In the United States, Generally Accepted Accounting Principles are developed primarily
by ________.
A) International Accounting Standards Board
B) Financial Accounting Standards Board
C) Securities and Exchange Commission
D) International Accounting Federation
In a special order decision, which of the following costs are usually irrelevant to the
decision?
A) variable manufacturing costs
B) fixed manufacturing costs
C) variable selling costs
D) variable indirect production costs
A budget prepared for different levels of activity is called a ________.
A) rolling budget
B) operating budget
C) flexible budget
D) static budget
Which of the following is NOT a reason for budgetary slack?
A) to buffer managers from budget cuts imposed by top management
B) to provide protection against cost increases or revenue shortfalls due to unforeseen
events
C) to facilitate attainment of performance goals
D) to impose a formal structure for planning purposes
Wisconsin Division has operating income of $40,000 for the year ending December 31,
2011. Average invested capital is $800,000 and the weighted-average cost of capital is
10%. The division is considering a new investment that would cost $800,000 and earn
7% annually. If return on investment is the performance metric, should the manager of
the Wisconsin Division accept the new investment?
A) No, because the return on investment of the division decreases with the new
investment.
B) No, because the return on investment of the division increases with the new
investment.
C) Yes, because the return on investment of the division decreases with the new
investment.
D) Yes, because the return on investment of the division increases with the new
investment.
An example of an explicit transaction is ________.
A) recording depreciation expense
B) paying cash for three months’ rent in advance
C) accruing wages expense at the end of the month
D) accruing interest expense at the end of the year
Susanna is the management accountant at Slow Company. Her close friend, Leslie, is a
shareholder in Slow Company. Leslie asks Susanna for information about Slow
Company that is typically available only to executive officers in the company. If
Susanna shares this information with Leslie, Susanna violates the IMA’s ethical
standard of ________.
A) competence
B) confidentiality
C) integrity
D) objectivity
Direct materials of $10,000 are requisitioned by the production supervisor for the
production area. Job-order costing is used. The journal entry to record this transaction
is:
A) Direct Materials Inventory $10,000
Accounts payable $10,000
B) Direct Materials Inventory $10,000
Work-In-Process Inventory $10,000
C) Work-In-Process Inventory $10,000
Direct Materials Inventory $10,000
D) Finished Goods Inventory $10,000
Direct Materials Inventory $10,000
Krakowski Company manufactures a part for its production cycle. The costs per unit for
10,000 units of the part are as follows:
Per Unit
Direct materials $20.00
Direct labor 15.00
Variable factory overhead 16.00
Fixed factory overhead 10.00
Total costs $61.00
The fixed factory overhead costs are unavoidable. Winters Company has offered to sell
10,000 units of the same part to Krakowski Company for $55 per unit. Assuming no
other use for the facilities, Krakowski Company should ________.
A) make the part to save $40,000
B) make the part to save $60,000
C) buy the part from Winters Company to save $40,000
D) buy the part from Winters Company to save $60,000
Which of the following is NOT a new direction in business process management?
A) JIT philosophy
B) XBRL
C) Six Sigma
D) TQM
What are the qualitative aspects of a decision?
A) those which are not relevant to a decision
B) those with a concrete dollar amount
C) those for which measurement in dollars and cents is difficult and imprecise
D) those which are always relevant to a decision
In absorption costing, sales revenue less cost of goods sold is equal to ________.
A) contribution margin
B) operating margin
C) operating income
D) gross margin
A disadvantage of engineering analysis which is used to estimate cost functions is
________.
A) it fails to produce a cost function
B) it is a costly process
C) it is not acceptable under Generally Accepted Accounting Principles
D) it cannot be used with mixed costs
Christian Company manufactures a part for its production cycle. The annual costs per
unit for 5,000 units of the part are as follows:
Per Unit
Direct materials $3.00
Direct labor 5.00
Variable factory overhead 4.00
Fixed factory overhead 2.00
Total costs $14.00
The fixed factory overhead costs are unavoidable. Another company has offered to sell
5,000 units of the same part to Christian Company for $15 per unit. The facilities
currently used to make the part could be rented out to another manufacturer for $20,000
a year. Christian Company should ________.
A) make the part to save $5,000
B) make the part to save $15,000
C) buy the part and rent facilities to save $5,000
D) buy the part and rent facilities to save $15,000
Summer Company makes three types of products. The company has two types of
customers. The cost to serve all customers is $12,000 and is allocated to customer types
based on the number of manager visits to customer locations. The following data are
available:
Product 1 Product 2 Product 3
Sales $5,000 $6,000 $30,000
Cost of goods sold 4,000 4,800 15,000
Gross margin $1,000 $1,200 $15,000
Customer Type 1 Customer Type 2
Product 1 Sales $500 $4,500
Product 2 Sales $1,000 $5,000
Product 3 Sales $16,000 $14,000
Manager visits 4 16
What is the operating profit (loss) for all three products for Customer Type 2?
A) $(700)
B) $(2,600)
C) $8,450
D) $9,600
Sloth Company reports the following information for the last year of operations:
Actual fixed overhead costs(7,000 units) $77,000
Budgeted fixed overhead costs(10,000 units) 80,000
Planned level of operations(in units) 10,000
Actual level of operations(in units) 7,000
What is the fixed overhead spending variance?
A) $3,000 Favorable
B) $21,000 Unfavorable
C) $24,000 Unfavorable
D) $30,000 Favorable
A car lease payment is computed based solely on the number of miles driven. This is an
example of a ________.
A) variable cost
B) mixed cost
C) step cost
D) stair cost
Flexible budget variances are the deviations of actual results from the ________.
A) flexible budget amounts for the achieved level of activity
B) flexible budget amounts for the static level of activity
C) static budget amounts for the expected level of activity
D) static budget amounts for last year’s level of activity
________ information helps managers focus on operating problems, imperfections,
inefficiencies and opportunities.
A) Scorekeeping
B) Attention directing
C) Problem solving
D) Performance
Transfer prices are ________.
A) revenues of the segment producing the transferred product
B) costs of the segment acquiring the transferred product
C) costs of the segment producing the transferred product
D) revenues of the segment producing the transferred product and costs of the segment
acquiring the transferred product
Three types of costs are accumulated on job-cost records that include direct materials,
________ and ________.
A) direct labor; actual factory overhead
B) direct labor; applied factory overhead
C) variable factory overhead; fixed factory overhead
D) direct labor; budgeted factory overhead
In order for the board of directors of a corporation to declare a cash dividend, there
must be sufficient ________ and ________.
A) revenues; expenses
B) net income; cash
C) retained earnings; cash
D) revenues; cash
Gurnee 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, what is the difference in total relevant costs between the
old and new machines?
A) $12,000
B) $30,000
C) $98,000
D) $130,000
Jantore Industries Inc. reported the following information about the production and sale
of its only product during the first month of operations:
Selling price per unit $65.00
Sales $78,000
Direct materials used $25,000
Direct labor $42,000
Variable factory overhead $17,000
Fixed factory overhead $15,000
Variable selling and administrative expenses $3,000
Fixed selling and administrative expenses $5,000
Production volume variance 0
The company sold one-half of the units it produced. Under absorption costing, what is
the cost of goods sold?
A) $30,000
B) $42,000
C) $49,500
D) $78,000
The use of accelerated depreciation for tax purposes will generally produce a present
value of tax savings from depreciation expense that is ________.
A) less than the present value of tax savings provided by straight-line depreciation
B) greater than the present value of tax savings provided by straight-line depreciation
C) the same as the present value of tax savings provided by straight-line depreciation
D) less than the present value of tax savings provided by other depreciation methods
Inspection costs of incoming raw materials are ________ costs.
A) prevention
B) appraisal
C) internal failure
D) external failure
John Company has the following information:
Income tax rate 40%
Selling price per unit $7.50
Variable cost per unit $2.50
Total fixed costs $100,000
Target after-tax net income $42,000
Assume the tax rate decreases to 30%. How many fewer units can be sold to retain the
same after-tax net income of $42,000?
A) 1,000
B) 2,000
C) 32,000
D) 34,000
Presented below is the production data for six months of the year showing the mixed
costs incurred by Madeline Company.
Month Cost Units
July $6,000 4,000
August $11,250 9,500
September $11,500 9,000
October $11,700 10,500
November $14,000 12,000
December $12,850 10,000
Madeline Company uses the high-low method to analyze mixed costs. The predicted
total cost at an operating level of 10,000 units is ________.
A) $11,725
B) $11,800
C) $12,000
D) $12,850
The following data are for California Closets:
Flexible Budget for
Actual Static Budget Actual Sales Activity
Units 18,000 16,000 18,000
Sales $360,000 $320,000 $360,000
Variable costs 234,000 192,000 216,000
Contribution margin $126,000 $128,000 $144,000
Fixed costs 76,000 80,000 80,000
Operating income $50,000 $48,000 $64,000
The sales activity variance for operating income is ________.
A) $14,000 Favorable
B) $14,000 Unfavorable
C) $16,000 Favorable
D) $16,000 Unfavorable
Which of the following types of costs cannot be specifically and exclusively identified
with a cost object in an economically feasible manner?
A) variable costs
B) fixed costs
C) direct costs
D) indirect costs
The time it will take to recoup in the form of cash inflows the initial dollars invested in
an investment project is called the ________.
A) payback period
B) accounting rate of return
C) internal rate of return period
D) recovery period
French Company acquired 80 percent of the outstanding shares of Godiva Company for
$152 in cash. (No goodwill was present at the time of acquisition.) The net income for
the current year for French Company is $100. The net income for the current year for
Godiva Company is $20. There were no intercompany sales. The book value and fair
value of Godiva’s assets and liabilities were equal at the acquisition date. What is the
net income on the consolidated income statement for the current year?
A) $80
B) $96
C) $100
D) $116
A favorable variance occurs on a performance report when ________.
A) the actual cost is greater than the budgeted cost
B) the actual revenue is less than the budgeted revenue
C) the actual profit is less than the budgeted profit
D) the actual profit is greater than the budgeted profit
DesPlaines Corporation has a joint process that produces three products: P, G and A.
Each product may be sold at split-off or processed further and then sold.
Joint-processing costs for a year amount to $25,000. The production level for each
product is 10,000 units. Other data follows:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs after Split-Off at Completion
P $12 $8 $20
G 10 4 17
A 15 6 19
If Product P is processed beyond the split-off point, profits will ________.
A) increase by $90,000
B) increase by $120,000
C) increase by $210,000
D) remain the same
The following information is available for Applegate Company:
Current assets $100,000 Current liabilities $175,000
Property, plant and Long-term liabilities 100,000
equipment 150,000 Stockholders’ equity 25,000
Other assets 50,000 Total liabilities and
Total assets $300,000 stockholders’ equity $300,000
Invested capital is defined as total assets less current liabilities. The after-tax operating
income is $150,000. The after-tax cost of capital is 20%. The before-tax operating
income is $200,000. What is the residual income?
A) $90,000
B) $120,000
C) $125,000
D) $175,000