Since the cash budget drives all other components of the master budget, it is imperative
that it be as realistic as possible.
Variances have very important meanings, even before their causes are identified.
Capital budgeting differs from cash budgeting in terms of its time horizon.
All differences between the flexible budget and actual performance must result from
operations, rather than from differences in sales volume.
Assets used by an organization to build products or deliver services are called
investment assets.
The journal entries used to record cost flows in a process costing system differ from
those used to record cost flows in a job order costing system.
When inventory is sold to customers, its cost is removed from work-in-process and
transferred to cost of goods sold.
Using a normal costing system, direct materials and direct labor are recorded at actual
cost, and overhead is applied to products using a predetermined overhead rate.
An example of a committed fixed cost is when a company signs a 10-year lease on an
office building.
The balanced scorecard includes one or two measures in each of six perspectives.
Companies that mass produce similar products or employ a continuous production
process typically use a process costing system.
A decrease in accounts receivable would be added to income when using the indirect
method of calculating cash flows provided by operating activities.
Financing activities include issuing and repaying debt, loans made and collected,
issuing and repurchasing stock, and paying dividends.
Identify which of the following items would be classified as capital assets.
a. New Ultrasound equipment for pediatric department of General Hospital
b. Depreciation on hospital equipment
c. Fitness equipment at local gym
d. Land held for future development
e. Cost of painting factory building
f. Manufacturing overhead
g. Recycle machine purchased by local waste management center
h. Steel used to produce automobiles
i. Laser machine used in factory to cut marble
j. Salary of computer technician
When multiple products share a constrained resource, the way to allocate the resource is
to compute the
a. Contribution per unit.
b. Contribution margin per constrained resource.
c. Opportunity cost per unit.
d. None of these answer choices are correct.
Jensen Fly Fishing Shop applies overhead at a rate of $5 per direct labor hour. At the
end of the month, the company had accumulated 7,000 direct labor hours and incurred
$38,000 in manufacturing overhead. Manufacturing overhead was
a. $3,000 underapplied
b. $3,000 overapplied
c. $600 underapplied
d. $600 overapplied
The activity rate for each cost pool
a. Is computed as Total activity driver volume/Total activity cost pool resources.
b. Is similar to the predetermined overhead rate calculation under traditional job order
costing.
c. Is computed as part of the last step in the preparation of activity-based costing data.
d. All of these answer choices are correct.
Measures that can be determined only after something is finished are called
a. Post-operations indicators
b. Lagging indicators
c. Input indicators
d. Objective indicator
Which of the following is not a factor that could influence worker productivity?
a. Machine breakdowns
b. A lack of adequate supervision
c. The amount of automation used in the production process
d. Workers that are working overtime
If activity level increases, what happens to the unit fixed cost?
a.It decreases.
b.It increases.
c.It remains the same.
d.It depends on how much the activity level increases.
Penny Saver Inc., and Buy 4 Less Stores are both discount retailers. As their adapted
income statements (in $ millions) for 2014 show, Penny Saver sales revenue and net
income were more than three times those of Buy 4 Less.
Required: a. Prepare a common-size income statement for each company. Express all
percentages using one decimal place. Your answers may not add perfectly due to
rounding.
b. Which company did the better job of managing expenses? How did you reach your
conclusion?
The direct labor efficiency variance is caused by
a. Lack of efficiency in preparing the budget.
b. Using more of less direct labor than the standard allows.
c. Setting a higher or lower wage standard than is practical.
d. None of these answer choices are correct.
Which of the following operations would be the most likely to accept a special order
based on seasonality?
a. H&R Block tax service
b. Federal Express
c. An attorney specializing in estate planning
d. A hospital approached by a patient negotiating on the price of kidney stone surgery
The costs that should be included in an outsourcing decision are the:
a. Fixed costs.
b. Variable costs.
c. Unavoidable costs.
d. Relevant costs.
A common mistake managers make in deciding to close a division is
a. Allowing allocated fixed costs to influence the decision.
b. Allowing qualitative issues to influence the decision.
c. Allowing avoidable costs to influence the decision.
d. All of these answer choices are correct.
The change in operating income relative to a change in sales is referred to as
a. CVP.
b. Operating leverage.
c. Margin of Safety.
d. Sales mix.
The formula for a contribution format income statement is
a.Sales revenue – Step costs = Contribution margin- Fixed costs = Operating income.
b.Sales revenue – Cost of goods sold – Discretionary costs = Operating income.
c.Sales revenue – Discretionary costs = Gross profit – Committed costs = Operating
income.
d.Sales revenue – Variable costs = Contribution margin – Fixed costs = Operating
income.
The 2012, 2013, and 2014 partial balance sheets for Ottoman Manufacturing Company
appear below.
Sales revenue for Ottoman was $126,000 for 2012, $120,000 for 2013 and $114,000 for
2014 while cost of goods sold was $84,000 for 2012, $82,400 for 2013 and $72,500 for
2014.
What is the inventory turnover for 2013?
a. 2.75 times
b. 3.17 times
c. 4.00 times
d. 4.14 times
Most companies use a combination of debt and equity to obtain the assets needed to
fund their operations. Two leverage ratios are the debt ratio and the debt-to-equity ratio.
What do each of these measure, and how are they each calculated?
Coffee beans at Starbucks are an example of:
Assume Wilkerson’s Shoe Store has decided to add hiking boots to its inventory to be
more competitive with another shoe store in the same mall where Wilkerson is located.
If Wilkerson can purchase the boots at $45, what price should the store charge to
maintain a 60% markup on the boots?
Complete each of the following contribution format income statements by supplying the
missing numbers.
The net present value approach to capital budgeting involves four steps. List the steps.
Assume your friend has taken an accounting course in high school and is familiar with
the balance sheet and income statement. However, she is not so familiar with the
statement of cash flows.
Required:
Explain to your friend why the statement of cash flows is an important financial
statement just like the balance sheet and income statement. In addition, explain to her
how the information is presented in the statement of cash flows.
Classify each of the following items as a source or use of cash by placing an X in each
appropriate column. Assume all transactions involve cash.
Assume a selling price of $20 per unit, variable cost per unit of $12, and total fixed cost
of $500. If 200 units are sold, calculate the contribution margin and the operating
income.