Cook Co. incurred the following costs related to the office building used in operating its
sports supply company:
(a)Replaced a broken window.
(b)Replaced the roof that had been on the building for 23 years.
(c)Serviced all the air conditioners before summer started.
(d)Replaced the air conditioners with refrigerated air conditioners in the customer
service areas.
(e)Added a warehouse to the back of the building.
(f)Repainted the interior walls.
(g)Installed window shutters on all windows.
Classify each of the costs as a capital expenditure or a revenue expenditure.
The formula to compute direct labor time variance is:
a. actual costs – standard costs.
b. actual costs + standard costs.
c. (actual hours × standard rate) – standard costs.
d. actual costs – (actual hours × standard rate).
The rates at which services are charged to each division are called service department
charge rates.
a. True
b. False
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 cash payback period for this investment is:
a. 3 years.
b. 5 years.
c. 20 years.
d. 4 years.
Freight in is the amount paid by the seller to deliver merchandise sold to a customer.
a. True
b. False
A formal written statement of management’s plans for the future, expressed in financial
terms, is called a budget.
a. True
b. False
In a multiplestep income statement, sales will be reduced by sales discounts and
customer refunds and allowances to arrive at net sales.
a. True
b. False
Generally accepted accounting principles do not normally allow the use of the
allowance method of accounting for uncollectible accounts.
a. True
b. False
Which of the following is true of standards?
a. Standards are an integrated set of operating, investing, and financing budgets for a
period of time.
b. Standards help employees to focus on the larger objectives of an organization by
giving less importance to their own operations.
c. Standards are easy to maintain in a dynamic manufacturing environment.
d. Standards limit operating improvements by discouraging improvement beyond the
standard.
If fixed costs are $850,000 and the unit contribution margin is $50, profit is zero when
15,000 units are sold.
a. True
b. False
If the standard to produce a given amount of product is 12,000 hours at a factory
overhead rate of $5 ($3 fixed, $2 variable), actual variable factory overhead was
$26,400, actual fixed factory overhead was $45,000, and 100% of productive capacity
is 15,000 hours, the volume variance was $9,000 favorable.
a. True
b. False
Which of the following occurs when a seller pays a customer a refund?
a. The seller decreases the balance of the cash account and the customer refunds
payable account.
b. The seller decreases the balance of the sales account and the accounts receivable
account.
c. The seller increases the balance of the cash account and the customer refunds payable
account.
d. The seller increases the balance of the sales account and the accounts receivable
account.
Vest Food Co. has the following operating data:
Unit selling price$ 10.00
Unit variable cost6.00
Fixed costs960,000
The company is contemplating moving to another state where direct labor costs can be
reduced, thereby reducing the unit variable cost by 10%. The state where the company
currently operates has offered to reduce property taxes to encourage Vest to stay. The
minimum amount of property tax savings necessary to keep the company, assuming no
other changes, would be:
a. $152,016.
b. $240,000.
c. $208,696.
d. $125,217.
Hofnim, Inc. had the following account balances on September 30, 2016. What is
Hofnim’s net income for the month of September?
Accounts Payable$ 9,900
Capital Stock15,000
Cash19,600
Equipment19,100
Fees Earned64,000
Miscellaneous Expense19,700
Rent Expense5,100
Retained Earnings5,000
Wages Expense16,450
a. $8,800
b. $22,750
c. $13,260
d. $17,750
A variable cost system is an accounting system where standards are set for each
manufacturing cost element.
a. True
b. False
The summary of the payroll for the monthly pay period ending July 15 indicated the
following:
Salaries$180,000
Federal income tax withheld32,300
Medical insurance withheld7,370
Social security tax withheld10,800
Medicare tax withheld2,700
Illustrate the effects on the accounts and the financial statements of (a) the payroll and
(b) the employer’s payroll tax expense for the month. The state unemployment tax rate
is 4.2%, and the federal unemployment tax rate is 0.8%. Only $30,000 of salaries are
subject to unemployment taxes.
Which of the following is the effect on the transaction metrics of a company when it
records depreciation?
a. Its profitability decreases.
b. Its profitability and liquidity remain unaffected.
c. Its profitability increases.
d. Its liquidity increases.
Standards are designed to evaluate price and quantity variances separately.
a. True
b. False
When the seller offers a sales discount, even if borrowing has to be done, it is generally
advantageous for the buyer to pay within the discount period.
a. True
b. False
A computer equipment was acquired at the beginning of the year at a cost of $56,000
with an estimated residual value of $5,000, and an estimated useful life of 5 years.
Determine the second year’s depreciation expense using the straightline method.
a. $10,200
b. $22,400
c. $11,200
d. $12,200
In using the total cost concept of applying the costplus approach to product pricing,
what is included in the markup?
a. Total selling and administrative expenses plus desired profit
b. Total fixed manufacturing costs, total fixed selling and administrative expenses, and
desired profit
c. Total costs plus desired profit
d. Desired profit
The ratio of sales to invested assets is termed the investment turnover, a component of
the rate of return on investment.
a. True
b. False
Which of the following is true of asset turnover?
a. It measures the efficiency with which a company uses its operating assets to generate
sales.
b. It measures the proportion of operating assets to total assets.
c. It uses net purchases as a denominator in its calculation.
d. It measures the profits generated by the fixed and current assets of the company.
Expenses that are incurred directly or entirely in connection with the sale of
merchandise are classified as:
a. selling expenses.
b. general expenses.
c. other expenses.
d. administrative expenses.
When choosing whether or not to replace a fixed asset, management will consider the
price at which the asset can be sold.
a. True
b. False
Which of the following is true of job order cost systems?
a. Examples of companies that use job order cost systems would be oil refineries, paper
producers, chemical processors, and food processors.
b. Job order cost systems are not widely used.
c. Job order cost systems are often used by companies that manufacture custom
products for customers or batches of similar products.
d. Job order cost systems provide product costs for each manufacturing department or
process.
Employees view budgeting more positively when goals are established for them by
senior management.
a. True
b. False
_____ is a solvency metric and is computed as total assets minus total liabilities.
a. Ratio of fixed assets to longterm liabilities
b. Debt ratio
c. Asset turnover
d. Net asset
A company’s stockholders’ equity is bifurcated into:
a. current assets and longterm assets.
b. common stock and longterm assets.
c. retained earnings and longterm assets.
d. common stock and retained earnings.
The condensed income statement for a business for the past year is presented as
follows:
Product
F G H Total
Sales$300,000 $220,000$340,000$860,000
Less variable costs 180,000 190,000 220,000 590,000
Contribution margin$120,000 $ 30,000$120,000$270,000
Less fixed costs 50,000 50,000 40,000 140,000
Income (loss) from operations$ 70,000 $(20,000) $ 80,000$130,000
Management is considering the discontinuance of the manufacture and sale of Product
G at the beginning of the current year. The discontinuance would have no effect on the
total fixed costs and expenses or on the sales of Products F and H. What is the amount
of change in net income for the current year that will result from the discontinuance of
Product G?
a. $30,000 decrease
b. $30,000 increase
c. $20,000 decrease
d. $20,000 increase
Using a perpetual inventory system, the purchase of $30,000 of merchandise on account
would include a(n):
a. increase in Sales.
b. increase in Merchandise Inventory.
c. decrease in Merchandise Inventory.
d. decrease in Sales.
Which of the following graphs illustrates the nature of a mixed cost?
a. Graph 2
b. Graph 3
c. Graph 4
d. Graph 1
Beginning inventory, purchases, and sales for Product XCX are as follows:
Oct. 1Beginning Inventory24 unitsat$12 each
Oct. 17Purchase10 unitsat$15 each
Oct. 30Sale25 units
Assuming a periodic inventory system and the firstin, firstout method, determine (a) the
cost of the merchandise sold and (b) the inventory on October 31.
Yellco Inc., a toy manufacturer, provided the following information:
Domestic unit sales price$50
Unit manufacturing costs:
Variable10
Fixed8
The company has received an offer from an exporter for 9,000 units of toys at $60 per
unit. The additional business is not expected to affect the normal production or
domestic sales prices of Yellco Inc. The company’s differential revenue from the
acceptance of the offer is _____.
a. $450,000
b. $720,000
c. $540,000
d. $225,000