Unfavorable variances ________ represent bad decisions made by managers.
A) always
B) sometimes
C) never
D) none of the above
Managers’ incentives for performance are defined as the ________.
A) relationship between cost and perceived benefit
B) relationship between goal congruence and managerial effort
C) rewards for managerial effort and actions
D) influence of uncontrollable factors on a manager’s performance
Brad Company planned to produce 12,000 units. This level of production required 20
setups at a cost of $18,000 plus $500 per setup. Actual production was 10,000 units,
requiring 15 setups. Actual setup cost was $26,000. What is the static budget variance
for setup costs?
A) $2,000 Favorable
B) $2,000 Unfavorable
C) $2,500 Favorable
D) $2,500 Unfavorable
The ________ report is a report that displays the financial impact of quality.
A) performance
B) cost of quality
C) cycle time
D) production control
The Wehr Company is preparing a budgeted income statement. The dollar amount of
Wages Expense put on the income statement can be found on the ________.
A) purchases budget
B) sales budget
C) schedule of cash disbursements for purchases
D) operating expense budget
The quantity variance for direct materials can be computed by multiplying the standard
price by the difference between the ________.
A) standard inputs allowed and expected inputs allowed at actual output
B) quantity of inputs actually used and the quantity of inputs that should have been used
for the expected output
C) standard inputs allowed and expected inputs allowed for expected output
D) quantity of inputs actually used and the quantity of inputs that should have been
used for actual output
The following information was gathered for Edwards Company:
Budgeted direct labor hours 75,000
Actual direct labor hours 77,500
Budgeted factory overhead costs $562,500
Actual factory overhead costs $540,000
Cost driver of overhead costs Direct labor hours
Required:
A) Compute the budgeted factory overhead rate.
B) Compute the factory overhead applied.
C) Compute the amount of underapplied or overapplied factory overhead.
Pennsylvania Company is considering two investments. The relevant data follows:
Project A Project B
Cost $205,010 $259,770
Annual cash savings (end of year) $50,000 $60,000
Terminal salvage value $0 $0
Estimated useful life in years 5 5
Minimum desired rate of return 10% 10%
Method of depreciation Straight-line Straight-line
Present Value Present Value
Of $1 of Ordinary
for 5 periods Annuity of $1
for 5 periods
5% 0.7835 4.3295
6% 0.7473 4.2124
7% 0.713 4.1002
8% 0.6806 3.9927
10% 0.6209 3.7908
12% 0.5674 3.6048
14% 0.5194 3.4331
Ignoring taxes, the internal rate of return for Project A is approximately ________.
A) 6%
B) 7%
C) 8%
D) 10%
A proposed project will require the use of ten machines in a company. Each machine
has five alternative uses. What is the simplest way to evaluate the desirability of the
project?
A) incremental analysis
B) cost-volume-profit analysis
C) opportunity cost approach
D) scarce resource approach
Shaley Company has two divisions and the following information available:
a. Net sales were $130,000. $90,000 was attributed to the Jewel Division.
b. Variable costs were $80,000. 40% was attributed to the Song Division.
c. Total separable fixed costs controllable by division managers were $30,000, of which
$20,000 applied to the Jewel Division.
d. Total separable fixed costs, not controllable by division managers were $10,000 in
the Jewel Division and $4,000 in the Song Division.
e. Unallocated costs were $7,000.
Required:
1. Prepare a contribution approach income statement for the company as a whole and
each division.
2. Which division manager should receive a bonus? Why?
Saint Paul Company owns a fixed asset with an original cost of $100,000. The company
estimates it will use the fixed asset for four years, at which time it will be sold for
$10,000. The company uses straight-line depreciation. The book value of the fixed asset
after three years of use is ________.
A) $22,500
B) $25,000
C) $32,500
D) $35,000
Designer Company processes copper ore into two products, C and U. The ore costs $5
per pound and conversion costs are $15 per pound. Designer Company plans to produce
40,000 pounds of Product C and 20,000 pounds of Product U from 60,000 pounds of
ore. Product C sells for $30 per pound and Product U sells for $40 per pound. Assume
the company uses the physical-units method of allocating joint costs. What amount of
joint costs is allocated to Product U?
A) $0
B) $100,000
C) $300,000
D) $400,000
Variable costing is also called ________.
A) functional costing
B) indirect costing
C) absorption costing
D) the contribution approach
If fixed production costs are not allocated to manufactured products, this conveys the
idea that ________.
A) fixed costs are not necessary to manufacture a product.
B) fixed costs are necessary to manufacture a product.
C) variable costs are less important than fixed costs to manufacture a product.
D) fixed costs are more important than variable costs to manufacture a product.
Evermore Company has two service departments, Maintenance and Cafeteria, as well as
two production departments, Mixing and Finishing. Maintenance Department costs are
allocated based on direct labor hours and Cafeteria Department costs are allocated
based on number of employees. The following data are available:
Maintenance Cafeteria Mixing Finishing
Direct costs $7,000 $2,800 $1,200 $400
Direct labor hours 180 50 20 10
Number of employees 36 120 540 60
Assume the step-down method of allocating service departments’ costs is used. Assume
the Maintenance Department is allocated first.
Required:
A) Determine the total costs of the Mixing Department after allocating the service
departments’ costs.
B) Determine the total costs of the Finishing Department after allocating the service
departments’ costs.
New Hampshire Company is considering two investments. The relevant data follows:
Project A Project B
Cost $200,000 $300,000
Annual cash savings(end of year) $50,692 $60,995
Terminal salvage value $50,000 $70,000
Estimated useful life in years 5 5
Minimum desired rate of return 10% 10%
Method of depreciation Straight-line Straight-line
Present Value Present Value
Of $1 of Ordinary
for 5 periods Annuity of $1
for 5 periods
5% 0.7835 4.3295
6% 0.7473 4.2124
7% 0.713 4.1002
8% 0.6806 3.9927
10% 0.6209 3.7908
12% 0.5674 3.6048
14% 0.5194 3.4331
Ignore taxes. Using the net present value method, which project should be accepted?
A) Project A only
B) Project B only
C) both Project A and Project B
D) neither Project A nor Project B
Which is NOT a reason for a static budget variance?
A) Actual sales volume was higher than projected sales volume.
B) Actual variable costs were higher than static budget variable costs.
C) Actual fixed costs were higher than static budget fixed costs.
D) Actual sales volume in current period was higher than projected sales volume in last
period.
An investor holds 5% of the outstanding stock of an investee. The investor plans to sell
the stock in two months. The investor reports the dividends received from the stock as
________.
A) an increase in the investment account
B) a decrease in the investment account
C) dividend revenue on the income statement
D) equity in earnings of the investee on the income statement
The following information is available for Trump Corporation:
Total fixed costs $300,000
Variable costs per unit $100
Selling price per unit $200
If total fixed costs increased to $600,000, then the break-even volume in dollars would
increase by ________.
A) 10.0%
B) 50.0%
C) 100%
D) 200%
If a department in a grocery store is under consideration to be eliminated, which of the
following cost(s) is(are) NOT relevant to the decision?
A) avoidable fixed expenses
B) unavoidable costs
C) common costs
D) B and C
Bradley Company manufactures generic notebooks. Material is introduced at the
beginning of the process in the Printing Department. Conversion costs are applied
uniformly throughout the process. The weighted-average method of process costing is
used. Data for the Printing Department for the month of June follow:
Work-In-Process Inventory, June 1:
Units 15,000
Direct materials (100% complete) $34,000
Conversion costs (30% complete) $14,000
Units started in June 65,000
Units completed in June 62,000
Work-In-Process Inventory, June 30 18,000
Direct materials added in June $285,000
Conversion costs added in June $210,000
With regard to the Work-In-Process Inventory on June 30, materials are 100 percent
complete and conversion costs are 50 percent complete. What are the equivalent units
for conversion costs for June?
A) 62,000
B) 68,300
C) 71,000
D) 80,000
The degree of operating leverage for a firm equals the ratio of ________ to ________.
A) fixed costs; variable costs
B) variable costs; fixed costs
C) fixed costs: operating profit
D) contribution margin; net income
The use of high technology equipment to manufacture products instead of highly skilled
labor usually results in ________.
A) higher discretionary fixed costs
B) higher discretionary variable costs
C) lower risk
D) higher operating leverage
Cornwell Company, a producer of electronic components, has the following
information:
Income tax rate 30%
Selling price per unit $8.00
Variable cost per unit $3.00
Total fixed costs $120,000.00
The break-even point in dollars is ________.
A) $150,000
B) $180,000
C) $192,000
D) $320,000
In a process costing system, which of the following entries is prepared to transfer direct
materials from storage to the cooking process?
A) Debit Direct Materials Inventory, Credit Work-In-Process Inventory—Cooking
B) Debit Direct Materials Inventory, Credit Accounts Payable
C) Debit Work-In-Process Inventory—Cooking, Credit Work-In-Process Inventory—
Storage
D) Debit Work-In-Process Inventory—Cooking, Credit Direct Materials Inventory
Park Ridge Company is considering the replacement of a machine that is presently used
in production. The following data are available:
Old Machine New Machine
Original cost $200,000 $160,000
Useful life in years 10 5
Current age in years 5 0
Book value $100,000 –
Disposal value now $32,000 –
Disposal value in 5 years 0 0
Annual cash operating costs $20,000 $14,000
Adding all five years together, the total relevant costs to consider if the old machine is
kept is ________.
A) $32,000
B) $68,000
C) $80,000
D) $100,000
Who is usually responsible for sales activity variances for income?
A) operating managers in factory
B) marketing managers
C) research and development function
D) product design function
Why do accountants add Depreciation Expense to net income when determining net
cash provided by operating activities? Assume the indirect method is used.
A) because depreciation expense is a source of cash
B) because depreciation expense requires the outflow of cash
C) because depreciation expense is an investing activity that should be reported in the
investing section of the cash flow statement
D) because it cancels the earlier deduction when calculating net income
Latinovich Company has no beginning and ending inventories, and reports the
following data about its only product:
Direct materials used $200,000
Direct labor $80,000
Fixed indirect manufacturing $180,000
Fixed selling and administrative $150,000
Variable indirect manufacturing $130,000
Variable selling and administrative $160,000
Selling price(per unit) $150
Units produced and sold 10,000
Latinovich Company uses the contribution approach to prepare the income statement.
What is the contribution margin?
A) $600,000
B) $910,000
C) $930,000
D) $1,090,000
Which methods to approximate cost functions rely on a logical analysis of the cost
environment instead of an explicit analysis of prior cost data?
A) engineering analysis; account analysis
B) activity analysis; account analysis
C) visual fit method; high low method
D) least-squares regression analysis; activity analysis
Generally Accepted Accounting Principles are most closely connected to ________.
A) management accounting
B) financial accounting
C) internal auditing
D) management auditing