Listed below are selected accounts for Dentice Corporation:
December 31, 2013 December 31, 2014
Accounts Receivable $20,000 $40,000
Inventory $70,000 $30,000
Accounts Payable $20,000 $88,000
Wages payable $22,000 $1,000
For the year ended December 31, 2014, net income was $50,000 and depreciation
expense was $0. The net cash provided by operating activities for the year ending
December 31, 2014 was ________. Assume the indirect method is used.
A) $70,000
B) $90,000
C) $108,000
D) $117,000
The balanced scorecard focuses management attention on the ________.
A) measures of productivity
B) measures that drive an organization to achieve its goals
C) measures that increase cycle time
D) measures that decrease quality costs
California 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 B is approximately ________.
A) 5%
B) 6%
C) 7%
D) 8%
Mueller Company is considering the replacement of equipment used in operations. The
following data are available:
Old Equipment New Equipment
Original cost $93,000 $60,000
Useful life in years 13 6
Current age in years 7 0
Book value $57,000 –
Disposal value now $50,000 –
Disposal value in 6 years 0 0
Annual cash operating costs $14,000 $11,000
Required:
A) Prepare a cost comparison for replacing the old equipment. Use only relevant items
and add the items together for the next 6 years.
B) Should the old equipment be replaced?
When deciding whether to add or delete a department, managers should keep the
department as long as ________ from the department exceeds ________.
A) contribution margin; variable costs
B) contribution margin; common costs
C) contribution margin; avoidable fixed costs
D) contribution margin; unavoidable fixed costs
Minnesota Company has no beginning and ending inventories, and has the following
data about its only product:
Fixed manufacturing costs $92,000
Fixed selling and administrative costs $69,000
Variable manufacturing costs $1,030,000
Variable selling and administrative costs $120,000
Selling price(per unit) $125
Units produced and sold 23,000
Assume there is excess capacity. The company has received a special order for 1,000
units at $60.00 per unit. If the special order is accepted, what will be the effect on net
income?
A) net income increases by $3,000
B) net income increases by $6,000
C) net income increases by $10,000
D) net income increases by $15,220
________ is the item that restricts or constrains the production or sale of a product.
A) A limiting factor
B) A scarce resource
C) Floor space
D) All of the above
To evaluate managers’ decisions and the productivity of organizational units,
organizations use ________.
A) annual financial statements
B) quarterly financial statements
C) bimonthly financial statements
D) performance reports
The net present value method computes the present value of all ________ using a
minimum desired rate of return.
A) expected future cash inflows only
B) expected future cash outflows only
C) expected future cash inflows and expected future cash outflows
D) past cash inflows
In a job-order system, the actual factory overhead costs incurred are $150,000. Applied
factory overhead costs are $160,000. What entry is needed to dispose of the overhead
variance? Use the immediate write-off method.
A) Debit Factory Department Overhead Control, Credit Factory Department Overhead
Applied
B) Debit Factory Department Overhead Applied, Credit Cost of Goods Sold
C) Debit Factory Department Overhead Applied, Credit Finished Goods Inventory
D) Debit Factory Department Overhead Control, Credit Cost of Goods Sold
Smith Company has developed the following information about two products:
Cost Per Unit Cost Per Unit
Approach Product 1 Product 2
Traditional $5,400 $2,500
ABC $6,000 $2,400
If managers believe the ABC approach is more accurate to cost products than the
traditional approach, then ________.
A) the traditional approach underestimates the profitability of Product 1 and
overestimates the profitability of Product 2
B) the traditional approach overestimates the profitability of Product 1 and
underestimates the profitability of Product 2
C) the ABC approach underestimates the profitability of Product 1 and overestimates
the profitability of Product 2
D) the ABC approach overestimates the profitability of Product 1 and underestimates
the profitability of Product 2
Two types of costs that each combine fixed cost and variable cost behaviors are
________ and ________.
A) capacity costs; incremental costs
B) semi-fixed costs; semivariable costs
C) composite costs; average costs
D) step costs; mixed costs
The following information is available for the Novin Company:
Net income for the year ended December 31, 2014 $177.4
Sales for the year ended December 31, 2014 1,606.0
Retained earnings, December 31, 2014 150.0
Retained earnings, December 31, 2013 180.0
Total assets, December 31, 2014 470.0
Total assets, December 31, 2013 442.0
Total liabilities, December 31, 2014 240.0
Total liabilities, December 31, 2013 182.0
What is the return on sales for the year ended December 31, 2014?
A) 2.9%
B) 7.9%
C) 11.0%
D) 33.9%
Smith Company gathered the following information for the year ended April 30, 2015:
Units produced 11,200
Units expected to be produced 11,200
Units sold 8,400
Direct labor $99,600
Direct materials used $155,000
Fixed selling and administrative expenses $64,800
Fixed manufacturing overhead $52,640
Variable manufacturing overhead $70,200
Direct materials inventory, April 30, 2015 0
Direct materials inventory, April 30, 2014 0
Work-in-process inventory, April 30, 2015 0
Work-in-process inventory, April 30, 2014 0
Finished goods inventory, April 30, 2014 0
Required:
A) Under variable costing, what is the cost of the finished goods inventory on April 30,
2015?
B) Under absorption costing, what is the cost of the finished goods inventory on April
30, 2015?
If the sales activity variance was $8,000 Favorable and the static budget variance was
$10,000 Favorable, then the flexible budget variance was ________.
A) $2,000 Favorable
B) $2,000 Unfavorable
C) $18,000 Favorable
D) $18,000 Unfavorable
In target costing, managers design a product so that the product’s cost does not exceed
________.
A) the product’s production costs
B) the product’s nonproduction costs
C) the product’s production and nonproduction costs
D) the product’s target cost
Illinois Company has budgeted the following costs for the production of its only
product:
Direct Materials $35,000
Direct Labor 25,000
Variable indirect production costs 30,000
Fixed indirect production costs 15,000
Variable selling and administrative costs 7,500
Fixed selling and administrative costs 12,500
Total Costs $125,000
Illinois Company has a target profit of $40,000. The company will produce 1,000 units.
The market price is $160 per unit. What is the target cost per unit?
A) $40
B) $120
C) $125
D) $165
The ________ approach computes the differences in cash flows between two
alternatives and then finds the present value of these differences.
A) differential
B) payback
C) total project
D) sensitivity
In process costing, units that are started but NOT completed by the end of the
accounting period are called ________.
A) Cost of Goods Sold
B) ending Direct Materials Inventory
C) ending Work-In-Process Inventory
D) ending Finished Goods Inventory
Ivanovich Company produces 2,500 units. Each unit was expected to require 2 labor
hours at a cost of $10 per hour. Total labor cost was $52,250 for 4,750 hours worked.
Direct labor is measured in labor hours. What is the flexible budget variance for direct
labor?
A) $2,250 Favorable
B) $2,250 Unfavorable
C) $7,500 Favorable
D) $7,500 Unfavorable
Benson Company’s income statement showed rent expense of $16,000. The beginning
balance in Prepaid Rent was $5,000. The ending balance in Prepaid Rent was $3,000.
The cash paid for rent was ________.
A) $14,000
B) $16,000
C) $19,000
D) $24,000
Garcia Company manufactures phones in a two-department process that includes
Assembly and Finishing. Information about the Assembly Department follows:
Direct materials added $310,000
Direct labor 460,000
Factory overhead 230,000
Total costs to account for $1,000,000
There was no beginning inventory and 80,000 units were started in the Assembly
Department. By the end of the month, 67,200 units were completed and transferred to
the Finishing Department and 12,800 units were still in process. The partially complete
units were 100 percent complete with regard to direct materials but 80 percent complete
with regard to conversion costs. The equivalent units for conversion costs for the month
for the Assembly Department are ________.
A) 12,800
B) 67,200
C) 77,440
D) 80,000
Wingate Company has the following information available for three divisions of the
company:
Division A Division B Division C
Sales $250,000 $400,000 $350,000
Variable expenses 52% 30% 40%
Fixed expenses controllable by division manager $60,000 $200,000 $175,000
Fixed expenses controllable by others $10,000 $5,000 $7,500
Unallocated expenses for all three divisions are $22,000. What is the contribution by
Division A?
A) $28,000
B) $50,000
C) $60,000
D) $120,000
When designing an accounting information system for management, which
governmental regulations are NOT important?
A) Sarbanes-Oxley Act
B) Foreign Corrupt Practices Act
C) Tax rules promulgated by Internal Revenue Service
D) Six Sigma Act
The Helium Company held a Christmas party. The company expected attendance of 100
people and prepared the following budget:
Hotel room rental $500
Food 500
Entertainment 800
Decorations 300
Total Costs $2,100
One hundred people attended the party. The following costs were incurred:
Hotel room rental $575
Food 640
Entertainment 750
Decorations 350
Total Costs $2,315
What is the variance for total costs?
A) $215 Unfavorable
B) $215 Favorable
C) $25 Favorable
D) $140 Unfavorable
Rent Expense on the Factory Building of $100,000 is allocated to three departments.
The cost-allocation base for this expense is number of square feet, which equals 50,000
square feet. Information for the three departments housed in the factory building are as
follows:
Department Square Feet Cubic Feet
Department A 15,000 15,000
Department B 5,000 5,000
Department C 30,000 20,000
How much Rent Expense is allocated to the three departments?
Department A Department B Department C
A) $15,000 $5,000 $30,000
B) $37,500 $12,500 $50,000
C) $30,000 $10,000 $60,000
D) none of the above
Beck Company has determined the following variances at the end of the current year:
Variances
Production Volume Variance $100,000 Favorable
Flexible Budget Variance for Direct Materials $10,000 Unfavorable
Flexible Budget Variance for Direct Labor $22,000 Unfavorable
Flexible Budget Variance for Fixed Overhead $30,000 Favorable
Flexible Budget Variance for Variable Overhead $25,000 Unfavorable
Before consideration of the above variances, the company has operating income of
$1,400,000. What is the operating income after considering the above variances?
A) $1,343,000
B) $1,473,000
C) $1,500,000
D) $1,530,000
Wininger Company is preparing a cash budget for the month of June. The following
information is available:
Cash Balance, May 31, 2015 $20,000
Cash collections from customers in June 46,000
Cash paid for merchandise in June 42,000
Paid operating expenses in June 12,000
Purchase furniture for cash in June 3,000
Depreciation expense in June 2,000
Amortization expense in June 4,000
The minimum cash balance desired is $10,000. What is the deficiency of cash before
financing at June 30, 2015?
A) $(1,000)
B) $(3,000)
C) $(7,000)
D) $(11,000)
Misuse of budgets can lead to incentives to cheat and lie. Cheating and lying may take
the form of ________.
A) making short-run decisions to increase profits that are not in the company’s best
long-run interests
B) budgetary slack
C) decreasing profits when actual profits significantly exceed the profit target
D) all of the above
Wenzel Company has two service departments, Maintenance and Human Resources.
Wenzel Company also has two production departments, Mixing and Finishing.
Maintenance costs are allocated based on square footage while Human Resources costs
are allocated based on number of employees. The following information has been
gathered for the current year:
Human
Maintenance Resources Mixing Finishing
Direct costs $50,400 $33,600 $42,000 $70,000
Square footage 1,600 800 3,200 2,400
Number of employees 16 24 48 64
Assume the step-down method is used to allocate service department costs and the
Maintenance Department is allocated first. What amount of costs would be allocated
from the Maintenance Department to the Human Resources Department?
A) $0
B) $5,040
C) $6,300
D) $16,800
Healing Company has the following information:
Month Budgeted Purchases
January $56,800
February 49,000
March 30,520
April 35,480
May 27,680
Purchases are paid as follows:
10% in the month of purchase
50% one month after purchase
40% two months after purchase
What is the estimated cash disbursement in May from April purchases?
A) $11,072
B) $11,792
C) $13,840
D) $17,740
Steps used in applying the net present value method to a proposed capital investment do
NOT include ________.
A) identify the amount and timing of relevant expected cash inflows and outflows
B) find the present value of each expected future cash inflow and outflow
C) find the sum of the present values of each expected future cash inflow and outflow
D) find the future value of the cash outflow that occurs at the present time.
The proration method of disposing of overhead variances assigns the variance in
proportion to the sizes of the ending account balances of ________.
A) work-in-process inventory, finished goods inventory and direct materials inventory
B) work-in-process inventory, direct materials inventory and cost of goods sold
C) work-in-process inventory and direct materials inventory
D) work-in-process inventory, finished goods inventory and cost of goods sold
Variable overhead efficiency variances are unfavorable when ________.
A) the actual cost-driver activity exceeds the standard activity allowed for the actual
output
B) the actual cost-driver activity is less than the standard activity allowed for the actual
output
C) the actual cost-driver activity exceeds the standard activity allowed for the static
budget output
D) the actual cost-driver activity is less than the standard activity allowed for the static
budget output