1) If a scatter plot reveals a fairly weak relationship between cost and volume, the
manager should select a different activity for modeling cost behavior.
2) If a product line has a negative contribution margin, the product is not covering its
fixed costs and should be discontinued.
3) Cost behavior can be mathematically expressed using equations.
4) Retailers sell their products to consumers.
5) The high-low method uses only two of the historical data points for estimating a cost
equation.
6) Perfection standards do not allow for any poor quality raw materials, waste in the
production process, machine-breakdown, or other inefficiencies.
7) The cause of a fixed overhead variance, such as an unanticipated increase or decrease
in property taxes for the factory, is always under the control of management.
8) Duplication of costs is a disadvantage of decentralized organizations.
9) When using a target costing approach, the company starts with revenue at market
price, and then subtracts its desired profit, to yield the target total cost.
10) All else being equal, a company earns more income by selling high-contribution
margin products than by selling an equal number of low-contribution margin products.
11) The accounting rate of return method of analyzing capital budgeting decisions
measures the average annual rate of return from using the asset over its entire life.
12) The inventory turnover ratio indicates how rapidly inventory is sold.
13) On a regression analysis output generated with Excel, a regression equation’s
“goodness of fit” is represented by the ________.
A) intercept coefficient
B) x variable 1 coefficient
C) residual
D) R-square
14) What is a business philosophy that focuses on providing customers with superior
products and services?
A) IFRS
B) TQM
C) ERP
D) XBRL
15) Selected financial information for Brookeville Manufacturing is presented in the
following table (000s omitted).
What was cost of goods manufactured?
A) $1,580
B) $1,380
C) $1,400
D) $1,490
16) The following information describes a company’s usage of direct labor in a recent
period:
How much is the direct labor rate variance?
A) $8,375 favorable
B) $8,500 favorable
C) $8,375 unfavorable
D) $8,500 unfavorable
17) Jean’s Fitness Club provides monthly memberships as well as personal training
sessions. The personal trainers earn 50% of the revenue for all personal training
sessions. The Fitness Club also sells nutrition products. Jean’s general ledger accounts
indicate the following for the year. The front desk staff wages expense remains the same
throughout the year.
If a traditional income statement is prepared for the year, what is Gross Profit?
A) $280,000
B) $245,000
C) $315,000
D) $207,500
18) The full-time employees at Rocky Corporation work 8 hours per day, while the
part-time employees work 6 hours per day. Rocky has 2,250 full-time employees and
900 part-time employees. What is the number of full-time equivalent employees?
A) 2,363
B) 2,925
C) 3,150
D) 2,250
19) Assume the Air Conditioning division of the General Appliance Corporation had the
following results last year (in thousands). Management’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 division’s capital turnover?
A) 5.00
B) 4.00
C) 1.25
D) 3.05
20) Which of the following items would be shown on a cash payments budget?
A) Bad debt expense
B) Depreciation expense
C) Cash dividends
D) Gains on sales of equipment
21) Sales above the breakeven point indicate a ________, whereas sales below the
breakeven point indicate a ________.
A) loss, loss
B) loss, profit
C) profit, profit
D) profit, loss
22) It costs Homer’s Manufacturing $0.75 to produce baseballs and Homer sells them
for $4.00 a piece. Homer pays a sales commission of 5% of sales revenue to his sales
staff. Homer also pays $12,000 a month rent for his factory and store, and also pays
$75,000 a month to his staff in addition to the commissions. Homer sold 67,500
baseballs in June. If Homer prepares a traditional income statement for the month of
June, what would be his operating income?
A) $ 270,000
B) $ 319,875
C) $ 219,375
D) $118,875
23) The first step of the 5-step process costing procedure is
A) compute output in terms of equivalent units
B) summarize total costs to account for
C) compute the cost per equivalent unit
D) summarize the flow of physical units
24) Bobke Technologies manufactures three types of computers for a well known
national brand. The three types are: laptops, desktops, and tablets. Currently, Bobke
uses a single plant-wide overhead rate to allocate its $1,667,250 of annual
manufacturing overhead. Of this amount, $562,000 is associated with laptops, $492,000
is associated with desktops, and $612,750 is associated with tablets. Bobke is currently
using a total of 22,150 machine hours: 7,500 for laptops, 8,200 for desktops, and 6,450
for tablets. Bobke uses machine hours to allocate overhead costs.
Required:
a. Calculate the plant-wide manufacturing overhead rate.
b. Calculate the departmental overhead rate for each of the three departments listed.
c. Which product line(s) have been overcosted by using the plant-wide manufacturing
overhead rate? By how much per machine hour? Which product line(s) have been
undercosted by using the plant-wide manufacturing overhead rate? By how much per
machine hour?
25) Which would not be included in the operating activities section of a direct method
statement of cash flow?
A) Changes in amortization
B) Changes in accounts receivable
C) Changes in inventory
D) Changes in accounts payable
26) A company uses the indirect method to prepare the statement of cash flows. How
will a loss from the sale of a building be presented on the statement?
A) A loss from the sale of a building will be an addition in the investing activities
section
B) A loss from the sale of a building will be added to net income in the operating
activities section
C) A loss from the sale of a building will be deducted from net income in the operating
activities section
D) A loss from the sale of a building will be a deduction in the financing activities
section
27) Piper Corporation, which manufactures dog toys, is developing direct labor
standards. The basic direct labor rate is $12.00 per hour. Payroll taxes are 13% of the
basic direct labor rate, while fringe benefits such as vacation and health care insurance,
are $6.00 per hour. What is the standard rate per direct labor hour?
A) $19.56
B) $18.00
C) $12.00
D) $13.56
28) The Box Manufacturing Division of the Allied Paper Company reported the
following results from the past year. Shareholders require a return of 7%. Management
calculated a weighted-average cost of capital (WACC) of 5%. Allied’s corporate tax rate
is 30%.
What is the division’s sales margin?
A) 25.00%
B) 46.67%
C) 11.67%
D) 40.00%
29) In the flow of costs, which of the following comes second?
A) Cost of goods sold
B) Finished goods inventory
C) Work in process inventory
D) Raw materials inventory
30) Which of the following is an advantage of the budgeting process?
A) Coordinates the activities of the organization
B) Assures that the lowest cost materials will be obtained
C) Assures the company will achieve its objectives
D) Guarantees that a profit will be achieved
31) (Present value tables are needed.) Mulheim Corporation is deciding whether to
automate one phase of its production process. The equipment has a six-year life and
will cost $410,000. Projected net cash inflows from the equipment are as follows:
Mulheim Corporation’s hurdle rate is 12%.
If Mulheim Corporation decides to refurbish the equipment at a cost of $60,000 at the
end of year 6, it could be used for one more year and would have a $30,000 residual
value at the end of year 7 . Assume the cash inflow in year 7 is $65,000. What is the
NPV of just the refurbishment?
A) ($1,040)
B) $12,520
C) $15,820
D) $46,240
32) The Warren Company is considering investing in two alternative projects:
What is the accounting rate of return for Project 1?
A) 43.75%
B) 6.25%
C) 1.88%
D) 25.00%
33) The cost of water used to cool steel beams at a steel mill would be categorized as
what type of cost by an environmental management accounting system (EMA)?
A) Materials cost of non-product outputs
B) Materials cost of product outputs
C) Waste and emission control cost
D) Intangible cost
34) On the statement of cash flows, which of the following sections includes borrowing
money and paying off loans?
A) Investing section
B) Financing section
C) Operating section
D) None of the above
35) Selected information about The Staccato Company for the current year and prior
year is given below.
The current year’s income tax percentage (as would be found on a vertical analysis of
the income statement for the current year) is
A) 142.11%
B) 42.11%
C) 5.00%
D) 5.45%
36) If the selling price per unit is $75, total fixed expenses are $90,000, and the
breakeven sales in dollars is $360,000, what will the variable expense per unit be?
A) $56.25
B) $18.75
C) $93.75
D) $225.00
37) Black Productions has three models: D, E, and F. The following information is
available:
Black Productions is thinking of discontinuing model F because it is reporting an
operating loss. All fixed costs are unavoidable. Assuming Black Productions
discontinues line F and is able to double the production and sales of model E without
increasing fixed costs. What effect will this have on operating income?
A) Increase $10,000
B) Decrease $10,000
C) Increase $26,000
D) Decrease $26,000
38) What is the business philosophy of providing superior goods and services?
A) TQM
B) Supply-chain management
C) ERP
D) JIT
39) Fun Stuff Manufacturing produces frisbees using a three-step process that includes
molding, coloring and finishing. Which of the following accounts is debited for
manufacturing overhead?
A) WIP inventory-molding
B) WIP inventory-finishing
C) WIP inventory-coloring
D) All of the above
40) With regard to the information included on a statement of cash flows, which of the
following statements is TRUE?
A) The statement of cash flows contains information about stock splits and stock
dividends distributed by the company
B) The statement of cash flows contains information about the business’s ability to
generate positive cash flows in future periods
C) The statement of cash flows contains information about the business’s percentage
change in each item of revenue and expense
D) The statement of cash flows contains information about the differences between net
income and additions to retained earnings
41) When you graduate from college, your mother plans to give you a gift of $50,000 to
start you on your way. However, to determine what you learned in business school, your
mother presents you with four options on how to receive the gift. Which of the four
options presented by your mother will yield the greatest present value to you?
A) A lump sum of $50,000 today
B) $25,000 per year for the next 2 years using a 3% discount rate
C) A lump sum of $50,000 after grad school (2 years) assuming a 5% discount rate
D) A lump sum of $50,000 after grad school (2 years) assuming a 3% discount rate
42) The contribution margin is equal to
A) sales minus cost of goods sold
B) sales minus operating expenses
C) sales minus fixed expenses
D) sales minus variable expenses
43) Slamburger’s sells three cheeseburgers for every two regular hamburgers. A
cheeseburger sells for $3.50 with a variable cost of $1.00. A regular hamburger sells for
$3 with a variable cost of $0.75. What is the weighted-average contribution margin?
A) $0.60
B) $2.40
C) $0.42
D) $4.20