CATALYST

CMA USA EXAMINATION 2024-25

PART 1 - SEC D (CLASSIFICATION OF COSTS)
(MARKS 60*4)

1. Which of the following is true regarding inventoriable costs?

A. Inventoriable costs include only the prime costs of manufacturing a product.
B. Inventoriable costs are regarded as assets before the products are sold.
C. Inventoriable costs include only the conversion costs of manufacturing a product.
D. Inventoriable costs exclude fixed factory overhead

2. 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. Aiding in variable costing for internal reporting.
C. Measuring income and assets for external reporting.
D. Implementing activity-based costing.

3. Which one of the following best describes direct labor?

A. A prime cost
B. Both a period cost and a prime cost
C. A product cost
D. Both a product cost and a prime cost

4. Patni Inc. suffered losses due to an accidental fire at one of its manufacturing locations.
The company had an insurance policy that reimbursed all fire losses except $14,000. The
accountant of Patni Inc. should classify the $14,000 loss due to fire as:

A. Product cost
B. Manufacturing overhead
C. Period cost
D. Conversion cost

5. Cost measurement concepts include the isolation of cost objectives. Each of the items in
the following list represents a cost objective, except:
A. Valuation of unexpired costs.
B. Classification of transactions.
C. Determination of net income.
D. Efficiency measurement.

6. Which one of the following items would not be considered a manufacturing cost?
A. Cream for an ice cream maker
B. Plant property taxes for an ice cream maker
C. Sales commissions for a car manufacturer

D. Tires for an automobile manufacturer

7. Indirect and common costs often make up a significant portion of the cost of a product.
All of the following are reasons for indirect cost allocation to cost objects except to:
A. Reduce total costs identified with products.
B. Justify costs for reimbursement purposes.
C. Measure income and assets for external reporting purposes.
D. Provide information for economic decision making

8. Which of the following best describes manufacturing overhead?

A. Direct cost
B. Prime cost
C. Period cost
D. Conversion cost

9. How would depreciation of production equipment be classified in a manufacturing

organization using the absorption approach?
A. Variable period cost
B. Fixed period cost

C. Variable production cost

D. Fixed production cost

10. The marketing manager of Ames Company has learned the following about a new
product that is being introduced by Ames. Sales of this product are planned at $100,000 for
the first year. Sales commission expense is budgeted at 8 percent of sales plus the
marketing manager's incentive budgeted at an additional ½ percent. The preparation of a
product brochure will require 20 hours of marketing salaried staff time at an average rate of
$100 per hour, and 10 hours, at $150 per hour, for an outside illustrator's effort. The
variable marketing cost for this new product will be:
A. $8,000.
B. $10,000.
C. $8,500.
D. $10,500.

11. A cost that is fixed per unit is an example of a:

A. Fixed cost.
B. Mixed cost.
C. Variable cost.
D. Direct cost.

12. Arbor Corporation uses a water cooling system in its manufacturing operations. Gallons
of water purchased for engine cooling increases with manufacturing production. Water and
sewer utility costs recorded by the Arbor Corporation are billed to the company based on a
minimum charge plus a rate for utilization beyond the minimum charge for 5,000 gallons of
usage. Arbor would most likely classify its utility costs as:
A. Variable costs.
B. Semivariable costs.
C. Fixed costs.
D. Non diversifiable.
13. The following cost behavior is observed at different levels of outputs within a
relevant range of 0‒500 units.

Output (volume) Cost A ($) Cost B ($)

100 3,700 4,500
150 5,550 5,500
200 7,400 6,500

Which of the following statements is correct?

A. Cost A is a variable cost, and Cost B is a fixed cost.

B. Cost A is a fixed cost, and Cost B is a mixed cost.
C. Cost A is a variable cost, and Cost B is a mixed cost.
D. Cost A and Cost B are variable costs.

14. Parker Company pays each member of its sales staff a salary as well as a
commission on each unit sold. For the coming year, Parker plans to increase all
salaries by 5% and to keep unchanged the commission paid on each unit sold.
Because of increased demand, Parker expects the volume of sales to increase by
10%. How will the total cost of sales salaries and commissions change for the
coming year?
A. Increase by more than 10%.
B. Increase by 10%.
C. Increase by 5% or less.
D. Increase by more than 5% but less than 10%.

15. A company operates 10 offices. In the prior year, the total cost of operating the
offices was $1,000,000 of which $140,000 consisted of fixed costs. All else
remaining equal, what will be the budgeted costs if the company were to operate 12
offices?
A. $1,028,000.
B. $1,172,000.
C. $1,032,000.
D. $1,200,000.
16. A company has observed the following costs at different production levels.

Unit Production Level

25,000 50,000 75,000
Cost A $3,250 $5,250 $7,250
Cost B 7,500 7,500 7,500
Cost C 2,750 5,500 8,250
Cost D 1,750 2,500 3,000

What are the cost behaviors of Costs A, B, C, and D, respectively?

A. Mixed, fixed, variable, mixed.

B. Variable, fixed, mixed, variable.
C. Variable, fixed, variable, mixed.
D. Mixed, fixed, mixed, variable.

17. Kimber Company has the following unit cost for the current year.

Raw material $20.00

Direct labor 25.00

Variable manufacturing overhead 10.00

Fixed manufacturing overhead 15.00

Total unit cost $70.00

Fixed manufacturing cost is based on an annual activity level of 8,000 units. Based on this
data, the total manufacturing cost expected to be incurred to manufacture 9,000 units in
the current year is
A. $560,000.
B. $575,000.
C. $615,000.
D. $630.000.
18. A company sells a single product and its sales staff earns a commission of $20 per unit. It
costs $15 to ship each unit, and a $5 promotional catalog is sent with each item. The cost of
goods sold is budgeted at $30 per unit. The company’s fixed manufacturing overhead is
budgeted at $45,000 per month. The budget for executive salaries is $40,000 per month,
and the base salaries for the sales staff is $22,000. Other monthly expenses include
advertising of $15,000, office rent of $10,000, office equipment depreciation of $8,000, and
$3,000 of other administrative expense. If the company budgets its November sales at 5,000
units, what would be the total selling and administrative expense budget?
A. $448,000.
B. $343,000.
C. $493,000.
D. $298,000.
19. Lar Company has found that its total electricity cost has both a fixed component and a
variable component within the relevant range. The variable component seems to vary
directly with the number of units produced. Which one of the following statements
concerning Lar’s electricity cost is incorrect?

A. The fixed electricity cost per unit of production will decline as production volume
increases.

B. The total electricity cost per unit of production will increase as production volume
increases.
C. The total electricity cost will increase as production volume increases.
D. The variable electricity cost per unit of production will remain constant as production
volume increases.

20. Which of the following depreciation scenarios would describe fixed manufacturing
overhead?
A. Straight-line depreciation on production equipment, which is replaced halfway through
the year with more expensive production equipment
B. Declining-balance method depreciation on sales equipment
C. Straight-line depreciation on production equipment
D. Straight-line depreciation on sales equipment
21. Nanjones Co. manufactures a line of products distributed nationally through
wholesalers. Presented below are planned manufacturing data for Year 2 and actual data for
November Year 2. The company applies overhead based on machine hours using a
predetermined annual rate.

Year 2 Planning Data

Annual November

Fixed manufacturing overhead $1,200,000 $100,000

Variable manufacturing overhead 2,400,000 220,000

Direct labor hours 48,000 4,000

Machine hours 240,000 22,000

Data for November Year 2

Direct labor hours (actual) 4,200

Direct labor hours (plan based on output) 4,000

Machine hours (actual) 21,600

Fixed manufacturing overhead $101,000

Variable manufacturing overhead $214,000

The total amount of overhead applied to production for November Year 2 was:
A. $324,000
B. $320,000
C. $330,000
D. $300,000
22. In which of the following scenarios is depreciation considered a variable overhead cost
yearly but a fixed overhead cost over a 5-year period?
A. Rent on manufacturing facility is expected to be $2,000/month for the next 5 years.
B. Indirect material cost is expected to be $1.20 per unit each year for the next 5 years.
C. Units-of-production method of depreciation is used yearly on an asset with a useful life of
5 years.
D. Straight-line method of depreciation is used yearly on an asset with a useful life of 5
years.

23. TJ Company manufactures basketballs at its factory in Willowridge, Texas. At a volume of

10,000 basketballs per month, TJ incurs $40,000 in total overhead cost, including $10,000 in
fixed overhead cost, within its relevant range of 9,000 to 15,000 basketballs per month. If its
volume increased to 12,000 basketballs per month, TJ would expect its total overhead cost
to be:
A. $56,000
B. $46,000
C. $40,000
D. $30,000

24. Manchester Airlines is in the process of preparing a contribution margin income

statement that will allow a detailed look at its variable costs and profitability of operations.
Which one of the following cost combinations should be used to evaluate the variable cost
per flight of the company’s Boston-Las Vegas flights?

A. Communication system operation, food service, and ramp personnel

B. Fuel, food service, and airport landing fees
C. Flight crew salary, fuel, and engine maintenance
D. Airplane depreciation, baggage handling, and airline marketing

25. The following cost information relates to operations during the month of July:
Property taxes of manufacturing plant $8,500
Indirect materials 14,000
Assembly-line labor cost 51,500
Direct materials requisitioned 40,750
Depreciation of machinery 12,500
Mortgage of plant 15,000

What is the total variable overhead cost for the month of July?
A. $14,000
B. $92,250
C. $106,250
D. $54,750

26. Below is costing information for a manufacturer during the month of March:
Rent on production building $7,300
Property taxes & insurance on production building 2,000
Assembly-line labor cost 23,750
Direct materials requisitioned 46,000
Salaries of maintenance personnel of production building 20,000
What is the total fixed overhead cost for the month of March?
A. $29,300
B. $69,750
C. $99,050
D. $53,050

27. Which of the following correctly reflects a regression equation that depicts the
relationship between machine hours and total production costs?
A. Total production costs = Variable cost + (Fixed cost per machine hour × Number of
machine hours)
B. Total production costs = Fixed cost × (Variable cost per machine hour + Number of
machine hours)
C. Total production costs = Fixed cost + Variable cost per machine hour × Number of
machine hours
D. Total production costs = Fixed cost × Variable cost per machine hour
28. A manufacturing company uses regression analysis to estimate its production costs. The
resulting regression equation is Y = 155,107 + 6.5X, where Y represents the total production
cost (in dollars), and X represents the number of units produced. What is the estimated
fixed cost when 50 units are produced by the company?
A. $155,157
B. $154,782
C. $155,107
D. $155,432

29. The distribution of overhead costs is known as:

A. Uncontrollable cost allocation.
B. Cost management.
C. Cost allocation.
D. Burden distribution.

30. Conroe Company is reviewing the data provided by its management accounting system.
Which of the following statements is/are correct?
I. A cost driver is a causal factor that increases the total cost of a cost object.
II. Cost drivers may be volume based or activity based.
III. Cost drivers are normally the largest cost in the manufacturing process.
A. II and III only are correct.
B. I and II only are correct.
C. I, II, and III are correct.

D. I only is correct.

31. If the manufacturing process is heavily automated, which of the following would be the
best allocation base for variable overhead?
A. Units produced
B. Machining hours
C. Direct labor hours
D. Inspection hours
32. The Long Haul Trucking Company is developing metrics for its drivers. The company
computes variable costs of each load based upon miles driven and allocates fixed costs
based upon time consumed. Load costing standards consider safe driving speeds and
Department of Transportation regulations on hours of service (the amount of time the
driver can be on duty or drive). The most effective metric for driver performance would
likely be:
A. Percentage increase in delivered loads below standard.
B. Gross margin per mile driven.
C. Contribution per mile driven.
D. Achievement of delivered loads in allowed times.

33. The Long Haul Trucking Company is developing metrics for its drivers. The company
computes variable costs of each load based upon miles driven and allocates fixed costs
based upon time consumed. Load costing standards consider safe driving speeds and
Department of Transportation regulations on hours of service (the amount of time the
driver can be on duty or drive). The most effective metric for driver performance would
likely be:
A. Percentage increase in delivered loads below standard.
B. Gross margin per mile driven.
C. Contribution per mile driven.
D. Achievement of delivered loads in allowed times.

34. From the following budgeted data, calculate the budgeted indirect cost rate that would
be used in a normal costing system.
Total direct labor hours 250,000
Direct costs $10,000,000
Total indirect labor hours 50,000
Total indirect-labor-related costs $ 5,000,000
Total indirect non-labor related costs $ 7,000,000
A. $48
B. $28
C. $20
D. $40
35. Patterson Corporation expects to incur $70,000 of factory overhead and $60,000 of
general and administrative costs next year. Direct labor costs at $5 per hour are expected to
total $50,000. If factory overhead is to be applied per direct labor hour, how much overhead
will be applied to a job incurring 20 hours of direct labor?
A. $260.
B. $120.
C. $28.
D. $140.

36. Henry Manufacturing, which uses direct labor hours to apply overhead to its product
line, undertook an extensive renovation and modernization program two years ago.
Manufacturing processes were reengineered, considerable automated equipment was
acquired, and 60 percent of the company's nonunion factory workers were terminated.
Which of the following statements would apply to the situation at Henry?
I. The company's factory overhead rate has likely increased.
II. The use of direct labor hours seems to be appropriate.
III. Henry will lack the ability to properly determine labor variances.
IV. Henry has likely reduced its ability to quickly cut costs in order to respond to
economic downturns.
A. I and III only.
B. I and IV only.
C. I, II, III, and IV.

D. II and IV only.

37. A manufacturing firm produces three different products within the same facility. Which
allocation base would be the best to allocate the rental cost (fixed overhead) to the three
products?
A. Number of setups
B. Number of employees
C. Direct labor hours
D. Square footage
38. 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 cost drivers as application bases to increase the accuracy of reported product costs.
B. Preferring plant-wide application rates that are applied to machine hours rather than
incurring the cost of detailed allocations.
C. Using throughput time as an application base to increase awareness of the costs
associated with lengthened throughput time.
D. Using several machine cost pools to measure product costs on the basis of time in a
machine center

39. The benefit that management can expect from traditional costing includes which of the
following:

A. Uses a common departmental or factory wide measure of activity, such as direct labor
hours or dollars to distribute manufacturing overhead to products.
B. Streamlines production processes by reducing non-value adding activities, e.g., reduced
set-up times, optimal plant layout, and improved quality.
C. 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.
D. Provides management with a more thorough understanding of product costs and product
profitability for strategies and pricing decisions.

40. Jupiter Corporation uses departmental rates to assign overhead costs. The corporation
has two departments: Fabrication and Assembly. To assign overhead, Fabrication uses
machine hours, and Assembly uses direct labor hours. Expected costs and cost driver usage
are as follows:

Fabrication Assembly
Total overhead $100,000 $120,000
Direct labor hours 10,000 10,000
Machine hours 20,000 5,000
Jupiter's last production run required the following hours:
 labor hours Machine hours

Fabrication 2,000 1,500

Assembly 1,000 500
How much overhead was applied to this job using departmental rates?
A. $46,000
B. $12,000
C. $19,500
D. $115,000

41. A basketball production company produces basketballs. For fiscal Year 1, the following
costing information was collected:
Estimated overhead $550,000

Estimated direct labor hours 110,000

Estimate direct labor cost $275,000
Actual overhead $575,000
Actual direct labor hours 100,000
Actual direct labor cost $260,000

Assuming the company utilizes a traditional costing system and uses direct labor hours as
the allocation base, how much overhead would be applied to production for fiscal Year 1?
A. $632,500
B.$550,000
C. $500,000

D. $575,000

42. Madtack Co.'s beginning and ending inventories for the month of November are:

November 1 November 30
Direct materials $ 67,000 $ 62,000
Work-in-process 145,000 171,000
Finished goods 85,000 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

Madtack uses normal costing to determine inventory cost. The company uses one factory
overhead control account and charges factory overhead to production at 70 percent of
direct labor cost.

Madtack Co.'s prime cost added to work-in-process for November is:

A. $368,000.
B. $363,000.
C. $370,000.
D. $170,000.

43. Madtack Co.'s beginning and ending inventories for the month of November are:

November 1 November 30
Direct materials $ 67,000 $ 62,000
Work-in-process 145,000 171,000
Finished goods 85,000 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: Direct materials 4,000
Purchase returns: Direct materials 2,000
Madtack uses normal costing to determine inventory cost. The company uses one factory
overhead control account and charges factory overhead to production at 70 percent of
direct labor cost.
Madtack Co.'s total manufacturing cost for November is:
A. $510,000.
B. $503,000.
C. $502,000.
D. $495,000.

44. Madtack Co.'s beginning and ending inventories for the month of November are:

November 1 November 30
Direct materials $ 67,000 $ 62,000
Work-in-process 145,000 171,000
Finished goods 85,000 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

Madtack uses normal costing to determine inventory cost. The company uses one factory
overhead control account and charges factory overhead to production at 70 percent of
direct labor cost.
Madtack Co.'s cost of goods manufactured (transferred to finished goods) for November is:
A. $476,000.
B. $495,000.
C. $469,000.
D. $484,000
45. Madtack Co.'s beginning and ending inventories for the month of November are:

November 1 November 30
Direct materials $ 67,000 $ 62,000
Work-in-process 145,000 171,000
Finished goods 85,000 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

Madtack uses normal costing to determine inventory cost. The company uses one factory
overhead control account and charges factory overhead to production at 70 percent of
direct labor cost.
Madtack Co.'s cost of goods sold for November is:
A. $476,000.
B. $491,000.
C. $484,000.
D. $502,000.

46. Why do most companies allocate overhead to products as opposed to using actual
overhead?
A. Easier process than using actual overhead
B. Less costly to do so
C. More accurate depiction of overhead consumed by a product
D. More timely
47. Big Burden Enterprises estimates that its predetermined overhead rate should be
applied to 125% of estimated direct salary dollars. The company pays an average rate of $20
per hour to direct laborers and anticipates that workers will generate 12,000 hours of time
in any given month. If Big Burden experiences a month in which it produces 11,500 hours of
service with an average cost per hour of $21 per hour, how much overhead should be
applied:
A. $315,000
B. $300,000
C. $287,500
D. $301,875

48. Nanjones Co. manufactures a line of products distributed nationally through

wholesalers. Presented below are planned manufacturing data for Year 2 and actual
data for November Year 2. The company applies overhead based on planned
machine hours using a predetermined annual rate.

Year 2 Planning Date

Annual November
Fixed manufacturing overhead $1,200,000 $100,000
Variable manufacturing overhead 2,400,000 220,000
Direct labor hours 48,000 4,000
Machine hours 240,000 22,000

Data for November Year 2

Direct labor hours (actual) 4,200
Direct labor hours (plan based on
output) 4,000
Machine hours (actual) 21,600
Machine hours (plan based on output) 21,000
Fixed manufacturing overhead $101,000
Variable manufacturing overhead $214,000

The predetermined overhead application rate for Nanjones Co. is:

A. $15.00
B. $25.00

C. $5.00
D. $10.00

49. Loyal Company produces three types of men's undershirts: T-shirts, V-neck shirts, and
athletic shirts. In the Folding and Packaging Department, operations costing is used to apply
costs to individual units, based on the standard time allowed to fold and package each type
of undershirt. The standard time to fold and package each type of undershirt is as follows:

T-shirt 40 seconds per shirt

V-neck shirt 40 seconds per shirt
Athletic shirt 20 seconds per shirt

During the month of April, Loyal produced and sold 50,000 T-shirts, 30,000 V-neck shirts,
and 20,000 athletic shirts. If costs in the Folding and Packaging Department were $78,200
during April, how much folding and packaging cost should be applied to each T-shirt?
A. $0.8689
B. $0.7820
C. $0.52134
D. $0.6256

50. The following costing information was gathered for its fiscal Year 1:

Actual fixed manufacturing overhead $725,000

Actual direct labor hours 115,000
Actual direct labor costs $1,450,000
Estimated fixed manufacturing overhead $775,000
Estimated direct labor hours 110,000
Estimated direct labor costs $1,500,000
What is the predetermined fixed manufacturing overhead rate per direct labor cost for Year
1? (Round to two decimal places.)
A. 48.33%
B. 50.00%

C. 53.45%
D. 51.67%

51. The following costing information was gathered for its fiscal Year 1:

Actual fixed manufacturing overhead $350,000

Actual direct labor hours 75,000
Actual direct labor costs $400,000
Estimated fixed manufacturing overhead $380,000
Estimated direct labor hours 80,000
Estimated direct labor costs $420,000

What is the predetermined fixed manufacturing overhead rate per direct labor hour
for Year 1?

A. $5.07
B. $4.75
C. $4.38
D. $4.67

52. Nanjones Co. manufactures a line of products distributed nationally through

wholesalers. Presented below are planned manufacturing data for Year 2 and actual
data for November Year 2. The company applies overhead based on planned
machine hours using a predetermined annual rate.

Year 2 Planning Date

Annual November
Fixed manufacturing overhead $1,200,000 $100,000
Variable manufacturing overhead 2,400,000 220,000
Direct labor hours 48,000 4,000
Machine hours 240,000 22,000
 Data for November Year 2
Direct labor hours (actual) 4,200
Direct labor hours (plan based on
output) 4,000
Machine hours (actual) 21,600
Machine hours (plan based on output) 21,000
Fixed manufacturing overhead $101,000
Variable manufacturing overhead $214,000

The predetermined overhead application rate for Nanjones Co. is:

Nanjones Co. manufactures a line of products distributed nationally through

wholesalers. Presented below are planned manufacturing data for Year 2 and actual
data for November Year 2. The company applies overhead based on planned
machine hours using a predetermined annual rate.

Year 2 Planning Date

Annual November
Fixed manufacturing overhead $1,200,000 $100,000
Variable manufacturing overhead 2,400,000 220,000
Direct labor hours 48,000 4,000
Machine hours 240,000 22,000

Data for November Year 2

Direct labor hours (actual) 4,200
Direct labor hours (plan based on
output) 4,000
Machine hours (actual) 21,600
Machine hours (plan based on output) 21,000
Fixed manufacturing overhead $101,000
Variable manufacturing overhead $214,000

The predetermined overhead application rate for Nanjones Co. is:

A. $15.00
B. $10.00

C. $5.00
D. $25.00

53. Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast
rolls, ready for introduction. However, plant capacity is limited, and only one product
can be introduced at present. Therefore, Gleason has conducted a market study, at
a cost of $26,000, to determine which product will be more profitable. The results of
the study follow.
Sales of Desserts Sales of Rolls
at $1.80/unit at $1.20/unit
Volume Probability Volume Probability
250,000 0.30 200,000 0.20
300,000 0.40 250,000 0.50
350,000 0.20 300,000 0.20
400,000 0.10 350,000 0.10
The costs associated with the two products have been estimated by Gleason's cost
accounting department and are shown as follows.

Dessert Rolls
Ingredients per unit $ 0.40 $ 0.25
Direct labor per unit 0.35 0.30
Variable overhead per unit 0.40 0.20
Production tooling* 48,000 25,000
Advertising 30,000 20,000
*Gleason treats production tooling as a current operating expense rather than
capitalizing it as a fixed asset.
The advertising expense estimated by Gleason for the introduction of the new
products is an example of a(n)
A. Discretionary cost.
B. Opportunity cost.
C. Committed cost.
D. Conversion cost.
54. In a traditional manufacturing operation, direct costs would normally include
A. Electricity in an electronics plant.
B. Commissions paid to sales personnel.
C. Machine repairs in an automobile factory.
D. Wood in a furniture factory.

55. Committed costs are

A. Those that fluctuate in total in response to small changes in the rate of use of
capacity.
B. Those management decides to incur in the current period to enable the company
to achieve objectives other than the filling of orders placed by customers.
C. Likely to respond to the amount of attention devoted to them by a specified
manager.
D. Governed mainly by past decisions that established the current levels of operating
and organizational capacity and that only change slowly in response to small
changes in capacity.

56. An imputed cost is

A. A cost that cannot be avoided because it has already been incurred.
B. The difference in total costs which results from selecting one alternative instead of
another.
C. A cost that continues to be incurred even though there is no activity.
D. A cost that does not entail any dollar outlay but is relevant to the decision-making
process.

57. The controller of an online retailer has negotiated a five-year contract with a
shipping company to pay the following amounts annually for the delivery of its goods,
regardless of the amount.
Year 1 €1,000,000
Year 2 1,000,000
Year 3 1,500,000
Year 4 1,500,000
Year 5 2,000,000
What type of costs are these shipping expenditures?
A. Fixed.
B. Variable.
C. Mixed.
D. By-product.

58. All of the following are examples of imputed costs except

A. Decelerated depreciation.
B. Assets that are considered obsolete that maintain a net book value.
C. Lending funds to a supplier at a lower-than-market rate in exchange for receiving
the supplier's products at a discount.
D. The stated interest paid on a bank loan.

59. Conversion cost pricing

A. Places heavy emphasis on indirect costs and disregards consideration of direct
costs.
B. Places heavy emphasis on direct costs and disregards consideration of indirect
costs.
C. Places minimal emphasis on the cost of materials used in manufacturing a
product.
D. Could be used when the customer furnishes the material used in manufacturing a
product.

60. Management has prepared a graph showing the total costs of operating branch
warehouses throughout the country. The cost line crosses the vertical axis at
$200,000. The total cost of operating one branch is $350,000. The total cost of
operating ten branches is $1,700,000. For purposes of preparing a flexible budget
based on the number of branch warehouses in operation, what formula should be
used to determine budgeted costs at various levels of activity?
A. y = $350,000 + $200,000(x)
B. y = $200,000 + $150,000(x)
C. y = $350,000 + $150,000(x)
D. y = $200,000 + $170,000(x)