The costs incurred in a process costing system, direct material, direct labor and
overhead, are the same as the costs incurred in a job order costing system.
The terms standard price and standard cost can be used interchangeably.
A contribution format income statement just rearranges the individual costs components
and produces the same operating income as the traditional functional income statement.
The easiest approach to close variances accounts is to the Raw Materials Inventory
account.
On the cash flow statement, buying inventory on account is not a use of cash.
Customer net profit divides customer net profit by customer revenues.
In process costing, direct materials may be added at different points of a department’s
production process.
The two approaches to presenting cash flows provided by operating activities in the
statement of cash flows are the internal approach and the external approach.
When using a normal costing system, only over- or under-applied overhead cost needs
to be adjusted to the actual overhead cost.
Three methods used for estimating the fixed and variable portions of a cost include:
cost-cover graphs, the high-low method and regression analysis.
Lagging indicators can be used to predict future results.
The journal entry to charge overhead cost to Work in Process Inventory is to debit Work
in Process Inventory and credit Manufacturing Overhead Control.
Companies should reduce fixed costs whenever possible during times of falling profits.
The payback period is defined as
a. The amount of time, in years, that it takes the company to provide investors a return
on the capital.
b. The amount of time, in years, that it takes for an investment to return the original
amount of the capital plus the required internal rate of return.
c. The amount of time, in years, that it takes the company to earn enough profit
generated from the capital asset to pay for it.
d. The amount of time, in years, that it takes for an investment to return the original
amount of invested capital.
Match the following terms to the appropriate statement by placing the letter to the left
of each statement. a. Absorption costing e. Mixed cost
b. Direct costing f. Period cost
c. Full costing g. Product cost
d. Matching principle h. Variable costing
Myers Real Estate Company exchanged an acre of land in exchange for five hundred
shares of stock in the Midland Corporation. The land is worth $22,000 and the stock is
worth $40 per share. How will this transaction be reported on the statement of cash
flows?
a. As a source of cash in the investing section, a use of cash in the financing section,
and an adjustment to net income in the operating section for the loss
b. As a source of cash in the investing section and a use of cash in the financing section
c. As a non-cash investing and financing transaction
d. As a use of cash in the investing section and a source of cash in the financing section
Which of the following items is not included in the decision to purchase a new capital
asset to replace an old one?
a. Depreciation on the new machine
b. Sales tax
c. Installation cost of the new machine
d. Scrap value of the old machine
Percy ‘s Pickled Snacks produces several types of pickled vegetables. The company
budgets for each quarter in the last month of the previous quarter. In early March, Percy
is preparing the budget for pickled beets. Budgeted sales are 12,000 jars for April,
16,000 jars for May, and 19,000 jars for June. Each jar requires 1.2 pounds of beets.
The pickling process takes 60 minutes for 20 jars. Because pressurized cooking is used,
the processing is monitored by an employee at all times. Each jar of pickled beets sells
for $15.00.
Percy requires ending Finished Goods inventory equal to 25% of the following month ‘s
sales. Other information is as follows:
What is Percy ‘s direct labor budget for May?
a. $12,450
b. $10,050
c. $7,200
d. $9,600
Burton Company purchased a new crane costing $47,000 from Heavy Equipment
Corporation. To pay for the crane, Burton traded in an old piece of machinery worth
$10,000 and took a note for the balance of $37,000. How will this transaction be
reported on the statement of cash flows?
a. As a use of cash in the investing section and a source of cash in the financing section
b. As a source of cash in the investing section and a source of cash in the financing
section
c. As a use of cash in the operating section and a source of cash in the financing section
d. As a non-cash investing and financing transaction
Development of the operating budget begins with the
a. Cash budget.
b. Sales budget.
c. Overhead budget.
d. Pro-forma budget.
Which of the following should not influence a manager ‘s decision in deciding whether
or not to close a division?
a. Qualitative factors
b. Allocated fixed costs
c. Allocated product costs
d. Allocated variable selling expenses
While most accounting decisions focus on income, most capital budgeting decisions
focus on
a. Expenses
b. Costs
c. Need
d. Cash flows
If a company desires to increase ROI, it should consider methods that will decrease
a. Sales revenue.
b. Segment margin.
c. Asset turnover.
d. Average operating assets.
If the sales revenue a customer generates exceeds the cost of goods sold, the customer
is considered
a. Profitable
b. Not profitable
c. A “best customer”
d. Cannot determine from the information given
Ottoman Manufacturing Company reported net sales (all credit) of $120,000 and
$140,000 for 2013 and 2014, respectively and net income of $24,000 and $32,000 for
2013 and 2014, respectively. Ottoman’s 2013 and 2014 balance sheets appear below:
Required: a. Calculate the working capital for 2014. b. Calculate the accounts
receivable turnover for 2014. c. Calculate the debt ratio for 2014.
Work in Process Inventory increases when
a. Raw materials are purchased.
b. Raw materials are used.
c. Products are finished.
d. Products are sold.
Purchasing a higher quality of materials than is specified by the standard will likely
result in
a. A favorable price variance
b. An unfavorable quantity variance
c. An unfavorable price variance
d. A favorable price variance and an unfavorable quantity variance
Which of the following expenses are reported on the income statement as expenses
when they are incurred?
a. Product costs
b. Period costs
c. Indirect material
d. Direct material
Which of the following is not a method companies use to reduce their labor costs?
a. Offshoring
b. Outsourcing
c. Contract negotiations
d. Paying overtime so production can be finished early
Williams Company makes and sells laundry duffel bags. Each duffel bag sells for $20
and has a unit variable cost of $12. The company has provided the following budgeting
data for March:
If necessary, Williams will borrow cash from the local bank in multiples of $1,000.
Required:
a. How many units did Williams budget to sell during March?
b. What is Williams ‘ budgeted cash balance at the end of the period before borrowing?
c. How much should Williams budget for borrowing in January?
The 2013 and 2014 partial balance sheets for Ottoman Industries is shown below:
Calculate the 2014 acid-test ratio.
a. 1.27
b. 1.51
c. 2.03
d. 2.20
Kevin Jarvis is the controller of Bitterroot Industries. Kevin prepared the following
budgeted income statement at various levels of sales. After careful review of the
budgeted income statements, and after discussions with the sales and production
managers, the CEO determines that the best alternative is to base the budget on a sales
volume of 30,000 units.
Actual results for the year were 28,000 units, reflected in the following income
statement:
What is the sales volume variance for direct material?
a. $28,000 favorable
b. $28,000 unfavorable
c. $6,000 unfavorable
d. $34,000 favorable
The standard price of a product is comprised of several components including cost and
quantity.
Assume a selling price of $20 per unit, variable cost per unit of $12, and total fixed cost
of $500. If 200 units are sold, calculate the contribution margin ratio.
Identify which costing method is described in the statements below by marking an ‘œX’
in the appropriate column (some items may apply to both).
You are part of a team responsible for implementing an activity-based costing system.
Some of the members do not understand the steps involved in implementing such a
system. Prepare a summary showing your team members the steps involved and a brief
description of each step that are completed in the process.
A segment of an organization is any part of the organization that management wishes to
evaluate.