The most important contributor to the variance between actual and applied overhead
costs is ________.
A) poor forecasting
B) inefficient use of overhead items
C) price changes in overhead items
D) operating at a different level of volume than the level used as a denominator in
calculating the budgeted overhead rate
To prepare common size income statements, percentages for line items are usually
based on ________. To prepare common size balance sheets, percentages for line items
are usually based on ________.
A) net income; total stockholders’ equity
B) net operating profit; total stockholders’ equity
C) sales; total assets
D) expenses; total liabilities
A major drawback of using historical results for judging current performance is that
________.
A) past results may be inaccurate
B) results may refer to a different manager
C) inefficiencies may be concealed in past results
D) managers may have cooked the books
When estimating cost functions, engineering analysis based on observations of
employee behavior has the following disadvantage: ________.
A) the employees may have altered their normal work habits because they are being
observed
B) it is less expensive than account analysis
C) it does not use all of the data points
D) the coefficient of determination is not reliable
Why do managers assign the direct costs of service departments to customers instead of
the producing department?
A) for ease of calculation
B) to reduce bookkeeping costs
C) to prevent cost distortions due to the use of a cost allocation base by the producing
department that has little relationship to the cause of customer service costs
D) because customers are the only cost objects with direct costs
Fast growing companies tend to have ________ price-earnings ratios.
A) low
B) high
C) stable
D) erratic
Warranty costs are a form of ________ costs.
A) prevention
B) appraisal
C) internal failure
D) external failure
To determine the cost of a main product with by-products, we take the cost of the main
product and ________.
A) add separable costs of the by-products and add revenues from the by-products
B) add separable costs of the by-products and subtract revenues from the by-products
C) subtract separable costs of the by-products and add revenues from the by-products
D) subtract separable costs of the by-products and subtract revenues from the
by-products
Any event that affects the financial position of an organization and requires recording is
called a(n) ________.
A) transaction
B) account
C) posting
D) recognition principle
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
Using the total project approach to investment decisions, the following information is
available:
Net present value of Alternative A is $12,000
Net present value of Alternative B is $14,000
If the differential approach is used to evaluate Alternatives A and B, what is the
numerical result obtained?
A) $0
B) $2,000 advantage to Alternative B
C) $12,000
D) $14,000
The authors recommend that ________ costs should not be allocated to products or
services.
A) nonproduction
B) value-chain functions
C) central corporate support costs
D) service department costs
Utah Company makes three types of products. The company has two types of
customers. The cost to serve all customers is $12,000 and is allocated to customer types
based on the number of manager visits to customer locations. The following data are
available:
Product 1 Product 2 Product 3
Sales $5,000 $6,000 $30,000
Cost of goods sold 4,000 4,800 15,000
Gross margin $1,000 $1,200 $15,000
Customer Type 1 Customer Type 2
Product 1 Sales $500 $4,500
Product 2 Sales $1,000 $5,000
Product 3 Sales $16,000 $14,000
Manager visits 4 12
What is the cost to serve for Customer Type 2?
A) $2,400
B) $6,000
C) $9,000
D) $12,000
An example of a nonfinancial goal is ________.
A) increase customer satisfaction
B) increase profits
C) increase segment margin
D) increase required return on investment
Which of the following is NOT a stated purpose of cost allocation?
A) Predict the economic effects of strategic and operational control decisions.
B) Obtain reimbursement.
C) Provide motivation to managers.
D) Determine product cost.
Which of the following is NOT a period expense in a merchandising firm?
A) Selling Expense
B) Administrative Expenses
C) R&D Expenses
D) Cost of Goods Sold
Job-order costing is used. Which of the following accounts is debited when direct labor
costs are incurred?
A) Work-In-Process Inventory
B) Finished Goods Inventory
C) Cost of Goods Sold
D) Accrued Payroll
Accountants play a role in supporting ________ of the value-chain functions.
A) some
B) none
C) about half
D) all
Jonathon Company is considering an investment in the project below:
Project 1
Cost $10,000
Annual cash operating savings (end of year) $3,000
Terminal salvage $0
Useful life in years 5
Required rate of return 10%
Present value of one for 5 periods at 10% 0.6209
Present value of ordinary annuity of one for
5 periods at 10% 3.7908
Ignoring taxes, what is the lowest level of annual cash operating savings that will result
in a positive net present value?
A) $2,420
B) $2,638
C) $3,000
D) $3,120
Which schedule gives the expected sales under a given set of conditions?
A) sales goal
B) sales budget
C) sales forecast
D) master budget
An activity analysis has shown that the number of components added to Product X and
Product Y is the cost driver for support costs. Support costs are $20 per component.
Product X has 4 components and Product Y has 8 components. What amounts of
support costs should be assigned to Product X and Product Y?
Product X Product Y
A) $6.67 $13.33
B) $20 $20
C) $80 $160
D) $80 $320
Which of the following cost is relevant to an equipment replacement decision?
A) cost of old equipment
B) cost of new equipment
C) book value of old equipment
D) depreciation expense on old equipment
If there is a competitive market for the product being transferred internally, using the
________ as the transfer price will lead to ________.
A) full cost; goal congruence
B) variable cost; goal congruence
C) full cost plus profit; goal congruence
D) market price; goal congruence
The account “Noncontrolling Interests” as reported on a balance sheet shows ________.
A) the parent company’s interest in a subsidiary
B) the subsidiary’s interest in a parent company
C) the outside stockholders’ interest in a subsidiary
D) the outside stockholders’ interest in a parent company
In a mixed-cost linear function with one cost driver, the intercept is the ________ and
the slope is the ________.
A) fixed cost; step cost
B) fixed cost; variable cost
C) variable cost; fixed cost
D) variable cost; step cost
Assume the sales price is $34 per unit and the variable cost is $19 per unit. The
break-even point is 12,000 units. What are total fixed costs?
A) $180,000
B) $190,000
C) $340,000
D) $530,000
External failure costs associated with quality control do NOT include ________.
A) field repairs
B) rework
C) customer returns of goods
D) warranty expense
The Rumler Company used regression analysis to predict the annual cost of utilities.
The results were as follows:
Utilities Cost
Explained by Direct Labor Hours
Constant 4,500
Standard error of Y estimate 595
R-Squared 0.87
No. of observations 30
Degrees of freedom 28
X Coefficient 5.04
Standard error of coefficient 0.92
The total fixed cost is ________.
A) $5.04 times number of direct labor hours
B) $595
C) $4,500
D) none of the above
Major weaknesses of the payback method do NOT include which of the following?
A) It does not measure profitability.
B) It ignores the time value of money.
C) It ignores cash flows beyond the payback period.
D) It cannot be used as a rough estimate of the riskiness of a project.
The internal rate of return model determines the ________ at which the net present
value of an investment project equals ________.
A) cost of capital; a positive number
B) hurdle rate; a positive number
C) interest rate; zero
D) discount rate; a positive number
Nebraska Company gave a long-term note payable in the amount of $285,000 to
acquire a new piece of land. This transaction will be reported on the statement of cash
flows as a ________.
A) investing activity
B) financing activity
C) investing and financing activity
D) noncash investing and financing transaction
The following data is available for Everest Company:
Credit Sales $1,702
Net Income $112
Total Current Assets $366
Total Current Liabilities $226
Accounts Receivable, current year $160
Accounts Receivable, prior year $156
Total Stockholders’ Equity, current year $550
Total Stockholders’ Equity, prior year $500
Retained Earnings, current year $366
Retained Earnings, prior year $346
Market price per share $50
Average Number of Common Shares Outstanding during year 46
Required:
Compute the following ratios:
A) current ratio
B) average collection period in days
C) return on stockholders’ equity
D) price-earnings ratio
E) dividend yield