When managers make decisions, the accountant’s primary role is ________.
A) making the decision
B) providing information that may be useful to the manager
C) uncertain because it depends on the decision being made
D) uncertain because it depends on the manager
Which of the following statements is FALSE about performance metrics?
A) The cost benefit criterion leads companies to rely on imperfect, low-cost
performance metrics.
B) The more a manager’s reward depends on a performance metric, the more incentive
the manager has to take actions to maximize that measure.
C) Top management should define the performance metric to promote goal congruence
and base enough reward on it to achieve managerial effort.
D) The more uncontrollable factors affect a manager’s reward, the less risk the manager
bears.
Arizona Company has 40,000 shares of its common stock outstanding. Mexico
Company owns 5,000 shares of Arizona Company’s stock. Which of the following
methods should Mexico Company use to account for its investment in Arizona
Company?
A) market-value
B) equity
C) consolidated
D) available-for-sale
Fish Company manufactures greeting cards. Special glittery material is added at the end
of the process in the Printing Department. Conversion costs are applied uniformly
throughout the process. The weighted-average method of process costing is used. Data
for the Printing Department for the month of September follow:
Work-In-Process Inventory, September 1:
Units 22,500
Direct materials (0% complete) $0
Conversion costs (30% complete) $20,472
Units started in September 127,500
Units completed in September 123,000
Work-In-Process Inventory, September 30 27,000
Direct materials added in September $492,000
Conversion costs added in September $315,000
With regard to the Work-In-Process Inventory on September 30, materials are 0 percent
complete and conversion costs are 60 percent complete. The total cost of goods
transferred out of the Printing Department is ________.
A) $688,800
B) $714,000
C) $788,430
D) $813,972
If the net present value of an investment project is positive, then the project is
________. If the net present value of an investment project is negative, then the project
is ________.
A) ignored; accepted
B) desirable; undesirable
C) unacceptable; acceptable
D) rejected; accepted
What is the margin of safety in dollars?
A) planned net income minus actual net income
B) planned revenue minus actual expenses
C) actual revenue in dollars minus planned revenue in dollars
D) planned sales in dollars minus break-even sales in dollars
Presented below is the balance sheet of Holman Company at January 1, 2015:
Cash $100
Net Fixed Assets 400
Total Assets $500
Accounts Payable $20
Long-term Bonds Payable 220
Stockholders’ Equity 260
Total Liabilities and Stockholders’ Equity $500
The balance sheet of Beck Company at January 1, 2015 is below:
Cash $400
Net Fixed Assets 380
Total Assets $780
Accounts Payable $120
Long-term Bonds Payable 280
Stockholders’ Equity 380
Total Liabilities and Stockholders’ Equity $780
On January 1, 2015, Beck Company acquired 100 percent of the outstanding common
stock of Holman Company for $260 cash. The book value and fair value of Holman’s
assets and liabilities were equal. Holman Company generated net income of $30 during
the year ended December 31, 2015. There were no intercompany sales. What is the
balance in the Investment in Holman Company account on December 31, 2015 before
elimination entries are prepared?
A) $0
B) $30
C) $230
D) $290
If a company faces declining sales over time, it must restructure its costs to break-even
at a lower volume. In order to carry this out, what costs can be reduced?
A) variable costs only
B) fixed costs only
C) variable and fixed costs
D) step costs only
Service department costs can be assigned to ________.
A) customers only
B) producing departments only
C) customers and producing departments
D) none of the above
The ________ approach is useful for short-run pricing decisions and the ________
approach is useful for long-run pricing decisions.
A) contribution; absorption
B) absorption; contribution
C) full costing; target costing
D) full costing; contribution
In job-order costing, a Debit to Work-In-Process Inventory is used to record ________.
A) a sale of merchandise
B) a purchase of direct materials
C) the cost of goods completed
D) a requisition of direct materials for production area
High Division sells a part internally to Low Division. Low Division uses the part to
produce inexpensive products sold at discount stores. High Division incurs costs of
$1.50 per part, while Low Division incurs additional costs of $4.80 per product. High
Division sells the part to Low Division for $2.00 per part.
Low Division can purchase the part from an outside supplier for $1.00 per part, but
does not accept the offer. The final product is sold to external customers for $8.00 each.
Which of the following formulas correctly reflects the company’s operating income?
A) $8.00 – $1.50 – $4.80 – $2.00 – $1.00 = $(1.30)
B) $8.00 – $1.50 – $4.80 = $1.70
C) $8.00 – $4.80 – $2.00 = $1.20
D) $8.00 – $1.50 = $6.50
When preparing consolidated financial statements, eliminating entries are made to
avoid double-counting ________.
A) assets only
B) liabilities only
C) assets, liabilities and stockholders’ equity
D) none of the above
Collier Products has a Valve Division that manufactures and sells a standard valve. The
Valve Division has a capacity of 100,000 units. The variable costs per unit are $16. The
fixed costs per unit are $9, based on the capacity of 100,000 units. None of the fixed
costs are avoidable. The selling price to outside customers in the intermediate market
are $30 per unit.
The Pump Division wants to purchase the valve from the Valve Division for one of its
pumps. The Pump Division is currently purchasing 10,000 valves per year from an
overseas supplier at a cost of $29 per valve. The selling price of the completed pump is
$100 per unit and the costs to complete the pump are $60 per unit, excluding the valve
purchased from the other division.
Required:
A) Assume the Valve Division has ample idle capacity to produce the 10,000 valves for
the Pump Division. What should be the transfer price between the two divisions? Give a
range. Determine the minimum transfer price for the Valve Division and the maximum
transfer price for the Pump Division.
B) Assume the Valve Division does not have idle capacity to produce the valves for the
Pump Division. It is selling all that it can produce to outside customers in the
intermediate market. What should be the transfer price between the two divisions? Give
a range. Determine the minimum transfer price for the Valve Division and the
maximum transfer price for the Pump Division. Will a transfer occur?
C) Assume the Valve Division does not have idle capacity to produce the valves for the
Pump Division. It is selling all that it can produce to outside customers in the
intermediate market. Now assume the Valve Division saves $3.00 per unit by selling
internally. What should be the transfer price between the two divisions? Give a range.
Determine the minimum transfer price for the Valve Division and the maximum transfer
price for the Pump Division.
Helen Company’s records reveal the following:
Division A
Market price of finished part to outsiders $75 per unit
Variable costs per part $51 per unit
Division B
Sale price of finished product per unit $105 per unit
Variable costs:
Division A (1 part) ?
Division B Processing 27 per unit
Division B Selling 12 per unit
Division B wants to buy the part from Division A. The variable costs of Division B will
be incurred whether it buys the part from Division A or from an outside supplier.
Division B can buy the parts from an outside supplier at $70 per unit. Division A has no
excess capacity. What is the highest price that Division B should pay to Division A for
the parts per unit?
A) $51
B) $66
C) $70
D) $75
The following information is available for Discounted Supplies Inc. and its two
divisions, Durable Goods and Nondurable Goods.
Whole Durable Nondurable
Company Goods Goods
Net sales $100,000 $60,000 $40,000
Fixed costs controllable by
Division Manager 16,500 12,500 4,000
Fixed costs controlled by others 8,000 5,000 3,000
Variable costs:
Cost of merchandise sold 24,500 17,500 7,000
Operating expenses 16,400 10,000 6,400
Unallocated costs 1,000
What is the income before taxes for the company as a whole?
A) $15,000
B) $29,600
C) $33,600
D) $34,600
In perfect competition, the profit-maximizing volume is the quantity at which
________.
A) marginal cost equals price
B) contribution margin equals fixed cost
C) marginal revenue equals price
D) price exceeds marginal cost
Mark Company has the following information:
Month Budgeted Purchases
January $40,000
February 29,000
March 30,520
April 29,480
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 March from January purchases?
A) $3,052
B) $12,000
C) $14,500
D) $16,000
________ are characteristics or attributes that managers must achieve to drive the
organization toward its goals.
A) Nonfinancial performance measures
B) Targets
C) Key success factors
D) Objectives
Pilot Company will purchase a truck for $80,000. The truck’s depreciable life is 5 years.
The truck has no terminal salvage value. Assume a tax rate of 30% and a required
after-tax rate of return of 12%. The company uses the straight-line method of
depreciation for tax purposes. What is the annual after-tax cash flow from depreciation
expense?
A) $4,800 cash outflow
B) $4,800 cash inflow
C) $11,200 cash outflow
D) $11,200 cash inflow
Monster Company is required to pay taxes of 25% on income up to $20,000 and 30%
on any income in excess of $20,000. The company has pretax income of $80,000. What
is the average tax rate for Monster Company?
A) 25.0%
B) 26.5%
C) 28.75%
D) 32.5%
The fixed costs required to achieve a desired level of production or to provide a desired
level of service, while maintaining product or service attributes, are ________.
A) discretionary fixed costs
B) committed fixed costs
C) capacity costs
D) step costs
The following information was gathered for all the products made by the BBB
Company:
Budgeted direct labor hours 8,000
Actual direct labor hours 8,100
Budgeted factory overhead costs $224,000
Actual factory overhead costs $224,970
Assume the cost driver for factory overhead costs is direct labor hours. What is the
amount of overapplied or underapplied overhead?
A) $970 underapplied
B) $970 overapplied
C) $1,830 underapplied
D) $1,830 overapplied
A cost function with one independent variable is estimated with least squares
regression. The coefficient of determination for the equation is 0.50. This statistic
indicates that ________.
A) the independent variable does not explain changes in the dependent variable very
well
B) the dependent variable does not explain changes in the independent variable very
well
C) the cost estimates are correct 50 percent of the time
D) the cost estimates are not correct 50 percent of the time
Problem solving information would NOT be used in which of the following situations?
A) decision to make or buy parts for a manufactured product
B) decision to replace equipment
C) decision to add or drop a division
D) evaluating the operating performance of a segment in the current year
The fixed overhead spending variance is also called the ________ variance.
A) production volume
B) fixed overhead efficiency
C) fixed overhead flexible budget
D) fixed overhead usage
A disadvantage of the visual-fit method to approximate a cost function is ________.
A) it does not use all the available data
B) it is costly to apply
C) it does not capture the general tendency of the data
D) the placement of the line is subjective
An example of a favorable variance is ________.
A) actual revenues are less than expected revenues
B) actual expenses are less than expected expenses
C) actual material prices are greater than expected material prices
D) expected labor costs are less than actual labor costs
Customers with a high cost to serve have ________.
A) large order quantity
B) few order changes
C) standard delivery requirements
D) frequent returns
Arizona Company has 40,000 shares of its common stock outstanding. Mexico
Company owns 5,000 shares of Arizona Company’s stock. Which of the following
methods should Mexico Company use to account for its investment in Arizona
Company?
A) market-value
B) equity
C) consolidated
D) available-for-sale
Mayfair 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 $15,000. Other data follows:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs after Split-Off at Completion
P $62,000 $5,000 $88,000
G 12,500 6,500 19,500
A 9,400 5,000 12,000
Processing Product G beyond the split-off point will cause profits to ________.
A) be unchanged
B) increase by $500
C) increase by $1,000
D) increase by $7,000
On January 1, 2012, Remkus Company acquired all of the stock of a subsidiary. The
following data is available:
Remkus Company Subsidiary
Total assets $650 $400
Total liabilities $200 $190
Total stockholders’ equity $450 $210
The acquisition by Remkus Company represents a 100 percent interest in the subsidiary.
On January 1, 2012, the fair value of the subsidiary’s assets and liabilities are equal to
the book value. Remkus Company paid $250 for the 100 percent interest in the
subsidiary. On January 1, 2012, what is the total stockholders’ equity on the
consolidated balance sheet? (Assume elimination entries are completed.)
A) $390
B) $450
C) $800
D) $840
Ignoring taxes, the total project approach to investment decisions calculates the
difference in the ________. Ignoring income taxes, the differential approach to
investment decisions computes the net present value of the difference in ________.
A) depreciation expense; operating cost savings
B) tax savings due to depreciation expense; tax savings due to operating cost savings
C) cash flows between two projects; net present values between two projects
D) net present values between two projects; cash flows between two projects
Dolphin Company currently produces 10,000 units of a key part at a total cost of
$512,000 annually. Variable costs are $300,000 annually. Of the annual fixed costs,
$140,000 relate specifically to this part. The remaining fixed costs are unavoidable.
Another manufacturer has offered to supply the part for $48 per unit. The facilities
currently used to manufacture the part could be used to manufacture a new product with
an expected contribution margin of $30,000 per year. Alternatively, the facilities could
be rented out at $60,000 per year. Given all of these alternatives, what is Dolphin
Company’s lowest net relevant cost for the parts?
A) $420,000
B) $440,000
C) $450,000
D) $480,000