The management of River Corporation is considering the purchase of a new machine
costing $380,000. The company’s desired rate of return is 6%. The present value factor
for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing
information, use the following data in determining the acceptability of this investment:
The cash payback period for this investment is
a. 4 years
b. 5 years
c. 20 years
d. 3 years
Which of the following items should be classified as an extraordinary item on an
income statement?
a. gain on the retirement of a bond payable
b. loss from hurricane damage in Iowa
c. loss due to a discontinued operation in Colorado
d. selling treasury stock for more than the company paid for it
The relative distribution of sales among products sold by a company
Match the following terms (a-e) with their definitions.
a. Profit-volume chart
b. Cost-volume-profit chart
c. Sales mix
d. Operating leverage
e. Margin of safety
Selling costs for the period
Indicate whether the cost would typically be considered product or period cost for the
cost object given.
a. Product
b. Period
The Southern Division of Knucklehead Company has a rate of return on investment of
15% and an investment turnover of 1.2. What is the profit margin?
a. 1.5%
b. 12.5%
c. 0.67%
d. 6.67%
Which of the following is not a factory overhead allocation method?
a. single plantwide rate
b. multiple departmental rates
c. factory costing
d. activity-based costing
Piper Technology’s fixed costs are $1,500,000, the unit selling price is $250, and the
unit variable costs are $130, what is the amount of sales required to realize an operating
income of $200,000?
a. 14,167 units
b. 12,500 units
c. 16,000 units
d. 11,538 units
In capital rationing, alternative proposals that survive initial and secondary screening
are normally evaluated in terms of:
a. present value
b. nonfinancial factors
c. maximum cost
d. net cash flow
In net present value analysis for a proposed capital investment, the expected future net
cash flows are reduced to their present values.
a. True
b. False
Recalls
Identity the following by their type of quality cost.
a. Preventive costs
b. Appraisal costs
c. Internal failure costs
d. External failure costs
In the job order costing system, the finished goods account is the controlling account
for the factory overhead ledger.
a. True
b. False
(Actual rate per hour ‘“ Standard rate per hour) × Actual hours
Match the following formulas or descriptions with the term (a-e) it defines.
a. Direct materials price variance
b. Direct labor rate variance
c. Direct labor time variance
d. Direct materials quantity variance
e. Budgeted variable factory overhead
The budgeted volume of production is based on the sum of (1) the expected sales
volume and (2) the desired ending inventory, less (3) the estimated beginning inventory.
a. True
b. False
Under variable costing, which of the following costs would be included in finished
goods inventory?
a. neither variable nor fixed factory overhead cost
b. both variable and fixed factory overhead cost
c. only variable factory overhead cost
d. only fixed factory overhead cost
A centralized business organization is one in which all major planning and operating
decisions are made by top management.
a. True
b. False
Based on the following production and sales data of Frixion Co. for March of the
current year, prepare (a) a sales budget and (b) a production budget.
Department E had 4,000 units in Work in Process that were 40% completed at the
beginning of the period at a cost of $12,500. During the period, 14,000 units of direct
materials were added at a cost of $28,700, and 15,000 units were completed. At the end
of the period, 3,000 units were 75% completed. All materials are added at the beginning
of the process. Direct labor was $32,450 and factory overhead was $18,710. The
number of equivalent units of production for the period for conversion if the first-in,
first-out method is used to cost inventories was
a. 15,650
b. 14,850
c. 14,150
d. 14,650
Activity cost pools are assigned to products, using factory overhead rates for each
activity.
a. True
b. False
In horizontal analysis, each item is expressed as a percentage of the
a. base year figure
b. retained earnings figure
c. total assets figure
d. net income figure