1) Budgets do not provide benchmarks to help managers evaluate performance.
2) Contribution margin income statements organize costs by behavior.
3) When deciding whether to discontinue a product, managers should only consider the
costs that will be saved.
4) A separate work in process inventory account is maintained for each process.
5) The times-interest-earned ratio is a measure of ability to cover debt.
6) All favorable variances are investigated when using management by exception.
7) Cost-plus price minus desired profit equals total cost.
8) Costs can be either direct or indirect, depending upon the cost object.
9) GAAP must be followed when preparing managerial accounting reports.
10) The net present value method assumes that all cash inflows are immediately
reinvested at a rate of return equal to the internal rate of return.
11) Departmental overhead rates typically do a better job of matching each department’s
overhead costs to the products that use the department’s resources than do plantwide
overhead rates.
12) Job costing systems accumulate the costs for each individual job.
13) The line determined by regression analysis is sometimes referred to as the “line of
worst fit.”
14) The philosophy that centers on production as needed is known as
A) Supply-chain management
B) TQM
C) ERP
D) JIT
15) A tennis ball maker gives us its data for the year:
Units in ending WIP inventory were 90% complete for materials and 60% complete for
conversion costs.
On December 31, the cost per equivalent unit for conversion costs would be closest to
A) $ 1.65
B) $ 1.80
C) $ 1.48
D) $ 0.89
16) Place the letter for the appropriate value chain activity on the line in front of each
item. Letters may be used more than once or not at all. Assume a manufacturer.
A. research and development D. marketing
B. design E. distribution
C. production or purchases F. customer service
____depreciation expense on equipment in factory
____delivery expense
____toll free line for customer orders
____customer support hot line
____assembly line workers’ wages
17) Terrific Toys Company manufactures and sells children’s skateboards. Each
skateboard requires four bearings. For September, Terrific Toys Company has budgeted
skateboard sales of 530 skateboards, while 570 skateboards are scheduled to be
produced. Terrific Toys Company will begin September with 220 bearings in its
beginning inventory. How many bearings should Terrific Toys Company purchase for
September?
A) 310
B) 2,280
C) 2,500
D) 2,060
18) Which term below best describes the quality cost category for “cost of testing
toasters before sale”?
A) Appraisal costs
B) Prevention costs
C) Internal failure costs
D) External failure costs
19) What term represents the variable cost per unit of activity in the equation: y = vx +
f? (Assume x represents the volume of activity.)
A) v
B) f
C) y
D) vx
20) American Eagle Outfitters classifies the denim jeans on the shelves at its retail
locations as
A) finished goods inventory
B) work in process inventory
C) merchandise inventory
D) raw materials inventory
21) Izzy Division of Marine Boats Corporation had the following results last year (in
thousands).
Management’s target rate of return is 10% and the weighted average cost of capital is
8%.
What is the Izzy Division’s Residual Income (RI)?
A) $ 70,000
B) $ 400,000
C) $ 700,000
D) $ 300,000
22) Fosnight Enterprises prepared the following sales budget:
The expected gross profit rate is 30% and the inventory at the end of February was
$10,000. Desired inventory levels at the end of the month are 20% of the next month’s
cost of goods sold.
What is the budgeted cost of goods sold for May?
A) $3,600
B) $4,200
C) $2,400
D) $8,400
23) The term ________ is best described as “the length of time required to recover the
cost of an investment.”
A) time value of money
B) payback period
C) capital budgeting
D) annuity
24) Hushovd Iron Works has collected the following data for its Thunderbolt line of
products:
What is the direct materials quantity variance?
A) $3,750 unfavorable
B) $3,750 favorable
C) $6,750 unfavorable
D) $6,750 favorable
25) The following information relates to Woolf Unlimited for the past two years.
What is the price-earnings ratio for the current year?
A) 13.33
B) 1.75
C) 13.00
D) 10.00
26) Harvey Automobiles uses a standard part in the manufacture of several of its trucks.
The cost of producing 40,000 parts is $120,000, which includes fixed costs of $60,000
and variable costs of $60,000. The company can buy the part from an outside supplier
for $3.00 per unit, and avoid 30% of the fixed costs.
Assume that factory space freed up by purchasing the part from an outside source can
be used to manufacture another product that can be sold for $12,000 profit. If Harvey
Automobiles makes the part, what will its operating income be?
A) $54,000 greater than if the company bought the part
B) $30,000 less than if the company bought the part
C) $30,000 greater than if the company bought the part
D) $150,000 greater than if the company bought the part
27) The ________ section from the statement of cash flows includes activities that
affect net income on the income statement.
A) operating
B) financing
C) investing
D) None of the above
28) A merchandiser’s purchases are equivalent to a manufacturer’s
A) cost of goods sold
B) cost of goods manufactured
C) raw materials inventory
D) work in process inventory
29) Stanley’s Bicycles store buys bicycles on average for $600 and sells them on
average for $750. He pays a sales commission of 15% of sales revenue to his sales staff.
Stanley pays $1,400 a month rent for his store, and also pays $3,000 a month to his staff
in addition to the commissions. Stanley sold 120 bicycles in June. If Stanley prepares a
traditional income statement for the month of June, what would be his operating
income?
A) $90,000
B) $35,900
C) $100
D) $18,000
30) Mom and Pop’s Ice Cream Shoppe sells ice cream cones for $5.00 per customer.
Variable costs are $2.25 per cone. Fixed costs are $3,000 per month. What is the
company’s contribution margin ratio?
A) 182%
B) 45%
C) 3%
D) 55%
31) (Present value tables are needed.) Cleveland Cove Enterprises is evaluating the
purchase of an elaborate hydraulic lift system for all of its locations to use for the boats
brought in for repair. The company has narrowed their choices down to two: the B14
Model and the F54 Model. Financial data about the two choices follows.
What is the net present value of the F54 Model?
A) $15,260 positive
B) $48,605 negative
C) $191,395 positive
D) $156,395 positive
32) In a special sales order decision, incremental fixed costs that will be incurred if the
special order is accepted are considered to be
A) opportunity costs
B) irrelevant to the decision
C) relevant to the decision
D) sunk costs
33) Managers must consider which of the following when pricing a product or service?
A) All costs
B) Only period costs
C) Only manufacturing costs
D) Only variable costs
34) A company finds that the residual value of $8,000 for the equipment in a capital
budgeting project has been inadvertently omitted from the calculation of the net present
value (NPV) for that project. How does this omission affect the NPV of that project?
A) The project’s NPV should be higher, but be less than $8,000 higher, with the residual
value included
B) The project’s NPV should be $8,000 higher with the residual value included
C) The project’s NPV should be $8,000 lower with the residual value included
D) The project’s NPV should be lower, but be less than $8,000 lower, with the residual
value included
35) Barbara’s Candles provides the following information about its single product.
What is the breakeven point in units?
A) 2,250
B) 1,375
C) 344
D) 563
36) Moe’s Garage management has budgeted the following amounts for its next fiscal
year:
If Moe’s can reduce fixed expenses by $20,000, by how much can variable expenses per
unit increase and still allow the company to maintain the original breakeven sales in
units?
A) $19.20
B) $25.80
C) $0.80
D) $20.00
37) The number of rework units would be an example of measuring which perspective?
A) Financial
B) Customer
C) Internal business
D) Learning and growth
38) The following information was gathered for the Wesley Corporation for the most
recent year. Manufacturing overhead is allocated using direct labor hours.
What is the amount of overallocated or underallocated overhead for the year?
A) $ 145,000 overallocated
B) $ 145,000 underallocated
C) $ 86,000 underallocated
D) $ 86,00 overrallocated
39) O’Mally Department Stores is considering two possible expansion plans. One
proposal involves opening 5 stores in Indiana at the cost of $1,920,000. Under the other
proposal, the company would focus on Kentucky and open 6 stores at a cost of
$2,500,000. The following information is available:
The payback period for the Kentucky proposal is closest to
A) 4.5 years
B) 6.25 years
C) 5.00 years
D) 31.25 years
40) The person who is directly responsible for the company’s operations, such as
research and development, production and distribution is the
A) CFO
B) Treasurer
C) CEO
D) COO
41) Black Productions has three models: D, E, and F. The following information is
available:
Black Productions is thinking of discontinuing model F because it is reporting an
operating loss. All fixed expenses are unavoidable. Assuming Black Productions
discontinues model F and does not replace it, what effect will this have on operating
income?
A) Decrease $10,000
B) Increase $10,000
C) Increase $6,000
D) Decrease $6,000
42) 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 accounts receivable turnover for the current year?
A) 0.04 times
B) 42.00 times
C) 14.60 times
D) 25.00 times
43) A company reported the following amounts of net income:
Which of the following is the percentage change from Year 1 to Year 2?
A) 24.00%
B) 25.00%
C) 124.00%
D) 55.00%
44) Label each item below as relevant or irrelevant in making a decision.
a)Cost of roof repair made on rental property last year
b)The cost of insurance on a new vehicle when deciding to buy a new vehicle
c)Cost of new equipment under evaluation to replace used equipment
d)Original cost of old equipment that is being evaluated for replacement
e)Cost of previous year’s insurance policy on old equipment being evaluated for
replacement
f)Accumulated depreciation on old equipment being evaluated for replacement
45) Where would period costs be found on the financial statements?
A) Under current assets on the balance sheet
B) Under current liabilities on the balance sheet
C) As operating expenses on the income statement in the period incurred
D) As operating expenses on the income statement for a previous period
46) SportSupplies Corporation has budgeted purchases of inventory for December of
$140,000. Expected beginning inventory on December 1 and ending inventory on
December 31 are $90,000 and $120,000, respectively. If cost of goods sold averages
88% of sales, what are budgeted sales for December?
A) $125,000
B) $96,800
C) $193,182
D) $397,727