In computing the return on total assets, interest expense is added to net income before
dividing by average total assets.
a. True
b. False
The accounts receivable turnover is computed by dividing:
a. total assets by average accounts receivable.
b. net sales by average accounts receivable.
c. net income by average accounts receivable.
d. net purchases by average accounts receivable.
Rouney Co. has budgeted that factory supervisors’ salary will increase by 10%. If
selling prices and all other cost relationships are held constant, next year’s breakeven
point would:
a. decrease by 10%.
b. increase by 10%.
c. remain constant.
d. increase at a rate greater than 10%.
Rights to payments from customers are:
a. liabilities.
b. prepaid expenses.
c. accounts receivable.
d. accounts payable.
If a business sells two products, it is not possible to estimate the breakeven point.
a. True
b. False
If a proposed expenditure of $80,000 for a fixed asset with a 4year life has an annual
expected net cash flow and net income of $32,000 and $12,000, respectively, the cash
payback period is 2.5 years.
a. True
b. False
The capital expenditure budget summarizes future plans for acquisition of fixed assets.
a. True
b. False
In valuing damaged merchandise for inventory purposes, net realizable value is the
estimated selling price less any direct cost of disposal.
a. True
b. False
A practical approach that is frequently used by managers when setting normal selling
price is the:
a. costplus approach.
b. economic theory approach.
c. price graph approach.
d. market price approach.
Accounting is thought to be the “language of business” because business information is
communicated to stakeholders.
a. True
b. False
For the current year ending April 30, Philip Company expects fixed costs of $70,000, a
unit variable cost of $45, and a unit selling price of $95.
(a)Compute the anticipated breakeven sales (in units).
(b)Compute the sales (in units) required to realize an operating profit of $8,000.
Contia Inc. forecasts that total overhead for the current year will be $12,600,000, and
total machine hours will be 300,000 hours. However, the actual overhead is $3,250,000,
and the actual machine hours are 98,500 hours. If the company uses a predetermined
overhead rate based on machine hours for applying overhead, the overhead will be:
a. overapplied by $887,000.
b. underapplied by $887,000.
c. overapplied by $9,350,000.
d. underapplied by $9,350,000.
7920.6830.636
a. $13,660
b. $15,840
c. $12,720
d. $10,400
Efficient Corporation uses a standard cost system. The following information was
provided for the period that just ended:
Actual price per gallon$11.75
Actual gallons of material used5,000
Actual hourly labor rate$17.00
Actual hours of production24,300
Standard price per gallon$12.00
Standard gallons per completed unit1/2
Standard hourly labor rate$12.00
Standard time per completed unit3 hrs.
Units completed during the period9,000
The direct labor time variance is:
a. $31,725 favorable.
b. $32,400 favorable.
c. $89,100 unfavorable.
d. $121,500 unfavorable.
Discounts taken by the buyer for early payment of an invoice are called purchases
discounts by the buyer.
a. True
b. False
An asset turnover ratio of 1.87 for a company indicates that:
a. the company is generating $1.87 of sales revenue for each dollar of longterm
operating assets invested.
b. the company is generating $1.87 of net income for each dollar of retained earnings.
c. the company has $1.87 of longterm debt for each dollar of operating revenue earned.
d. the company has $1.87 of current assets for each dollar of fixed assets invested.
When evaluating two competing proposals with unequal lives, management should give
greater consideration to the investment with the longer life because the asset will be
useful to the company for a longer period of time.
a. True
b. False
The following data are taken from the management accounting reports of Dancer Co.:
Div. ADiv. BDiv. C
Operating income$1,800,000$1,350,000$1,900,000
Total service department charges1,700,0001,050,0001,100,000
If an incentive bonus is paid to the manager who achieved the highest operating income
before service department charges, it follows that
a. division A’s manager is given the bonus.
b. division B’s manager is given the bonus.
c. division C’s manager is given the bonus.
d. the managers of Divisions B and C divide the bonus.
A _____ shows the expected results of a responsibility center for only one activity level.
a. breakeven budget
b. standard costs system
c. static budget
d. budgetary slack
Machine with a useful life of 5 years and a residual value of $6,000 was purchased on
January 3, 2016, for $48,500. The machine was sold on January 5, 2021, for $13,000.
(a)What is the book value of the machine on January 5, 2021, assuming straightline
depreciation is used?
(b)Illustrate the effects on the accounts and the financial statements of the sale of the
machine on January 5, 2021.
(c)Illustrate the effects on the accounts and the financial statements of the sale of the
machine if it had been sold for $18,000 instead.
Using accrual accounting, revenue is recorded and reported only:
a. when cash is received without regard to when the services are rendered.
b. when the services are rendered without regard to when cash is received.
c. when cash is received before services are rendered.
d. if cash is received after the services are rendered.
The book value of an asset is computed as the asset’s:
a. current market value less tax expense.
b. fair value less residual value.
c. discounted value plus accumulated depreciation.
d. cost less accumulated depreciation.
As a device for measuring efficiency, standard cost systems enables management to
determine the causes of differences between what a product should cost and how much
it actually costs to produce.
a. True
b. False
The standard costs and actual costs for direct materials, direct labor, and factory
overhead for the manufacture of 2,500 units of product are as follows:
Standard Costs
Direct labor7,500 hours @ $12
Actual Costs
Direct labor7,400 hours @ $11.40
The amount of the direct labor time variance is:
a. $1,200 favorable.
b. $1,140 unfavorable.
c. $1,200 unfavorable.
d. $1,140 favorable.
A production supervisor’s salary that does not vary with the number of units produced is
an example of a fixed cost.
a. True
b. False
The two main sources of stockholders’ equity are investments contributed by
stockholders and net income retained in the business.
a. True
b. False
A balance sheet shows cash, $75,000; marketable securities, $110,000; receivables,
$90,000; and $225,000 of inventories. Current liabilities are $200,000. The current ratio
is 1.375 to 1.
a. True
b. False
In a production budget, if the number of units expected to be sold during the year is
8,000, the number of units desired in ending inventory is 470 units, and the number of
units in beginning inventory is 510 units, the total production for the year is:
a. 7,160.
b. 6,660.
c. 7,810.
d. 7,960.
Expenses can be defined as:
a. assets consumed.
b. services used in the process of generating revenues.
c. costs that have been incurred during the normal course of business.
d. all of these.
In job order cost accounting system, perpetual inventory records are maintained in
controlling accounts and subsidiary ledgers for materials, work in process, and finished
goods.
a. True
b. False
When merchandise that was sold on account is returned, which accounts are affected?
a. Cash, accounts receivable, cost of goods sold, and customer refunds payable
b. Customer refunds payable, accounts receivable, merchandise inventory, and
estimated returns inventory
c. Customer refunds payable, accounts receivable, purchases, and estimated returns
inventory
d. Customer refunds payable, accounts receivable, purchases, and merchandise
inventory
Nico Inc., which had 60,000 shares of common stock outstanding, declared a 4for1
stock split.
(a)What will be the number of shares outstanding after the split?
(b)If the common stock had a market price of $160 per share before the stock split,
what would be an approximate market price per share after the split?
The amount of increase or decrease in cost that is expected from a particular course of
action as compared to an alternative is termed:
a. period cost.
b. product cost.
c. differential cost.
d. discretionary cost.