1) The theory of constraints is a manufacturing strategy that focuses on reducing the
influence of bottlenecks on production processes.
2) If fixed costs are $220,000 and the unit contribution margin is $25, the sales
necessary to earn an operating income of $30,000 are 10,000 units.
3) Sales commissions expense for a department store is an example of a direct expense.
4) The declaration of a stock dividend decreases a corporation’s stockholders’ equity
and decreases its liabilities.
5) A practical approach that is frequently used by managers when setting normal selling
price is the cost-plus approach.
6) The difference between the actual amount of variable factory overhead cost incurred
and the amount of variable factory overhead budgeted for the standard product is
termed as variable factory overhead controllable variance.
7) The declaration of a cash dividend decreases a corporation’s stockholders’ equity and
decreases its assets.
8) At the end of a period before the accounts are adjusted, Allowance for Doubtful
Accounts has a balance of $250, and net sales on account for the period total $500,000.
If uncollectible accounts expense is estimated at 1% of net sales on account, the current
provision to be made for uncollectible accounts expense is $4,997.50.
9) A company should purchase an asset when the minimum rate of return exceeds its
average rate of return.
10) The accounting equation can be expressed as: Assets – Liabilities = Revenues.
11) For accounting purposes, stated value is treated the same way as par value.
12) There are two alternatives to reporting cash flows from operating activities in the
statement of cash flows: (1) the direct method and (2) the indirect method.
13) Variable costs are costs that remain constant in total with changes in the activity
level.
14) Classify the following items as:
a. accrued revenue (accrued asset)
b. deferred revenue (unearned revenue)
c. accrued expense (accrued liability)
d. deferred expense (prepaid expense)
15) Orange Co. sells merchandise on credit to Zea Co. in the amount of $9,000. The
invoice is dated on September 15 with terms of 1/15, net 45 . What is the amount of the
discount, and up to what date must the invoice be paid in order for the buyer to take
advantage of the discount?
A.$180, September 30
B.$180, September 25
C.$90, September 30
D.$90, September 25
16) Kohlman Company began its operations on March 31 of the current year. Projected
manufacturing costs for the first three months of business are $156,800, $195,200, and
$217,600, respectively, for April, May, and June. Depreciation, insurance, and property
taxes represent $28,800 of the estimated monthly manufacturing costs. Insurance was
paid on March 31, and property taxes will be paid in November. Three-fourths of the
remainder of the manufacturing costs are expected to be paid in the month in which
they are incurred with the balance to be paid in the following month.
Refer to the information provided for Kohlman Company. The cash payments for
manufacturing in the month of June are:
A.$294,000
B.$235,200
C.$183,200
D.$381,500
17) The following items are reported on a companys balance sheet:
Determine the (a) current ratio and (b) quick ratio. Round your answer to one decimal
place.
18) Crane Company is considering the acquisition of a machine that costs $60,000. The
machine is expected to have a useful life of 5 years, a negligible residual value, an
annual cash flow of $15,000, and annual operating income of $15,000. What is the
estimated cash payback period for the machine?
A.1.7 years
B.3 years
C.4 years
D.5 years
19) The primary advantages of the average rate of return method of analyzing a capital
investment proposal are its ease of computation and the fact that:
A.it emphasizes the amount of income earned over the life of the proposal
B.there is less possibility of loss from changes in economic conditions and
obsolescence when the commitment is short-term
C.it is especially useful to managers whose primary concern is liquidity
D.it considers the time value of money
20) The unfavorable volume variance may be due to all of the following factors except:
A.failure to maintain an even flow of work
B.machine breakdowns
C.unexpected increases in the cost of utilities
D.failure to obtain enough sales orders
21) Jarvis Company uses the total cost concept of applying the cost-plus approach to
product pricing. The costs and expenses of producing and selling 35,000 units of
Product E are as follows:
Jarvis desires a profit equal to a 14% rate of return on invested assets of $450,000.
(a) Determine the amount of desired profit from the production and sale of Product E.
(b) Determine the total costs and the cost amount per unit for the production and sale of
35,000 units of Product E.
(c) Determine the markup percentage for Product E.
(d) Determine the selling price of Product E.
22) Based on the following data for the current year, determine the accounts receivable
turnover?
A.12.5
B.14.3
C.11.1
D.7.5
23) Which transaction would be recorded in a cash basis system of accounting?
A.Purchase of equipment by signing a note
B.Purchase of supplies on credit
C.Sale of goods against a note
D.Sale of goods for cash
24) The following data are taken from the financial statements:
