Fixed costs are costs that vary in total dollar amount as the level of activity changes.
a. True
b. False
The payback period is determined using which of the following formulas?
a. Amount to be invested / Annual average net income
b. Annual net cash flow / Amount to be invested
c. Annual average net income / Amount to be invested
d. Amount to be invested / Annual net cash flows
Multiplestep income statements show:
a. gross profit but not income from operations.
b. neither gross profit nor income from operations.
c. both gross profit and income from operations.
d. income from operations but not gross profit.
Average cost is a method of inventory valuation.
a. True
b. False
Some organizations use internal service departments to provide services to several
divisions or departments within an organization. Which of the following would
probably not lend itself as a service department?
a. Inventory Control
b. Payroll Accounting
c. Information Systems
d. Human Resources
Based on the following production and sales estimates for May, determine the number
of units expected to be manufactured in May.
Estimated inventory (units), May 120,000
Desired inventory (units), May 3115,000
Expected sales volume (units):
South region30,000
West region40,000
North region20,000
Unit sales price$10
a. 85,000 units
b. 90,000 units
c. 95,000 units
d. 105,000 units
Expenses not related to the primary operations of the business are sometimes reported
as:
a. administrative expense.
b. operating expense.
c. other expense.
d. all of these.
For years one through five, a proposed expenditure of $400,000 for a fixed asset with a
5year life has expected net income of $50,000, $40,000, $20,000, $20,000, and
$20,000, respectively, and net cash flows of $130,000, $120,000, $100,000, $100,000,
and $100,000, respectively. The cash payback period is 3.5 years.
a. True
b. False
Compute the number of units that must be sold in order to have zero profit when fixed
costs are $810,000 and unit contribution margin is $90.
a. 8,100 units
b. 9,000 units
c. 6,500 units
d. 6,810 units
Purchase of a new machine to replace an old machine is an example of:
a. breakeven analysis.
b. costvolumeprofit analysis.
c. capital investment analysis.
d. justintime inventory analysis.
During the first year of operations, employees earned vacation pay of $50,000. The
vacations will be taken during the second year. The vacation pay expense should be
recorded in the first year of operations.
a. True
b. False
If the standard to produce a given amount of product is 500 direct labor hours at $15
and the actual was 600 hours at $17, the time variance was $1,500 favorable.
a. True
b. False
Which of the following elements of internal control focuses on locating weaknesses and
improving control effectiveness?
a. Control environment
b. Risk assessment
c. Control procedures
d. Monitoring
Managers who often make special pricing decisions are more likely to use which of the
following cost concepts in their work?
a. Total cost
b. Product cost
c. Variable cost
d. Fixed cost
Heedy Winery accumulates the costs incurred in the labeling process in an activity cost
pool. Costs for the labeling process are estimated to be $320,000, and the winery
expects to generate 640,000 labels for the coming year. Production for its topselling
wine is estimated at 160,000 bottles. How much overhead from the labeling process
will be allocated to this particular variety of wine?
a. $40,000
b. $80,000
c. $160,000
d. $320,000
Paying expenses affects which financial statement elements?
a. Assets only
b. Stockholders’ equity only
c. Assets and stockholders’ equity
d. Assets and liabilities
If the standard to produce a given amount of product is 1,000 units of direct materials at
$11 and the actual was 800 units at $12, the direct materials price variance was $800
favorable.
a. True
b. False
If the cost of direct materials is not a significant portion of the total product cost, it may
be classified as:
a. direct labor costs.
b. selling and administrative costs.
c. miscellaneous costs.
d. factory overhead costs.
ABC Co. manufactures pens. During the most productive month of the year, 3,650 pens
were manufactured at a total cost of $84,550. During its slowest month, the company
made 1,250 pens at a cost of $46,150. Calculate the total fixed cost using the highlow
method of cost estimation.
a. $25,650
b. $28,300
c. $26,150
d. $27,800
The par value of common stock is rarely equal to its market value on the date the stock
is issued.
a. True
b. False
Garnet Company reported the following on its income statement:
Income before income taxes$450,000
Income tax expense 52,000
Net income$398,000
An analysis of the income statement revealed that interest expense was $50,000. Garnet
Company’s times interest earned are earned was:
a. 7.8 times.
b. 11 times.
c. 10 times.
d. 8.1 times.
When the market rate of interest is more than the contract rate of a bond, the bond will
sell for a discount.
a. True
b. False
For the current year ending January 31, Ringo Company expects fixed costs of
$178,500 and a unit variable cost of $41.50. For the coming year, a new wage contract
will increase the unit variable cost to $45. The selling price of $50 per unit is expected
to remain the same.
(a)Compute the breakeven sales (in units) for the current year.
(b)Compute the anticipated breakeven sales (in units) for the coming year, assuming the
new wage contract is signed.
Multiplestep income statements show:
a. gross profit but not net income.
b. neither gross profit nor net income.
c. gross profit but not cost of merchandise sold.
d. gross profit, cost of merchandise sold, income from operations and net income.
Indicate whether each of the following costs of a cabinet manufacturer would be
classified as direct materials cost, direct labor cost, factory overhead cost, or period
cost.
a. Plant manager’s salary
b. Office administrative assistant’s salary
c. Depreciation on factory equipment
d. Rent on office building
e. Varieties of wood
f. Varnish for coating cabinets
g. Utilities cost on the factory
h. Cabinet assembly worker’s salary
i. Advertising costs
j. Screws and glue used in assembly process
Hill Co. can further process Product O to produce Product P. Product O is currently
selling for $60 per pound and costs $42 per pound to produce. Product P would sell for
$82 per pound and would require an additional cost of $13 per pound to produce. The
differential cost of producing Product P is $13 per pound.
a. True
b. False
Which of the following are the two main types of cost accounting systems for
manufacturing operations?
a. Process cost and general accounting systems
b. Job order cost and process cost systems
c. Job order cost and general accounting systems
d. Process cost and replacement cost systems
The following data relate to direct labor costs for the current period:
Standard costs8,850 hours at $6.50
Actual costs7,500 hours at $6.25
What is the direct labor rate variance?
a. $1,875.00 unfavorable
b. $2,212.50 unfavorable
c. $1,875.00 favorable
d. $2,212.50 favorable
When the terms of sale are FOB shipping point, the buyer should pay the transportation
charges.
a. True
b. False
A _____ is prepared when materials that have been ordered are received and inspected.
a. supplier’s invoice
b. materials ledger
c. receiving report
d. materials requisition
Name and describe the three forms of businesses and their advantages and
disadvantages (if any).
Refer to Coke’s balance sheet. Does it appear that Coke uses the cash or accrual basis of
accounting?
List and define each of the five elements of internal control set forth by the Integrated
Framework.
Describe the endoftheperiod adjustment process. Why is it necessary?
The following data for the year ended June 30, 2016, were extracted from the
accounting records of Roof Co.:
Cost of merchandise sold$300,000
Operating expenses95,000
Sales450,000
Prepare a multiplestep income statement for the current year ended June 30, 2016.
Sommers Company is evaluating a project requiring a capital expenditure of $300,000.
Brown Inc.’s production budget for Product X for the year ended December 31 is as
follows:
Product X
Sales640,000 units
Plus desired ending inventory 85,000
Total725,000
Less estimated beginning inventory, Jan. 1 90,000
Total production635,000
In Brown’s production operations, Materials A, B, and C are required to make Product
X. The quantities of direct materials expected to be used for each unit of product are as
follows:
Product X
Material A .50 pound per unit
Material B 1.00 pound per unit
Material C 1.20 pound per unit
The prices of direct materials are as follows:
Material A $0.60 per pound
Material B $1.70 per pound
Material C $1.50 per pound
Prepare a direct materials purchases budget for Product X.
Identify the type of adjustment necessary (the type of item involved) and record the
transaction for the event. Make sure to include the ending balances after adjustment.
On June 1, Carter Lights Corp. borrowed $38,000 from the bank by signing a
promissory note from the bank, with 7% interest. The note is due in three months.
Interest for June has been incurred but not yet recorded. The interest to accrue for June
is $180. The June 30 adjustment is:
Assets =Liabilities + Stockholders’ Equity
CashOffice
EquipmentAccumulated
DepreciationInterest
PayableCommon
StockRetained
Earnings
Adjustment
End. Bal.
Prepare the Current Assets section of a balance sheet using some or all of the following
accounts:
Cash
Property, Plant, and Equipment
Accounts Receivable
Notes Receivable90day note
Merchandise Inventory
Allowance for Doubtful Accounts
Interest Receivable
Prepaid Advertising
Sales Returns and Allowances
Define accounting and its role in business.
Grey Inc. has been purchasing a component, Z for $85 a unit. The company is currently
operating at 75% of full capacity, and no significant increase in production is
anticipated in the near future. The cost of manufacturing a unit of Z, determined by
absorption costing method, is estimated as follows:
Direct materials$30
Direct labor15
Variable factory overhead26
Fixed factory overhead 10
Total$81
Prepare a differential analysis report, dated March 12 of the current year, on the
decision to make or buy Part Z.
The internal rate of return method is used to analyze a $831,500 capital investment
proposal with annual net cash flows of $250,000 for each of the six years of its useful
life.
Based on the following data, determine the cost of merchandise sold for October.
Merchandise Inventory, October 1$ 98,560
Merchandise Inventory, October 31102,330
Purchases433,880
Purchases Returns & Allowances12,760
Purchases Discounts9,900
Transportation In7,620
Identify the type of adjustment necessary (the type of item involved) and record the
transaction for the event. Make sure to include the ending balances after adjustment.
Assume that on June 1, 2016, Tasty Sausage Corp. has a balance of $100 for supplies.
On June 6 it purchased $600 in supplies for cash. On June 30, at the end of the
accounting period, there are $300 of supplies on hand. The June 30 adjustment is:
Assets =Liabilities + Stockholders’ Equity
CashSuppliesOffice
EquipmentAccounts
PayableCommon
StockRetained
Earnings
Beg. Bal.−100100
Supplies purchased−600600
End. Bal.−700700
Gold Co. sold merchandise to Bronze Co. on account, $23,000, terms 2/15, net 45. The
cost of the merchandise sold is $18,500. Gold Co. issued a credit memorandum for
$2,500 for merchandise returned that originally cost $1,900. Bronze Co. paid the
invoice within the discount period. What is the amount of net income earned by Gold
Co. on the transactions?
Refer to Coke’s Statement of Cash Flows. What amount of depreciation and
amortization did Coke record in 2008?
What is the basic accounting equation, and which financial statement is prepared from
this equation?