The goal of zero defects will generally lead to minimizing quality costs.
The primary advantage of establishing cost pools is reducing the number of individual
cost allocations that are made.
The first budget prepared in a master budget is the cash receipts budget.
Monica paid $12 for a music CD for which she later was offered $15. After that
someone offered her $18 for the CD. If Monica keeps the CD, the amount of her
opportunity cost is $33.
A constraint is a factor that restricts sales of a company’s products or services.
If a budgeting system is designed correctly, top management will not have to get
involved in the process.
The instantaneous computation power of spreadsheet software makes it ideal for
answering “what-if” questions regarding present values.
One of the advantages of activity-based costing systems over traditional systems is that
ABC systems require less record-keeping.
As companies have become more highly automated, overhead costs have become a
larger part of total manufacturing cost.
The current ratio is one of the most common measures of solvency.
In performing capital budgeting analysis that takes time value of money into account,
cash flows generated by a capital project are assumed to be reinvested at the project’s
rate of return.
Cost of goods sold must be determined prior to computing cost of goods manufactured.
The amount of joint costs allocated to a product must be considered when deciding
whether to sell a joint product at the split-off point or later after additional processing.
Service companies accumulate information about the cost of services provided, and
they report those costs in an inventory account.
The direct method of allocating service department costs does not take into account the
fact that service departments often provide assistance to other service departments.
Operating leverage enables a company to convert small changes in fixed costs into
dramatic changes in profitability.
Cash payments for interest expense on a bond payable would be classified as a
financing activity.
To be relevant in decision making, cost or revenue information must be future-oriented
and must not differ between the alternatives.
A margin of safety of 30% means that every dollar in revenue generates thirty cents in
profit.
Which of the following costs is an example of a batch-level cost?
A. Assembly setup costs
B. Materials handling costs
C. Shipping and handling costs to ship an order to a customer
D. All of these.
The Abel Company provided the following information from its financial records:
What is the amount of the company’s earnings per share?
A. $0.82
B. $1.00
C. $0.90
D. $0.75
Morrisey Company has two investment opportunities. Both investments cost $5,500
and will provide the same total future cash inflows. The cash receipt schedule for each
investment is given below:
The net present value of Investment II assuming an 8% minimum rate of return would
be which of the following amounts? (Do not round your PV factors and intermediate
calculations. Round your answer to nearest whole dollar.)
A. $6,492
B. $992
C. $5,880
D. $380
Jason had been operating his machine for an entire month before he realized that it was
generating more scrap than usual. Which advantage of budgeting would have helped
him identify this problem sooner?
A. Performance measurement
B. Coordination
C. Planning
D. Corrective action
The budgeting technique that provides for employee input into the planning process is
known as:
A. continuous budgeting.
B. perpetual budgeting.
C. participative budgeting.
D. zero-based budgeting.
Jessup Company expects to incur overhead costs of $20,000 per month and direct
production costs of $125 per unit. The estimated production activity for the upcoming
year is 1,000 units. If the company desires to earn a gross profit of $50 per unit, the
sales price per unit would be which of the following amounts?
A. $175
B. $195
C. $415
D. $290
Kirsten believes her company’s overhead costs are driven (affected) by the number of
direct labor hours because the production process is very labor intensive. During the
period, the company produced 5,000 units of Product A requiring a total of 1,600 labor
hours and 2,500 units of Product B requiring a total of 400 labor hours. What allocation
rate should be used if the company incurs overhead costs of $20,000?
A. $10 per labor hour
B. $2.67 per unit
C. $12.50 per labor hour for Product A and $50 per labor hour for Product B
D. None of these.
Based on the income statements shown below, which division has the cost structure
with the highest operating leverage?
A. Bottled Water.
B. Fruit Juices.
C. Soft Drinks.
D. The three divisions have identical operating leverage.
Broadway Company produces and sells two models of calculators. The following
monthly data are provided:
Total monthly fixed costs are expected to be $15,000. What is the break-even volume in
sales dollars at the expected sales mix? (Do not round your intermediate calculations.)
A. $19,231
B. $43,478
C. $68,182
D. $63,158
The Russell Company provides the following standard cost data per unit of product:
During the period, the company produced and sold 22,000 units incurring the following
costs:
The direct labor usage variance was:
A. $15,000 unfavorable.
B. $15,000 favorable.
C. $14,625 unfavorable.
D. $14,625 favorable.
Select the incorrect break-even equation from the following:
A. Total contribution margin = total variable costs
B. Total contribution margin = total fixed costs
C. Total fixed costs/contribution margin ratio = break-even sales in dollars
D. Total revenue = total costs
Hard Nails and Bright Nails are competing nail salons. Both companies have the same
number of customers. Both charge the same price for a manicure. The only difference is
that Hard Nails pays its manicurists on a salary basis (i.e., a fixed cost structure) while
Bright Nails pays its manicurists on the basis of the number of customers they serve
(i.e., a variable cost structure). Both companies currently make the same amount of net
income. If sales of both salons increase by an equal amount, Hard Nails:
A. will earn a higher profit than Bright Nails.
B. will earn a lower profit than Bright Nails.
C. will earn the same amount of profit as Bright Nails.
D. The answer cannot be determined from the information provided.
The Winchester Company estimates for the 2014 accounting period that its overhead
costs will amount to $595,000 and that it will work 85,000 direct labor hours. If actual
overhead costs for the year amounted to $599,000 and actual labor hours amounted to
87,000, then overhead would be:
A. overapplied by $10,000.
B. underapplied by $10,000.
C. overapplied by $14,000.
D. underapplied by $4,000.
The following information relates to Marshall Manufacturing’s 2013 accounting period:
Based on this information, what is the company’s net income for 2013?
A. $40,000
B. $70,000
C. $30,000
D. $42,000
Using the step method of allocating service department costs, the costs are allocated to:
A. service departments only.
B. operating departments only.
C. both service departments and operating departments.
D. neither service departments nor operating departments.
The review of a capital budgeting decision to determine whether a project was accepted
that should have been rejected is referred to as:
A. an audit.
B. a preaudit.
C. a postaudit.
D. a capital review.
Which manager is usually held responsible for labor price variances?
A. Sales manager
B. Purchasing agent
C. Marketing manager
D. Production supervisor
Under the direct method, which of the following would not be included in the operating
section of the cash flow statement?
A. Cash payments for income taxes
B. Cash payments to purchase insurance
C. Cash payments to purchase long-term equipment
D. Cash receipts from customers
The budget director of Mandy’s Kitchen Shop has prepared the following sales budget.
The company had $50,000 of accounts receivable at January 1. The company normally
collects 100 percent of its accounts receivable in the month following the sale.
Required:(a) Complete the schedule of cash receipts by filling in the missing amounts.
What are the total budgeted cash receipts for the first quarter.
(b) Determine the amount of accounts receivable that Mandy’s should report on the first
quarter pro forma balance sheet.
All of the following are downstream costs except:
A. packaging costs
B. advertising
C. research and development
D. sales commissions
Bright Minds Toy Company prepared the following sales budget for the second quarter.
Projected sales for each of the first three months of operations are as follows:
Bright Minds expects to collect 70% of the sales on account in the month of sale, and
20% in the month following the sale, and the remainder in the second month following
the sale.
What is the ending accounts receivable balance that would be reported on the second
quarter pro forma balance sheet?
A. $164,700
B. $121,500
C. $283,500
D. $86,400
What should be the organizational purpose for identifying and calculating variances?
What is a volume variance, and what is its cause? Under what circumstances is the
volume variance unfavorable?
Indicate whether each of the following statements is true or false.
The net present value method provides a direct measure of the rate of return to be
expected from a capital investment project.
Managers who want to know the rate of return to expect from a capital investment
project should calculate the net present value.
The internal rate of return for a capital investment is the rate that would produce a net
present value of zero.
For a capital investment project to be acceptable, the internal rate of return should be
higher than the hurdle rate.
A capital investment project that has a positive net present value may have an internal
rate of return that is lower than the hurdle or required rate of return.
Bleeker Street Company produces and sells two lines of business suits, the
Contemporary and the Traditionalist. The following monthly data are provided:
Budgeted net income is $45,000 per month.
Required:
1) Calculate the monthly break-even sales in units and dollars based on the budgeted
sales mix.
2) Calculate the firm’s overall margin of safety in dollars.
3) Compute the firm’s profit assuming 1,500 units are sold in a 1:1 sales mix.
4) Explain any difference between the firm’s budgeted net income of $35,000 and your
answer to Requirement 3.
Use the reconciliation approach to compute cash paid for salaries in 2014 for the
Norton Corporation. The income statement reported salaries expense as $49,800.
Beginning and ending salaries payable balances were $3,720 and $2,840 respectively.
Fox Company believes that a market exists for an electronic game with a sales price of
$40 per unit. The annual fixed costs are estimated at $700,000.
Required:
Fox forecasts sales of 50,000 units and wants to earn a profit of $200,000 per year.
What is the maximum amount of variable costs per unit that will allow it to achieve its
profit goal?
Diaz Company had the following comparative balance sheet information for 2014 and
2013:
Diaz reported net income for 2014 of $40,000. No property, plant, & equipment was
disposed of during the year. Diaz uses the indirect method to prepare the statement of
cash flows.
Calculate Diaz’s cash flow from financing activities for 2014.
Describe what is meant by the time value of money.