Value engineering is used primarily during the distribution stage of the value chain.
Decreasing cycle time often results in bringing products more quickly to customers.
Accrued interest payable is a long-term liability because it relates to a long-term bond
payable.
In the IMA’s Statement of Ethical Professional Practice, integrity is one of the standards
explained.
There is no production volume variance when expected production volume equals
actual production volume.
In designing management control systems, top managers should consider the system’s
impact on the behavior of employees.
U.S. corporations are required to use the same method of calculating depreciation on
both their income tax return and their annual financial statements.
Account analysis is one method of approximating cost functions.
A budget is a qualitative expression of a plan of action.
Gross margin focuses on sales in relation to variable costs.
With increased global competition in many industries, companies are increasingly
limited in influencing product prices.
The direct method of cost allocation is generally preferred because it recognizes the
effect of support provided by service departments to other service departments.
Companies must assign all nonproduction costs to cost objects for internal management
purposes.
Underapplied and overapplied fixed overhead has two components that include a
production-volume variance and a fixed overhead flexible budget variance.
The IRR model determines the interest rate at which the NPV of an investment equals
zero.
The split-off point is the juncture in manufacturing where the joint products become
individually identifiable.
Leasehold improvements are amortized annually.
Generally, the most difficult part of capital budgeting decisions is predicting accurately
the relevant cash flows.
Capital-budgeting decisions have significant financial effects beyond the current year.
The nominal rate of interest equals the real rate of interest minus the inflation rate.
Generally Accepted Accounting Principles in the United States are developed by the
International Accounting Standards Committee.
When allocating service department costs to user departments, fixed costs should be
allocated using budgeted cost rates times the actual cost driver level.
Good performance measures should only focus on long-term concerns.
Land is not depreciated.
If a small price increase causes large volume declines, demand is highly inelastic.
The term “cost center” may be used to describe responsibility centers that are assigned
responsibility for capital investment.
Cubic feet are the logical cost driver for depreciation expense from heating and air
conditioning equipment. The cost object is the assembly department in a factory.
The horizontal axis on the CVP graph is the dollars of cost and revenue.
Mixed costs are composed of only fixed costs.
In the absence of taxes, depreciation expense on a long-term asset is a relevant cash
flow for the NPV model.
Productivity is a measure of inputs divided by outputs.
The existence of a parent company and a subsidiary requires special accounting
procedures.
The use of cost drivers to allocate central corporate support costs to products such as
revenue or total assets represent an ” ability to bear” philosophy.
Equivalent units are determined by multiplying the number of physical units by the
percentage of noncompletion.
In a linear cost function estimated by regression analysis, the constant or intercept
measures variable cost per unit of the cost driver.
A responsibility center for controlling revenues and costs is called a revenue center.
The Eastman Family Restaurant is open 24 hours per day. Fixed costs are $24,000 per
month. Variable costs are estimated at $9.60 per meal. The average revenue is $12 per
meal. The restaurant wished to earn a profit before taxes of $6,000 per month.
Required:
A) Compute the number of meals that must be served to earn a profit before taxes of
$6,000 per month.
B) Assume that fixed costs increase to $30,000 per month. How many additional meals
must be served to earn a profit before taxes of $6,000 per month?
Wheel and Sprocket Company uses a backflush-costing system to account for bicycles.
Bicycles are scheduled for production only after orders are received and products are
shipped to customers immediately upon completion. No Finished Goods Inventory is
maintained and product costs are applied directly to Cost of Goods Sold. The standard
cost for materials is $150 per bicycle. The standard cost for conversion costs is $75 per
bicycle.
During the current month, Wheel and Sprocket Company purchased $6,000 of direct
materials and incurred $3,000 in conversion costs to produce 40 bicycles. The journal
entry for the incurrence of conversion costs includes a Debit to ________.
A) Finished Goods Inventory for $3,000
B) Work-In-Process Inventory for $3,000
C) Conversion Costs for $3,000
D) Cost of Goods Sold for $3,000
The following information pertains to a segment of the Moore Company. Invested
capital is defined as total assets. The weighted average cost of capital is 10%. The ROI
of the segment before the project is 20%. The ROI of the segment after the project is
18%. The manager is evaluated based on the segment’s ROI. A project earning a ROI of
12% should be ________.
A) accepted
B) rejected
C) compared to the company’s ROI
D) compared to the company’s residual income
When calculating the net cash provided by operating activities, which procedure should
NOT be carried out? Assume the indirect method is used.
A) add depreciation expense
B) subtract a decrease in accounts payable
C) subtract a decrease in prepaid expenses
D) add a decrease in inventories
If sales are the cost driver, unfavorable flexible budget variances result from ________.
A) actual costs exceeding planned costs
B) planned costs exceeding actual costs
C) actual sales exceeding planned sales
D) planned sales exceeding actual sales
The least-squares regression method can be used to approximate a cost function. A
disadvantage of this method is ________.
A) it does not use all the available data points
B) it requires a lot of prior cost data
C) it requires subjective placement of the line
D) it is more subjective than engineering analysis
The most widely used approach to disposing of overhead variances is ________.
A) to allocate it between finished goods inventory, work-in-process inventory and direct
materials inventory
B) to allocate it between cost of goods sold, finished goods inventory and
work-in-process inventory
C) to allocate it between cost of goods sold, finished goods inventory and direct
materials inventory
D) immediate write-off
In an economic downturn, a company could temporarily reduce or eliminate ________.
A) depreciation expense on corporate building
B) bond interest payment
C) property taxes on corporate building
D) advertising and promotion
Sheboygan Motel’s cost function is given as:
Y = $120,000 + $2.50X
Where:
Y = annual custodial cost
X = number of guest-days of occupancy
In the current year, Sheboygan Motel has 8,000 guest days. In the next year, Sheboygan
Motel expects an occupancy level of 10,000 guest days. (All costs next year will remain
in the same relevant range as the current year.) What is the expected total custodial cost
for next year?
A) $37,000
B) $120,000
C) $125,000
D) $145,000
When managers use the decision process to make decisions, which information is used
to make predictions about the amount of expected sales for Product XYZ?
A) historical data from the accounting system only
B) data outside the accounting system only
C) data outside the organization only
D) A and B
Assume you are preparing a balance sheet dated December 31, 2014. Which of the
following is NOT a long-term liability?
A) bonds payable due June 30, 2016
B) bonds payable due June 30, 2015
C) bonds payable due December 31, 2016
D) bonds payable due December 31, 2020
To assess the ________ of estimates from regression analysis, we use the ________.
A) plausibility; standard error of coefficient
B) objectivity; standard error of coefficient
C) reliability; coefficient of determination
D) plausibility; coefficient of determination
On the income statement, the absorption approach separates manufacturing costs from
________.
A) some nonmanufacturing costs
B) all nonmanufacturing costs
C) all variable costs
D) all fixed costs
To compute contribution margin under variable costing, we deduct ________ and
________ from sales.
A) variable manufacturing costs; fixed manufacturing costs
B) variable selling costs; fixed manufacturing costs
C) variable administrative costs; fixed manufacturing overhead costs
D) variable manufacturing costs; variable selling and administrative costs
When comparing traditional costing systems to activity-based costing systems, the
analysis reveals that ________.
A) high volume products are undercosted with traditional costing systems
B) high volume products are overcosted with traditional costing systems
C) low volume products are overcosted with traditional costing systems
D) both high volume and low volume products are undercosted with traditional costing
systems
In an efficient capital market, the appropriate investment strategy for most investors is
the ________.
A) daily trading and high volume approach
B) inactive portfolio approach
C) active portfolio approach
D) buy low and sell high approach
Designer Company processes copper ore into two products, C and U. The ore costs $5
per pound and conversion costs are $15 per pound. Designer Company plans to produce
40,000 pounds of Product C and 20,000 pounds of Product U from 60,000 pounds of
ore. Product C sells for $30 per pound and Product U sells for $40 per pound. Assume
the company uses the physical-units method of allocating joint costs. What amount of
joint costs is allocated to Product U?
A) $0
B) $100,000
C) $300,000
D) $400,000
Which of the following is a major factor causing changes in management accounting
today?
A) additional value chain functions
B) small advances in technology
C) shift to manufacturing-based economy
D) increased global competition
The budgeted factory overhead rate is computed as ________.
A) actual factory overhead costs divided by actual production in units
B) actual factory overhead costs divided by actual cost driver activity
C) budgeted factory overhead costs divided by actual cost driver activity
D) budgeted factory overhead costs divided by budgeted cost-allocation base level
In a job-order system, which of the following statements is TRUE?
A) The Work-in-Process Inventory account is increased by the actual factory overhead
costs incurred for a job.
B) The Work-in-Process Inventory account is increased by the applied factory overhead
costs for a job.
C) The Work-In-Process Inventory account is decreased by the budgeted amount of
factory overhead costs for a job.
D) The Work-In-Process Inventory account is increased by the budgeted amount of
factory overhead costs for a job.
Robert Company acquired 40% of the voting stock of Boulder Company for $40
million. At the end of Year 1, Boulder Company reports net income of $15 million and
pays cash dividends of $5 million. At the end of Year 1, the market value of Robert
Company’s investment in Boulder Company is $44 million. What accounts on Robert
Company’s books would be affected by the net income of Boulder Company?
A) none
B) Investments increase $15 million and Investment Revenue increases $15 million
C) Cash increases $15 million and Investment Revenue increases $15 million
D) Investments increase $6 million and Investment Revenue increases $6 million
A transfer price exists when two segments of the same organization sell ________.
A) a product to the same customer
B) a product to each other
C) a product in a foreign country
D) the same service to customers
The traditional approach to cost allocation focuses on accumulating and reporting costs
by ________. The activity-based approach to cost allocation focuses on accumulating
and reporting costs by ________.
A) cost behavior; resources used
B) departments; activities
C) fixed costs; variable costs
D) product; customer
Jorgensen Company is considering the replacement of equipment used in operations.
The following data are available:
Old Equipment New Equipment
Original cost $210,000 $40,000
Useful life in years 12 7
Current age in years 5 0
Book value $65,000 –
Disposal value now $30,000 –
Disposal value in 7 years 0 0
Annual cash operating costs $9,000 $8,000
Required:
A) Prepare a cost comparison for replacing the old equipment. Use only relevant items
and add the items together for the next 7 years.
B) Should the old equipment be replaced?
Under the traditional approach to cost allocation, which of the following steps is NOT
used in allocating costs to products?
A) Divide the costs in each producing department, including allocated costs, into direct
costs and indirect costs.
B) Trace the direct costs to the appropriate products.
C) Select cost pools and cost-allocation bases in each producing department and assign
all indirect costs to the appropriate cost pool.
D) Collect relevant data concerning costs and the physical flow of cost-allocation base
units among resources and activities.
The Wehr Company is preparing a budgeted income statement. The dollar amount of
Wages Expense put on the income statement can be found on the ________.
A) purchases budget
B) sales budget
C) schedule of cash disbursements for purchases
D) operating expense budget
To calculate income before taxes for a segmented company as a whole, take
contribution by segments and subtract ________.
A) allocated costs
B) unallocated costs
C) costs controllable by segment managers
D) costs controllable by third parties
The annual after-tax cash operating inflows of a newly purchased machine are expected
to be $60,000. The expected useful life of the machine is 5 years. The after-tax
minimum desired rate of return, including an inflation factor, is 25%. The inflation rate
is 10% per year. What is the annual after-tax cash operating inflow for year 2 for the
machine?
A) $54,000
B) $60,000
C) $66,000
D) $72,600
USC Company has the following information available:
Budgeted factory overhead costs $90,000
Actual factory overhead costs $80,000
Budgeted direct labor hours 20,000
Actual direct labor hours 21,000
Assume direct labor hours are the cost driver of factory overhead costs. The budgeted
factory overhead rate is ________.
A) $3.57 per direct labor hour
B) $3.81 per direct labor hour
C) $4.00 per direct labor hour
D) $4.50 per direct labor hour
The schedule of cash disbursements for operating expenses does NOT have ________.
A) rent expense
B) insurance expense
C) wages expense
D) amortization expense on patents
________ is the effort to insure that products perform according to customer
requirements.
A) Cycle time
B) Managerial effort
C) Production control
D) Quality control
The cost-allocation base used for the fixed overhead rate should be ________.
A) underestimated due to the conservatism principle
B) overestimated due to the conservatism principle
C) the most plausible and reliable measure available of the cause and effect relationship
between overhead costs and production volume
D) the most plausible and reliable measure available of the relationship between
overhead costs and sales
Little Rock Corporation and Memphis Corporation are movie companies. Comparative
data for 20X0 and 20X1 are given below:
Little Rock Memphis
Corporation Corporation
Sales revenue 20X0 $8,000,000 $4,400,000
20X1 9,600,000 6,175,000
Number of employees 20X0 10,000 5,500
20X1 9,000 6,500
Assume that each 20X0 dollar is equivalent to 1.60 of each 20X1 dollar, due to
inflation. Taking inflation into account, what is Little Rock Corporation’s 20X0
productivity measure in terms of revenue per employee?
A) $1,083.08
B) $1,280.00
C) $1,422.22
D) $1,600.00
Christian Company reported a flexible budget variance for direct materials costs of
$10,000 Favorable for the current year. If the direct materials price variance was $2,000
Favorable, what was the direct materials quantity variance?
A) $8,000 Unfavorable
B) $8,000 Favorable
C) $12,000 Favorable
D) $12,000 Unfavorable