Horngren's Financial & Managerial Accounting The Managerial Chapters 5th Edition

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 24-41 SOLUTION Requirement 1 ROI = Operating income Average total assets Paint Stores ROI = $482,000 = 0.3480 = 34.80% $1,385,000 Consumers ROI $185,000 = 0.1167 = 11.67%

2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 2016 Pearson Education, Inc. 24-56 Comprehensive Problem for Chapters 22-24, cont. Requirement 1, cont. Schedule of Cash Payments 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total Total direct materials

2016 Pearson Education, Inc. 25-1 2016 Pearson Education, Inc. 25-1 2016 Pearson Education, Inc. 25-1 Chapter 25 Short-Term Business Decisions Review Questions 1. List the four steps in short-term decision making. At which step are managerial accountants most involved? The four steps in short-term

2016 Pearson Education, Inc. 25-21 2016 Pearson Education, Inc. 25-21 2016 Pearson Education, Inc. 25-21 E25-15 Making product mix decisions Learning Objective 3 2. CM per MHr, Regular $393 Tread Mile produces two types of exercise treadmills: regular and deluxe. The exercise craze is such that

2016 Pearson Education, Inc. 25-40 2016 Pearson Education, Inc. 25-40 2016 Pearson Education, Inc. 25-40 SOLUTION Requirement 1 Joint costs of producing 62,000 gallons of petroleum distillate $(205,000) $390,600 (62,000 gal. $6.30/gal.) Cost of processing further $(125,600)

2016 Pearson Education, Inc. 26-41 2016 Pearson Education, Inc. 26-41 2016 Pearson Education, Inc. 26-41 P26-30A Using payback, ARR, NPV, IRR, and profitability index to make capital investment decisions Learning Objectives 2, 4 1. Plan A 1.19 profitability index; Plan B $(755,780) NPV Lados operates a

2016 Pearson Education, Inc. 26-1 2016 Pearson Education, Inc. 26-1 2016 Pearson Education, Inc. 26-1 Chapter 26 Capital Investment Decisions Review Questions 1. Explain the difference between capital assets, capital investments, and capital budgeting. A capital asset is an operational asset used for

2016 Pearson Education, Inc. 26-21 2016 Pearson Education, Inc. 26-21 2016 Pearson Education, Inc. 26-21 S26-14 Using NPV to make capital investment decisions Learning Objective 4 Castle is considering an investment opportunity with the following expected net cash inflows: Year 1, $230,000; Year 2, $170,000; Year

When finished products are sold, Sales Revenue is debited, and Cost of Goods Sold is credited. Answer: FALSE Answer: FALSE Answer: FALSE Most capital budgeting methods focus on accrual-based income. Answer: FALSE Answer: FALSE Answer: FALSE When using an activity-based costing system in service companies, the allocation of indirect costs to the cost object is the

Companies evaluate investment centers using the same measures as the profit centers. Answer: FALSE Answer: FALSE Answer: FALSE The total amount of manufacturing overhead costs incurred during the period is recorded on the credit side of the Manufacturing Overhead account. Answer: FALSE Answer: FALSE Answer: FALSE Return on investment measures the profitability of an investment center

Direct costs and indirect costs can be easily traced directly to a cost object. Answer: FALSE Answer: FALSE Answer: FALSE In deciding whether to accept a special pricing order, management should only consider the quantitative data and disregard qualitative factors. Answer: FALSE Answer: FALSE Answer: FALSE For short-term pricing decisions, variable costing is an appropriate costing method

Repair and maintenance costs of vehicles used to deliver products to customers are product costs. Answer: FALSE Answer: FALSE Answer: FALSE Value engineering means reevaluating activities to reduce costs while still satisfying customer needs. Answer: TRUE Answer: TRUE Answer: TRUE Components of the master budget are the operating budget, the capital expenditures budget, and the financial

Connections Company provides cleaning services to commercial and residential customers. The commercial business segment provided services to 270 customers and the residential business segment provided services to 665 customers. Identify the segment with the lower contribution margin ratio and show the amount of its contribution margin ratio. (Round your answer to

A responsibility accounting system evaluates the performance of each responsibility center and its manager. Answer: TRUE Answer: TRUE Answer: TRUE Entries in the cash payments journal are posted daily to the accounts payable subsidiary ledger and monthly to the general ledger. Answer: TRUE Answer: TRUE Answer: TRUE The cash payments journal is a special journal used to

Activity-based costing refines the cost allocation process even more than traditional allocation costing systems. Answer: TRUE Answer: TRUE Answer: TRUE Production cost reports prepared using the first-in, first-out (FIFO) method determine the cost of equivalent units of production by accounting for beginning inventory costs separately from current period costs. Answer: TRUE Answer: TRUE Answer: TRUE The

The most important part of a budgeting system is getting managers and employees to accept the budget. Answer: TRUE Answer: TRUE Answer: TRUE Variable costing considers direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead as product costs. Answer: FALSE Answer: FALSE Answer: FALSE In a standard costing system, each input of direct materials,

When using a periodic inventory system, the Merchandise Inventory DR column, in the purchases journal, is replaced with a column titled Cost of Goods Sold DR. Answer: FALSE Answer: FALSE Answer: FALSE In selecting machine usage as the primary cost driver for the Production Department, management feels that there is a direct relationship

The three categories of period costs are direct materials, direct labor, and manufacturing overhead. Answer: FALSE Answer: FALSE Answer: FALSE The fundamental assumption of cost-volume-profit (CVP) analysis is that, in the long run, fixed costs become variable costs. Answer: FALSE Answer: FALSE Answer: FALSE When indirect materials are issued to production, the Manufacturing Overhead account is credited.

In a networked system, the server stores the program and the data. Answer: TRUE Answer: TRUE Answer: TRUE Journalize the following transactions for Malone Custom Furniture Manufacturing: a. Incurred and paid advertising expenses, $3,500. b. Incurred manufacturing wages of $30,000, 60% of which was direct labor and 40% of which was indirect labor. c. Purchased raw

When the variable cost per unit increases, the total number of units required to break even also increases. Answer: TRUE Answer: TRUE Answer: TRUE In a manufacturing company, wages and benefits of assembly line workers are included in manufacturing overhead. Answer: FALSE Answer: FALSE Answer: FALSE The amount by which sales can decrease before the company

Under process costing, the costs incurred by each department are reported in a separate production cost report for each department. Answer: TRUE Answer: TRUE Answer: TRUE Quality costs can be hard to measure. Answer: TRUE Answer: TRUE Answer: TRUE A strategic budget will be as detailed as an operational budget. Answer: FALSE Answer: FALSE Answer: FALSE The budgeted income

Mulcahey Automobiles Company fabricates automobiles. Each vehicle includes one wiring harness, which is currently made in-house. Details of the harness fabrication are as follows: An Indonesian factory has offered to supply Mulcahey with ready-made units for a cost of $15 per wiring harness. Assume that Mulcahey's fixed costs could be reduced

The balanced scorecard focuses only on lead indicators, because lag indicators are not important for performance evaluation. Answer: FALSE Answer: FALSE Answer: FALSE In making product mix decisions, when fixed costs are irrelevant, a company should emphasize the product with the highest contribution margin per unit of the constraint. Answer: TRUE Answer: TRUE Answer: TRUE In

The limitations of financial performance measures reinforce the importance of the balanced scorecard. Answer: TRUE Answer: TRUE Answer: TRUE Companies are now spending less amounts of cash to ensure that their data and information are secure. Answer: FALSE Answer: FALSE Answer: FALSE Amounts needed for the preparation of the budgeted balance sheet are taken from various

Discounted cash flow methods incorporate compound interest by assuming that companies will reinvest future cash flows when they are received. Answer: TRUE Answer: TRUE Answer: TRUE The accounting rate of return method considers the time value of money. Answer: FALSE Answer: FALSE Answer: FALSE Management by exception directs the management's attention to important differences between the

The number of equivalent units for direct materials and conversion costs must always be equal. Answer: FALSE Answer: FALSE Answer: FALSE The main difference between activity-based costing and traditional costing systems is that activity-based costing uses a separate allocation base for each activity. Answer: TRUE Answer: TRUE Answer: TRUE Absorption costing is more appropriate than variable

Managerial accounting is used in manufacturing and merchandising companies, but not in service companies. Answer: FALSE Answer: FALSE Answer: FALSE Under absorption costing, the more fixed manufacturing overhead in ending Finished Goods Inventory, the larger the Cost of Goods Sold. Answer: FALSE Answer: FALSE Answer: FALSE Both the sales volume variance and the flexible budget variance

When using management by exception, managers investigate only those variances that are unfavorable. Answer: FALSE Answer: FALSE Answer: FALSE Absorption costing is used to analyze contribution margin. Answer: FALSE Answer: FALSE Answer: FALSE The capital expenditures budget is completed before the preparation of the cash budget. Answer: TRUE Answer: TRUE Answer: TRUE A standard cost system helps management set

In a decentralized company, segment managers may not fully understand the big picture when making decisions. Answer: FALSE Answer: FALSE Answer: FALSE Manufacturing costs flow from Work-in-Process Inventory to Cost of Goods Sold to Finished Goods Inventory. Answer: FALSEExplanation: Manufacturing costs flow from Raw Materials Inventory to Work-in-Process Inventory to Finished Goods Inventory. Answer: FALSEExplanation:

South Bay Manufacturing began business on January 1. During its first year of operation, South Bay worked on five industrial jobs and reported the following information at year-end: South Bay's allocation of overhead costs left a debit balance of $1,400 in the Manufacturing Overhead account, which was adjusted to zero at

An increase in sales price per unit decreases the contribution margin per unit. Answer: FALSE Answer: FALSE Answer: FALSE Total manufacturing costs to account for during the year minus the ending Work-in-Process Inventory equals the cost of goods manufactured. Answer: TRUE Answer: TRUE Answer: TRUE If the sales price of Product X is $24.00 per unit

The Other Accounts DR columns of a purchases journal are used for recording merchandise inventory and office supplies. Answer: FALSE Answer: FALSE Answer: FALSE The inventory costing method affects the process of preparing the cost of goods sold budget. Answer: TRUE Answer: TRUE Answer: TRUE Tosh Company fabricates automobiles. Each auto includes one wiring harness, which

Financial statements prepared for investors and creditors often include forward-looking information because they make decisions based on a company's future prospects. Answer: FALSE Answer: FALSE Answer: FALSE The Accounting Rate of Return method evaluates the lifetime return of an investment, whereas Return on Investment evaluates the annual return of an investment. Answer: TRUE Answer:

Companies calculate the predetermined overhead rate at the beginning of an accounting period using the actual values of overhead costs. Answer: FALSE Answer: FALSE Answer: FALSE The cost per equivalent unit for transferred in units is calculated by dividing total transferred in costs by the equivalent units of production for transferred in units. Answer:

The cost of goods manufactured is recorded with a debit to the Work-in-Process Inventory account and a credit to the Cost of Goods Manufactured account. Answer: FALSE[/cpmembership] Answer: FALSE[/cpmembership] Answer: FALSE[/cpmembership] The accounting rate of return is calculated by dividing the average annual operating income by the average amount invested. Answer: TRUE Answer: TRUE Answer:

A just-in-time costing system does not use the Finished Goods Inventory account; instead, it combines the Finished Goods Inventory account with the Work-in-Process Inventory account. Answer: FALSE Answer: FALSE Answer: FALSE Sensitivity analysis allows managers to see how various business strategies will affect profit levels. Answer: TRUE Answer: TRUE Answer: TRUE A favorable variance has a

A company with different segments using different software configurations can easily combine budget data of different segments to create the master budget. Answer: FALSE Answer: FALSE Answer: FALSE Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars. Answer: TRUE Answer: TRUE Answer: TRUE When a manufacturing company uses a standard

A special journal is ________. A) an accounting journal designed to record a specific type of transaction B) an accounting journal that holds individual accounts that support a specific general ledger account C) a record of accounts that provides supporting details on individual balances, the total of which appears in a general ledger account D)

A production cost report helps managers identify the costs that can be reduced in the production process. Answer: TRUE Answer: TRUE Answer: TRUE A production cost report can help managers identify the most profitable products. Answer: TRUE Answer: TRUE Answer: TRUE In the first step in developing an activity-based costing system, the management team must think

Direct material costs and direct labor costs cannot be easily traced to products. Therefore, they are allocated to products. Answer: FALSE Answer: FALSE Answer: FALSE Under process costing, the unit cost of the completed units is less than the unit cost of the incomplete units. Answer: FALSE Answer: FALSE Answer: FALSE Residual income is used as

The contribution margin for service companies is calculated by subtracting fixed costs from service revenue. Answer: FALSE Answer: FALSE Answer: FALSE Flexible budgets use budgeted (or standard) costs at the actual level of activity. Answer: TRUE Answer: TRUE Answer: TRUE Merchandising companies, like service companies, do not have a Cost of Goods Sold account. Answer: FALSE Answer:

The direct materials cost and efficiency variances make up the total direct materials variance. Answer: TRUE Answer: TRUE Answer: TRUE The margin of safety can be used to evaluate a company's plans for the future. Answer: TRUE Answer: TRUE Answer: TRUE Absorption costing considers fixed selling and administrative costs as product costs. Answer: FALSE Answer: FALSE Answer: FALSE The

On May 31, a retail firm pays rent of $2,700 for the month of May. When this transaction is recorded in the cash payments journal, ________. A) assets and equity will increase by $2,700 B) assets and liabilities will decrease by $2,700 C) assets and equity will decrease by $2,700 D) liabilities and equity

The Raw Materials Inventory account is debited when direct materials are issued for production. Answer: FALSE Answer: FALSE Answer: FALSE The payback method provides management with valuable information about the time period in which the cash invested will be recouped. Answer: TRUE Answer: TRUE Answer: TRUE Unlike merchandising companies, income statements of service companies include cost

Which of the following is the correct formula for the profit margin ratio? A) Net profit / Sales B) Net sales / Average total assets C) Net profit Capital invested D) Operating income / Net sales Answer: D Answer: D Answer: D A cash payments journal is a special journal that ________. A) differs from the cash disbursements

In a decentralized company, all the planning and controlling decisions are made by top management. Answer: FALSE Answer: FALSE Answer: FALSE The common factor in all quality management systems is the desire to improve the business's performance by providing quality products or services. Answer: TRUE Answer: TRUE Answer: TRUE The Work-in-Process Inventory account of a department

The income statement of a manufacturing company separates the product costs from the period costs. Answer: TRUE Answer: TRUE Answer: TRUE The level of inventory on hand at the end of the year does not affect the amount of operating income calculated under variable costing and absorption costing. Answer: FALSE Answer: FALSE Answer: FALSE The fixed overhead

When more units are sold than produced, operating income is less under absorption costing. Answer: TRUE Answer: TRUE Answer: TRUE A depreciable asset's original cost is relevant when considering whether to replace the asset. Answer: FALSE Answer: FALSE Answer: FALSE Absorption costing is required by the Generally Accepted Accounting Principles (GAAP) for financial statements issued to

Higher fixed costs increase the total number of units required to break even. Answer: TRUE Answer: TRUE Answer: TRUE Entries in the sales journal are posted to both the accounts receivable subsidiary ledger and the general ledger. Answer: TRUE Answer: TRUE Answer: TRUE A modification of the overhead allocation method which uses a single plantwide rate,

Traditional costing systems employ multiple allocation rates for manufacturing overhead costs, but an activity-based costing system uses only one rate for allocating manufacturing overhead costs. Answer: FALSE Answer: FALSE Answer: FALSE Manufacturing companies produce their own products, but merchandising companies do not. Answer: TRUE Answer: TRUE Answer: TRUE Traditional costing provides more detailed information on costs

The efficiency variance measures ________. A) the difference between the quantity used by the company and the quantity used by its competitors B) the change in quantities used over time C) how well the business uses its materials or human resources D) how quickly direct materials are processed into finished goods Answer: C Answer: C Answer:

A favorable direct materials cost variance occurs when the actual direct materials cost incurred is greater than the standard direct materials cost. Answer: FALSE Answer: FALSE Answer: FALSE Fixed cost per unit is assumed to be constant within a particular relevant range of activity. Answer: FALSE Answer: FALSE Answer: FALSE Budgets provide a benchmark that motivates

Net present value is defined as the difference between the present value of the investment's net cash inflows and the investment's initial cost. Answer: TRUE Answer: TRUE Answer: TRUE The cost of goods sold is added to net sales revenue to determine gross profit. Answer: FALSEExplanation: The cost of goods sold is subtracted

Service companies do not have fixed costs; all costs incurred by service companies are variable costs. Answer: FALSE Answer: FALSE Answer: FALSE Financial accounting prepares reports for internal purposes, whereas managerial accounting provides information to external stakeholders. Answer: FALSE Answer: FALSE Answer: FALSE The payback and accounting rate of return methods are often used to perform

A disadvantage of a typical enterprise resource planning system is that it cannot be offered through cloud computing. Answer: FALSE Answer: FALSE Answer: FALSE In a standard cost system, the standard overhead allocation rate replaces the predetermined overhead allocation rate but the concept is the same. Answer: TRUE Answer: TRUE Answer: TRUE The production manager projects direct

Management compares the costs of undertaking a quality improvement program to the costs of continuing without the quality improvement program. Answer: TRUE Answer: TRUE Answer: TRUE Generally, all transactions are recorded in a special journal as well as the general journal. Answer: FALSE Answer: FALSE Answer: FALSE Total fixed costs can change from one relevant range