1) Manufacturing companies usually have three types of inventory.
2) When graphing total variable costs, the cost line begins at the origin.
3) A credit balance means that a variance is unfavorable since it decreases income (just
like a revenue).
4) When a company uses the indirect method to present the statement of cash flows,
cash received from the sale of a long-term asset increases the amount of net cash
provided by investing activities.
5) The R-squared statistic determined by regression analysis is sometimes referred to as
the “goodness-of-fit” statistic.
6) Companies evaluate investment center performance the way they evaluate profit
center performance.
7) When using the high-low method, the slope of the mixed cost line is fixed cost per
unit.
8) Another name for a static budget is a flexible budget.
9) The capital expenditures budget is not part of the operating budget.
10) Management by exception saves management time by dictating that managers pay
attention to only unfavorable variances.
11) If a product has a negative contribution margin, it should not be discontinued.
12) When calculating equivalent units in a second or later processing department, all
physical units should be considered 100% complete with respect to transferred-in work
and costs.
13) Investing activities include activities that affect the current asset section of the
balance sheet.
14) Materials costs of product outputs category is similar to indirect materials since it
becomes part of the final product.
15) Lean companies typically emphasize quality.
16) The “total physical units to account for” must be greater than the “total physical
units accounted for.”
17) Sally’s Fries sells three large fries for every two small ones. A small fry sells for $2
with a variable cost of $1. A large fry sells for $3 with a variable cost of $1.25. What is
the weighted-average contribution margin?
A) $0.69
B) $0.65
C) $3.75
D) $1.45
18) Michael Corporation manufactures railroad cars, which is its only product. The
standards for the railroad cars are as follows:
During the month of March, the company produced 1,650 cars. Related production data
for the month follows:
What is the direct materials quantity variance for the month?
A) $ 850 favorable
B) $ 850 unfavorable
C) $ 1,950 favorable
D) $ 1,950 unfavorable
19) LampLight Industries gathered the following information for the month of July:
Overhead flexible budget:
LampLight actually produced 14,000 units in 17,500 machine hours. Total actual
overhead cost of $85,500 consisted of $35,000 variable costs and $50,500 fixed costs.
The standard variable and fixed overhead rates are based on a master (static) budget of
15,000 units. Assume the allocation base for fixed overhead costs is the number of
units.
A. Compute the total manufacturing overhead cost variance.
B. Compute the overhead flexible budget variance.
C. Compute the production volume variance.
20) Monroe Manufacturing produces and sells a product with a price of $100/unit. The
following data has been prepared for its estimated upper and lower levels of activity.
The fixed expenses for this company are
A) depreciation, office salaries, and advertising
B) indirect materials, indirect labor, and depreciation
C) direct materials, direct labor, and depreciation
D) sales salaries, office salaries, and advertising
21) The security department for a department store chain is likely to be classified as
a(n)
A) cost center
B) investment center
C) profit center
D) revenue center
22) Which of the following is an example of a fixed cost for a manufacturer?
A) Income Taxes
B) Machine Repair Expense
C) Fire Insurance on buildings
D) Delivery Fuel Expense
23) LaComedia Dinner Theater sells tickets for dinner and a show for $40 each. The
cost of providing dinner is $26 per ticket and the fixed cost of operating the theater is
$100,000 per month. The company can accommodate 12,000 patrons each month. What
is the projected monthly income if 10,000 patrons visit the theater each month?
A) $68,000
B) $140,000
C) $240,000
D) $40,000
24) The formula to compute the rate of return on net sales is
A) net income/net sales
B) net income/average common stockholder’s equity
C) net income + interest expense, then divide by average total assets
D) net income/interest expense
25) When using cost-plus pricing, the markup is added to the job cost to help
A) cover operating expenses
B) generate a profit
C) determine the price to charge for the job
D) all of the above
26) A favorable direct materials price variance and an unfavorable direct materials
quantity variance might indicate which of the following?
A) Less expensive, inferior materials requiring less than the standard amount were used
in production
B) Less expensive, inferior materials requiring more than the standard amount were
used in production
C) More expensive, superior materials requiring more than the standard amount were
used in production
D) More expensive, superior materials requiring less than the standard amount were
used in production
27) The ________ section from the statement of cash flows includes activities that
affect current assets and current liabilities on the balance sheet.
A) investing
B) operating
C) financing
D) None of the above
28) The ________ budget begins with the number of units to be sold.
A) manufacturing overhead
B) direct materials
C) production
D) capital expenditures
29) Rider Company had the following financial results for last month. Which type of
responsibility center do these financial results reflect?
A) Cost center
B) Profit center
C) Investment center
D) Revenue center
30) Madden Corporation manufactures t-shirts, which is its only product. The standards
for t-shirts are as follows:
During the month of May, the company produced 1,250 t-shirts. Related production
data for the month follows:
What is the direct materials price variance for the month?
A) $4,300 unfavorable
B) $4,300 favorable
C) $3,800 favorable
D) $3,800 unfavorable
31) If a company uses the direct method to prepare the statement of cash flows, how
will the amount of cash purchases of inventory be computed?
A) The amount of cash purchases of inventory is computed as cost of goods sold plus
ending inventory
B) The amount of cash purchases of inventory is computed as cost of goods sold plus
ending inventory plus beginning inventory
C) The amount of cash purchases of inventory is computed as beginning inventory
minus ending inventory minus cost of goods sold
D) The amount of cash purchases of inventory is computed as cost of goods sold plus
ending inventory minus beginning inventory
32) Hammond’s Cookie Toppings makes payments on its inventory purchases as
follows: 25% in the month of purchase, 65% in the following month, and 10% in the
second month following purchase. Budgeted inventory purchases for June, July, and
August are $15,000, $19,000 and $24,000, respectively. At what amount are cash
payments for inventory in August budgeted?
A) $18,500
B) $7,850
C) $5,800
D) $19,850
33) Paying cash dividends would be
A) a cash outflow from operations
B) a cash outflow from financing
C) a cash outflow from investing
D) none of the above
34) Oversight and strategy formulation and guidance for a large corporation are
typically provided by which of the following positions?
A) The CEO
B) The company president
C) The stockholders
D) The Board of Directors
35) Gluck Metal Works stamps sheet metal into blanks that are used in a variety of
consumer products. The average cost for sheet metal is $75 per ton. Gluck’s waste
disposal company charges $50 per ton to dispose of manufacturing waste. The stamping
process currently employed by Gluck generates an average of 120 tons of waste per
month.
What is the annual cost of stamping waste, including both the materials cost and the
disposal cost?
A) $180,000
B) $15,000
C) $108,000
D) $72,000
36) Contribution margin income statement data for the most recent year follow:
Assuming the Dog food line is discontinued, total fixed costs remain unchanged, and
the space formerly used to produce the Dog food line is used to double the production
of Cat food, how will operating income be affected?
A) Increase $90,000
B) Increase $246,000
C) Increase $168,000
D) Decrease $90,000
37) Return on investment and revenue growth would be examples of
A) internal business perspective
B) customer perspective
C) financial perspective
D) learning and growth perspective
38) Warshaw Company budgets payroll at $3,600 per month plus a percentage of
monthly sales. The June operating expense budget includes total payroll of $13,200
with budgeted sales of $160,000. Sales for July are budgeted at $180,000 while
purchases of inventory for July are budgeted at $95,000. Depreciation and insurance for
July are estimated at $1,000 and $600, respectively. Office and administrative expenses
related to purchasing inventory are budgeted at 10% of purchases for the month. The
purchase of $2,500 in equipment and $1,500 in furniture is expected in July.
The total operating expenses budgeted for July are
A) $23,900
B) $14,800
C) $25,500
D) $14,400
39) A company uses the indirect method to prepare the statement of cash flows. It
presents the following amounts on its financial statements.
*Relates solely to the acquisition of inventory
What will appear in the operating activities section related to accounts payable?
A) The increase of $10,000 will be subtracted from net income
B) The increase of $10,000 will be added to net income
C) The increase of $10,000 will be subtracted from cost of goods sold
D) The increase of $10,000 will be added to cost of goods sold
40) What does direct labor costs plus manufacturing overhead equal?
A) Prime costs
B) Operating costs
C) Conversion costs
D) Equivalent costs
41) The Stemple Corporation data for the current year:
What would a horizontal analysis report with respect to current liabilities?
A) Current liabilities are 6.96% of total capital
B) Current liabilities saw a 72.46% increase from the prior year to the current year
C) The current ratio is 1.24
D) Current liabilities saw a 38.00% increase from the prior year to the current year
42) Fit Apparel Company reports the following data for its first year of operation.
What is the cost of goods sold?
A) $650,000
B) $835,000
C) $580,000
D) $670,000
43) Which of the following types of companies use an operating expense budget?
A) Manufacturing
B) Merchandising
C) Service
D) All of the above
44) Bruner Stores wants to have 500 shovels in ending inventory on December 31 .
Budgeted sales for December are 1,950 shovels. The November 30 inventory was 320
shovels. How many shovels should Benson Stores purchase for December?
A) 2,770
B) 1,770
C) 2,450
D) 2,130
45) The Pasta Division of Whole Grain Corporation had sales of $5,500,000 and
operating income of $1,375,000 last year. The total assets of the Pasta Division were
$2,750,000, while current liabilities were $330,000. Whole Grain Corporation’s target
rate of return is 12%, while its weighted average cost of capital is 8%. The effective tax
rate for the company is 30%.
What is the Pasta Division’s sales margin?
A) 20.00%
B) 25.00%
C) 6.00%
D) 50.00%
46) The amount of overallocation or underallocation should be reflected as an
adjustment to cost of goods sold under what circumstances?
A) In all circumstances
B) If most of the inventory produced during the period has not been sold
C) If most of the inventory produced during the period has been sold
D) Under no circumstance
47) Which of the following is most likely to be the cost driver for the packaging and
shipping activity?
A) Number of setups
B) Number of orders shipped
C) Number of units produced
D) Hours of testing
48) What ethical standard would you violate if you take pens home from work for
personal use?
A) Integrity
B) Competence
C) Confidentiality
D) Credibility
49) The balance sheet for Bostick Corporation follows:
Operating income for the period was $13,650, while cash dividends paid were $3,770.
The overall total of the uses of cash for Bostick Corporation for the year was
A) $39,070
B) $32,320
C) $13,800
D) $46,120
50) Biltz Company uses a predetermined overhead rate based on machine hours to
allocate manufacturing overhead to jobs. During the year, the company actually
incurred manufacturing overhead costs of $582,000 and 135,000 direct labor hours
were worked. The company estimated that it would incur $525,000 of manufacturing
overhead during the year and that 150,000 direct labor hours would be worked.
By how much was manufacturing overhead overallocated or underallocated for the
year?
A) $57,000 overallocated
B) $57,000 undererallocated
C) $109,500 underallocated
D) $109,500 overallocated
51) Which term below best describes the quality cost category for “preventive
maintenance on machinery”?
A) Appraisal costs
B) Prevention costs
C) Internal failure costs
D) External failure costs
52) Here are selected basic data for Wilson Company:
If the company allocates overhead based on direct labor cost, what are the total actual
manufacturing overhead costs?
A) $280,500
B) $171,400
C) $258,100
D) $226,800
53) A system that focuses on activities as the fundamental cost object and uses the costs
for these activities to compile indirect costs of goods and services is
A) appraisal costs
B) value engineering
C) activity-based costing
D) prevention costs
54) The Alec Corporation sells inflatable pools. On June 30, there were 105 pools in
ending inventory, and accounts receivable had a balance of $12,000. Sales of inflatable
pools (in units) have been budgeted at the following levels for the upcoming months:
The company has a policy that the ending inventory of inflatable pools should be equal
to 30% of the number of pools to be sold in the following month. The Outdoor Leisure
Store sells the inflatable pools for $100 each. The company’s collection history shows
that 30% of the sales in a month are paid for by customers in the month of sale, while
the remainder is collected in the following month.
Required:
a. Prepare a merchandise purchases budget showing how many pools should be
purchased in each of the months including July, August, and September.
b. Prepare a cash collections budget for each of the months including July, August, and
September.
