66. CPA-05316
Choice "b" is correct. Required production can
be calculated from a normal Account Analysis
Format, where production takes the place of
purchases, sales takes the place of cost of goods
sold, and everything is expressed in units (not
dollars). Beginning and ending inventory are
given in the question. The calculation is as
follows:
Beginning inventory
Add: Production
Subtract: Sales
Ending inventory
85
"plug"
(1,000)
100
The plug for production is thus 1,015 units.
Choice "a" is incorrect. This answer appears to
use the prior-year beginning inventory (200 units)
in place of, and instead of, the ending inventory
(100 units). The "plug" will then be 100 units less.
Choice "c" is incorrect. This answer appears to
add the sales (1,000 units) and the ending
inventory (100 units) and to ignore the beginning
inventory.
Choice "d" is incorrect. This answer appears to
add the prior-year beginning inventory (200 units)
to the ending inventory (100 units). The "plug"
will then be 200 units more.
67. CPA-05321
Choice "c" is correct. Using direct labor hours,
the overhead applied consists of both variable
overhead and fixed overhead. The calculation is
as follows:
Variable overhead rate
= $50,000 / 20,000 hours
= $2.50 per direct labor hour
Fixed overhead rate
= $25,000 / 20,000 hours
= $1.25 per direct labor hour
Total overhead rate
= $2.50 + $1.25 = $3.75
Overhead applied to the job
= $3.75 × 1,500 = $5,625
Choices "a" and "b" are incorrect, per the above
calculation.
Choice "d" is incorrect. This answer appears to
use $5.00 as the overhead application rate.
Possibly the variable overhead rate was used
twice, instead of the variable and the fixed
overhead rates being used once each.
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68. CPA-05562
Choice "d" is correct. January tire requirements
are 26,680 tires. NOTE that this question is very
detailed and quite confusing in parts. We
suspect that it will be rare for something of this
nature to appear frequently ob the CPA exam
(which is likely a reason they released the
question).
There are multiple steps in computing the raw
materials requirements.
1. Determine the amount of raw materials
transferred out by computing the amount of
finished goods transferred in:
a. Compute the ending balance of January
Finished Product at 3,200 (February sales
× 20%) per company policy.
b. Use the beginning balance (given) and
January sales (given) to squeeze out
13,200 bicycles transferred in.
c. Multiply 13,200 by 2 tires per bicycle to
arrive at the number of tires transferred out
of Work in Process in January.
2. Use January ending finished product data and
March sales data to arrive at February
production requirements and, by extension,
the required ending balance for January's raw
materials inventory:
a. January finished goods ending balance is
February finished goods beginning balance.
b. Compute the ending balance of February
Finished Product at 3,600 (March sales ×
20%) per company policy.
c. Use the beginning balance (computed) and
February sales (given) to squeeze out
16,400 bicycles transferred in (production
requirements).
d. Multiply 16,400 by 2 tires per bicycle to
arrive at the number of tires needed for
production requirements in February and
multiply by 10% to compute the raw
materials ending balance for January at
3,280 in accordance with company policy.
56
3. Compute tire requirements (purchases) for
January based on computed ending balance
and computed transfers to finished goods in
January and beginning inventory (given):
a. Ending balance, 3,280 + Raw materials
transferred to finished goods, 26,400 −
beginning inventory, 3,000 = 26,680 tires
purchased.
Choice "a" is incorrect. The proposed solution
anticipates purchases will be equal to the amount
of sale in January (× 2) plus the change in
inventory if we incorrectly assume production
requirements for February are also equal to sales.
Choice "b" is incorrect, per the above
computations.
Choice "c" is incorrect. The proposed solution
bases raw materials ending inventory upon
January rather than February production
requirements.
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69. CPA-05574
Choice "b" is correct. The ending inventory in a
manufacturing environment is computed as
follows (using the data from the fact pattern
provided):
Beginning inventory
Add: Production costs*
Total Manufacturing costs available
Subtract: Cost of good sold
Ending inventory
$ 5,000
60,000
65,000
(55,000)
$ 10,000
* Total production costs include direct labor, direct
material and applied overhead. The
information provided regarding direct labor for
$40,000 is a distracter.
Choice "a" is incorrect. The proposed solution
appears to suggest that the value of inventory
does not change.
Choice "c" is incorrect. The proposed solution
appears to suggest that the value of inventory is
the sum of direct labor charges and beginning
inventory.
Choice "d" is incorrect. The proposed solution
double counts direct labor and combines it with
the total production costs figure in deriving ending
inventory.
70. CPA-05578
Choice "c" is correct. The fact pattern provides
beginning and ending finished goods and raw
material data as well as finished goods sales data.
Begin by computing the amount of finished
product (chips) completed during the period by
squeezing $83,000 in additions from the
beginning and ending inventory and sales of chips
data.
Assume that the additions to finished goods were
transferred out of raw materials (potatoes) at the
rate defined in the fact pattern, 5 potatoes per bag
of chips (5 potatoes × 83,000 = 415,000).
Squeeze the 411,000 planned potatoes
purchases of raw materials from the beginning
and ending raw materials inventory provided and
the 415,000 potatoes transfer amount derived
from finished good data as follows:
Choices "a", "b", and "d" are incorrect, per the
above calculation.
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71. CPA-05579
Choice "d" is correct. Conversion costs (labor
and overhead) are equal to $6,500 and are
derived from the relationship between the finished
goods and work in process inventory.
1. Beginning ($1,200) and ending ($1,400)
finished goods inventory and cost of goods
sold ($12,000) are used to squeeze costs of
goods manufactured of $12,200
2. Cost of goods manufactured ($12,200) is then
used in combination with beginning and
ending WIP inventories of $0 to derive total
costs incurred ($12,200) and then, in
combination with materials ($5,700) the
conversion costs of $6,500 as follows:
72. CPA-05581
Choice "c" is correct. Value added costs are
those resource uses that provide value to the
consumer. The cost of inventorying products,
generally moving, handling and storing them,
does not add value to the product and is generally
considered one of the most significant non-value
activities/costs that a manufacturer should reduce
because it can be controlled.
Choice "a" is incorrect. Costs of materials that
cannot be traced to an individual product are often
not controllable and are thus less manageable
than inventory costs.
Choice "b" is incorrect. Costs of labor that
cannot be traced to an individual product are often
not controllable and are thus less manageable
than inventory costs.
Choice "d" is incorrect. The incremental costs of
producing an individual product is a variable cost
that remains fixed per unit over the relevant range.
This incremental cost can not be controlled and is
less significant that inventory costs.
Choices "a", "b", and "c" are incorrect, per the
above calculation.
58
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73. CPA-05798
Choice "d" is correct. The estimated product
cost is equal to the sum of prime costs and
applied overhead or 18,000.
Prime costs are the sum of direct labor and direct
material:
Direct labor
Direct material
Subtotal, prime costs
$
6,000
4,000
$ 10,000
Applied overhead is equal to the overhead rate
times the estimated hours:
Computations of rate - total overhead:
Material handling
$ 120,000
Quality inspection
200,000
Total overhead
$ 320,000
Total cost driver
80,000
Rate
$
4.00
Applied overhead:
Estimated hours
Rate
Applied overhead
Estimated costs
×
2,000
4.00
8,000
$ 18,000
$
Choice "a" is incorrect. The proposed solution
incorrectly anticipates that the product cost is
equal to only applied overhead, exclusive of prime
costs.
Choice "b" is incorrect. The proposed solution
incorrectly anticipates that the product cost is
equal to only prime costs, exclusive of applied
overhead.
Choice "c" is incorrect. The proposed solution
incorrectly anticipates that the product cost is
equal to the sum of only direct labor and applied
overhead, exclusive of direct material.
74. CPA-05799
Choice "b" is correct. Joint costs will most likely
be allocated based upon relative unit volume,
relative sales value at split off, or net realizable
value. Flexible budget amounts are not used to
allocate joint costs
Choice "a" is incorrect. Sales value at split-off is
a recognized method of allocating joint costs.
Choice "c" is incorrect. Physical measures, such
as weights or volume, are a recognized method of
allocating joint costs.
Choice "d" is incorrect. Constant gross margin
percentage net realizable value method is a
recognized method of allocating joint costs.
75. CPA-05802
Choice "a" is correct. FIFO and weighted
average produce the same equivalent units when
there is no beginning inventory. FIFO is a threestep process, while weighted average is a twostep process. The major difference between the
two methods is consideration of beginning
inventory amounts by FIFO.
Choice "b" is incorrect. Treatment of ending
inventory by the FIFO and weighted-average
methods is identical. Elimination of ending
inventory alone would not cause FIFO and
weighted-average method equivalent unit
computations to be identical.
Choice "c" is incorrect. FIFO is a three-step
process, while weighted average is a two-step
process. The major difference between the two
methods is consideration of beginning inventory
amounts by FIFO. Even if there is no change in
inventory, the treatment of beginning inventory will
cause FIFO to be different from weighted average.
Choice "d" is incorrect. FIFO is a three-step
process, while weighted average is a two-step
process. The major difference between the two
methods is consideration of beginning inventory
amounts by FIFO. The treatment of beginning
inventory will cause FIFO to be different from
weighted average.
OPERATIONS MGMT PICKUP
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76. CPA-05821
Choice "d" is correct. JacKue should anticipate
purchasing 1,640,000 wheels in January.
JacKue would purchase enough wheels for
200,000 skates planned for production as
adjusted for 20,000 already on hand in
anticipation of January production plus 25,000
purchased in anticipation of February production
as follows:
January production
(skates)
Less beginning inventory
(10% × 200,000)
Plus ending inventory
(10% × 250,000)
January purchases
Wheels per skate
Total January purchases
200,000
Old Costs
25,000
205,000
×
8
1,640,000
Revised Costs
Input per Cost per
Units Unit Input unit
Old Adjustment
Costs Factor Adjustment Total
10,000
4
$
20
800,000 –25%
Direct
Materials 10,000
1
$
200
2,000,000 30.00
Prime
Costs
Direct
Labor
Overhead
Rate Per
DL Costs
Overhead
3
(20,000)
Choice "a" is incorrect. The amount computed
does not convert skates to wheels and does not
properly compute the impact of prior and
subsequent month inventory safety stock.
Choice "b" is incorrect. Although the amount
properly considers the impact of prior and
subsequent month inventory safety stock, it does
not convert skates to wheels.
Choice "c" is incorrect. Although the amount
properly converts skates to wheels, it does not
properly compute the impact of prior and
subsequent month safety stock.
60
77. CPA-04794
Choice "b" is correct.
(200,000)
600,000
300,000 2,300,000
Rate Per
DL Costs
$ 800,000
2,400,000
5,200,000
3.60
2,160,000
5,060,000
The labor and material costs computed in
accordance with old standards are adjusted by
the amounts given in the fact pattern. Labor
decreases by 25%, and direct materials increase
by $30 per unit. The overhead application rate
increases from 3 times direct labor costs to 3.6
times revised direct labor costs. Total Revised
Costs are computed as shown above.
Choice "a" is incorrect per the above computation.
Choice "c" is incorrect. The $5.2 million in total
costs represents the old cost structure.
Choice "d" is incorrect per the above computation.
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78. CPA-05253
Choice "a" is correct. Using the FIFO method of
process costing, the equivalent units produced
(EQU) are computed as follows:
EQU = EQU Beg WIP + EQU started and
completed + EQU ending WIP
EQU = (10,000 × .30) + (130,000 × 1.00) +
(20,000 × .25)
EQU = 3,000 + 130,000 + 5,000 = 138,000
Note that the .30 is the percentage of Beg WIP
completed in the period. It is the complement of
the percent complete.
Note that the 130,000 units started and completed
is the 140,000 units started less the 10,000 units
in the beginning inventory.
An alternate computation (different from the
formula in the text) is as follows (some people
may be more familiar with this alternate):
EQU = EQU End WIP + EQU completed −
EQU ending WIP
EQU = (20,000 × .25) + (140,000 × 1.00) −
(10,000 × .70)
EQU = 5,000 + 140,000 − 7,000 = 138,000
Choice "b" is incorrect. This answer apparently
ignores the EQU in the beginning and ending
inventories and utilizes only the 140,000 units
started and completed in the period.
Choice "c" is incorrect. This answer apparently
uses the units completed during the year as the
EQU.
Choice "d" is incorrect. This answer apparently
uses the units started into production during the
year as the EQU.
79. CPA-05875
Choice "c" is correct. Direct materials charged to
job 101 is $4,250. Job 101 is the only
incomplete job at the end of the month. First,
compute the ending balance in WIP for DJ Co.,
and note that the ending balance is the same as
the ending balance for Job 101. Other facts
allow us to back into the direct materials for the
job.
Total
Job 101
Beginning balance
12,000
Direct materials
40,000
4,250 (Squeeze)
Direct labor
30,000
2,500 (2,250 ÷ 90%)
Overhead applied
27,000
2,250
Issued
Ending balance
(100,000)
9,000
0
0
9,000
Choice "a" is incorrect. The proposed answer is
the applied overhead.
Choice "b" is incorrect. The proposed answer is
the computed direct labor.
Choice "d" is incorrect, per the computations
above.
80. CPA-03905
Choice "d" is correct. A cost driver is a causal
factor (the cause) that increases the cost (the
effect) of a cost objective.
Choices "a", "b", and "c" are incorrect, per the
above definition.
81. CPA-03907
Choice "c" is correct. Inventoriable costs are
assets until sold, when they become "cost of
goods sold."
Choice "a" is incorrect. Prime costs include
direct materials and direct labor, but not factory
overhead.
Choice "b" is incorrect. Conversion costs are
direct labor and overhead, but exclude direct
material.
Choice "d" is incorrect. Fixed factory overhead is
capitalized as part of inventoriable costs.
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82. CPA-03908
Choice "a" is correct. Cost drivers are activities
that cause costs to increase as the activity
increases. The cost driver is often non-financial.
Choice "b" is incorrect. Cost drivers are not
accounting measurements; often they are nonfinancial-for example, the number of parts ordered
rather than the dollar value.
Choice "c" is incorrect. Often cost drivers are a
mechanical basis used to assign costs, but they
may also have a financial basis.
Choice "d" is incorrect. Cost drivers are not
necessarily cost, but the cause of costs being
incurred.
85. CPA-03917
Choice "b" is correct. A variable cost is one that
varies in total but is fixed per unit. For example,
if a starter is needed in the manufacture of an
automobile, the cost of starters varies with the
number of automobiles. The more automobiles,
the greater the cost of starters. However, the
cost for each starter remains constant.
Choice "a" is incorrect. A fixed cost is one that is
fixed in total but varies per unit.
Choice "c" is incorrect. A mixed cost is one that
contains both fixed and variable costs.
Choice "d" is incorrect. A direct cost can be
either fixed or variable.
83. CPA-03911
Choice "a" is correct. Conversion costs consist
of direct labor and overhead. Accordingly,
conversion costs include all product costs except
direct materials.
Choice "b" is incorrect. Indirect labor is overhead.
Choice "c" is incorrect. Indirect materials is
overhead.
Choice "d" is incorrect. Conversion costs include
direct labor.
86. CPA-03918
Choice "d" is correct.
Normal spoilage is allocated to good production
84. CPA-03915
Choice "d" is correct. Direct labor is a prime cost,
a conversion cost and a product cost. "d" is the
best answer because it includes two of these
costs.
Choice "a" is incorrect. Prime cost is the sum of
direct labor and direct material.
Choice "b" is incorrect. Product costs are direct
material, direct labor and overhead.
Choice "c" is incorrect. Direct labor is not a
period cost.
62
(Normal spoilage) × (Percent sold)
$20,000
50%
= $ 10,000
Abnormal spoilage is charged
to the income statement
Abnormal spoilage
50,000
$ 60,000
Note that since inspection of units does not occur
until the completion of manufacturing, none of the
spoilage is allocated to the partially completed
units.
Choices "a", "b", and "c" are incorrect, per the
above explanation.
87. CPA-03923
Choice "b" is correct. Conversion cost pricing
could be used when the customer furnishes the
material used in manufacturing a product.
Choice "a" is incorrect. Conversion cost pricing
places no (not minimal) emphasis on the cost of
materials used in manufacturing a product.
Choices "c" and "d" are incorrect. Conversion
cost pricing places heavy emphasis on indirect
(overhead) costs and direct labor, but disregards
consideration of direct materials.
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88. CPA-03924
Choice "a" is correct. An engineered cost bears
an observable and known relationship to a
quantifiable activity base.
Choice "b" is incorrect. Indirect costs (overhead
costs) are all manufacturing costs other than
direct material and direct labor.
Choice "c" is incorrect. A target cost is carefully
predetermined standard cost that should be
attained.
Choice "d" is incorrect. Fixed costs are all those
organization and plant costs that continue to be
incurred and cannot be reduced without damaging
the organization's ability to meet long-range goals.
89. CPA-03933
Choice "b" is correct. Operation costing is
process costing applied on individual batches.
Choice "a" is incorrect. In both operation costing
and process costing, overhead is applied on an
average cost per unit basis.
Choice "c" is incorrect. Materials are accounted
for differently in a process costing system than
they are in an operation costing system. An
operation costing system allocates materials on
the basis of batches of production. This is similar
to the method used in job costing.
Choice "d" is incorrect. Overhead allocations are
still made.
90. CPA-03935
Choice "d" is correct. Operation costing is a
hybrid system that is usually applied to batches of
similar products. In that way it is similar to
process costing. The difference, however, is that
materials are allocated on the basis of batches of
production in a manner similar to job costing.
Because of this, operation costing has features of
both job and process costing.
Choices "a", "b", and "c" are incorrect, per above.
91. CPA-03936
Choice "d" is correct. Process costing is a
method of allocating production costs to products
and services by averaging the cost over the total
units produced. Costs are usually accumulated
by department rather than by job.
Choice "a" is incorrect. Operation costing is a
hybrid system that allows the company to use job
order costing for some costs of production and
process costing for other costs.
Choice "b" is incorrect. Activity-based costing is
a system that accumulates all costs of overhead
for each of the activities of the organization and
then allocates those activity costs to the cost
objects that caused the activity.
Choice "c" is incorrect. Job order costing is a
method of allocating production costs to products
and services that are identifiable as separate units
and require greater or lesser amounts of work to
complete.
92. CPA-03938
Choice "b" is correct. Plant-wide application
rates applied to machine hours is a traditional
costing approach. More detailed cost allocations
are now preferred.
Choices "a", "c", and "d" are incorrect. These are
all trends in the revolution occurring in cost
accounting (in the manufacturing environment).
93. CPA-03940
Choice "a" is correct. Cost allocation is the
distribution of overhead or support costs based on
any one of a variety of methods.
Choice "b" is incorrect. Cost management refers
to the control of costs.
Choice "c" is incorrect. Although the term is
descriptive, it is not used.
Choice "d" is incorrect. Overhead costs are not
"uncontrollable."
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94. CPA-03941
Choice "b" is correct. Cost allocation is essential
for measuring income and assets for external
reporting.
Choice "a" is incorrect. Revenue centers are
responsible for revenues only. Cost allocation is
not relevant.
Choice "c" is incorrect. Variable costing matches
costs directly variable with volume to the items
produced or sold. Costs are not allocated as it is
clear to which items they relate.
Choice "d" is incorrect. Cost allocation will not
aid in implementing ABC. ABC requires
determining the cost drivers (cause) and cost
(effect).
95. CPA-03943
Choice "a" is correct. When various products are
manufactured, multiple overhead rates are
preferable to a single overhead rate. Activitybased costing would be better still.
Choice "b" is incorrect. If cost drivers were the
same over all processes, a single rate could be
used.
Choice "c" is incorrect. If individual cost drivers
cannot be determined, multiple overhead rates will
be meaningless.
Choice "d" is incorrect. If a single or plant-wide
rate is related to several identified cost drivers,
then the single rate is accurate and appropriate.
64
96. CPA-03945
Choice "d" is correct. The appropriate method
for the disposition of underapplied or overapplied
factory overhead depends on the significance of
the amount. If insignificant, it goes to cost of
goods sold only. If it is significant, it must be
apportioned to cost of goods sold and finished
goods inventory.
Choice "a" is incorrect. Cost of goods sold is
only appropriate if the under/overapplied factory
overhead is insignificant.
Choice "b" is incorrect. Finished goods inventory
only is not appropriate.
Choice "c" is incorrect. Under/overapplied
factory overhead is only apportioned between cost
of goods sold and finished goods inventory if it is
significant; otherwise it goes entirely to cost of
good sold.
97. CPA-03946
Choice "b" is correct. Overapplied overhead
occurs when the amount of overhead applied
exceeds the actual amount of overhead incurred.
Choices "a", "c", and "d" are incorrect. Each of
these would cause overhead to be underapplied.
98. CPA-03947
Choice "d" is correct. Generally, individual
departmental rates (rather than a plant-wide rate
for applying overhead) would be used if the
manufactured products differ in the resources
consumed from the individual departments in the
plant.
Choice "a" is incorrect. Plant-wide rates would
probably be used if a company's manufacturing
operations are all highly automated.
Choice "b" is incorrect. Plant-wide rates would
probably be used if a company's manufacturing
operations are basically labor based.
Choice "c" is incorrect. Plant-wide rates would
probably be used if manufacturing overhead is the
largest cost component of its product cost.
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99. CPA-03950
Choice "c" is correct. Units of electrical power
consumed would be a good indication of
producing departments' demand on the service
department.
Choice "a" is incorrect. Units sold is not a good
base with which to allocate to production
departments. It relates more to a sales
department.
Choice "b" is incorrect. The salaries of service
department employees represent the costs to be
allocated, not the activity base on which to base
the allocation.
Choice "d" is incorrect. Although direct materials
are used in production, they may not be the best
base for allocation because they do not always
have a direct relationship to the incurrence of
service department costs.
101. CPA-03953
Choice "a" is correct. $681,000. Note that
applied overhead is determined as 60% of direct
labor, and actual overhead is irrelevant until overor underapplications are handled in December.
Direct materials used
Direct labor
Factory overhead
($300,000 × .6)
Total manufacturing cost
$ 201,000 [Note A]
300,000
180,000
$ 681,000
Note A:
Beginning inventory, direct materials
Purchases during January
Less: purchase returns and allowances
Add: transportation in
Total direct materials available
Less: ending inventory, direct materials
$ 134,000
189,000
(1,000)
3,000
$ 325,000
(124,000)
Direct materials used
100. CPA-03952
Choice "a" is correct. Prime costs are direct
materials and direct labor:
Beginning inventory, direct materials
Purchases during January
Less: purchase returns and allowances
Add: transportation in
Total direct materials available
Less: ending inventory, direct materials
Direct materials used during January
Add: direct labor cost
Total prime cost
during January
$201,000
Choices "b", "c", and "d" are incorrect based on
the above explanation.
$ 134,000
189,000
(1,000)
3,000
$ 325,000
(124,000)
$ 201,000
300,000
$ 501,000
Choices "b", "c", and "d" are incorrect based on
the above explanation.
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102. CPA-03954
Choice "a" is correct. $665,000.
Total manufacturing cost
Add: beginning WIP
Less: ending WIP
Cost of goods manufactured
103. CPA-03956
Choice "b" is correct. $673,000.
$ 681,000 [Note A]
235,000
Direct labor
(251,000)
goods inventory
665,000
Total manufacturing cost
$ 201,000 [Note 1]
300,000
Note 1:
$ 134,000
189,000
Less: purchase returns and allowances
Add: transportation in
(1,000)
3,000
Total direct materials available
$ 325,000
Less: ending inventory, direct materials
(124,000)
Total manufacturing cost
Add: beginning WIP
Less: ending WIP
673,000
$ 681,000 [Note 1]
235,000
(251,000)
$ 201,000
Choices "b", "c", and "d" are incorrect based on
the above explanation.
665,000
Note 1:
Applied overhead is determined as 60% of
direct labor, and actual overhead is irrelevant
until over- or underapplications are handled in
December.
Direct materials used
Direct labor
$ 201,000 [Note a]
300,000
Factory overhead
($300,000 × .6)
Direct materials used
during January
(117,000)
Note A:
manufactured
$ 681,000
Purchases during January
goods inventory
Cost of goods sold
Cost of goods
180,000
Beginning inventory, direct materials
125,000
Less: ending finished
Factory overhead
($300,000 × .6)
$ 665,000 [Note A]
Add: beginning finished
Note A:
Applied overhead is determined as 60% of direct
labor, and actual overhead is irrelevant until overor underapplications are handled in December.
Direct materials used
Cost of goods manufactured
Total manufacturing cost
180,000
$ 681,000
Note a:
Beginning inventory, direct materials
Purchases during January
Less: purchase returns and allowances
Add: transportation in
Total direct materials available
Less: ending inventory, direct materials
$ 134,000
189,000
(1,000)
3,000
$ 325,000
(124,000)
Direct materials used
during January
$ 201,000
Choices "a", "c", and "d" are incorrect based on
the above explanation.
66
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104. CPA-03959
Choice "a" is correct. $1,000.
Wall mirrors
- 25 units × 200 hours per unit
5,000 hours
Specialty windows
- 25 units × 200 hours per unit
5,000 hours
Total hours
10,000 hours
Budgeted materials handling costs
$ 50,000
Divided by total hours
÷ 10,000
Materials handling cost per hour
$
5
Hours per unit
×
200
Costs allocated to one unit
$ 1,000
Choices "b", "c", and "d" are incorrect based on
the above explanation.
105. CPA-03961
Choice "b" is correct. $500.
Activity-based costing allocates costs based on
the activity driving those costs (material moves in
this example). In comparing the activity required
for wall mirrors and specialty windows, an
allocation factor can be developed:
Total material moves: 5 + 15 = 20
Percentage of moves related to wall mirrors:
5 ÷ 20 = 25%
Percentage of moves related to specialty
windows: 15 ÷ 20 = 75%
Budgeted materials handling costs
Allocation factor
Costs allocated to wall mirrors
Units produced
Costs allocated to one wall mirror
$ 50,000
×
.25
$ 12,500
÷
25
$
500
Choices "a", "c", and "d" are incorrect based on
the above explanation.
107. CPA-03964
Choice "c" is correct. Activity-based costing
refines product cost information because the cost
system emphasizes long-term product analysis
(when fixed costs become variable costs).
Choices "a", "b", and "d" are incorrect. They are
characteristics of traditional cost systems.
108. CPA-03965
Choice "b" is correct. Both steps are essential to
implementing activity-based costing.
109. CPA-03966
Choice "a" is correct. Activity-based costing uses
cause and effect relationships to capitalize costs
to inventory. This is not acceptable for external
reporting and useful for internal reporting to
management.
Choice "b" is incorrect. Job costing (a simple
accumulation of cost associated with a specific
job) is acceptable for both internal and external
purposes.
Choice "c" is incorrect. Variable costing does not
capitalize fixed factory overhead into inventory. It
is not acceptable for external reporting but is often
used for internal purposes.
Choice "d" is incorrect. Process costing is
acceptable for both internal and external purposes.
It is an averaging of actual costs.
110. CPA-03967
Choice "b" is correct. Cost allocation and
analysis will not explain a sales increase.
Choices "a", "c", and "d" are incorrect. Analysis
of each of these is facilitated by allocating costs to
particular cost objectives via activity-based costing.
106. CPA-03963
Choice "d" is correct. The benefit that
management can expect from traditional costing
includes using a common departmental or factory
wide measure of activity, such as direct labor
hours or dollars, to distribute manufacturing
overhead to products.
Choices "a", "b", and "c" are incorrect. They are
characteristics of activity-based costing.
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111. CPA-03968
Choice "b" is correct. Activity-based costing is an
accounting system that collects financial and
operating data on the basis of the underlying
nature and extent of the cost drivers.
Choices "a" and "d" are incorrect. Direct costing
(more accurately called variable or marginal
costing) capitalizes only the variable production
costs (direct materials, direct labor, and variable
overhead) to inventory (product costs), while fixed
costs are expensed.
Choice "c" is incorrect. Target costing carefully
predetermines standard costs that should be
attained.
112. CPA-03970
Choice "c" is correct. Activity-based costing of
$4,513.00 is $525.50 higher than the $3,987.50
cost using the traditional system.
Cost
Rates
Total
Quantity
Costs
$ 11.50 ×
12 = $ 138.00
In-process inspection
$ 0.14 ×
17,500 = 2,450.00
Product certification
$ 77.00 ×
25 = 1,925.00
Total activity-based cost
Traditional cost
Job ICU2 Costs
Total
Costs
Direct materials
$ 13,700
Direct labor
800 hrs × $25 =
Total mfg cost
Selling
Administrative
Total cost
4,513.00
14.5% × $ 27,500 = 3,987.50
Excess of ABC over
traditional
114. CPA-03976
Choice "d" is correct. $5.50 cost of goods sold
($38,500 ÷ 7,000 units).
Unit
Cost
4,800
 20,000
38,500 ÷ 7,000
= $5.50 D
5,600
1,400
$ 45,500 ÷ 7,000
= $6.50 Not A
Choices "a", "b", and "c" are incorrect based on
the above explanation.
$ 525.50
Choice "a" is incorrect. The cost rates should not
be added, but rather should be applied to the
related activity to determine allocated costs.
Choice "b" is incorrect. The traditional costing
system results in a lower cost, as shown above.
Choice "d" is incorrect. $3,987.50 is the cost
using the traditional system.
68
Good
Units
Factory overhead
Incoming material inspection
(ABC)
113. CPA-03972
Choice "a" is correct. The use of activity-based
costing normally results in substantially greater
unit costs for low-volume products than is reported
by traditional product costing.
Choice "b" is incorrect, per "a" above.
Choice "c" is incorrect. Increased (not
decreased) set-up costs are charged to lowvolume products under activity-based costing.
Choice "d" is incorrect. Activity-based costing
does not equalize set-up costs for all product lines.
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115. CPA-03978
Choice "d" is correct. A print shop would use a
job costing system, while a beverage drink
manufacturer would use a process costing system.
Job costing is used in the production of tailormade or unique goods, including:
Construction of buildings or ships
Aircraft assembly
Printing
Special-purpose machinery (microcomputer
manufacturer)
Public accounting firm
Management consulting firm
Repair shops
Industrial research projects
Process costing is used where the product is
composed of mass produced homogeneous units
such as:
Gasoline and oil
Chemicals
Steel
Textiles (wallpaper)
Plastics
Paints
Flour
Meatpacking
Canneries
Rubber
Lumber
Food processing (beverage drink manufacturer)
Glass
Mining
Cement
Check clearing in banks
Mail sorting in post offices
Food preparation in fast-food outlets
Premium handling in insurance companies
116. CPA-06639
Choice "c" is correct. ABC costing is
recommended when more than one product is
produced and those products do not uniformly
consume indirect resources (heterogeneous
consumption).
Example: Suppose 50 kilowatts of electricity are
used to produce a single unit of item A and 500
kilowatts of electricity are used to produce a single
unit of item B. To assign the cost of electricity (an
indirect cost) based on the number of items
produced would not reflect the true costs of
producing the items.
Choice "a" is incorrect. ABC costing is most
beneficial when multiple products are produced.
Choice "b" is incorrect. ABC costing is used to
assign indirect costs based on the product's
demands for resource-consuming activities. If
the majority of the costs are direct, then ABC
costing would not be recommended.
Choice "d" is incorrect. If resources are
consumed in a homogeneous or uniform manner,
ABC costing is not needed. A traditional cost
system that uses a single cost driver would be
appropriate in this situation.
117. CPA-06661
Choice "a" is correct. The setup hours are used
because neither quantity produced nor direct
manufacturing hours are activities. The
calculation is as follows:
Setup Hours % of Setup Hours
Allocation
Product X
500
500/2000 = 25%
$100,000
Product Y
1500
1500/2000 = 75%
$300,000
Total
2000
100%
$400,000
Choices "b", "c", and "d" are incorrect, based on
the above explanation.
Choices "a", "b", and "c" are incorrect based on
the above explanation.
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3. Operations Management: Process
Management
118. CPA-03550
Choice "a" is correct. Just-in-time purchasing
systems usually results in a reduction in the
number of suppliers. Because a company that
adopts J-I-T is very dependent on supplier
performance, usually fewer suppliers are used
and a very close working relationship is developed.
Choice "b" is incorrect. Just-in-time requires
more deliveries from suppliers.
Choice "c" is incorrect. Usually there is more
reliance on quality control by the supplier.
Finding defective goods as they arrive is too late;
a stock-out could cause production to shut down.
Choice "d" is incorrect. There is much more
need for linkage with the vendor's order entry
system with J-I-T because the company is
dependent on timely deliveries from the vendor.
119. CPA-03880
Choice "c" is correct. Just-in-time has the goal to
minimize the level of inventory carried. Typical
characteristics include lot sizes equal to one,
insignificant set-up times and costs, and balanced
and level workloads. In a just-in-time
environment, the flow of goods is controlled by a
"pull" approach, where an item is produced only
when it is needed down the line, and not a "pushthrough" system.
Choices "a", "b", and "d" are incorrect based on
the above explanation.
70
120. CPA-03888
Choice "b" is correct. A just-in-time system is
used to lower inventory levels and results in more
purchase orders of fewer units each. If carrying
costs are increasing, JIT would be beneficial.
Costs per purchase order that are decreasing
would also be conducive to JIT.
Changes in costs related to adoption of JIT
represent a sophisticated version of an old theme
in accounting: What happens to fixed costs as
volume either increases or decreases?
Carrying costs should decrease in total; however,
they will do so only as a result of ordering more
frequently and maintaining fewer items in stock.
Ordering more frequently will spread the costs of
the purchasing department over more orders,
thereby decreasing the cost per PO. Maintaining
fewer items in inventory or holding items for a
shorter period of time will actually increase the
inventory unit carrying costs.
Choices "a", "c", and "d" are incorrect based on
the above explanation.
121. CPA-03891
Choice "c" is correct. In a just-in-time system,
products are produced just-in-time to be sold.
Therefore, JIT systems maintain a much smaller
level of inventory when compared to traditional
systems. Inventory turnover (cost of goods sold
divided by average inventory) increases with a
switch to JIT, and inventory as a percentage of
total assets decreases.
Choices "a", "b", and "d" are incorrect based on
the above explanation.
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122. CPA-03895
Choice "a" is correct. The just-in-time system
focuses on expediting the production process by
having materials available as needed without
having to store them prior to usage. Thus, the
nonvalue adding operation of storing materials is
eliminated.
Choice "b" is incorrect. A just-in-time system is
designed to facilitate the flow of materials whether
the materials come from one or more suppliers.
Competitive bidding is not a major benefit of the
just-in-time system.
Choice "c" is incorrect. Maximizing the delivery
quantity of materials may increase the need to
store the materials prior to using them. The justin-time system focuses on minimizing storage
time and storage costs. Lessening paperwork is
not a focus of the just-in-time system.
Choice "d" is incorrect. With a just-in-time
system, deliveries are made as materials are
needed. A decrease in deliveries may increase
the delivery quantity, thus increasing the need to
store the materials prior to using them. The justin-time system focuses on minimizing storage
time and storage costs.
123. CPA-03873
Choice "b" is correct. Rework cost is a cost of
quality caused by internal failure. Cost of quality
includes conformance costs (the costs of
prevention and appraisal activities before product
shipment) and nonconformance costs (the costs
of internal and external failures that require either
return of the product or rework of the product).
Choice "a" is incorrect. Rework caused by a
customer error is not a cost of quality.
Choices "c" and "d" are incorrect. Rework
caused by internal failure is a cost of quality, but
rework caused by a customer is not a cost of
quality.
124. CPA-03881
Choice "d" is correct. Lost contribution margin
(an opportunity cost) would generally not be
included in a cost of quality report.
Choices "a", "b", and "c" are incorrect. Included
in a cost of quality report would be:
a. Warranty claims (an external failure cost).
b. Design engineering (a prevention cost).
c. Supplier evaluations (a prevention cost).
125. CPA-03886
Choice "d" is correct. Throughput refers to the
units of goods that are produced and sold within a
period of time. It is useful in evaluation. Setup
versus production time helps evaluate efficiency-if
setup time is long relative to production time,
longer production runs may be more efficient.
Rework versus completion is also part of the
overall evaluation system, aiding in determining
whether quality issues are being appropriately
addressed.
Choices "a", "b", and "c" are incorrect based on
the above explanation.
126. CPA-03893
Choice "a" is correct. An increase in
conformance costs (prevention and appraisal)
resulted in a higher quality product and a
decrease in non-conformance costs (internal and
external failure costs).
Choice "b" is incorrect. There is more than one
factor responsible for the decrease in quality costs.
Choice "c" is incorrect. Scrap and rework are
part of internal failure costs.
Choice "d" is incorrect. Returns and repairs
under warranty are part of external failure costs.
127. CPA-03894
Choice "c" is correct. Rework is an internal
failure cost.
Choice "a" is incorrect. Maintenance is a
prevention cost.
Choice "b" is incorrect. Inspection is a
prevention cost.
Choice "d" is incorrect. Product recalls is an
external failure cost.
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128. CPA-03896
Choice "b" is correct. Appraisal costs would
detect individual products that do not conform to
specifications. Examples of appraisal costs
include:
Statistical quality checks
Inspections
Testing
Maintenance of lab
Choice "a" is incorrect. Prevention costs would
prevent defective products.
Choice "c" is incorrect. Internal failure costs are
the costs of fixing defective products, not detecting
them.
Choice "d" is incorrect. External failure costs
result when defective goods are not detected and
are sold to a customer.
129. CPA-03897
Choice "d" is correct. Costs incurred in
shortening product lead times and achieving ontime deliveries are measures of performance and
not a cost of quality.
Choices "a", "b", and "c" are incorrect, which are
all costs of quality.
130. CPA-03898
Choice "a" is correct. The four categories of cost
associated with product quality are:
Prevention
Appraisal
Internal failure
External failure
Choice "b" is incorrect. "Training" is a part of
prevention.
Choices "c" and "d" are incorrect. "Warranty"
and "product liability" are a cost of external failure.
131. CPA-03900
Choice "d" is correct. Appraisal includes the cost
of statistical quality control.
Choice "a" is incorrect. Statistical quality control
may indicate internal failures but is a cost of
appraisal.
Choice "b" is incorrect. Training costs are a part
of prevention.
Choice "c" is incorrect. Statistical quality control
happens after prevention measures.
132. CPA-03902
Choice "b" is correct. Cost of scrap, rework, and
tooling changes are a result of internal failure.
Choice "a" is incorrect. Tooling changes may
occur as a result of an external failure, but scrap
and rework costs will rarely result.
Choice "c" is incorrect. Training costs are a part
of prevention.
Choice "d" is incorrect. Prevention aims to
minimize or eliminate failures, which may result in
scrap, rework and tooling costs.
133. CPA-06783
Choice "c" is correct. Just-in-time management
emphasizes efficiency by scheduling the
deployment of resources just-in-time to meet
customer or production requirements.
Choice "a" is incorrect. Total quality
management is concerned with customer focused
performance, not inventory management.
Choice "b" is incorrect. Lean management
emphasizes the use of only those resources
needed to meet the requirements of customers; it
is not directly focused on inventory management.
Choice "d" is incorrect. Activity-based costing
focuses on the cost of activities and those costs
that add value to processes.
134. CPA-06784
Choice "b" is correct. Employee training costs
are an example of prevention costs.
Choices "a", "c", and "d" are incorrect. Statistical
quality checks, testing, and inspection are
examples of appraisal costs.
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135. CPA-06785
Choice "b" is correct. Preventative maintenance
costs are conforming costs, which are inversely
related to nonconforming costs such as rework
costs.
Choice "a" is incorrect. Both employee training
costs and inspection expenses are conforming
costs. They are not inversely related.
Choice "c" is incorrect. Both warranty costs and
liability claims are nonconforming costs. They
are not inversely related.
Choice "d" is incorrect. Both Inspection
expenses and redesign of product expenses are
conforming costs. They are not inversely related.
136. CPA-06786
Choice "c" is correct. Tooling changes is an
example of an internal failure cost.
Choices "a", "b", and "d" are incorrect. Lost
customers, warranty costs, and liability claims are
examples of external failure costs.
137. CPA-06787
Choice "c" is correct. Tooling changes are an
example of internal failure costs.
Choice "a" is incorrect. Lost customers are an
example of external failure cost.
Choice "b" is incorrect. Testing is an example of
appraisal costs.
Choice "d" is incorrect. Preventive maintenance
is an example of prevention costs.
138. CPA-06788
Choice "d" is correct. Redesign of processes is
an example of prevention costs.
Choice "a" is incorrect. Lost customers are an
example of external failure cost.
Choice "b" is incorrect. Testing is an example of
appraisal costs.
Choice "c" is incorrect. Tooling changes is an
example of internal failure cost.
139. CPA-06789
Choice "a" is correct. Total quality management
(TQM) represents an organizational commitment
to customer-focused performance that
emphasizes both quality and continuous
improvement.
Choice "b" is incorrect. Lean manufacturing or
lean production emphasizes the use of only those
resources required to meet the requirements of
customers. It, somewhat like activity-based
approaches, seeks to invest resources only in
value-added activities.
Choice "c" is incorrect. Just-in-time management
anticipates achievement of efficiency by
scheduling the deployment of resources just-intime to meet customer or production requirements.
Choice "d" is incorrect. Activity-based costing
focuses on the cost of activities and seeks to only
invest resources in value added activity.
140. CPA-06790
Choice "d" is correct. TQM focuses on customer
needs, continuous improvement, and quality
circles. Waste reduction is characteristic of lean
manufacturing, not TQM.
Choices "a", "b", and "c" are incorrect, based on
the above explanation.
141. CPA-06791
Choice "a" is correct. Kaizen occurs at the
manufacturing stage where the ongoing search for
cost reductions takes the form of analysis of
production processes to ensure that resource
uses stay within target costs.
Choice "b" is incorrect. Activity-based costing
focuses on costs for each activity in a process, but
does not strive to stay within a targeted cost.
Choice "c" is incorrect. Value chain analysis is
concerned with the additional value a product
gains by passing through all the activities of the
production chain. It is not focused on ensuring
costs stay within a targeted range.
Choice "d" is incorrect. Just-in-time
management emphasizes efficiency by
scheduling the deployment of resources just-intime to meet customer or production requirements.
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142. CPA-06792
Choice "b" is correct. Just-in-time is not
designed to produce variability but to
accommodate production cycles and reduce
carried inventory by delivering goods to the
manufacturing process just-in-time.
Choice "a" is incorrect. Cost reductions from
reduced inventory are a benefit of just-in-time.
Choice "c" is incorrect. A reduction to work-inprocess because of reduced materials pending
processing is a benefit of JIT.
Choice "d" is incorrect. Overall improvements in
effectiveness, efficiency and quality are benefits of
JIT.
143. CPA-06793
Choice "a" is correct. A benefit of just-in-time is a
more efficient use of employees with multiple skills.
Choice "b" is incorrect. Just-in-time is concerned
with seamless integration between a few highly
vetted suppliers known for reliability and quality
resources.
Choice "c" is incorrect. Just-in-time considers
inventory to be wasteful. Inventory space would
likely be reduced, not expanded.
Choice "d" is incorrect. Just-in-time enables
multi-skilled employees to address any
breakdowns without relying on specialized skills of
a maintenance department.
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144. CPA-06794
Choice "d" is correct. Just-in-time means that
employees with multiple skills are used more
efficiently and will not specialize in merely one job
or task.
Choice "a" is incorrect. Just-in-time coordination
of supplies inventory generally means
synchronization of production scheduling with
demand and supplies arrive at regular intervals
throughout the production day.
Choice "b" is incorrect. Reduced set up times
that no longer need to accommodate buffers for
delivery of goods are benefits and features of justin-time inventory systems.
Choice "c" is incorrect. Just-in-time requires a
sense of empowerment amongst employees to
ensure the coordination of production and
materials delivery is handled with maximum
efficiency and accommodates variable schedules.
145. CPA-06795
Choice "a" is correct. Non-core functions to one
business become critical for companies providing
outsourcing services thereby reducing risk
exposure in the event an issue arises.
Choice "b" is incorrect. This is a disadvantage.
Language barriers contribute to consumer
dissatisfaction.
Choice "c" is incorrect. Information security may
be less stringently monitored.
Choice "d" is incorrect. The overall quality of
service may be adversely impacted.
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146. CPA-06796
Choice "a" is correct. Business process
management seeks incremental change by
tweaking the existing process and design.
Choice "b" is incorrect. Business process
reengineering seeks radical change by ignoring
the current process and instead starts from the
beginning to design a different way of achieving
the end goal and/or product.
Choice "c" is incorrect. Business process
management decreases financial risk associated
with change because the change is incremental
and made to an already functioning process. If it
goes badly, you will still be left with a process that
works.
Choice "d" is incorrect. Business process
reengineering has a longer implementation time
because it involves radical change.
147. CPA-06797
Choice "d" is correct. The main objective in lean
manufacturing is waste reduction. Although
customer requirements and demand-pull serve as
the basis for the approach, quality is not the
preeminent concept.
Choice "a" is incorrect. Gap analysis determines
the difference between industry best practices and
current company practices. It focuses on quality
as it identifies areas that need improvement to
meet industry best practices.
Choice "b" is incorrect. Total quality
management is driven by customer satisfaction
and continuous product improvement.
Choice "c" is incorrect. Absolute conformance
represents perfect compliance with preestablished levels of quality.
148. CPA-04221
Choice "b" is correct. Absolute conformance is
the most rigorous standard of quality because it
represents a perfect, or ideal, level of compliance.
Choice "a" is incorrect. Goalpost conformance
assumes a range of acceptable results.
Because it represents achievement of compliance
within an established range of tolerable error,
goalpost conformance is considered less rigorous
than absolute conformance.
Choice "c" is incorrect. Conforming costs are
those preventative and appraisal costs invested to
detect and prevent errors and do not represent
quality standards.
Choice "d" is incorrect. Nonconforming costs are
those internal and external failures associated
with correcting quality errors associated with noncompliance and do not represent quality
standards.
149. CPA-06798
Choice "a" is correct. The theory of constraints is
concerned with maximizing throughput by
identifying and alleviating constraints.
Choice "b" is incorrect. Total quality
management strives to please customers by
improving their products.
Choice "c" is incorrect. Six Sigma puts cost
reduction above production constraints.
Choice "d" is incorrect. Activity-based costing
focuses on value added by identifying the cost
drivers that add value.
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6. Operations Management: Project
Management
150. CPA-06799
Choice "c" is correct. Constraints are not major
processes. The major processes carried out by
a project manager are budget, risk, time, quality,
and resources.
Choices "a", "b", and "d" are incorrect, based on
the above explanation.
151. CPA-06800
Choice "d" is correct. The project manager is
responsible for project administration on a day-today basis including identifying and managing
internal and external stakeholder expectations.
Choice "a" is incorrect. Carrying out the work
and producing the deliverables is a responsibility
of the project members.
Choice "b" is incorrect. Interfacing between the
organization and the project itself is a
responsibility of the project sponsor.
Choice "c" is incorrect. Approving project
deliverables is a responsibility of the executive
steering committee.
152. CPA-06801
Choice "a" is correct. The project sponsor is an
individual at the executive level of management
who is responsible for allocating funding and
resources to the project. The role of the project
sponsor includes responsibility for overall project
delivery.
Choice "b" is incorrect. Communicating project
metrics to stakeholders and team members is a
role of the project manager.
Choice "c" is incorrect. Developing,
implementing, monitoring, controlling, and ending
the plan when plan objectives have been met are
roles of the project manager.
Choice "d" is incorrect. The project sponsor
should communicate project needs to the
Executive Steering Committee.
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153. CPA-06802
Choice "c" is correct. Project management
simulation is not a method for estimating the cost
of a project.
Choice "a" is incorrect. There are numerous
methods for estimating project costs including
judgment, reserve analysis, and vendor bid
analysis. Judgment is a method for estimating
the cost of a project.
Choice "b" is incorrect. There are numerous
methods for estimating project costs including
judgment, reserve analysis, and vendor bid
analysis. Reserve analysis is a method for
estimating the cost of a project.
Choice "d" is incorrect. There are numerous
methods for estimating project costs including
judgment, reserve analysis, and vendor bid
analysis. Vendor bid analysis is a method for
estimating the cost of a project.
154. CPA-06803
Choice "b" is correct. Anticipating everything that
could go wrong throughout the project plans is a
part of risk assessment, not risk control.
Choice "a" is incorrect. Planning for risk includes
risk assessment as well as risk control.
Choice "c" is incorrect. Risk and reward
tradeoffs are inherent in project management.
Choice "d" is incorrect. Risk, the chance that
something might go wrong, is inherent in every
aspect of project management.
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