10/26/24, 1:31 PM - 2024-10 - Core 2 - Ontario - Chartered Professional Accountants of Canada

Unit 2 Quiz - Results

Attempt 1 of Unlimited

Written Oct 26, 2024 8:51 AM - Oct 26, 2024 10:31 AM

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Question 1

Which one of the following is the

MOST valid reason to allocate the cost of a support department, such
as engineering services, to the products manufactured in an operating
department?

a) To determine the net margin of the products

b) To reprimand the manager of a poorly performing operating

department

c) To earn additional profits by inflating the cost of products

manufactured for a potential client

d) To allow management to make the decision to abandon one of

the products manufactured in the operating department

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Option a) is correct. Net margins should be determined based on a

product's full cost, including the allocation of indirect costs, so this is a
valid reason for the allocation.

Question 2

The following is information from the records of SKT Inc. for the
month of June:

Opening Ending Purchased in

inventory inventory June
June 1 June 30

Direct materials $100,000 $100,000 $920,000

Indirect $20,000 $15,000 $40,000

materials

Work-in- 0 0 n/a
progress

Other expenses:
- Direct labour: $680,000
- Rent and utilities: $200,000
- Administrative salaries and benefits: $36,000

The rent and utilities covers the factory and the head office. SKT
allocates 60% of rent and utilities to manufacturing and 40% to selling
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and administration.

Which one of the following is the amount of indirect manufacturing

costs that would be charged to the cost of goods manufactured in
June?

a) $160,000

b) $165,000

c) $1,085,000

d) $1,765,000

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Option c) is incorrect. This incorrectly includes direct materials.

Incorrect calculation:
($20,000 + $40,000 – $15,000) + $920,000 + (60% × $200,000) =
$1,085,000. Option b) is correct.
Indirect materials used = $20,000 + $40,000 – $15,000 = $45,000
Rent and utilities allocated to manufacturing = 60% × $200,000 =
$120,000
Indirect manufacturing costs = $165,000

Question 3
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Omega Co. manufactures two chemicals in a joint process: product A

and product B. The manufacturing cost of the joint process is $60,000.
The chemicals can be sold in their unrefined form immediately after
the split-off point, or they can be further refined before they are sold.

Which one of the following is the BEST reason Omega would want to
allocate the manufacturing cost of the joint process to products A and
B?

a) It allows Omega to rank products A and B in terms of their

respective profitability.

b) It allows Omega to determine the inventory value for products

A and B.

c) It provides the basis for deciding whether products A and B

should be refined further.

d) It provides the basis for deciding whether product A or B

should be abandoned.

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Option b) is correct. Allocating joint costs allows Omega to calculate

the full cost for both products. This is required to determine inventory
values under GAAP.

Question 4

Orange Ltd. manufactures juice with two different ingredients; 100%

of ingredient A is added at the beginning of the production process.
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Conversion costs are added uniformly throughout the entire

production process.

Quality testing is conducted at the 60% conversion point. Rejected

units at quality testing are accounted for as spoilage, and spoilage is
included in equivalent units of output. Production data for May of Year
5 are as follows:

Work-in-progress (WIP) 40,250

inventory, May 1 (25% units
converted)

Started in production 85,000

units

Spoiled 300 units

Completed production 90,000

units

WIP inventory, May 31 (80% 34,950

converted) units

For May, direct materials costs incurred and in beginning WIP

inventory totalled $220,000 for ingredient A.

Using the weighted average method, how much is the cost per
equivalent unit (EU) for ingredient A?

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a) $1.33

b) $1.76

c) $2.44

d) $2.59

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Option b) is correct. EU of work done in May:

Units

Beginning WIP (25%

converted) 40,250

Units started and

completed† 49,750

Spoiled units 300

Ending WIP (80%

converted) 34,950

Total units accounted for 125,250

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†Units started and completed are calculated by completed production

of 90,000 less WIP inventory, May 1 of 40,250 = 49,750.

Cost per EU of ingredient A: $220,000 / 125,250 = $1.76

Question 5

DBS Ltd. produces a single product. For the current year, budgeted
sales volume is 90,000 units, and budgeted production volume is
100,000 units. The following standards were used in preparing the
current year’s budget:

Selling price $200 per unit

Variable direct materials $127 per unit

costs

Variable direct labour costs $6 per unit

Fixed manufacturing $2,800,000 per

overhead year

Fixed selling and $300,000 per year

administration

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Assuming DBS Ltd. uses variable costing, how much is its budgeted net
profit for the current year?

a) $1,600,000

b) $2,930,000

c) $3,240,000

d) $3,600,000

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Option b) is correct. Budgeted profit = [($200 – $127 – $6) × 90,000]

– ($2,800,000 + $300,000) = $2,930,000.

Question 6

DBS Ltd. produces a single product. For the current year, budgeted
sales volume is 90,000 units and budgeted production volume is
100,000 units. The following standards were used in preparing the
current year’s budget:

Selling price $200 per unit

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Variable direct material $127 per unit

costs

Variable direct labour costs $6 per unit

Fixed manufacturing $2,800,000 per

overhead year

Fixed selling and $300,000 per year

administration

Assuming DBS uses absorption costing, how much is its budgeted net
profit for the current year?

a) $1,600,000

b) $2,930,000

c) $3,210,000

d) $3,240,000

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Option c) is correct.
Fixed cost per unit = $2,800,000 / 100,000 units = $28 per unit
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Budgeted profit = [($200 – $127 – $6 – $28) × 90,000] – $300,000 =

$3,210,000

Question 7

Deejay Co. uses a process costing system. In Department 2, direct

materials are added at the 50% stage of completion of the process,
and conversion costs are added uniformly throughout the process.

For the month of March, Department 2 had the following:

Beginning WIP 6,000 units, 60% completed as to

conversion costs

Transferred in 42,000 units

Ending WIP 3,000 units 40% completed as to

conversion costs

5,000 units 80% completed as to

conversion costs

No spoilage was reported during March.

In computing the equivalent units (EU) of production for direct

materials for the month of March, which one of the following describes
how the calculation of the weighted average method would differ from
that of the first in, first out (FIFO) method?
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a) It would be 8,000 higher under the weighted average method

than under the FIFO method.

b) It would be 6,000 higher under the weighted average method

than under the FIFO method.

c) It would be 6,000 lower under the weighted average method

than under the FIFO method.

d) It would be the same under the weighted average method as

under the FIFO method.

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Option b) is correct. The difference between the FIFO method and the
weighted average method of process costing in computing EU of
production is attributed to the work done in the beginning WIP
inventory. There were 6,000 units in beginning WIP inventory;
therefore, the EU of production for transferred-in costs under the
weighted average method would be 6,000 higher than that of the
FIFO method of process costing.

Question 8

Deejay Co. uses a process costing system. In Department 2, direct

materials are added at the 50% stage of completion of the process,
and conversion costs are added uniformly throughout the process.

For the month of March, Department 2 had the following:

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Beginning WIP 6,000 units, 60% completed as to

conversion costs

Transferred in 42,000 units

Ending WIP 3,000 units 40% completed as to

conversion costs

5,000 units 80% completed as to

conversion costs

No spoilage was reported during March.

Using the weighted average method, which one of the following is the
number of equivalent units of production for conversion costs?

a) 39,200

b) 40,000

c) 44,000

d) 45,200

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Option d) is correct.

Conversion costs = 6,000 + 42,000 – (3,000 × 0.6) –

equivalent units (5,000 × 0.2)

= 6,000 + 42,000 – 1,800 – 1,000

= 45,200

Question 9

HWW Inc. has a job-order costing system. The company uses

predetermined overhead rates in applying manufacturing overhead
costs to individual jobs. The predetermined overhead rate in
Department A is based on machine hours, and the rate in Department
B is based on direct materials cost. HWW has the following estimates
for the year:

A B

Machine hours 50,000 68,000

Direct labour hours 45,000 60,000

Direct materials cost $250,000 $220,000

Direct labour cost $300,000 $280,000

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Manufacturing overhead $395,000 $455,000

cost

Job 201 was completed on May 31 with the following cost

information:

A B

Machine hours 500 550

Direct materials $27,000 $20,000

cost

Direct labour cost $31,000 $32,000

The predetermined overhead rate is $8.00 for Department A and

$2.15 for Department B.

How much is the total cost applied to job 201?

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a) $105,000

b) $115,183

c) $157,000

d) $172,450

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Option c) is correct.

Department A overhead: $8.00 × 500 $ 4,000

Department B overhead: $2.15 × 43,000

$20,000

Direct materials: $27,000 + $20,000 47,000

Direct labour cost: $31,000 + $32,000 63,000

Total cost $157,000

Question 10
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In which one of the following situations would it be better for the

buying division to purchase its direct materials from an external
supplier, rather than from an internal division?

a) The external supplier can deliver the product faster than the
selling division with the same selling price as the internal
division.

b) A competitor of the buying division has a sale on its finished

goods inventory.

Market prices for both the buying division and the selling
c)
division are easily obtainable.

The selling division has excess capacity, and the transfer price
d)
is between the variable cost and the market price.

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Option a) is correct. While there is no quantitative difference between

the internal division and external supplier, timeliness of the product
delivery would be a qualitative consideration to support purchasing
from the external supplier.

Question 11

Ink-it produces two high-end executive-focused pens. Data regarding

the two model lines is shown below:

Office Buddy Travel Buddy

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Expected 35,000 115,000

production

Direct materials $17.00 $9.25

cost

Direct labour cost $3.75 $4.10

Ink-it is considering implementing an activity-based costing system in

its facility and has identified three primary activities:

Office Buddy Travel Buddy Budgeted

overhead
cost

Assembly 3,000 labour 4,100 labour $110,000

hours hours

Quality 190 inspection 150 inspection $370,000

assurance hours hours

Packaging 125 boxes 265 boxes $34,000

How much is the overhead cost per unit for the Office Buddy pens?

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a) $3.42

b) $7.55

c) $14.69

d) $28.30

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Option b) is correct. The activity rate must be multiplied by the driver

of that activity on a per-product basis.

Activity Budgeted Budgeted cost Activity rate

overhead driver
cost

Assembly $110,000 7,100 labour $15.493 per labour

hours hour

Quality $370,000 340 inspection $1,088.235 per

assurance hours inspection hour

Packaging $34,000 390 boxes $87.179 per box

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Office Buddy

Assembly: 3,000 × $15.493 $46,479

Quality assurance: 190 × 206,765

$1,088.235

Packaging: 125 × $87.179 10,897

Total allocated overhead $264,141

Number of units produced 35,000

Per-unit overhead cost $7.55

Question 12

ABC Co. manufactures widgets and uses a standard process costing

system. During production, two different types of materials are used:
100% of material XY is added at the beginning of the production
process; 60% of material RT is added halfway through the production
process, and the remaining 40% is added at the end of process.
Conversion costs are added uniformly throughout the entire
production process.

For the current year, the standard costs per equivalent unit (EU) for
material XY, material RT, and conversion costs are $15, $21, and $9,

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respectively. Production data for May is as follows:

Work-in-progress (WIP) inventory, May 1 (95% 5,500 units

converted)

Started in production 8,800 units

Completed production 9,100 units

WIP inventory, May 31 (50% converted) 5,000 units

Which one of the following is the value of WIP inventory at May 31?

a) $160,500

b) $183,000

c) $202,500

d) $225,000

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Option a) is correct.

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Actual Percentage
units complete Cost per EU

Material XY 5,000 100% $15 $ 75,000

Material RT 5,000 60% $21 $ 63,000

Conversion costs 5,000 50% $ 9 $ 22,500

Total value $160,500

Question 13

Vanesh Inc. has a new vice-president who is reviewing the existing

transfer pricing policy. Vanesh does not have any excess capacity in its
production facility (the selling division). The division managers have
complained that the existing transfer pricing policy is unfair.

Which one of the following statements BEST describes transfer pricing

for Vanesh?

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Both the buying and selling division managers favour cost-

a)
based transfer pricing because it will lead to an equitable share
of profits.

b) A cost-based transfer price may lead to optimal decisions by

both the selling division and the buying division.

c) A negotiated transfer price promotes autonomy among division

managers, but it can be time-consuming.

d) Use of market-based transfer pricing motivates division

managers to deal with customers and suppliers in the internal
market.

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Option c) is correct. A negotiated transfer price allows division

managers to come to an agreeable price as if they were unrelated
parties, thereby promoting autonomy among subunit managers.
However, negotiation can be time-consuming, as in any business
dealings with unrelated parties.

Question 14

Bartok Motors Inc. operates as a decentralized multidivisional

company. The Cantata Division purchases most of its motors from the
Concerto Division.

The Concerto Division:

· Has variable costs of $620 per motor
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· Has sufficient excess capacity to satisfy the Cantata Division’s

motor requirements
· Can sell motors to external customers for $890

Which one of the following statements BEST describes the optimal

transfer pricing at Bartok Motors?

a) The minimum transfer price the Concerto Division is willing to

accept on sales to the Cantata Division is $620.

The minimum transfer price the Concerto Division is willing to

b)
accept on sales to the Cantata Division is $890.

The maximum transfer price the Cantata Division is willing to

c)
pay on purchases from the Concerto Division is $620.

The minimum transfer price the Cantata Division is willing to

d)
accept on purchases from the Concerto Division is $620.

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Option a) is correct. The Concerto Division is not operating at

capacity, so there is no opportunity cost, and therefore the variable
costs of $620 should be used for the transfer price.

Question 15

Webster Inc. has three divisions — metal fabrication, soldering, and

finishing. The metal fabrication division produces a unique widget that
none of its competitors use. In the past, the metal fabrication division

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has transferred the widgets separately to the soldering and finishing

divisions as needed. The soldering division has an excess of widgets
and is considering selling this to the finishing division. The CFO has
suggested that the market price is the optimal transfer price between
the soldering and finishing divisions.

Which one of the following is a disadvantage of using the market price

as a transfer price in this situation?

a) It may encourage decisions that do not benefit Webster as a

whole.

b) The distribution of profit may be unfair to all three divisions.

c) It may encourage inefficiencies in the metal fabrication

division.

d) External market prices may not be readily available for the

excess widgets.

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Option d) is correct. This is a disadvantage of using market-based

transfer prices, as it may be time-consuming or not feasible to
determine market prices of the specialized widgets.

Question 16
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Which one of the following statements BEST describes transfer prices

between divisions?

Transfer prices are always set between the profit centres and
a)
should lead to a goal congruence with the overall strategy of
the organization.

Transfer prices are always set between the profit centres and
b)
investment centres, and there are different methods available
to determine transfer prices.

c) When transfer prices are set between profit centres, the

buying division is motivated to pay the lowest price possible.

d) When transfer prices are negotiated, the goals of the buying

division and the selling division are frequently the same.

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Option a) is incorrect. Transfer prices can be set between all types of

responsibility centres. They should lead to goal congruence, which
occurs when the goals of individual division managers are aligned with
the goals of the organization. Option c) is correct. When two profit
centres are negotiating transfer prices, the selling division wants to sell
products at the highest transfer price possible, and the buying division
wants to receive products at the lowest transfer price possible.

Question 17

The Camp Canada Association (Camp Canada) is a local not-for-profit

organization whose mandate is to provide camping experiences for
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children of low-income families. While the association receives some

government funding, most of its revenue comes from corporate
sponsorship, donations, and fundraising activities.

Camp Canada was started by Sue and John Williams. John is now the
CEO (one of three paid employees). Sue is employed full-time as a
lawyer and is not involved in the daily operations of Camp Canada in
any way.

Which one of the following is the BEST guidance for Camp Canada’s
governance structure?

a) The board must consist of at least 15 directors.

b) John Williams, the CEO, should assume the position of

chairperson.

c) The board of directors must appoint an audit committee.

d) The board of directors should develop clear policies to

establish a code of conduct.

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Feedback

Option d) is correct. The board is responsible for the governance of an

organization. Typical duties include establishing broad policies and
objectives. A code of conduct is an example of one such policy.

Question 18

Which one of the following BEST describes the audit committee’s

responsibility in preventing fraud?

a) Establish and maintain internal controls to prevent fraud.

b) Make recommendations on the control and governance

process.

c) Ensure that an appropriate system of internal control has been

established.

d) Assess the risk of material misstatement due to fraud.

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Option c) is correct. Whether it is a for-profit or not-for-profit

organization, the audit committee is responsible for ensuring that
management has established an appropriate system of internal
control.

Question 19

Which one of the following is the BEST example of an ethically

questionable action committed by a controller?

a) Near the end of a fiscal year with lower-than-expected profits,

suggesting that an expensive advertising campaign be delayed
until the next fiscal year

Accepting a gift of a box of chocolates from a regular supplier

b)
and sharing the chocolates with all of the company's
employees

At the request of a divisional manager, capitalizing instead of

c)
expensing the development costs of a new product when the
probability of its success in the market is low

d) Reporting to the chief financial officer a suspicion that a line

manager is providing incorrect production data in an effort to
increase his year-end bonus

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Option c) is correct. The controller should not capitalize development

costs if the probability of success of the product in the market is low.
To do so, even at the request of a divisional manager, compromises the
accountant's competence, objectivity, and integrity, and would violate
the Rules of Professional Conduct (associating oneself with false or
misleading financial information).

Question 20

The official charter of the local hockey association (the association), a

not-for-profit organization, provides for the association to appoint five
voting members to its board. Brandon Tolentino, a parent of a hockey
player, was appointed this year.

Which one of the following statements BEST reflects Brandon’s role?

Brandon has a duty to the association as a whole, but his

a)
primary obligation is to guard the interests of the hockey
players.

b) Brandon is not able to serve on any of the association's board

committees.

c) Brandon has a duty to guard the interests of the hockey

players, but the primary obligation of a board member is to the
association as a whole.

d) Brandon is required to serve on all of the association's board

committees.

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Option c) is correct. Being appointed to the board does allow Brandon

to ensure that the perspective of the players is considered during
decision-making, but this interest cannot override the interests of the
association. Nominee directors have the same primary duty as all the
other directors, which is to the organization as a whole — that is, they
are legally obligated to act in the best interests of the overall
organization.

Question 21

In the past, Elevate Ltd. had a functional structure, and employees

reported to a manager in each functional area: operations, human
resources, accounting, and sales and marketing. Recently Elevate
decided to make all employees remote workers, and they now report
to both the functional managers and Elevate’s regional managers.

Which one of the following statements is MOST likely to be true?

a) Overhead expenses have increased.

b) Employees have a lighter workload than previously.

c) Communications between functional areas is poor.

d) Employee morale has decreased.

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Option c) is incorrect. This could have been true before Elevate

decided to make all employees remote workers. At this time, Elevate
has a network structure, in which employees are grouped by both
function and division, so communication is likely strong. Option d) is
correct. Elevate now has a network structure, which is a matrix
structure without formal offices. With this structure, morale could be
low because employees can be confused about reporting lines, and
also because the workload between employees can become
unbalanced.

Question 22

Which one of the following describes why a company must have a

formal organizational structure in order to be successful?

a) To clearly delineate roles and responsibilities

b) So that the company can effectively perform its operational

activities

c) To allow for well-thought-out decisions with many checks and

balances

d) Because the structure must be approved by the board of

directors and remain in place for at least 10 years

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Option a) is correct. In order for a company to be successful, it must

have a formal organizational structure to clearly delineate roles and
responsibilities.

Question 23

Some organizations are highly centralized, with all major decisions

made at the corporate level. Other organizations are more
decentralized, allowing considerable flexibility for individual business
and functional managers.

Which one of the following describes when a centralized structure is

MOST appropriate?

a) For a small-business owner who has intimate knowledge of the

organization and is active in the business

b) When a company has operations in foreign countries

c) When a company has multiple product lines

d) When there are many decision makers

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Option a) is correct. A centralized structure is most appropriate for a

small-business owner who has intimate knowledge of the organization
and is active in the business.

Question 24

An organization is switching from a functional structure to a matrix

structure.

Which one of the following statements is MOST likely to be true?

a) Morale may decrease because employees have fewer

opportunities for learning.

b) Employees may become confused when they report to multiple

people.

c) Incompatibilities might arise from a lack of communication

between subunits of the organization.

d) Employees can progress in their role as they develop skills and

knowledge due to specialization within the department.

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Option b) is correct. The greatest disadvantage of the matrix structure

is the complexity of reporting lines. Employees who often find
themselves reporting to a functional manager and to a divisional
manager sometimes receive mixed messages and face conflicting
priorities.

Question 25

In which one of the following situations would a centralized structure

be MOST appropriate?

a) Revolve Inc. has 14 decision makers.

b) Abegweit Ltd. has many divisions.

c) Sheika Inc. has operations in foreign countries.

d) Brafton Ltd. is a small owner-managed organization.

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Option d) is correct. In a centralized structure, decisions tend to be

quick, efficient, and consistent because only one layer of management
finalizes each decision.

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