Dun & Bradstreet’s Industry Norms and Key Business Ratios provide financial ratios
for key industries, as well as condensed common-sized balance sheets and income
statements.
In a bottom-up budget approach, at each higher level of management, the budget is
reviewed and may be altered to satisfy the competing needs of various units within the
organization.
On the cash flow statement, the gain on the sale of a delivery truck is an investing
activity.
The variable overhead spending variance is the difference between the actual cost of
variable overhead items and the amount of variable overhead cost that is expected to be
incurred at the budgeted level of activity base experienced.
The soft drink bottler Dr. Pepper is an example of a company that would use a process
costing system.
An activity-based analysis that focuses only on manufacturing overhead improves
GAAP-based financial statements.
The predetermined overhead rate is calculated as Budgeted Total Manufacturing
Overhead divided by Budgeted Activity
The flexible budget variance for direct labor is separated into two components: a direct
labor rate variance and a direct labor quantity variance.
The accounting rate of return is also known as the
a. Internal rate of return.
b. Unadjusted rate of return.
c. Return on investment.
d. None of these answer choices are correct.
The Institute of Management Accountants (IMA) and many other professional
organizations have a code of conduct to direct the membership ‘s ethical behavior. The
IMA standards include competence, confidentiality, integrity, and credibility. For each
standard, give a situation in which the code of conduct will help a management
accounting in his or her decision making.
Which of the following is not a leverage ratio?
a. Debt-to-equity ratio
b. Times interest earned ratio
c. Price earnings ratio
d. Debt ratio
If sales price and variable cost remain constant and fixed costs decrease, contribution
margin will
a. Increase.
b. Decrease.
c. Remain the same.
d. Vary, depending on the circumstances.
Michael Porter, a management strategy expert, developed a strategic framework in
which a firm has ways to develop a competitive advantage. Which of the following is
one of the ways Porter suggested a firm use to develop a competitive advantage?
a.Supply chain management
b.Low-cost production
c.Just-in-time management
d.None of these answer choices are correct
Which of the following is an advantage of the accounting rate of return?
a. It is easy to determine the time value of money used in the calculation
b. Accounting records are generally not based on cash flow, so the information for the
calculation is readily available.
c. Since depreciation is not included in the calculation, the result is not distorted.
d. None of these answer choices are correct.
If a company sells a single product and the selling price per unit and the variable cost
per unit both increase by 5% while fixed costs remain the same, then
a. Contribution margin per unit increases and breakeven in units increases.
b. Contribution margin per unit increases and breakeven in units decreases.
c. Contribution margin remains the same and breakeven in units increases.
d. Contribution margin decreases and breakeven in units decreases.
Which of the following variances would not be investigated by a manager following the
management by exception principle?
a. A 10% favorable variance in raw materials price
b. A 10% unfavorable variance in direct labor rates
c. A 10% unfavorable variance in payroll tax expense
d. An unfavorable variance that has increased by 5% in each of the last five months
Which of the following is an example of a customer-oriented nonfinancial measure?
a. Product flexibility
b. Product defects
c. Production volume
d. New product introductions
Maddox Industries reported sales of $170,000 on its income statement. During the year,
accounts receivable decreased by $25,000 and accounts payable decreased by $35,000.
Maddox uses the direct method to determine the net cash provided by operating
activities on the statement of cash flows. What is the amount of sales revenue adjusted
to a cash basis for the year?
a. $110,000
b. $160,000
c. $185,000
d. $195,000
A capital asset is
a. A variable cost
b. An item on the income statement.
c. A long-term asset.
d. None of these answer choices are correct.
ABC Company manufactures sleeping bags. It has the capacity to produce 6,000
sleeping bags a year, but only produced 5,700 bags that could be sold because 5% of the
bags had zippers that were defective. Under the theory of constraints, which of the
following would be the most likely action to eliminate the problem of defective
zippers?
a. Outsource the installation of zippers.
b. Redesign the sleeping bag to have a longer zipper.
c. Purchase a better-quality zipper.
d. Replace sleeping bag production with a product that does not have defects.
Budgets assist managers in all the following aspects of management except
a. Planning
b. Controlling
c. Leading
d. Evaluating
The accounting rate of return is also known as the
a. Simple rate of return.
b. Internal rate of return.
c. Present value of an investment.
d. None of these answer choices are correct.
The income statement for Otto Construction Company appears below:
Average total assets total $240,000. Otto’s income tax rate is 25%.
What is the gross margin percentage?
a. 12.5%
b. 15.8%
c. 35.6%
d. 44.4%
A 10 percent increase in sales volume will result in
a.A 10 percent decrease in total variable cost.
b.A 10 percent decrease in unit variable cost.
c.A 10 percent increase in total variable cost.
d.A 10 percent increase in unit variable cost.
A difference in GAAP-based product costing and activity-based costing is that under
activity-based costing
a. All costs are classified as product and period costs whereas under GAAP they are
classified by behavior.
b. Sales less cost of goods sold is classified as gross profit whereas under GAAP this
subtotal is titled contribution margin.
c. Selling and administrative costs are allocated to products if they are incurred to
provide resources that are consumed by unit-level, batch-level or product-level
activities.
d. All costs are traceable whereas in GAAP-based costing all costs are not traceable.
Complete the table below by placing an “X” under each heading that classifies the costs
as avoidable or unavoidable in a decision to accept a special order.
Barber Manufacturing currently makes 2,000 high-end kaleidoscopes each year. Barber
has been manufacturing all parts of the units. However, the company has found a
manufacturing company that can provide the tubes at a price of $14 each. Since the
company ‘s machine that molds the tubes is getting old, the company is considering
purchasing the tubes. If the company purchases the tubes, the machine will be idle.
Barber ‘s standard cost of the molding process for one unit is listed below.
Required
Should Barber purchase the tubes or continue manufacturing them? Why?
Nantucket, Inc. uses a standard cost system in which direct material is carried at
standard cost. Standards for one unit of product are: standard quantity of 2 feet,
standard price $1.50 per foot. During May, Nantucket purchased 16,000 feet of direct
material at a cost of $30,000 and used 15,500 feet in production of 7,500 units.
Required:
Calculate the direct materials price and quantity variances and indicate whether the
variances are favorable or unfavorable.
Identify which costing method is more likely to be used to accumulate costs for the
following products or services by marking an ‘œX’ in the appropriate column.
The formula for the return on common stockholders’ equity is
