1) A sunk cost is a past cost that can be changed regardless of which future action is
taken.
2) The estimated total manufacturing overhead costs that will be incurred in each
department in the coming year are often referred to as activity cost pools.
3) Investments with longer payback periods are more desirable, all else being equal.
4) Flexible budgets are budgets that summarize cost and revenue information for a
single volume level.
5) When an item is sold, finished goods inventory is credited and cost of goods sold is
debited.
6) Waste can be reduced by implementing shorter setup times.
7) ABC can be used in routine planning and control decisions as well as pricing,
product mix and cost cutting decisions.
8) The balanced scorecard considers only financial performance measures.
9) The variable overhead rate variance may be affected by both indirect labor and
indirect materials.
10) An overallocation of manufacturing overhead is typically corrected by decreasing
Cost of Goods Sold on the income statement.
11) When raw materials are transferred out of the storeroom to the factory, their cost is
transferred out of raw materials inventory and into work in process inventory.
12) Companies that use automated production processes often condense the three
manufacturing costs into two categories: Direct labor and Conversion costs.
13) Operations is one factor of the financial perspective of the Balanced Scorecard.
14) The sales budget must be prepared after every other component of the operating
budget.
15) The representation for fixed cost per unit of activity is
A) vx divided by v
B) vx divided by y
C) y divided by x
D) f divided by x
16) The ________ reports an entity’s cash receipts and cash payments during the period.
A) income statement
B) statement of retained earnings
C) balance sheet
D) statement of cash flows
17) Manufacturers follow four steps to implement a manufacturing overhead allocation
system. The last step is
A) allocate some manufacturing overhead to each individual job
B) select an allocation base and estimate the total amount that will be used during the
year
C) estimate total manufacturing overhead costs for the coming year
D) calculate a predetermined manufacturing overhead rate
18) Which of the following is an example of the IMA’s credibility standard?
A) Provide decision support that is accurate, clear, concise and timely
B) Keep information confidential, except when disclosure is legally required
C) Communicate information fairly and objectively
D) Abstain from engaging in or supporting any activity that might discredit the
profession
19) The Jones Corporation uses a process system. During the current period, 2,500 units
were started and 1,100 units were completed and transferred out. Ending units were
60% complete for materials and 45% complete for conversion costs. Direct materials
costs added were $35,405 and conversion costs added were $32,870. There was no
beginning WIP inventory and conversion costs are added evenly throughout the
process. At the end of the period, what are the total equivalent units for conversion
costs?
A) 1,940
B) 1,400
C) 1,100
D) 1,730
20) Harvey Automobiles uses a standard part in the manufacture of several of its trucks.
The cost of producing 40,000 parts is $120,000, which includes fixed costs of $60,000
and variable costs of $60,000. The company can buy the part from an outside supplier
for $3.00 per unit, and avoid 30% of the fixed costs.
If Harvey Automobiles makes the part, how much will its operating income be?
A) $42,000 greater than if the company bought the part
B) $42,000 less than if the company bought the part
C) $78,000 greater than if the company bought the part
D) $78,000 less than if the company bought the part
21) (Present value tables are required.) Figgey, a plastics processor, is considering the
purchase of a high-speed extruder as one option. The new extruder would cost $52,000
and would have a residual value of $5,000 at the end of its 8 year life. The annual
operating expenses of the new extruder would be $8,000. The other option that Figgey
has is to rebuild its existing extruder. The rebuilding would require an investment of
$30,000 and would extend the life of the existing extruder by 8 years. The existing
extruder has annual operating costs of $11,000 per year and does not have a residual
value. Figgey discount rate is 14%. Using net present value analysis, which option is
the better option and by how much?
A) Better by $8,083 to rebuild existing extruder
B) Better by $8,083 to purchase new extruder
C) Better by $6,328 to rebuild existing extruder
D) Better by $6,328 to purchase new extruder
22) The Sarbanes-Oxley Act requires companies to have their internal audit procedures
assessed at least
A) monthly
B) quarterly
C) annually
D) at any time they choose
23) Pendant Publishing reported the following results for its Textbook Division:
Pendant’s target rate of return is 15% and the weighted average cost of capital is 10%.
Its effective tax rate is 35%.
What is the Textbook Division’s capital turnover?
A) 2.2
B) 2.5
C) 5.0
D) 2.0
24) A company uses the direct method to prepare the statement of cash flows. It
presents the following amounts on its financial statements.
*Relates solely to the acquisition of inventory
What will appear in the operating activities section related to accounts payable?
A) The increase of $10,000 will be subtracted from net income
B) The increase of $10,000 will be added to net income
C) The increase of $10,000 will be added to purchases to determine payments to
suppliers
D) The increase of $10,000 will be subtracted from purchases to determine payments to
suppliers
25) In order to provide managers with environmental information, accountants will
need to rethink their traditional views on what constitutes a “cost” and do which of the
following?
A) Focus on the traditional accounting system
B) Expand their costing system to provide more detailed information
C) Reject any change
D) None of the above
26) Job 450 requires $9,800 of direct materials, $6,400 of direct labor, 590 direct labor
hours, and 400 machine hours. Manufacturing overhead is computed at $14 per direct
labor hour used and $10 per machine hour used.
The total cost of Job 450 is
A) $12,260
B) $28,460
C) $16,200
D) $24,460
27) Which of the following is the formula to compute times-interest-earned?
A) Total liabilities/total assets
B) Interest expense/income from operations
C) Income from operations/interest expense
D) Total assets/total liabilities
28) Which of the following is an example of direct labor?
A) Wages of a managerial accountant
B) Wages of a machine operator
C) Salary of the vice-president of operations
D) Wages of the CFO
29) The following information relates to Truman Unlimited for the past two years.
The rate of return on total assets for the current year is closest to
A) 0.85
B) 0.06
C) 0.10
D) 0.09
30) A company purchases equipment for use in its business activities. If the company
prepares the statement of cash flows using the indirect method or the direct method,
where would this transaction appear?
A) The purchase of equipment would be presented in the non-cash investing and
financing activities section under both methods
B) The purchase of equipment would be presented in the financing activities section as
a cash payment under both methods
C) The purchase of equipment would be presented in the investing activities section as a
cash payment under both methods
D) The purchase of equipment would be presented in the operating activities section as
a reduction in net income under the indirect method and as a cash payment under the
direct method
31) Fern Company has a target rate of return of 14%, an ROI of 38%, and capital
turnover of 2.5 . The sales margin for Fern Company would be closest to
A) 6%
B) 15%
C) 95%
D) 35%
32) Using account analysis, what type of cost is Satellite TV when the charge is $45.00
per month plus $5.99 for pay-per-view movies?
A) Mixed
B) Fixed
C) Step
D) Variable
33) Simon Manufacturing is conducting preliminary research into installing a
geothermal heat pump to heat and cool its factories and offices. The initial cost of
installing the new system is $245,000; however, Simon will save $35,000 annually on
its heating and cooling costs. The system has an expected life of 15 years.
What is the net present value (NPV) of the project, assuming a discount rate of 8%?
A) $54,565
B) $(233,975)
C) $299, 565
D) $11,025
34) Watson’s Computer Company uses ABC to account for its manufacturing process.
Watson’s Computer Company expects to produce 2,250 computers. Watson’s Computer
Company also expects to use 13,000 parts and have 20 setups.
The allocation rate for packaging is
A) $4.00
B) $13.33
C) $6.80
D) $7.01
35) The environmental staff and technical and production staff of a corporation are
located in two different offices, in two different cities. This scenario is an example of
which type of EMA implementation challenge?
A) Historical orientation of accounting
B) Communication issue
C) Newness of EMA
D) Hidden Cost
36) Quality-related costs generally fall into four different categories, which include all
of the following except
A) prevention costs
B) appraisal costs
C) internal failure costs
D) transportation costs
37) On the production budget, the number of units to be produced is computed as
A) unit sales + desired end inventory + beginning inventory
B) unit sales + desired end inventory – beginning inventory
C) unit sales – desired end inventory – beginning inventory
D) unit sales – desired end inventory + beginning inventory
38) Traditional performance management systems can be adapted to include measures
of environmental costs, savings, and liabilities. The number of training seminars related
to sustainability offered by a company is an example of a key performance indicator
(KPI) classified under which perspective of the balanced scorecard?
A) Learning and growth perspective
B) Customer perspective
C) Internal business perspective
D) Financial perspective
39) Fancy Furniture has variable expenses of 40% of sales and monthly fixed expenses
of $240,000. The monthly target operating income is $60,000. What is the monthly
margin of safety in dollars if Fancy Furniture achieves its operating income goal?
A) $100,000
B) $900,000
C) $500,000
D) $(300,000)
40) Target total cost is defined as
A) cost of goods sold less desired profit
B) revenue at market price less desired profit
C) revenue at market price less variable costs
D) revenue at market price less fixed costs
41) The following information relates to Woolf Unlimited for the past two years.
What is the rate of return on total assets for the current year?
A) 0.10
B) 0.13
C) 0.14
D) 0.78
42) Paula has the following information to evaluateher current salary of $55,000 versus
total revenues of $120,000 and expenses of $75,000 from starting a new business. How
much is the opportunity cost associated with starting the new business?
A) $55,000
B) $120,000
C) $45,000
D) $75,000
43) CatNap Company has two products: Kittyz and Katz. A March sales forecast
projects 20,000 units of Kittyz and 15,000 units of Katz are going to be sold at prices of
$15 and $12, respectively. The desired ending inventory of Kittyz is 20% higher than
the beginning inventory, which was 2,000 units. How much are total March sales for
Kittyz anticipated to be?
A) $100,000
B) $180,000
C) $300,000
D) $240,000
44) The standards in the IMA Statement of Ethical Professional Practice include
A) Competence, Confidentiality, Integrity, and Credibility
B) Competence, Objectivity, Credibility, and Honesty
C) Competence, Confidence, Integrity, and Credibility
D) Competence, Confidentiality, Integrity, and Objectivity
45) The costs of adopting ABC may be lower for some companies than for others. This
situation may occur
A) when a company has the accounting and information system expertise to develop the
system
B) when a company has the information technology to record and compile cost driver
data
C) with either situation A or situation B
D) in none of the above instances