1) The line on a graph representing total fixed costs will be a horizontal line.
2) Special orders increase income if the revenue from the order does not exceed the
incremental variable and fixed costs incurred to fill the order.
3) If total fixed expenses are $65,000, the target operating income is $15,000 and the
contribution margin is $25 per unit, the sales needed to achieve the target operating
income will be 3,200 units.
4) The internal rate of return is used as the discount rate when calculating the net
present value of a project.
5) The net present value model differs from the IRR model in that it does NOT show
the project’s unique rate of return.
6) If a company recognizes variances at the earliest point possible, raw materials
inventory will be debited for the actual quantity of raw materials purchased and costed
at the actual price paid per unit.
7) Communication between environmental, production, and accounting staff is crucial
for an EMA system to function effectively.
8) Lean companies typically cross-train employees to perform more than one task.
9) Management can use job cost information to control costs on future jobs.
10) Implementing a program to bill customers electronically, therefore saving paper, is
a green initiative that would reduce not only waste, but also company costs.
11) When using the high-low method, the “high” point should be chosen as the data
point with the highest cost (not the highest volume).
12) When a company uses the direct 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.
13) Managers need to consider variable costs, fixed costs, inventoriable product costs
and period costs when setting prices.
14) The three components of the operating budget are the sales budget; inventory,
purchases and cost of goods sold budget; and the cash budget.
15) Up-to-date standard costs provide a benchmark by which to evaluate actual costs
and operations.
16) The difference between actual results and budgeted amounts is called
decentralization.
17) The formula used in vertical analysis of the balance sheet is: (each balance sheet
line item/total assets) = vertical %.
18) The IMA suggests that members discuss ethical dilemmas with the company’s board
of directors.
19) Sensitivity analysis is a “what if” technique that asks what a result will be if an
underlying assumption changes.
20) Total fixed costs for Toys and Trinkets Incorporated are $88,000. Total costs,
including both fixed and variable, are $155,000 if 268,000 units are produced. The total
variable costs at a level of 275,000 units would be
A) $68,750
B) $159,049
C) $90,299
D) $151,055
21) A ________ is used to accumulate the costs of a job.
A) labor time record
B) materials inventory requisition form
C) bill of materials
D) job cost record
22) The following information is provided by Adametz Company:
The units in ending WIP inventory were 90% complete for materials and 50% complete
for conversion costs.
What are the total equivalent units for direct materials?
A) 7,080
B) 3,780
C) 4,200
D) 7,500
23) Cuyahoga Valley Bicycles uses a standard part in the manufacture of several of its
bikes. The cost of producing 40,000 parts is $138,000, which includes fixed costs of
$68,000 and variable costs of $70,000. By outsourcing the part, the company can avoid
30% of the fixed costs.
If Cuyahoga Valley Bicycles buys the part, what is the most Cuyahoga Valley Bicycles
can spend per unit so that operating income equals the operating income from making
the part?
A) $1.33
B) $2.26
C) $4.64
D) $2.33
24) Country Furniture Company manufactures furniture at its Akron, Ohio, factory.
Some of its costs from the past year include:
Period costs for Country Furniture Company totaled
A) $41,000
B) $129,000
C) $44,500
D) $67,500
25) Twinkle Ornaments Company uses job costing. Twinkle Ornaments Company has
two departments, Trimming and Finishing. Manufacturing overhead is allocated based
on direct labor cost in the Trimming Department and direct labor hours in the Finishing
Department. The following additional information is available:
Actual data for completed Job No. 650 is as follows:
What is the predetermined manufacturing overhead rate for the Trimming Department?
A) 80% of direct labor cost
B) 125% of direct labor cost
C) 103% of direct labor cost
D) 100% of direct labor cost
26) Your hard work in college paid off, quite literally, and you received a graduate
assistantship for your MBA program. The assistantship pays a stipend of $10,000 at the
end of each of the next 2 years. Using an average discount rate of 3%, the future value
of your assistantship can be calculated by
A) PV = $10,000 3% 2.
B) PV = $10,000 (PV factor, i = 3%, n = 2).
C) PV = $10,000 (Annuity PV factor, i = 3%, n = 2).
D) PV = $10,000 (Annuity FV factor, i = 3%, n = 2).
27) Baxter Company produces children’s wiffle ball sets using a three-step sequential
process that includes molding, coloring and finishing. When the sets are completely
finished, out of which account should the cost be transferred?
A) Finished goods inventory
B) WIP inventory-coloring
C) WIP inventory-finishing
D) WIP inventory-molding
28) Lucky Cow Dairy provided the following expense information for May:
What is the total cost for the design category of the value chain?
A) $267,000
B) $188,000
C) $197,000
D) $125,000
29) Before these materials are used to manufacture its cars, Toyota classifies steel,
glass, and plastic as
A) raw materials inventory
B) finished goods inventory
C) work in process inventory
D) merchandise inventory
30) Moon Appliance manufactures a variety of appliances which all use Part B89 .
Currently, Moon Appliance manufactures Part B89 itself. It has been producing 9,000
units of Part B89 annually. The annual costs of producing Part B89 at the level of 9,000
units include:
All of the fixed manufacturing overhead costs would continue whether Part B89 is
made internally or purchased from an outside supplier. Moon Appliance has no
alternative use for the manufacturing facilities. Nadal Parts Company has offered to sell
9,000 units of Part B89 to Moon Appliance for $20.00 per unit. What should Moon
Appliance do?
A) Make the part and save $9 per unit
B) Make the part and save $5 per unit
C) Buy from Nadal Parts Company and lose $2 per unit
D) Make the part and save $13 per unit
31) Mama’s Favorite Appliances manufactures two products: Food Processors and
Espresso Makers. The following data are available:
The company can manufacture two food processors per machine hour and three
espresso machines per machine hour. The company’s production capacity is 1,200
machine hours per month.
What is the contribution margin ratio for food processors?
A) 60.00%
B) 150.00%
C) 140.00%
D) 33.33%
32) Poland’s Paints allocates overhead based on machine hours. Selected data for the
most recent year follow.
The estimates were made as of the beginning of the year, while the actual results were
for the entire year.
The amount of manufacturing overhead allocated for the year based on machine hours
would have been
A) $244,000
B) $238,000
C) $267,750
D) $241,000
33) Prince Paper has budgeted the following amounts for its next fiscal year:
If Price Paper spends an additional $12,500 on advertising, sales volume should
increase by 2,300 units. What effect will this have on operating income?
A) Increase of $102,500
B) Increase of $115,000
C) Decrease of $115,000
D) Decrease of $102,500
34) On a cost of quality report, which of the following cost items should be classified as
a prevention cost?
A) Technical support provided to suppliers
B) Warranty expenses on defective products
C) Supervision of quality inspections
D) Net cost of spoiled units
35) Part P40 is a part used in the production of air conditioners at Jackson Corporation.
The following costs and data relate to the production of Part P40:
Jackson Corporation can purchase the part from an outside supplier for $4.25 per unit.
If they purchase from the outside supplier, 50% of the fixed costs would be avoided.
Assume that factory space freed up by purchasing the part from an outside source can
be used to manufacture another product that can be sold for $2,000 profit. If Jackson
Corporation makes the part, what will its operating income be?
A) $5,500 less than if the company bought the part
B) $5,500 greater than if the company bought the part
C) 9,500 greater than if the company bought the part
D) $111,500 greater than if the company bought the part
36) Unavoidable fixed costs are
A) irrelevant to the decision of whether to discontinue a product line because they will
differ between alternatives
B) relevant to the decision of whether to discontinue the department
C) irrelevant to the decision of whether to discontinue a product line because they will
not differ between alternatives
D) none of the above
37) A company uses the direct 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 receivable?
A) The increase of $15,000 will be subtracted from net income
B) The increase of $15,000 will be subtracted from sales to determine cash received
from customers
C) The increase of $15,000 will be added to sales to determine cash received from
customers
D) The increase of $15,000 will be added to net income
38) Regarding capital rationing decisions for capital assets, which of the following is
TRUE?
A) Companies should always choose the investment with the shortest payback period
B) Companies should always choose the investment with the highest NPV
C) Companies should always choose the investment with the highest ARR
D) None of the above are TRUE
39) Zach has the following information to evaluatehis current salary of $75,000 versus
total revenues of $100,000 and expenses of $67,000 from starting a new business. How
much is the opportunity cost associated with staying at his current job?
A) $75,000
B) $(8,000)
C) $33,000
D) $167,000
40) Kleeman Company has a sales margin of 16%, operating income of $336,000, and
capital turnover of 3.0 . The sales in dollars for Kleeman Company would be closest to
A) $ 3,760
B) $ 12,000
C) $1,008,000
D) $2,100,000
41) The practice of comparing one company’s performance to another’s can be
accomplished using
A) ratio analysis
B) trend analysis
C) benchmarking
D) all of the above
42) The Bedford Corporation reported the following income statement and balance
sheet amounts and additional information for the end of the current year.
Inventory and prepaid expenses account for $30,000 of the current year’s current assets.
Average inventory for the current year is $36,250.
Average net accounts receivable for the current year is $45,000.
There are 35,000 shares of common stock outstanding.
Total dividends paid during the current year were $17,000.
The market price per share of common stock is $20.
What is the current ratio for the current year?
A) 0.38
B) 0.53
C) 1.98
D) 0.50
43) When auto manufacturer BMW purchased the Rolls-Royce brand name, BMW had
to hire and train a new staff of assembly workers. The new workers were paid $25 per
hour, worked a total of 7,500 hours, and produced 2,000 cars. BMW budgeted for a
standard labor rate of $27 per hour and 1.25 direct labor hours per car. What is the
direct labor efficiency variance for the Rolls-Royce division?
A) $125,000 unfavorable
B) $125,000 favorable
C) $135,000 favorable
D) $135,000 unfavorable
44) Management by ________ is the practice of directing executive attention to
important deviations from budgeted amounts.
A) control
B) objective
C) exception
D) analysis
45) Employee satisfaction would be an example of measuring which perspective?
A) Financial
B) Customer
C) Learning and growth
D) Internal business
46) All fixed costs are listed ________ on a contribution margin income statement.
A) below the contribution margin line
B) above the gross profit line
C) above the contribution margin line
D) below the gross profit line
47) When is the predetermined manufacturing overhead rate computed?
A) During the period
B) Before the period starts
C) At the end of the period
D) Can be done at any time