An example of an operating activity on the statement of cash flows is federal taxes paid.
Assume the direct method is used.
The allocation of joint costs to joint products should affect the decision to sell or
process the joint products further.
An assumption of the CVP analysis is that changes in efficiency are expected.
Mixed costs are composed of only fixed costs.
Selling expenses are found in the cost of goods sold.
The difference between the gross margin and the market price is the target cost for a
new product.
The most common reason for a variance between actual overhead costs and applied
overhead costs is the actual level of volume does not equal the level used to calculate
the budgeted overhead rate.
A cash budget is a business plan that includes a set of schedules and financial
statements.
Precise but irrelevant information is worthless for decision making.
Goodwill is amortized for financial statement purposes.
Research and development costs are expensed when incurred for financial statement
purposes.
A transaction is any event that affects the financial position of an organization and
requires recording.
When a company owns less than 20 percent of the common stock of another company,
the market value method of accounting for investments in equity securities is used.
A set of machines may be a responsibility center for a production supervisor.
An unfavorable production volume variance decreases the manufacturing costs shown
on the income statement.
When depreciating a fixed asset, the residual value is not considered.
In job-order costing, the journal entry to record the completion of units in process
would include a Debit to Finished Goods Inventory.
An equipment’s book value is the original cost plus accumulated depreciation.
The purpose of performance measures is to set direction and to motivate managers.
In process costing, the transferred-in costs include only direct materials costs.
When making capital budgeting decisions, the manager should utilize the marginal tax
rate for the company instead of the average tax rate.
When there is beginning work-in-process inventory and process costing, the
weighted-average method of inventory costing must be used.
The minimum desired rate of return for an investment under the NPV method is based
on the cost of capital.
The proration method of disposing of overhead variances prorates the variance based on
the beginning of the reporting period account balances in Cost of Goods Sold,
Work-in-Process Inventory and Finished Goods Inventory.
The quantity variance and efficiency variance for direct labor are different types of
variances.
Each job has its own job-cost record in a job-costing system.
The indirect method of preparing the statement of cash flows is the most popular
method in the United States.
For multinational companies, worldwide income taxes do not influence the setting of
transfer prices.
Generally Accepted Accounting Principles play an important role in management
accounting.
Research suggests that investors are not fooled by companies that choose the least
conservative accounting policies to increase net income.
The high-low method uses estimated cost data to approximate the cost function.
Under the direct method of preparing the statement of cash flows, the cash collected
from customers is determined for the operating activities section.
In a period of inflation, LIFO results in a higher net income than FIFO.
Determining the opportunity cost of a project depends on the alternatives available.
Budgetary slack helps buffer managers from budget cuts imposed by higher-level
management.
The main sections of the balance sheet include ________.
A) revenues, assets and liabilities
B) assets, liabilities and expenses
C) expenses, revenues and stockholders’ equity
D) assets, liabilities and stockholders’ equity
Lower cycle times often lead to ________ quality products and ________ defect rates.
A) lower; lower
B) lower; higher
C) higher; higher
D) higher; lower
The matching concept matches ________ and ________.
A) assets; liabilities
B) assets; expenses
C) revenues; expenses incurred to generate revenues
D) net profit; expenses
Arizona Company is considering two investments. The relevant data follows:
Project A Project B
Cost $205,010 $259,770
Annual cash savings (end of year) $50,000 $60,000
Terminal salvage value $0 $0
Estimated useful life in years 5 5
Minimum desired rate of return 10% 10%
Method of depreciation Straight-line Straight-line
Present Value Present Value
Of $1 of Ordinary
for 5 periods Annuity of $1
for 5 periods
5% 0.7835 4.3295
6% 0.7473 4.2124
7% 0.713 4.1002
8% 0.6806 3.9927
10% 0.6209 3.7908
12% 0.5674 3.6048
14% 0.5194 3.4331
Ignore taxes. Using the internal rate of return method, which project should be
accepted?
A) Project A only
B) Project B only
C) Project A and Project B
D) neither Project A nor Project B
The cost-allocation base used for the fixed overhead rate should be ________.
A) underestimated due to the conservatism principle
B) overestimated due to the conservatism principle
C) the most plausible and reliable measure available of the cause and effect relationship
between overhead costs and production volume
D) the most plausible and reliable measure available of the relationship between
overhead costs and sales
Corless Company processes copper ore into two products, C and U. The ore costs $5
per pound and conversion costs are $15 per pound. Corless Company plans to produce
40,000 pounds of Product C and 20,000 pounds of Product U from 60,000 pounds of
ore. Product C sells for $30 per pound and Product U sells for $40 per pound. Assume
the company uses the physical-units method of allocating joint costs. What amount of
joint costs is allocated to Product C?
A) $0
B) $200,000
C) $600,000
D) $800,000
Which of the following statements is FALSE?
A) Discounted cash flow models focus on future cash inflows and outflows.
B) Discounted cash flow models consider the time value of money.
C) Discounted cash flow models focus on net income.
D) Discounted cash flow models compare cash outflows today to the present value of
future cash flows.
A disadvantage of the high-low method to estimate a cost function is ________.
A) historical data may hide past inefficiencies
B) historical data may be obsolete
C) historical data may not reflect changes made in the organization
D) all of the above
Variable costs of service departments are allocated to user departments using ________
cost rates instead of ________ cost rates.
A) actual; budgeted
B) budgeted; actual
C) long-range; short-range
D) short-range; long-range
Sunbury Company is considering the replacement of a machine that is presently used in
production. The following data are available:
Old Machine New Machine
Original cost $60,000 $35,000
Useful life in years 10 5
Current age in years 5 0
Book value $25,000 –
Disposal value now $8,000 –
Disposal value in 5 years 0 0
Annual cash operating costs $12,000 $4,000
Adding all five years together, the total relevant costs to consider if the old machine is
kept are ________.
A) $30,000
B) $50,000
C) $52,000
D) $60,000
In deciding whether to add or delete a product or service, common costs are probably
________.
A) relevant and avoidable
B) relevant and unavoidable
C) irrelevant and avoidable
D) irrelevant and unavoidable
To assess the ________ of estimates from regression analysis, we use the ________.
A) objectivity; coefficient of determination
B) plausibility; sign on the intercept
C) reliability; sign on the coefficient of determination
D) plausibility; sign of the variable cost estimate
Durante Company produces plastic cups in a one-department process. The following
data is available for the past month:
Work-in-process inventory, beginning 0
Units started 60,000
Units completed and transferred 48,000
Work-in-process inventory, ending 12,000
The units in process at the end of the month are 100 percent complete with respect to
materials and 50 percent complete with respect to conversion costs. What are the
equivalent units for conversion costs for the month?
A) 12,000
B) 30,000
C) 54,000
D) 60,000
Assume the following information for Janice Company:
Selling price per unit $100
Variable costs per unit $80
Total fixed costs $80,000
If fixed costs increased by 10% and management wanted to maintain the original
break-even point, then the selling price per unit would have to be increased to
________.
A) $101.00
B) $102.40
C) $102.00
D) $103.00
Wetzel Company has variable costs of $5 per unit and a selling price of $10 per unit.
Fixed costs are $200,000. Planned unit sales for 2015 are 45,000 units. Actual unit sales
for 2014 were 42,000. What is the margin of safety in units for 2015?
A) 2,000 units
B) 3,000 units
C) 5,000 units
D) 7,000 units
The following information is available for the Larry Company:
Net income for the year ended December 31, 2014 $127.4
Total stockholders’ equity, December 31, 2014 500.0
Total stockholders’ equity, December 31, 2013 400.0
Total liabilities, December 31, 2014 240.0
Total liabilities, December 31, 2013 182.0
What is the debt-to-equity ratio at December 31, 2014?
A) 27%
B) 41%
C) 48%
D) 51%
Nebraska Company uses activity-based costing. The company produces and sells
20,000 units at $20 per unit. Nebraska Company’s product cost is calculated as follows:
Variable costs $8 per unit
Fixed costs $2 per unit
Setup costs $3 per unit
Total costs $13 per unit
A total of 500 setups at a cost of $120 per setup are required to produce the 20,000
units. Nebraska Company has received a special order to sell 5,000 units at $11 per unit.
Nebraska Company has excess capacity available, but these 5,000 units would require
60 setups. If Nebraska Company accepts the special order, what is Nebraska’s increase
in net income?
A) increase $5,000
B) increase $7,800
C) decrease $2,800
D) decrease $5,000
Sanchez Company reports the following information:
Net operating profit after taxes $500,000
Adjusted net operating profit after taxes $670,000
Average invested capital $500,000
Adjusted average invested capital $700,000
After-tax cost of capital 10%
The adjusted figures reflect adjustments used by Stern Stewart & Company. What is the
EVA for Sanchez Company?
A) $430,000
B) $450,000
C) $600,000
D) $620,000
Wehr Company has two departments. Relevant information is presented below:
Department 1 Department 2
Budgeted total assets $400,000 $500,000
Actual total assets $340,000 $450,000
Budgeted sales $400,000 $2,000,000
Actual sales $300,000 $2,100,000
Total company-wide advertising costs are $300,000. Assume the allocation base is
changed from budgeted sales to actual sales. The amount of advertising costs allocated
to Department 1 will ________.
A) increase by $12,500
B) increase by $25,000
C) decrease by $12,500
D) decrease by $25,000
Using the net present value method, managers sum the present values of all expected
future cash flows from the project and ________.
A) add the initial investment
B) subtract the initial investment
C) ignore the initial investment
D) add the depreciation expense
An example of a staff department at a clothing manufacturer is the ________.
A) pressing department
B) cutting department
C) sewing department
D) maintenance department
When choosing between two alternatives, what of the following are relevant costs?
A) future variable costs that are the same under two alternatives
B) future variable costs that are different under two alternatives
C) future fixed costs that are different under two alternatives
D) B and C
Barenz Builders had the following information available for the past twelve months:
Budgeted factory overhead costs $80,000
Actual factory overhead costs $82,000
Budgeted machine hours 40,000
Actual machine hours 39,500
Assume the cost driver for factory overhead costs is machine hours and a job uses
10,000 machine hours. The job was budgeted to use 11,000 machine hours. What
amount of factory overhead is applied to the job?
A) $20,000
B) $20,250
C) $22,000
D) $22,278
________ is (are) the accounting system’s effect on the behavior and the decisions of
managers.
A) Simplicity
B) Behavioral implications
C) The cost-benefit balance
D) The code of ethics
For the year ending December 31, 2014, Harkins Company reports net income of
$35,000 and depreciation expense of $12,000. The income tax expense for the year
ending December 31, 2014 is $20,000. The following data is available:
December 31, 2013 December 31, 2014
Cash $35,000 $16,000
Accounts Receivable $35,000 $45,000
Inventories $70,000 $100,000
Fixed Assets $440,000 $581,000
Accumulated Depreciation $120,000 $101,000
Accounts Payable $6,000 $74,000
Wages Payable $4,000 $25,000
What is the net cash provided by operating activities for the year ended December 31,
2014? Assume the indirect method is used.
A) $5,000
B) $26,000
C) $73,000
D) $96,000
Dolhun Industries Inc. reported the following information about the production and sale
of its only product during the first month of operations:
Selling price per unit $65
Sales $78,000
Direct materials used $25,000
Direct labor $35,000
Variable factory overhead $15,000
Fixed factory overhead $10,000
Variable selling and administrative expenses $3,000
Fixed selling and administrative expenses $5,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 1,200 units
Under variable costing, the variable manufacturing cost of goods sold is ________.
A) $35,000
B) $37,500
C) $39,000
D) $42,500
In determining whether to purchase a labor-saving machine, extreme resistance to the
machine by employees would be a(n) ________.
A) relevant qualitative factor
B) relevant quantitative factor
C) irrelevant qualitative factor
D) irrelevant quantitative factor
What is gross margin?
A) sales minus operating expenses
B) sales minus other expenses
C) sales minus cost of goods sold
D) sales plus other income
Performance reports compare actual results to ________. Performance reports also
report ________.
A) budgeted results; bonuses awarded
B) objectives; variances
C) planned results; variances
D) projected results; stock options granted
For trading securities, changes in the market value of the securities are included in
________. For available-for-sale securities, changes in the market value of the
securities are included in ________.
A) Other Comprehensive Income; Other Comprehensive Income
B) Other Comprehensive Income; Retained Earnings
C) Retained Earnings; Other Comprehensive Income
D) Retained Earnings; Retained Earnings
The following data has been assembled for Mildred Company. Use the high-low
method.
Month Cost Hours
January $18,000 2,000
February $39,000 3,500
March $39,280 3,450
April $43,400 3,200
May $40,000 4,000
The variable cost per hour is ________.
A) $9.00
B) $10.00
C) $10.40
D) $11.00
List and explain five reasons why more firms are adopting activity-based costing
systems.
The following information is available for Anderson Company at December 31, 2016:
Additional paid-in capital, common $490,000
Common stock, $5 par value, 40,000 shares issued 200,000
Dividends payable 415,000
Long-term investment in Jacobs Company 1,400,000
Marketable securities 610,000
Retained earnings 242,000
Treasury stock, common, 8,000 shares 176,000
Required:
Prepare the stockholders’ equity section of a classified balance sheet at December 31,
2016. Assume 400,000 shares of common stock are authorized to be issued.
Donald Company has the following information:
Cash Balance, May 31 $45,000
Dividends paid in June 12,000
Cash paid for operating expenses in June 36,800
Equipment depreciation expense in June 4,500
Patent amortization expense in June 2,000
Cash collections on sales in June 99,000
Merchandise purchases paid in June 56,200
Purchase equipment for cash in June 17,500
Donald Company wants to keep a minimum cash balance of $10,000. Assume that
borrowing occurs at the beginning of the month and repayments occur at the end of the
month. Interest of 1% is paid in cash at the end of each month when debt is outstanding.
Borrowing and repayments are carried out in multiples of $1,000.
Required:
Prepare a cash budget for June.
Classify each step below as a value-added activity or a non-value-added activity. Use V
for value-added activity and N for non-value-added activity.
_____ 1. Raw materials are transferred to a storage area pending use in production.
_____ 2. Raw materials are transferred to the production area for use in products.
_____ 3. Partially complete products are waiting to be worked on because equipment
failed.
_____ 4. Raw materials are placed on pallets before they are used in production.
_____ 5. Finished products are transferred to the warehouse awaiting sale.
_____ 6. Finished products are checked for defects by Quality Control Department.
_____ 7. Partially complete products are transferred to the Finishing Department.
_____ 8. Completed products are transported to another building that has the Packaging
Department.
_____ 9. Partially complete products are checked for defects by the supervisor.
_____ 10. Units of partially complete products are assembled by union workers.
The Gregory Company provided the following information:
Whole Office Factory
Company Division Division
Net sales $99,000 $66,000 $33,000
Fixed costs controllable by div. managers 16,000 10,000 6,000
Fixed costs controllable by others 10,000 5,000 5,000
Variable costs:
Cost of merchandise sold 38,000 22,000 16,000
Operating expenses 8,000 5,000 3,000
Unallocated costs 6,000
Required:
Prepare a contribution approach income statement for the whole company and for each
division.
CIS Company has the following information available:
Quality engineering of products $20,000
Technical support provided by CIS to suppliers $2,000
Cost of field servicing $80,000
Supervision of testing activities $30,000
Net cost of spoilage $55,000
Depreciation of testing equipment $4,500
Plant utilities in inspection area $100,000
Retesting of reworked products $200,000
Lost sales arising from a reputation for poor quality products $1,000,000
Reinspection of reworked products $44,000
Warranty replacements $3,000
Returns and allowances given to customers due to quality issues $5,500
Rework labor and overhead $70,000
Required:
Prepare the quality cost report for CIS Company.
The variable costing income statement for Bouve Company is seen below:
Sales (6,000 units × $35) $210,000
Variable expenses:
Beginning inventory (680 units × $20) $13,600
Variable cost of goods manufactured
(6,400 units × $20) 128,000
Available for sale 141,600
Less: Ending inventory (1,080 units × $20) 21,600
Variable manufacturing cost of goods sold 120,000
Variable selling and administrative expenses 24,000
Contribution margin 66,000
Fixed expenses:
Fixed factory overhead 20,000
Fixed selling and administrative expenses 15,300
Operating income $30,700
Required:
Prepare an absorption-costing income statement for the same period of time. Assume
that actual fixed costs were equal to budgeted fixed costs and the budgeted fixed
overhead rate was constant over the period examined. Assume the production volume
variance equals zero.
Sunday Corporation prepared the following performance report for variable overhead
costs for the last quarter of the year. Machine hours are the cost driver for all overhead
costs.
The cost formulas used for the variable overhead costs are:
Your boss called you into the office and reprimanded you for the unfavorable variances.
The boss says you are fired unless you can explain why the variances are all unfavorable.
Required:
Calculate the flexible budget variances and the activity-level variances for each cost.
The McGraw Company has the following information available:
Month Budgeted Sales
June $68,000
July 72,000
August 74,000
September 76,000
October 78,000
The cost of goods sold rate is 65% and the desired ending inventory level is 25% of the
next month’s cost of sales.
Required:
Prepare a purchases and cost of goods sold budget for July, August and September.
Classify each step below as a value-added activity or a non-value-added activity. Use V
for value-added activity and N for non-value-added activity.
_____ 1. Raw materials are transferred to a storage area pending use in production.
_____ 2. Raw materials are transferred to the production area for use in products.
_____ 3. Partially complete products are waiting to be worked on because equipment
failed.
_____ 4. Raw materials are placed on pallets before they are used in production.
_____ 5. Finished products are transferred to the warehouse awaiting sale.
_____ 6. Finished products are checked for defects by Quality Control Department.
_____ 7. Partially complete products are transferred to the Finishing Department.
_____ 8. Completed products are transported to another building that has the Packaging
Department.
_____ 9. Partially complete products are checked for defects by the supervisor.
_____ 10. Units of partially complete products are assembled by union workers.
Maryland Company had net income of $21,850 for the year ended December 31, 2015.
Additional information from the income statement follows:
Depreciation expense $8,400
Interest expense 3,900
Income tax expense 5,700
The company also reported the following balances:
December December
31, 2014 31, 2015
Accounts receivable $10,000 $11,800
Accounts payable $20,000 $23,200
Income taxes payable $22,000 $21,300
Inventory $30,000 $25,000
Required:
Prepare the operating activities section of the statement of cash flows for the year ended
December 31, 2015. Use the indirect method.
The Gregory Company provided the following information:
Whole Office Factory
Company Division Division
Net sales $99,000 $66,000 $33,000
Fixed costs controllable by div. managers 16,000 10,000 6,000
Fixed costs controllable by others 10,000 5,000 5,000
Variable costs:
Cost of merchandise sold 38,000 22,000 16,000
Operating expenses 8,000 5,000 3,000
Unallocated costs 6,000
Required:
Prepare a contribution approach income statement for the whole company and for each
division.
CIS Company has the following information available:
Quality engineering of products $20,000
Technical support provided by CIS to suppliers $2,000
Cost of field servicing $80,000
Supervision of testing activities $30,000
Net cost of spoilage $55,000
Depreciation of testing equipment $4,500
Plant utilities in inspection area $100,000
Retesting of reworked products $200,000
Lost sales arising from a reputation for poor quality products $1,000,000
Reinspection of reworked products $44,000
Warranty replacements $3,000
Returns and allowances given to customers due to quality issues $5,500
Rework labor and overhead $70,000
Required:
Prepare the quality cost report for CIS Company.
Wheel Company has the following balances at December 31, 2015:
Retained earnings, December 31, 2014 $30,000
Cost of goods sold 56,000
Depreciation expense 1,450
Dividends 8,000
Income tax expense 2,000
Interest expense 1,050
Rent expense 1,700
Sales 68,000
Wage expense 6,800
Required:
Prepare a multiple-step income statement for the year ended December 31, 2015.
The balances on December 31, 2015 are available for Jennifer Company:
Accounts payable $2,550
Accounts receivable 3,550
Accumulated depreciation 6,250
Retained earnings, December 31, 2014 ?
Cash 2,300
Cost of goods sold 52,300
Depreciation expense 2,500
Dividends declared 8,800
Equipment 29,000
Income tax expense 10,700
Interest expense 1,150
Inventory 6,250
Long-term notes payable 11,500
Paid-in capital 4,450
Prepaid rent 350
Rent expense 4,000
Sales 118,600
Wage expense 31,900
Wages payable 3,000
Required:
Prepare a classified balance sheet at December 31, 2015.
The Monk Company reports the following accounts and balances on December 31,
2015.
Accounts Payable $14,400
Accounts Receivable 8,000
Cash 26,000
Equipment 80,000
Land 56,000
Long-term Note Payable 70,000
Merchandise Inventory 28,800
Paid-in Capital ?
Retained Earnings 14,400
Required:
Prepare a balance sheet at December 31, 2015.
Each year, Madsen Company purchases 8,000 units of a part that it needs for production
of its product. The supplier notified Madsen Company that a price increase will take
effect shortly, which will bring the price of the part to $25 per part. Madsen Company is
considering the use of idle facilities to produce the part. The annual production costs to
produce the needed 8,000 parts are as follows:
Direct materials $17,500
Direct labor 30,000
Variable indirect production costs 14,000
Fixed indirect production costs 33,500
The idle facilities could also be rented out at an annual rent of $99,000. All the fixed
indirect production costs are avoidable.
Required:
Determine if Madsen Company should buy the part or produce it internally.