1) When a company uses the direct method to present the statement of cash flows, the
payment of cash dividends reduces the amount of net cash provided by operating
activities.
2) One cost that is irrelevant in decision making is a sunk cost.
3) An EMA system only requires aggregated data to function effectively.
4) Budgeting is helpful to plan for cash inflows and outflows.
5) CVP stands for CompanyVolumeProfit.
6) Rate of return on total assets is: (net income plus interest expense) divided by
average total assets.
7) Lean thinking is a management philosophy that strives to create value by eliminating
waste.
8) The three factors that affect the time value of money are principal, number of
periods, and the interest rate.
9) Contribution margin on an income statement is equal to sales revenue minus fixed
expenses.
10) The cost allocation rate for each activity is equal to the total estimated activity cost
pool divided by the total estimated activity allocation base.
11) Capital investments do not typically require large sums of money.
12) Due to the relative infancy of environmental management accounting, the tools
utilized are continuously being developed and improved.
13) Post-audits of capital investments compare actual net cash inflows to projected net
cash inflows.
14) The goal of total quality management (TQM) is to provide customers with inferior
products and services.
15) Most companies consider divisions to be investment centers.
16) The ARR is the only method that uses accrual accounting figures and thus making it
important to financial statement users.
17) The accounting rate of return is a measure of profitability computed by dividing the
average annual operating income from an asset by the initial amount invested in the
asset.
18) The existence of ending work in process inventory necessitates how much of the
total manufacturing cost should be assigned to units still in ending WIP inventory, and
how much of the cost should be assigned to units completed during the period.
19) Service companies have the most complex accounting with regard to the income
statement.
20) A job cost record is a document that accumulates direct materials costs, direct labor
costs and manufacturing overhead costs assigned to each individual job.
21) Lough Company prepared the following purchases budget:
All purchases are paid for as follows: 20% two months after purchase, 55% in the
following month, and 25% in the month of purchase.
What are the total cash disbursements in August for the purchase of merchandise?
A) $41,550
B) $45,495
C) $33,550
D) $9,900
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 contribution margin income statement for the
month of June, what would be his contribution margin?
A) $205,875
B) $334,125
C) $64,125
D) $270,000
23) There are 34,400 units started. 25,600 were completed and transferred out and the
8,800 remaining units were 60% complete for conversion costs. The total number of
equivalent units for conversion costs is:
A) 30,880
B) 20,640
C) 25,600
D) 5,280
24) London Plastics sells a product for $15.00 per unit. The product requires $4.00 per
unit in variable costs to produce it. The company plans on selling 12,000 units of this
product. If the monthly fixed costs are $84,000, the company’s total variable costs will
be
A) $184,000
B) $154,000
C) $210,000
D) $48,000
25) Sales revenue is $725,000; allocated manufacturing overhead is $95,000; actual
manufacturing overhead is $120,000; and cost of goods sold before adjustment is
$380,000. What is the actual gross profit?
A) $320,000
B) $370,000
C) $345,000
D) $225,000
26) Your grandfather has promised to give you $1,000 a year at the end of each of the
next four years if you earn Cs or better in all of your courses each year. Using a
discount rate of 6%, which of the following is correct for determining the present value
of the gift?
A) PV = $1,000 6% 4
B) PV = $1,000 (PV factor, i = 4%, n = 6)
C) PV = $1,000 (Annuity PV factor, i = 6%, n = 4)
D) PV = $1,000 (Annuity FV factor, i = 6%, n = 4)
27) What ethical standard is being violated when you tell a friend that the company you
work for is going to report lower than expected earnings next week?
A) Credibility
B) Integrity
C) Confidentiality
D) Competence
28) Which of the following items represent physical information in an environmental
management accounting system?
A) Total electricity used
B) Cost of electricity used to run plant
C) Cost of materials used in lab to neutralize toxins
D) Cost of shipping containers to customers
29) Companies may adopt which of the following in an attempt to increase their
competitive edge?
A) TQM
B) Green initiatives
C) Lean thinking
D) All of the above
30) The following account balances at the beginning of January were selected from the
general ledger of Ocean City Manufacturing Company:
Additional data:
1> Actual manufacturing overhead for January amounted to $62,000.
2> Total direct labor cost for January was $63,000.
3> The predetermined manufacturing overhead rate is based on direct labor cost. The
budget for the year called for $250,000 of direct labor cost and $350,000 of
manufacturing overhead costs.
4> The only job unfinished on January 31 was Job No. 151, for which total direct labor
charges were $5,200 (800 direct labor hours) and total direct material charges were
$14,000.
5> Cost of direct materials placed in production during January totaled $123,000. There
were no indirect material requisitions during January.
6> January 31 balance in raw materials inventory was $35,000.
7> Finished goods inventory balance on January 31 was $34,500.
What is the amount of materials purchased during January?
A) $123,000
B) $158,000
C) $ 60,000
D) $130,000
31) The comparison of operating expenses in Year 1 and Year 2 would be included in
which of the following types of analysis?
A) Profitability
B) Capital
C) Horizontal
D) Trend
32) The ________ section from the statement of cash flows would include the issuance
of a stock dividend.
A) operating
B) financing
C) investing
D) None of the above
33) The Hummel Corporation reported the following income statement and balance
sheet amounts and additional information for the end of the current year.
Inventory and prepaid expenses account for $28,000 of the current year’s current assets.
Average inventory for the current year is $12,000.
Average net accounts receivable for the current year is $32,000.
There are 40,000 shares of common stock outstanding.
Total dividends paid during the current year were $60,000.
The market price per share of common stock is $25.
What is the company’s rate of return on net sales for the current year?
A) 0.32
B) 0.10
C) 0.04
D) 0.77
34) 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 receivable?
A) The increase of $15,000 will be subtracted from net income
B) The increase of $15,000 will be subtracted from sales to determine cash received
from customers
C) The increase of $15,000 will be added to sales to determine cash received from
customers
D) The increase of $15,000 will be added to net income
35) Jackie’s Snacks sells fudge, caramels, and popcorn. It sold 12,000 units last year.
Popcorn outsold fudge by a margin of 2 to 1 . Sales of caramels were the same as sales
of popcorn. Fixed costs for Jackie’s Snacks are $14,000. Additional information
follows:
The weighted average contribution margin for the three products of Jackie’s Snacks is
A) $11.20
B) $ 0.65
C) $ 2.00
D) $50.00
36) Income from an apartment building you own totals $260,000 per year. You plan on
selling the building and retiring to France in 12 years. Assuming you can invest the
income from the building each year at 3%, how much money will you have on which to
retire?
A) $3,330,080
B) $4,060,680
C) $3,689,920
D) $2,558,040
37) When job costing is used at a service firm, the bill to the client shows
A) the billing rate and hours spent on the job
B) the allocation of indirect costs
C) the profit on the job
D) actual direct cost of providing the service
38) Cooper’s Bags Company manufactures cloth grocery bags to be sold to grocery
stores and other retailers. Cooper’s Bags Company sells the bags in cases of 1,000 bags.
The bags come in three sizes: Large, Medium, and Small. Currently, Cooper’s Bags
Company uses a single plantwide overhead rate to allocate its $8,088,000 of annual
manufacturing overhead. Of this amount, $2,210,000 is associated with the Large Bag
line, $3,418,800 is associated with the Medium Bag line, and $2,459,000 is associated
with the Small Bag line. Cooper’s Bags Company is currently running a total of 40,000
machine hours: 13,000 in the Large Bag line, 15,400 in the Medium Bag line, and
11,600 in the Small Bag line. Cooper’s Bags Company uses machine hours as the cost
driver for manufacturing overhead costs.
Which product line(s) have been overcosted or undercosted by using the plantwide
manufacturing overhead rate?
A) Large Bags has been undercosted; Medium and Small have been overcosted
B) Large, Medium, and Small Bags have all been overcosted
C) Large, Medium, and Small Bags have all been undercosted
D) Large Bags has been overcosted; Medium and Small have been undercosted
39) If total fixed costs decrease while the selling price per unit and variable costs per
unit remain constant, which of the following statements is TRUE?
A) Contribution margin increases
B) Contribution margin decreases
C) Breakeven point in units increases
D) Breakeven point in units decreases
40) The following information relates to Truman Unlimited for the past two years.
The current ratio for the current year is closest to
A) 2.00
B) 13.50
C) 1.25
D) 1.97
41) Matthew’s Fish Fry has a monthly target operating income of $7,200. Variable
expenses are 60% of sales and monthly fixed expenses are $1,800. What is Matthew’s
operating leverage factor at the target level of operating income?
A) 0.75
B) 1.25
C) 5.00
D) 0.80
42) Stoog Enterprises manufactures ceiling fans that normally sell for $90 each. There
are 300 defective fans in inventory, which cost $55 each to manufacture. These
defective units can be sold as is for $20 each, or they can be processed further for a cost
of $40 each and then sold for the normal selling price. Stoog Enterprises would be
better off by a
A) $21,000 net increase in operating income if the ceiling fans are repaired
B) $9,000 net increase in operating income if the ceiling fans are sold as is
C) $9,000 net increase in operating income if the ceiling fans are repaired
D) $21,000 net increase in operating income if the ceiling fans are sold as is
43) A company uses the indirect method to prepare the statement of cash flows. In
determining the net cash flow from operating activities, which of the following items
would be added to net income?
A) An increase in dividends paid would be added to net income
B) An increase in accrued liabilities would be added to net income
C) A decrease in accounts payable would be added to net income
D) A gain on the sale of land would be added to net income
44) Investors and creditors generally evaluate a company by using a single year’s data.
45) The entry to transfer goods in process from Dept. A to Dept. B includes increasing
(debiting) WIP inventory in Dept. A.
46) Movements toward sustainability and corporate responsibility often
A) result in increased demand for the company’s product or service
B) include monetary support of local schools and charities
C) include green initiatives
D) All of the above are correct
47) Rzepka Corporation manufactures jeweled cell phone cases. The following
materials standards have been established for the jewels used to decorate the cell phone
cases.
The following data relates to the production of the cell phone cases during June:
What is the materials price variance for jewels in June?
A) $100 favorable
B) $100 unfavorable
C) $4,200 favorable
D) $4,200 unfavorable
48) On a CVP graph, the total cost line intersects the total revenue line at which of the
following points?
A) The breakeven point
B) The level of the variable costs
C) The level of the fixed costs
D) None of the above
49) The selling price of a RoadKing bicycle is $700, unit variable costs are $350, and
total fixed costs are $12,600. How many bicycles will RoadKing need to sell to
breakeven?
A) 25,200
B) 12
C) 36
D) 18
50) Stanley’s Candies is considering building a new plant in Europe. It predicts sales at
the new plant to be 40,000 units at $4.00/unit. Below is a listing of estimated expenses:
A European firm was contracted to sell the product and will receive a commission of
10% of the sales price. No U.S. home office expenses will be allocated to the new
facility.
The margin of safety percentage for Stanley’s Candies is
A) 50.00%
B) 86.51%
C) 150.00%
D) 14.49%
51) All of the following budgets are prepared by merchandising companies except
A) sales
B) operating expense
C) direct materials
D) cost of goods sold, inventory and purchases
52) Capital Manufacturing designs and manufactures bathtubs for home and
commercial applications. Capital recorded the following data for its commercial bathtub
production line during the month of March:
What is the variable manufacturing overhead efficiency variance for March?
A) $1,625 unfavorable
B) $325 unfavorable
C) $1,625 favorable
D) $325 favorable
53) The formula to compute the current ratio is
A) (cash + short-term investments + net current liabilities)/current liabilities
B) (current liabilities +short-term investments + net current receivables) divided by
current assets
C) current liabilities/current assets
D) current assets/current liabilities
54) Upscale Dishwear manufactures two products, salad plates and platters, from a joint
process. Salad plates are allocated $7,500 of the total joint costs of $25,000. There are
3,000 salad plates produced and 3,000 platters produced each year. Salad plates can be
sold at the split-off point for $12 per unit, or they can be hand painted for additional
processing costs of $8,400 and sold for $16 for each deluxe salad plate. If the salad
plates are processed further and made into deluxe plates, the effect on operating income
would be:
A) $36,000 net increase in operating income
B) $3,600 net decrease in operating income
C) $36,000 net decrease in operating income
D) $3,600 net increase in operating income
55) Which of the following represents a sunk cost?
A) A historical cost that is always relevant
B) A historical cost that is never relevant
C) An outlay expected to be incurred in the future
D) A cost that is relevant to any decision
56) Honda’s East Liberty Auto Plant where Honda cars are built is most likely treated as
a(n)
A) cost center
B) investment center
C) profit center
D) revenue center