Another form of horizontal analysis is called trend analysis.
One purpose of planning activities is to monitor day-to-day operations to ensure that
processes are operating as expected.
When a company invests in a capital asset, recouping the original investment is called
return on investment.
A firm’s ability to convert non-cash assets into cash is referred to as liquidity.
The accounting firm PriceWaterhouseCoopers is an example of a company that would
use a process costing system.
The key inputs for the direct materials purchases budget are the production budget and
the direct materials standards for each project.
Process improvement is the examination of business processes to identify incremental
changes that may reduce operating costs.
In variable costing, fixed manufacturing overhead is treated as a product cost.
Management accounting is the generation of relevant information and analysis provided
to external users.
Equivalent units for direct materials and conversion costs should be added separately to
total units completed to arrive at the total equivalent units for materials and the total
equivalent units for conversion.
Perfect manufacturing cycle efficiency would yield a ratio of zero – that is, no
processing time would be non-value-added.
The current ratio is also referred to as the quick ratio.
When a variable overhead spending variance is identified, managers will want to talk
with the purchase manager about the purchase and/or use of variable overhead items.
Contribution margin is the amount of revenue that remains to cover fixed costs and
provide a profit.
Outsourcing is a relatively new approach to doing business.
Major Emig owns a pet store. Major wants to convert a storeroom into a space that can
be leased to a pet groomer. Major believes that pet owners coming to the store to have
their pets groomed will shop while they wait and generate additional revenues for the
store. The conversion would cost $180,000 and will have a useful life of 20 years. The
space will be leased to a local pet groomer for $36,000 per year. Electricity, water and
other utilities are expected to be $7,200 per year.
Required
a. Calculate the annual operating income generated by the conversion project.
b. Calculate the accounting rate of return for the conversion project.
c. If the conversion project is successful in generating new business for the pet store,
how will the accounting rate of return be affected?
A limitation of using the scattergraph method to estimate the cost components of total
cost is:
a.The scattergraph method is complex and costly to use.
b.The scattergraph method requires the use of statistical software.
c.The scattergraph method is not an accepted method for many companies.
d.The choice of the line used to estimate the cost components is subjective.
A performance measure is actionable if
a. Something can be done to influence its value.
b. It is complete and accurate.
c. It is clearly and directly related to the process it measures.
d. It is based on actual results rather than on estimates.
Kandy Harts manufactures custom T-shirts. Each T-shirt can be imprinted front and
back with photos, company logos or other information. Each T-shirt requires 2 ounces
of ink, 15 minutes of direct labor (processing, folding, packaging), and a plastic bag for
packaging. The following information is available regarding costs:
Kandy applied overhead at a rate of $9.40 per direct labor hour, and fringe benefits for
workers are an additional 20% of wages. What is the standard price and standard
quantity for manufacturing overhead?
a. $11.28; 0.25 hour
b. $9.40; 0.25 hour
c. $2.35; 1 hour
d. $2.82; 0.25 hour
The only difference between absorption costing and variable costing is the treatment of
a. All variable costs.
b. Variable overhead costs.
c. All fixed costs.
d. Fixed overhead costs.
Finished Goods represents products that are
a. In the process of being completed.
b. Ready to be sold.
c. Sold.
d. None of these answer choices are correct.
A note of caution in interpreting the debt ratio is that
a. All debt decreases liquidity ratios.
b. Financing arrangements, such as leases, may be off-balance sheet arrangement and
not be classified as debt on the balance sheet.
c. Financing arrangements, such as leases, may be classified as debt when in fact they
do not require interest payments.
d. Long-term debt may be inflated because of a desire to reduce the current ratio.
Morrow Co. produces 3 products: Beta, Delta, and Gamma. Beta requires 400 purchase
orders, Delta requires 600 purchase orders, and Gamma requires 1,000 purchase orders.
Morrow has identified an ordering and receiving activity cost pool with allocated
overhead of $180,000 for which the cost driver is purchase orders. Direct labor hours
used on each product are 50,000 for Beta, 40,000 for Delta, and 110,000 for Gamma.
How much ordering and receiving overhead is assigned to each product?
Brandon Consulting Company is headquartered in Atlanta and has branch offices in
Nashville and Birmingham. Brandon uses an activity-based costing system. The Atlanta
office has its costs for Administration and Legal allocated to the two branch offices.
Brandon has provided the following information:
How much of Atlanta’s cost will be allocated to Nashville?
a. $628,500
b. $663,500
c. $670,400
d. None of these answer choices are correct.
In the most recent reporting period, Athens Corporation ‘s Legion division generated net
revenues of $2,000,000 and variable expenses of $700,000. Direct fixed expenses were
$500,000 and common corporate fixed expenses were $250,000. What is the division ‘s
segment margin?
a. $550,000
b. $800,000
c. $1,050,000
d. $1,300,000
An organizational unit whose manager is responsible only for the costs incurred in the
unit is referred to as a
a. Expense center.
b. Cost center.
c. Product center.
d. Manufacturing center.
Indicate whether the following items are characteristics of imposed budgeting or
participative budgeting.
Imposed Participative
Debbie’s Kitchen sells three types of soups: tomato basil, cheddar dill and loaded
potato. The following table shows the sales price and variable cost for each type.
Debbie incurs $200,000 a year in fixed costs. Assume that the restaurant has a sales mix
of two tomato basil servings, two cheddar dill servings and one loaded potato serving.
Required:
a. How many servings of each type will be sold at the breakeven point?
b. What amount of revenue would need to be generated by each type of soup for the
company to earn $25,000 in operating income?
Measuring customer profitability only by looking at whether the sales revenue a
customer generates exceeds the cost of goods sold ignores
a. All the selling and administrative costs incurred to provide customer service and
support.
b. Manufacturing costs incurred as overhead.
c. All fixed costs.
d. None of these answer choices are correct.
The 2012, 2013 and 2014 partial balance sheets for Ottoman Manufacturing Company
appear below.
Net credit sales for Ottoman were $126,000 for 2012, $120,000 for 2013 and $114,000
for 2014 while cost of goods sold was $84,000 for 2012, $82,400 for 2013 and $72,500
for 2014.
What is the accounts receivable turnover for 2013?
a. 3.75 times
b. 4.61 times
c. 5.00 times
d. 6.00 times
The IMA Statement of Ethical Professional Practice applies to
a.All accountants.
b.All CPAs.
c.All members of the IMA.
d.All of these answer choices are correct.
Walker’s Manufacturing began its operations on January 1 of the current year. Walker
produced 10,000 units during the year, sold 8,000 units at an average cost of $22 per
unit, and had 2,000 units in ending inventory. Variable production cost were $14 per
unit, variable selling expenses were $2 per unit, fixed overhead totaled $12,000, and
fixed selling and administrative expenses totaled $30,000. Under variable costing, what
was Walker’s ending inventory on the balance sheet?
a. $8,000
b. $28,000
c. $30,000
d. $30,400
Explain how the selection of a particular business strategy determines the information
that managers need to run an organization effectively
Which of the following accomplishes an increase in ROI through a reduction in the
asset base?
Prepare the cash budget and describe the relationships among its components.
Investing in a capital project may involve making screening decisions, preference
decisions and funding decisions. Discuss how each of the decisions is made, the goal of
each, and give an example of each.
XYZ Corporation reported net income of $75,700 last year. The company incurred
interest expense of $5,000. Assets on January 1st were $640,000 and on December 31st,
had increased by $40,000. The income tax rate was 30%. What is XYZ’s return on total
assets?
ABC Corporation reported net income of $26,000 last year. The company reported
earnings per share of $2.80. ABC paid dividends of $1.75 on each share of outstanding
stock. What was ABC’s dividend payout ratio?
Etters Manufacturing Company has provided the following financial data for its most
recent month.
Required:
Prepare an income statement using an absorption costing format.
