Which of the following is an example of a capital expenditure?
a. Cleaning the carpet in the frontoffice room
b. Regular tuneup for a company truck
c. Replacing an engine in a company car
d. Replacing all burnedout light bulbs in the factory
Foggy Co. has the following operating data for its manufacturing operations:
Unit selling price$250
Unit variable cost$100
Total fixed costs$840,000
The company has decided to increase the wages of hourly workers, which will increase
the unit variable cost by 10%. Increases in the salaries of factory supervisors and
property taxes for the factory will increase fixed costs by 4%. If sales prices are held
constant, the breakeven point for Foggy Co. will:
a. increase by 400 units.
b. increase by 640 units.
c. decrease by 640 units.
d. increase by 800 units.
Tidewater Company uses the product cost concept of applying the costplus approach to
product pricing. The cost and expenses of producing and selling 50,000 units of Product
K are as follows:
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Variable costs:
Direct materials$ 5.00
Direct labor8.50
Factory overhead2.50
Selling and administrative expenses 1.00
Total$ 17.00
Fixed costs:
Factory overhead$50,000
Selling and administrative expenses34,000
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Tidewater desires a profit equal to a 10% rate of return on invested assets of
$1,285,000.
(a)Determine the amount of desired profit from the production and sale of Product K.
(b)Determine the total manufacturing costs and the cost amount per unit for the
production and sale of 50,000 units of Product K.
(c)Determine the markup percentage for Product K.
(d)Determine the selling price of Product K.
The management of London Corporation is considering the purchase of a new machine
costing $750,000. The company’s desired rate of return is 6%. The present value factors
for $1 at compound interest of 6% for 1 through 5 years are 0.943, 0.890, 0.840, 0.792,
and 0.747, respectively. In addition to this information, use the following data in
determining the acceptability in this situation:
YearIncome from OperationsNet Cash Flow
1$37,500$187,500
2 37,500 187,500
3 37,500 187,500
4 37,500 187,500
5 37,500 187,500
The net present value for this investment is:
a. positive $39,750.
b. positive $118,145.
c. negative $118,145.
d. negative $39,750.
Which of the following statements is true if the number of units produced decreases?
a. The total variable cost remains constant.
b. The total variable cost decreases.
c. The variable cost per unit decreases.
d. The variable cost per unit increases.
Aquablue Roadways Corporation operates throughout the United States. The following
data (in millions) were adapted from recent financial statements of Aquablue.
Year 2Year 1
Sales$47,250$49,675
Beginning of year property, plant, and equipment18,62015,730
End of year property, plant, and equipment22,36018,540
From the above data, what would be the asset turnover for Year 2? (Round the answer
to two decimal places.)
a. 1.15
b. 1.22
c. 2.01
d. 2.18
It would be most appropriate to develop direct labor time standards for use in
administrative activities when the activity involves:
a. repetitive task that produces common output.
b. nonrepetitive task that produces common output.
c. toplevel management.
d. task related to nonmeasurable output.
Revenue from sources other than the primary operating activity of a business is called
other revenue.
a. True
b. False
Which of the following group of accounts are all assets?
a. Cash, Accounts Payable, Buildings
b. Accounts Receivable, Revenue, Cash
c. Prepaid Expenses, Buildings, Patents
d. Unearned Revenues, Prepaid Expenses, Cash
Periods experiencing increase in price levels are known as periods of:
a. inflation.
b. recession.
c. depression.
d. deflation.
DeGiaimo Co. has an operating leverage of 5. If next year’s sales are expected to
increase by 10%, then the company’s operating income will increase by 50%.
a. True
b. False
Fill in the missing amounts of the following balance sheet:
Prova Company
Balance Sheet
December 31, 2016
Assets
Cash $ 3,300
Accounts Receivable 2,400
Supplies (a)
Inventory 5,700
Equipment 7,400
Land 9,250
Total Assets $32,550
Liabilities
Accounts Payable$ 850
Notes Payable (b)
Total Liabilities $ (c)
Stockholders’ Equity
Common Stock$18,500
Retained Earnings 4,200
Total Stockholders’ Equity 22,700
Total Liabilities and Stockholders’ Equity $ (d)
Snower Corporation sells product G for $150 per unit, the variable cost per unit is $105,
and the fixed costs are $720,000. What is the sales (in dollars) required to realize
operating income of $40,000?
a. $2,533,333
b. $1,773,333
c. $2,400,000
d. $1,680,000
Companies usually compute depletion by using the doubledecliningbalance method.
a. True
b. False
The debt ratio is computed as:
a. net income divided by interest expense.
b. total liabilities divided by total assets.
c. total bonds payable divided by total stockholders’ equity.
d. fixed assets divided by longterm liabilities.
A lowcost emphasis strives to provide:
a. nofrills, standardized products and services.
b. products and services that provide unique market needs.
c. products and services that provide prestige and image for customers.
d. products and services that compete on features other than price.
Retained earnings will be increased by the amount in the dividend account.
a. True
b. False
Beginning inventory, purchases, and sales for Product XCX are as follows:
Oct. 1Beginning Inventory24 unitsat$12 each
Oct. 17Purchase10 unitsat$14 each
Oct. 30Sale52 units
Assuming a periodic inventory system and the lastin, firstout method, determine (a) the
cost of the merchandise sold for the October 30 sale and (b) the inventory on October
31.
Separating the responsibilities for purchasing, receiving, and paying for equipment is an
example of the control procedure: separating operations, custody of assets, and
accounting.
a. True
b. False
If sales is $1,000,000, cost of merchandise sold is $750,000, and average inventory is
$220,000, how much would be inventory turnover?
a. 1.1
b. 3.4
c. 1.3
d. 4.5
Division B’s profit margin is 16%, and the investment turnover is 1.80. What is
Division B’s rate of return on investment?
a. 15.7%
b. 28.8%
c. 17.0%
d. 10.6%
Net income is reduced when a specific receivable is written off under the analysis of
receivables method.
a. True
b. False
Which of the following is not an intangible asset?
a. Goodwill
b. Trademark
c. Copyright
d. Longterm receivable
Which of the following is the expansion of the DuPont formula for return on
stockholders’ equity?
a. Profit margin × Asset turnover × Financial leverage
b. Profit margin × Sales turnover × Financial leverage
c. Profit margin × Asset turnover × Operating leverage
d. Operating income × Asset turnover × Financial leverage
Employee fraud is the intentional act of deceiving an employer for personal gain.
a. True
b. False
The comparison of the financial data of a single company for two or more years is
called horizontal analysis.
a. True
b. False
Which of the following is an accrued expense?
a. Rent owed but not yet paid
b. Accumulated depreciation
c. Inventory in process
d. A prepaid advertising expense
Credit memorandum is issued by the seller to customers for return of damaged or
defective merchandise.
a. True
b. False
Eliminating a product or segment will usually eliminates all of the product’s or
segment’s variable costs.
a. True
b. False
The charter of a corporation provides for the issuance of 100,000 shares of common
stock. Assume that 60,000 shares were originally issued and 5,000 were subsequently
reacquired. What is the number of shares outstanding?
a. 5,000
b. 100,000
c. 60,000
d. 55,000