Weston Company is considering a capital project that delivers a $50,000 annual net
cash flow before tax. The investment will result in annual depreciation expense of
$10,000 over the project’s four-year useful life. Assuming a tax rate of 40%, what
amount of annual after-tax net cash flow will be provided by this project?
A. $40,000
B. $16,000
C. $34,000
D. $24,000
The cost that is avoided when a company eliminates a single item of a product or
service is a:
A. Unit-level cost.
B. Facility-level cost.
C. Product-level cost.
D. Batch-level cost.
Argus Company experienced an accounting event that affected its financial statements
as indicated below:
Which of the following accounting events could have caused the indicated effects on
the company’s accounting equation?
A. Applied manufacturing overhead to work in process
B. Purchased raw materials for cash
C. Paid cash wages of production workers
D. All of these.
All of the following are source documents used in job order cost systems except:
A. Time card.
B. Standard cost card.
C. Work ticket.
D. Materials requisition.
Which of the following is not one of the four Standards of Ethical Conduct for
Management Accountants?
A. Credibility
B. Confidentiality
C. Integrity
D. Independence
Planning concerned with long-range decisions such as defining the scope of the
business is referred to as:
A. operations budgeting.
B. master planning.
C. capital budgeting.
D. strategic planning.
Which of the following statements describes the cost of capital?
A. The internal rate of return on investments
B. The maximum acceptable rate of return on investments
C. The return that a company must pay its investors and creditors
D. The interest rate the bank charges its best customers
Oakton Furniture provided the following information relevant to its sales for December
2013 and the first quarter of 2014:
Based on the company’s collection history, 2% of credit sales are uncollectible, 40% are
collected in month of sale and the remainder collected in the following month. Cash
collections in January from December 2013 credit sales would be:
A. $69,600.
B. $81,200.
C. $72,000.
D. $84,000.
Indicate whether each of the following statements is true or false.
The Selling and Administrative Expense (S&A) budget includes depreciation expense,
which is based on projections from the capital expenditures budget.
Interest expense on the S&A budget is based on borrowing projections shown in the
cash budget.
The schedule of cash payments for selling and administrative expenses includes the
amount of depreciation expense for the period.
A pro forma financial statement could be described as a budgeted financial statement.
Pro forma financial statements include amounts drawn from the sales budget, the
inventory purchases budget, the S&A budget, and the cash budget.
A materials requisition in a job-order cost system is used as a:
A. A source document for assigning costs to individual departments.
B. A subsidiary account for recording the materials used on each job.
C. Request form for getting the necessary materials from the materials store room.
D. A means of ordering materials from outside suppliers.
All of the following are variables that could be considered in a decision to outsource a
component that is currently being produced in house. Which of the following is not
likely to be relevant?
A. The impact on employee morale
B. The book value of equipment used in making the component
C. The importance of vertical integration to the company
D. The reliability of the supplier
Net income divided by sales is the formula for which of these analytical measures?
A. Return on assets
B. Return on equity
C. Earnings per share
D. Net margin
The rate of return that equates the present value of cash inflows and outflows is the:
A. minimum rate of return.
B. internal rate of return.
C. desired rate of return.
D. hurdle rate.
In a job-order cost system, as goods are produced, product costs (direct material, direct
labor, and overhead) are accumulated in the:
A. Work in process account.
B. Materials account.
C. Finished goods account.
D. Cost of goods sold account.
Overhead costs include:
A. Direct and indirect costs.
B. Indirect costs only.
C. Direct costs only.
D. Neither direct nor indirect costs.
The accounting concept or principle that is perhaps the greatest single culprit in
distorting the results of financial statement analysis is the:
A. Matching principle.
B. Conservatism concept.
C. Historic cost principle.
D. Time value of money concept.
Gibbs Corporation makes indoor gas fireplaces. A standard fireplace includes unit-level
materials, labor, and overhead costs. In addition, the company incurs product-level
engineering and advertising costs. The sales staff is paid a 5% commission on each
fireplace sold. A sales representative has been in contact with a building developer who
wants to buy 20 fireplaces only if he can buy them at amount lower than Gibbs’ selling
price. Which of the following costs would be relevant to this special order decision?
A. The sales commissions
B. The product-level engineering and advertising costs
C. The unit-level materials, labor, and overhead
D. All of these.
The accounting records for Poole Manufacturing Company disclosed the following cost
information for 2014:
Assume the company produced 10,000 units of inventory, sold 6,000 of these units in
2014 for $192,000, and that there was no beginning finished goods inventory. What
amount of ending finished goods inventory will be reported on the balance sheet under
absorption costing?
A. $104,000
B. $260,000
C. $96,000
D. $64,000
The Martin Company reported net income of $15,000 on gross sales of $80,000. The
company has total assets of $135,000, of which $102,000 is property, plant and
equipment. What is the company’s return on investment?
A. 18.8%
B. 11.1%
C. 14.7%
D. 12.5%
The following information is for Gable, Inc. and Harlowe, Inc. for the recent year.
Based on the above data, which company has a higher operating leverage?
A. Gable, Inc.
B. Harlowe, Inc.
C. Operating leverage is the same for both companies
D. Cannot be determined
What are the expected average quarterly costs of running a consulting practice if fixed
costs are expected to be $4,000 a month and variable costs are expected to be $100 per
client for each quarter? Expected number of clients for the year are:
A. $12,500
B. $24,500
C. $16,500
D. $19,500
The Duke Company rents out a portion of its office space to another company. At the
beginning of 2014, the balance in the unearned rent revenue account was $1,200.
During 2014, Duke recognized $6,800 of rent revenue. If the ending balance of
unearned rent revenue is $700, how much cash was received from the tenant for rent
during 2014?
A. $7,300
B. $6,800
C. $6,300
D. $7,500
Costs may be classified in a variety of ways. One approach classifies costs into three
categories, manufacturing, upstream, and downstream. These costs are sometimes
referred to as an organization’s value chain. Costs incurred by the Branscome Bicycle
Company are described in the following table:
Required:Classify each of the above costs as being an upstream, manufacturing, or
downstream cost by inserting a check mark in the appropriate column.
What are period costs? How does the accounting for period costs differ from the
accounting for product costs?
Indicate whether each of the following statements is true or false.
The labor price variance is favorable when the actual rate paid for labor is higher than
the standard rate.
The production department is generally responsible for the labor price variance.
If the standard quantity of labor per unit of a product is 0.5 hour and the actual quantity
of labor is 0.45 hour, the labor price variance is favorable.
Labor price variances measure the productivity of the labor force.
Machine breakdowns and inferior materials can result in an unfavorable labor usage
variance.
Proper handling of human relations is essential to the establishment of an effective
budgeting system. There is a natural tendency for people to be uncomfortable with
budgets. Describe how participative budgeting helps create a healthy atmosphere
surrounding the budgeting process.
Describe how firms use service and product cost information.
How do budget expectations influence a company’s employees?
What is the break-even point for a company?