BEE Company is considering the replacement of a machine that is presently used in
production. Which of the following items are irrelevant to the replacement decision?
A) annual operating cost of the old machine (2 years left)
B) original cost of the new machine
C) disposal value of the old machine at time of replacement
D) original cost of old machine
McArthur 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 1?
A) $2,400
B) $3,000
C) $9,600
D) $12,000
Kaprelian Company sells desks at $480 per desk. The variable costs are $300 per desk.
Total fixed costs for the period are $400,000. The contribution margin ratio is
________.
A) 22.5%
B) 37.5%
C) 40.6%
D) 62.5%
Source documents used in job-order costing include ________.
A) labor time tickets
B) material requisitions
C) time cards
D) all of the above
Multinational companies use transfer prices to minimize worldwide income taxes,
________ and ________.
A) tariffs; financial restrictions imposed by U.S. government
B) tariffs; import duties
C) financial restrictions imposed by U.S. government; import duties
D) foreign bribes; import duties
Decentralization may increase a firm’s costs because ________.
A) lower level managers duplicate services that may be less expensive if centralized
B) information costs rise as top management needs additional reports to learn about
decentralized units
C) lower level managers may make decisions that are not in the best interests of the
firm as a whole
D) all of the above
The cash received from the sale of common stock is included in the ________ section
of the statement of cash flows.
A) operating
B) investing
C) financing
D) noncash
Cash collected from customers before goods are delivered will increase ________.
A) assets and increase revenues
B) revenues and decrease liabilities
C) liabilities and increase assets
D) liabilities and decrease revenues
The following information pertains to the Northern Division of Johnson Company:
Net Sales $21,000
Variable Costs:
Cost of merchandise sold 7,200
Operating expenses 2,700
Fixed costs:
Controllable by segment manager 2,400
Controllable by others 1,000
Unallocated costs 7,600
The contribution by segment is ________.
A) $7,100
B) $7,700
C) $8,700
D) $11,100
Management-by-exception means that managers should ________.
A) concentrate on areas that deviate from the plan
B) in the absence of other evidence, presume that areas that conform with plans are
running smoothly
C) A and B
D) none of the above
Pilot Bank uses activity-based costing. Pilot Bank has the following activities, traceable
costs, and cost drivers:
Activities Traceable Costs Cost Drivers
Open new accounts $40,000 1,000 accounts
Process deposits $72,000 360,000 deposits
Process withdrawals $100,000 200,000 withdrawals
The above activities are used by Downtown branch and North branch as follows:
Activities Downtown North
Open new accounts 200 400
Process deposits 40,000 20,000
Process withdrawals 15,000 18,000
Required:
A) Compute the new account cost assigned to the North branch.
B) Compute the deposit processing cost assigned to the Downtown branch.
C) Compute the withdrawal processing cost assigned to the Downtown branch.
A sale of inventory results in a(n) ________ in stockholders’ equity equal to the selling
price of the inventory. A sale of inventory also results in a(n) ________ in stockholders’
equity equal to the cost of the inventory sold.
A) decrease; increase
B) increase; increase
C) increase; decrease
D) decrease; decrease
The following data are for Pablo Corporation:
Flexible Budget for
Actual Static Budget Actual Sales Activity
Units 18,000 16,000 18,000
Sales $360,000 $320,000 $360,000
Variable costs 234,000 192,000 216,000
Contribution margin $126,000 $128,000 $144,000
Fixed costs 76,000 80,000 80,000
Operating income $50,000 $48,000 $64,000
The flexible budget variance for operating income is ________.
A) $2,000 Favorable
B) $2,000 Unfavorable
C) $14,000 Favorable
D) $14,000 Unfavorable
When the variable costing method is used, fixed factory overhead appears on the
income statement as a ________.
A) component of cost of goods sold
B) component of cost of goods sold and production volume variance
C) production volume variance
D) fixed expense
Seidner Company has the following information available:
Total fixed costs $80,000
Targeted after-tax net income $18,000
Contribution margin per unit $2.00
Tax rate 40%
How many units must be sold to achieve the targeted after-tax net income?
A) 45,400
B) 49,000
C) 55,000
D) 62,500
Patrick Company had the following transactions:
1. The owner started the company by investing $10,000 of cash.
2. The company paid $2,000 for six months of rent. The rent was paid in advance.
3. The company acquired $3,300 in inventory and put one-third of the purchase on
account. The company paid $2,200 cash.
4. The company sold inventory costing $1,400 for $2,900 on account.
After all these transactions, what is the balance in the cash account?
A) $1,600
B) $2,900
C) $5,800
D) $8,000
Haworth Company is considering the purchase of a labor saving piece of equipment
with the following information:
Purchase cost of equipment $432,000
Annual cost savings, excluding depreciation (end of year) $90,000
Terminal salvage value 0
Useful life of equipment 12 years
Required rate of return 10%
Tax rate 30%
Depreciation method for tax purposes Straight-line
Present value of ordinary annuity of one
at 10% for 12 periods 6.8137
Present value of one at 10% for 12 periods 0.3186
What is the net present value of the equipment?
A) $(2,737)
B) $(174,442)
C) $70,851
D) $168,968
Central Industries has three product lines: A, B and C. The following information is
available:
Product A Product B Product C
Sales $100,000 $90,000 $44,000
Variable costs 76,000 48,000 35,000
Contribution margin 24,000 42,000 9,000
Avoidable fixed costs 9,000 18,000 3,000
Unavoidable fixed costs 6,000 9,000 7,700
Operating income(loss) $9,000 $15,000 $(1,700)
Central Industries is thinking about dropping Product C because it is reporting a loss.
Assume Central Industries drops Product C and does not replace it. What will happen to
operating income?
A) increase by $600
B) increase by $2,400
C) decrease by $6,000
D) decrease by $9,000
________ is the field that produces information used primarily by managers within an
organization.
A) Financial accounting
B) Management accounting
C) Internal auditing
D) External auditing
Which of the following statements about managerial effort is FALSE?
A) Managerial effort is the exertion towards a goal.
B) Goal congruence must be accompanied by managerial effort.
C) Managerial effort includes all conscious actions that result in more efficiency and
effectiveness.
D) Managerial effort does not have to accompany goal congruence.
The largest U.S. association of professional accountants whose major interest is
management accounting is the ________.
A) American Institute of Certified Public Accountants
B) American Institute of Certified Management Accountants
C) Institute of Management Accountants
D) American Institute of Management Accountants
A compensation plan where the sales force is paid salary plus commission is a
________.
A) purely variable cost
B) mixed cost
C) step cost
D) fixed cost
Managers who are evaluated based on the accounting rate of return model are reluctant
to use ________ for capital budgeting decisions.
A) payback period model
B) real options model
C) discounted cash flow models
D) return on investment model
The Banks Company makes mugs for which the following standards have been
developed:
Standard Inputs Expected Standard Price Expected
For Each Unit of Output Per Unit of Input
Direct Materials 5 ounces $2 per ounce
Direct Labor 1.5 hours $8 per hour
Production of 400 mugs was expected in July, but 440 mugs were actually completed.
Direct materials purchased and used were 2,100 ounces at an actual price of $2.30 per
ounce. Direct labor cost for the month was $5,310, and the actual pay per hour was
$9.00. What is the direct labor quantity variance for July?
A) $560 Favorable
B) $560 Unfavorable
C) $630 Favorable
D) $630 Unfavorable
Potter Company manufactures a part for its production cycle. The annual costs per unit
for 10,000 units of the part are as follows:
Per Unit
Direct materials $20.00
Direct labor 15.00
Variable factory overhead 16.00
Fixed factory overhead 10.00
Total costs $61.00
The fixed factory overhead costs are unavoidable. Paulson Company has offered to sell
10,000 units of the same part to Potter Company for $60 per unit. The facilities
currently used to make the part could be rented out to another manufacturer for
$100,000 per year. Potter Company should ________.
A) make the part to save $10,000
B) make the part to save $25,000
C) buy the part and rent the facilities to save $10,000
D) buy the part and rent the facilities to save $25,000
Assuming a company uses a cost-based pricing system for transfer pricing, which of the
following items would NOT be used?
A) variable-costing only
B) full-costing plus profit only
C) full-costing only
D) fixed-costing only
Cowboy Company wishes to sell a machine with a book value of $40,000. The income
tax rate is 30%. The machine is sold for $60,000.
Required:
A) What is the net after-tax cash flow from the sale of the machine? Is it an inflow or
outflow?
B) If the machine is sold for $30,000, what is the net after-tax cash flow from the sale
of the machine?
________ is the effort to insure that products perform according to customer
requirements.
A) Cycle time
B) Managerial effort
C) Production control
D) Quality control
Amanda Company is considering the replacement of a machine that is presently used in
production. The following data are available:
Old Machine New Machine
Original cost $200,000 $160,000
Useful life in years 10 5
Current age in years 5 0
Book value $100,000 –
Disposal value now $32,000 –
Disposal value in 5 years 0 0
Annual cash operating costs $20,000 $14,000
Adding all five years together, the total relevant costs to consider if the new machine is
purchased is ________.
A) $70,000
B) $100,000
C) $198,000
D) $230,000
During the product development stage of the product life cycle, companies typically
experience ________.
A) revenues and no costs
B) costs and no revenues
C) both costs and revenues
D) neither costs nor revenues
Generally Accepted Accounting Principles are most closely connected to ________.
A) management accounting
B) financial accounting
C) internal auditing
D) management auditing
What is the first step in applying the net-present-value method to investment projects?
A) Identify the amount and timing of relevant future cash inflows.
B) Identify the amount and timing of relevant future cash inflows and outflows.
C) Find the present value of each expected cash flow.
D) Sum the individual present values of the cash flows.
If the internal rate of return on a project is ________ the required rate of return, then the
project should be accepted.
A) higher than
B) lower than
C) the same as
D) none of the above