Segments are responsibility centers for which a separate measure of revenues and costs
is obtained.
In the absence of taxes, depreciation expense on a long-term asset is a relevant cash
flow for the NPV model.
Two extremes of product-costing are job-order costing and normal-order costing.
A cost function is an algebraic equation used to describe the relationship between a cost
and its cost driver(s).
Behavioral considerations are of primary importance in financial accounting.
Staff managers give advice to line managers and have authority over line managers.
Fixed manufacturing overhead costs are excluded from product costs under absorption
costing.
The unfavorable variances resulting from ideal standards are intended to constantly
remind personnel of the continuous need for improvement.
Accrued interest payable is a long-term liability because it relates to a long-term bond
payable.
Full cost means the total of all manufacturing costs.
An example of a strategic management decision is the decision to outsource a particular
value-chain function.
Indirect manufacturing costs are the same as manufacturing overhead costs.
Accounting information only helps assess past financial performance.
Preferred stockholders receive cash dividends before common stockholders.
Decentralization is most successful when an organization’s segments are relatively
independent of one another.
Behavioral considerations are of primary importance in financial accounting.
A measure of labor productivity is sales revenue divided by the number of employees.
Generally, companies use aggregate measures of performance when conducting
performance evaluations of managers.
Depreciation expense on assembly equipment used for several products is an example
of a direct cost for a manufactured product.
If a company allocated fixed costs from service departments to user departments based
on long-range plans, there is a tendency on the part of managers to underestimate their
planned usage.
When analyzing alternatives, it is not advisable to use fixed costs per unit because a
new fixed cost per unit must be calculated for every different volume of production.
Value-added costs are not necessary for most products.
The use of actual cost rates for allocating variable costs of service departments protects
the user departments from inefficiencies in service departments.
Determining the key components of an Activity-Based Costing (ABC) system is the
first step in the design of an ABC system.
The variable-costing method does not include fixed overhead costs in a product’s costs.
The most forward-looking and least detailed budget is the strategic plan.
Examples of service departments in a hospital include the housekeeping and laundry
departments.
Overcapacity in some countries often causes aggressive pricing policies, particularly for
a company’s imported goods.
Increased productivity can be shown by maintaining the number of inputs but
increasing the number of outputs.
The greater the influence of noncontrollable factors on responsibility center results, the
more problems there are in using the results to measure and reward a manager’s
performance.
Companies must assign all value chain costs to products for internal financial reports.
If the limiting factor is demand, the most profitable product is the one with the highest
contribution margin per unit.
Unlike job-order costing, process costing requires only one Work-In-Process Inventory
account.
The variable-costing income statement uses the contribution-approach format.
Specialization by individuals in organizations is being replaced by decision-making by
cross-functional teams.
BOTH variable-costing and absorption-costing include ________ as product costs.
A) indirect manufacturing costs
B) variable selling and administrative expenses
C) fixed selling and administrative expenses
D) direct manufacturing costs
A company has 100,000 hours of capacity and manufactures two products, Product X
and Product Z. Neither product has enough demand to utilize the entire capacity, but the
combined demand of both products exceeds the capacity of the plant. It takes one hour
to make one unit of Product X and two hours to make one unit of Product Z. The
following information is available:
Product X Product Z
Units produced from capacity available 100,000 50,000
Contribution margin per unit $20 $30
What product or products should be made?
A) only make Product X
B) only make Product Z
C) make Product X to meet customer demand and then make Product Z
D) make Product Z to meet customer demand and then make Product X
Suppose a Super 9 Hotel has annual fixed costs applicable to its rooms of $1.0 million
for its 300-room hotel. Average daily room rents are $60 per room and average variable
costs are $10 for each room rented. It operates 365 days per year. If the hotel is one-half
full throughout the entire year, what is the amount of net income for one year?
A) $1,737,500
B) $4,475,000
C) $5,475,000
D) $5,570,000
External failure costs associated with quality control do NOT include ________.
A) field repairs
B) rework
C) customer returns of goods
D) warranty expense
If an individual chunk of step costs applies to a large range of cost-driver activity, the
step costs are treated as ________ within that range.
A) variable costs
B) mixed costs
C) fixed costs
D) semivariable costs
Which of the following statements is FALSE?
A) Assets are economic resources that are expected to provide future benefits.
B) Liabilities are economic obligations or claims against the assets of an organization
by nonowners.
C) Assets must always equal the sum of liabilities and owners’ equity.
D) Owners’ equity equals the sum of assets and liabilities.
Atkinson Company wishes to earn after-tax net income of $18,000. Total fixed costs are
$84,000 and the contribution margin is $6.00 per unit. Atkinson’s tax rate is 40%. The
number of units that must be sold to earn the targeted net income is ________.
A) 14,000
B) 17,000
C) 19,000
D) 21,500
Which of the following statements about budgets and budgeting is FALSE?
A) Budgets help coordinate financial and operational activities.
B) The vast majority of managers use budgeting as an effective cost management tool.
C) Budgeting is the process of formulating an organization’s plans.
D) Managers do not use budgets for performance evaluation.
In the immediate write-off approach to overhead variances, overapplied overhead is
regarded as a(n) ________.
A) addition to the cost of inventory
B) reduction to the cost of inventory
C) increase in cost of goods sold
D) decrease in cost of goods sold
California Company opened for business on April 1. Given below is the activity of the
company for the month of April.
Owners invested cash in business $40,000
Credit sales $160,000
Cash sales $20,000
Cost of goods sold $124,000
Cash purchases of inventory $50,000
Credit purchases of inventory $100,000
Cash collections from credit customers $72,000
Cash payment for credit purchases of inventory $44,000
Cash borrowed on note payable $54,000
Equipment purchased for cash $18,000
Cash dividend paid $14,000
Wages earned and paid $28,000
Wages earned and unpaid $4,000
Rent paid for April, May and June $6,000
Under accrual basis accounting, what is the net income for the month of April?
A) $8,000
B) $12,000
C) $18,000
D) $22,000
On April 1, 2012, Company X lends $200,000 to Company Y on a 8% note. On April 1,
2012, which of the following accounts of Company X will be affected by this
transaction?
A) Cash and Note Payable
B) Cash and Note Receivable
C) Cash and Interest Revenue
D) Cash and Interest Expense
Which of the following statements about the establishment of transfer prices for internal
sales and purchases between segments is FALSE?
A) In decentralized organizations, transfer pricing policy sometimes leads to
dysfunctional decisions.
B) There is seldom a perfect transfer pricing policy.
C) Organizations use a variety of methods to determine transfer prices.
D) In centralized organizations, segment managers set transfer prices.
According to the IMA’s Statement of Ethical Professional Practice, the standard of
credibility requires ________.
A) mitigating actual conflicts of interest
B) maintaining an appropriate level of professional expertise by continually developing
knowledge and skills
C) communicating information fairly and objectively
D) performing professional duties in accordance with relevant laws, regulations and
technical standards
The following information was compiled by Frank Ironman Incorporated:
Expected volume of production 50,000 units
Actual volume of production 47,000 units
Budgeted fixed overhead costs (for 50,000 budgeted units) $200,000
Actual fixed overhead costs $220,000
Actual variable overhead costs $790,000
Budgeted variable overhead costs (for 50,000 budgeted units) $855,000
Assume the cost allocation base for overhead costs is units of production. What is the
fixed overhead flexible budget variance?
A) $6,000 Favorable
B) $12,000 Unfavorable
C) $20,000 Favorable
D) $20,000 Unfavorable
Smiley Company has the following results:
Rolls of film processed 350,000
Sales revenue $1,200,000
Direct labor hours worked 5,500
Direct labor cost $47,000
If productivity is measured using the number of rolls of film processed per direct labor
hour, what is the productivity of Smiley Company?
A) $3.43 per roll
B) $260.87 per direct labor hour
C) 2,553% of direct labor cost
D) 63.64 rolls per direct labor hour
To apply the budgeted overhead costs to a job, the budgeted overhead rate is multiplied
by the ________.
A) actual production in units
B) expected production in units
C) actual amount of cost driver used by the job
D) expected amount of cost driver used by the job
Garcia Company has no beginning and ending inventories, and reports the following
data about its only product:
Direct materials used $270,000
Direct labor $180,000
Fixed indirect manufacturing $130,000
Fixed selling and administrative $150,000
Variable indirect manufacturing $120,000
Variable selling and administrative $60,000
Selling price(per unit) $99
Units produced and sold 30,000
Garcia Company uses the absorption approach to prepare the income statement. What is
the operating income?
A) $2,060,000
B) $2,120,000
C) $2,240,000
D) $2,970,000
The salary foregone by a person who quits a job to start a business is an example of a(n)
________.
A) sunk cost
B) opportunity cost
C) depreciable cost
D) outlay cost
The ________ is the juncture in manufacturing where the joint products become
individually identifiable.
A) joint processing juncture
B) split-off point
C) common point
D) joint processing point
Michigan Company has the following data available:
December December
31, 2011 31, 2012
Fixed Assets $125 $125
Accumulated Depreciation $110 $117
Long-term debt $125 $5
Common stock $300 $400
Retained earnings $100 $120
Dividends of $20 were declared on December 1, 2012. What is the net income for the
year ended December 31, 2012?
A) $10
B) $20
C) $30
D) $40
Wininger Company has the following information available for the past quarter:
Division A Division B Division C
Sales $250,000 $400,000 $350,000
Variable expenses 52% 30% 40%
Fixed expenses controllable by division manager $60,000 $200,000 $175,000
Fixed expenses controllable by others $10,000 $5,000 $7,500
Unallocated expenses for all three divisions are $22,000. What is the contribution
controllable by the division manager in Division B?
A) $53,000
B) $75,000
C) $80,000
D) $280,000
Which of the following is NOT a current asset?
A) Inventories
B) Prepaid Insurance
C) Supplies
D) Land
A responsibility center for which separate measures of revenues and costs are obtained
is called a(n) ________.
A) cost center
B) contribution center
C) contribution margin center
D) segment
The most recent income statement for the Venetian Branch of Palm Harbor Bank is
presented below:
Sales $57,000
Variable costs 31,500
Contribution margin 25,500
Avoidable fixed costs 13,500
Unavoidable fixed costs 20,000
Operating loss $(8,000)
Palm Harbor Bank is thinking about eliminating the Venetian Branch. If the branch is
eliminated, Palm Harbor Bank’s operating income will ________.
A) increase by $8,000
B) increase by $25,500
C) decrease by $12,000
D) decrease by $31,500
The following information is available for Kismer Corporation:
Total fixed costs $313,500
Variable costs per unit $90
Selling price per unit $150
If management has a targeted net income of $59,400, then sales revenue should be
________.
A) $239,721
B) $580,067
C) $671,220
D) $932,250
Which of the following statements about performance reports and variances is FALSE?
A) They are most effective when managers use them positively to encourage employees
to improve performance.
B) When they are used negatively, employees will resist and undermine these
techniques.
C) These tools should be used to find weaknesses and deficiencies in employees’
performance.
D) These tools should be used constructively to influence behavior.
Gomez Company manufactures generic notebooks. Material is introduced at the
beginning of the process in the Printing Department. Conversion costs are applied
uniformly throughout the process. The weighted-average method of process costing is
used. Data for the Printing Department for the month of June follow:
Work-In-Process Inventory, June 1:
Units 15,000
Direct materials (100% complete) $35,000
Conversion costs (30% complete) $8,400
Units started in June 65,000
Units completed in June 62,000
Work-In-Process Inventory, June 30 18,000
Direct materials added in June $285,000
Conversion costs added in June $210,000
With regard to the Work-In-Process Inventory on June 30, materials are 100 percent
complete and conversion costs are 60 percent complete. The total cost of goods
transferred out of the Printing Department is ________.
A) $420,825
B) $434,000
C) $495,000
D) $543,000
Accountants require investors without significant influence over the decisions of an
investee firm to use the ________ method.
A) equity
B) cost
C) market value
D) lower of cost or market
The Middleton Company reports the following information:
Sales for the year ended December 31, 2012 $106,950
Gross profit for the year ended December 31, 2012 $45,150
Net income for the year ended December 31, 2012 $7,300
Total Current Assets, December 31, 2012 $18,700
Total Current Liabilities, December 31, 2012 $7,600
Total Assets, December 31, 2012 $48,400
Total Liabilities, December 31, 2012 $20,850
Average common shares outstanding in 2012 1,000
Market price per share, December 31, 2012 $75.00
Dividends per share, for the year ended December 31, 2012 $5.00
What is the earnings per share for the year ended December 31, 2012?
A) $0.26
B) $3.88
C) $7.30
D) $106.95
Causes for the difference between applied and actual overhead costs do NOT include
________.
A) different number of workdays in different months
B) price changes in individual overhead items
C) inefficient use of overhead items
D) repairs made on a regular, consistent basis
Which of the following assets is NOT classified as a short-term investment?
A) corporate stocks
B) corporate bonds
C) debt securities issued by governments
D) checking account balance
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
Nancy Company has an idle machine that originally cost $200,000. The book value of
the machine is $100,000. The company is considering three alternative uses of the idle
machine:
Alternative 1: Disposal of machine. Disposal value of machine is $50,000.
Alternative 2: Use the idle machine to increase production of Product A. Contribution
margin from additional sales of Product A is estimated to be $60,000.
Alternative 3: Use the idle machine to increase production of Product B. Contribution
margin from additional sales of Product B is estimated to be $70,000.
When considering the opportunity cost of the idle machine, what is the net financial
benefit from Alternative 3?
A) $10,000
B) $20,000
C) $50,000
D) $70,000
Which of the following is NOT a current asset?
A) Inventories
B) Prepaid Insurance
C) Supplies
D) Land
