Atlanta Senior Center is planning its annual fundraiser. The event committee has
developed the following budget for the event.
Ballroom rental $3,000
Entertainment $2,500
Printing $600 plus $9 per person
Food $30 per person
Decorations $700 plus $5 per person
Required:
A) Determine the cost function.
B) If Atlanta Senior Center charges $100 per person, and 1,000 people attend, how
much profit will be derived by this event?
If the contribution margin per unit increases, what is the effect on the break-even point?
(Assume no other changes.)
A) The break-even point increases.
B) The break-even point decreases.
C) The break-even point remains the same.
D) The break-even point will be zero.
Zeman Company has no beginning and ending inventories, and reports the following
data about its only product:
Direct materials used $200,000
Direct labor $180,000
Fixed indirect manufacturing $100,000
Fixed selling and administrative $150,000
Variable indirect manufacturing $120,000
Variable selling and administrative $60,000
Selling price(per unit) $75
Units produced and sold 10,000
Zeman Company uses the contribution approach to prepare the income statement. What
is the contribution margin?
A) $150,000
B) $190,000
C) $250,000
D) $370,000
Baldwin Company’s income statement reported income tax expense of $18,000. Income
tax payable at the beginning of the year was $5,000. Income tax payable at the end of
the year was $4,000. The cash paid for taxes was ________.
A) $15,000
B) $17,000
C) $19,000
D) $22,000
In imperfect competition, if prices have little or no effect on sales volume, demand is
________.
A) stable
B) uniform
C) highly elastic
D) highly inelastic
The cost object is an upholstered chair made by craftsmen in a factory. An accountant
can identify the amount and cost of fabric used to manufacture the chair. This is called
________ a ________ to a cost object.
A) assigning; indirect cost
B) allocating; indirect cost
C) allocating; direct cost
D) tracing; direct cost
Gomez Company manufactures generic notebooks. Material is introduced at the
beginning 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 June follow:
Work-In-Process Inventory, June 1:
Units 15,000
Direct materials (100% complete) $35,000
Conversion costs (30% complete) $8,400
Units started in June 65,000
Units completed in June 62,000
Work-In-Process Inventory, June 30 18,000
Direct materials added in June $285,000
Conversion costs added in June $210,000
With regard to the Work-In-Process Inventory on June 30, materials are 100 percent
complete and conversion costs are 60 percent complete. The total cost of goods
transferred out of the Printing Department is ________.
A) $420,825
B) $434,000
C) $495,000
D) $543,000
Which of the following items is NOT a component of stockholders’ equity?
A) paid-in capital
B) retained earnings
C) accumulated other comprehensive income
D) deferred income tax liabilities
The following information pertains to Kumperor Company:
Average total assets $100,000
Total current liabilities $30,000
Total expenses $60,000
Total liabilities $35,000
Total revenues $80,000
Invested capital is defined as total assets. What is the return on investment?
A) 20%
B) 60%
C) 70%
D) 160%
Johnson Company has the following information available at the end of the fiscal year:
Finished goods inventory, January 1, 2015 12,000 units
Finished goods inventory, December 31, 2015 14,000 units
Work in process inventory, January 1, 2015 10,000 units
Work in process inventory, December 31, 2015 11,000 units
Raw materials inventory, January 1, 2015 1,000 units
Raw materials inventory, December 31, 2015 5,000 units
Actual fixed overhead cost rate $2.05 per unit
Actual variable overhead cost rate $3.10 per unit
Budgeted fixed overhead cost rate $2.00 per unit
Budgeted variable overhead cost rate $3.00 per unit
Assume operating income under absorption costing is $100,000. What is the difference
in operating income between absorption costing and variable costing?
A) $2,000
B) $4,000
C) $6,000
D) $10,000
On January 1, 2012, a parent company acquired all of the stock of a subsidiary. The
following data is available:
Parent Company Subsidiary
Total assets $650 $400
Total liabilities $200 $190
Total stockholders’ equity $450 $210
The acquisition by the parent 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 their book value. The parent company paid $250 for the 100 percent
interest in the subsidiary. What amount of goodwill is implied in the purchase?
A) $0
B) $10
C) $40
D) $200
An investor that has effective control over an investee usually owns ________ of the
investee’s stock.
A) less than 20 percent
B) more than 20 percent
C) more than 40 percent
D) more than 50 percent
Stonefield Company pays taxes of 25% on their first $30,000 of pretax income and 30%
on any taxable income in excess of $30,000. The current pretax income is $45,000.
What is the marginal tax rate for Stonefield Company?
A) 25%
B) 30%
C) 40%
D) 65%
In practice, companies often inappropriately allocate fixed cost pools for service
departments to producing departments on the basis of ________ instead of ________.
A) budgeted costs; actual costs
B) actual costs; budgeted costs
C) capacity used; capacity available
D) capacity available; capacity used
When does a company earn the majority of revenue for a product that goes through the
product life cycle?
A) phase-out of product and introduction to market stages
B) introduction to market and mature market stages
C) product development and mature market stages
D) mature market and phase-out of product stages
When preparing a budgeted balance sheet, the balance for the inventory account is
found on the ________.
A) sales budget
B) cash budget
C) operating expense budget
D) purchases and cost of goods sold budget
External users of financial reports need ________ measures of inventory and cost of
goods sold. Internal users of financial reports need ________ cost information about
products.
A) strategic; operational
B) operational; strategic
C) aggregate; detailed
D) detailed; aggregate
Brankov Company has budgeted sales of $30,000 with the following budgeted costs:
Direct materials $6,300
Direct labor $4,100
Variable factory overhead $3,700
Fixed factory overhead $5,600
Variable selling and administrative costs $2,400
Fixed selling and administrative costs $3,200
What is the average target markup percentage for setting prices as a percentage of
variable manufacturing costs?
A) 53%
B) 76%
C) 113%
D) none of the above
The Rumler Company used regression analysis to predict the annual cost of utilities.
The results were as follows:
Utilities Cost
Explained by Direct Labor Hours
Constant 4,500
Standard error of Y estimate 595
R-Squared 0.87
No. of observations 30
Degrees of freedom 28
X Coefficient 5.04
Standard error of coefficient 0.92
The total fixed cost is ________.
A) $5.04 times number of direct labor hours
B) $595
C) $4,500
D) none of the above
In the area of quality control, which of the following statement(s) about Six Sigma
is(are) TRUE?
A) The focus is on measuring the number of defects in a production process.
B) It is a data-driven approach to eliminate defects.
C) The goal is to eliminate all defects in the production process.
D) All of the above
________ is the decline in the general purchasing power of the monetary unit.
A) The nominal percentage
B) The real rate percentage
C) The payback period
D) Inflation
Why do companies develop cost allocation methods to assign service department costs
to producing departments?
A) to identify the total cost of production
B) to accurately determine the cost of a product
C) to develop transfer prices for products
D) A and B
A hospital adds a new addition and needs to acquire some new equipment for the
addition. The cost driver for the equipment is patient-days per month. The new addition
increases the patient-days per month outside the relevant range. What type of
equipment costs will change as a result of the addition?
A) discretionary fixed costs
B) discretionary variable costs
C) committed fixed costs
D) committed variable costs
Jensen Company is preparing a cash budget for the month of June. The following
information is available:
Cash Balance, May 31, 2015 $10,000
Cash collections from customers in June 76,000
Cash paid for merchandise in June 42,000
Paid operating expenses in June 17,000
Purchase furniture for cash in June 5,000
Depreciation expense in June 2,000
Amortization expense in June 3,000
The minimum cash balance desired is $10,000. What are the net cash receipts and
disbursements for the month of June?
A) $7,000
B) $10,000
C) $12,000
D) $17,000
Pilot Bank uses activity-based costing. Pilot Bank has the following activities, traceable
costs, and cost drivers:
Activities Traceable Costs Cost Drivers
Open new accounts $40,000 1,000 accounts
Process deposits $72,000 360,000 deposits
Process withdrawals $100,000 200,000 withdrawals
The above activities are used by Downtown branch and North branch as follows:
Activities Downtown North
Open new accounts 200 400
Process deposits 40,000 20,000
Process withdrawals 15,000 18,000
Required:
A) Compute the new account cost assigned to the North branch.
B) Compute the deposit processing cost assigned to the Downtown branch.
C) Compute the withdrawal processing cost assigned to the Downtown branch.
Predatory pricing occurs when a firm sets ________.
A) prices below the average cost for each product
B) prices below the production cost for each product
C) prices below their competitors’ prices
D) prices so low that competitors are driven out of the market
Cash collected from customers before goods are delivered is known as ________.
A) unearned revenue
B) deferred revenue
C) customer advances
D) all of the above
Factors that affect employee acceptance of budgets include ________.
A) perceived attitude of top management towards budgeting
B) level of participation by employees in budget process
C) degree of alignment between budget and employees’ performance goals
D) all of the above
Which of the following statements about productivity is FALSE?
A) Productivity is a measure of outputs divided by inputs.
B) The fewer inputs needed to produce a given output, the more productive the
organization.
C) Inputs and outputs are difficult to measure.
D) Productivity measures can be compared over time without making adjustments for
inflation.
Andrea Company manufactures a part for its production cycle. The annual costs per unit
for 20,000 units of this part are as follows:
Direct materials $15
Direct labor 12
Variable indirect production costs 19
Fixed indirect production costs 16
Total cost $62
Andrea Company has been approached by a supplier who will sell 20,000 units of the
same part for $940,000. All the fixed indirect production costs are unavoidable if
Andrea Company ceases production of the part.
Required:
A) Assuming there is no alternative use for the facilities, should Andrea Company buy
or make the part?
B) Assume the facilities can be rented out for $100,000 per year. Should Andrea
Company buy the part? If so, how much money will be saved?
________ is an approach for establishing a market-based transfer price.
A) Full cost plus a normal profit markup
B) External market price less selling and delivery costs saved from selling internally
C) External market price plus a profit markup
D) Variable cost plus unavoidable fixed cost
There is(are) ________ goal(s) of transfer pricing systems. There is no universally
________ transfer price.
A) multiple; maximum
B) one; maximum
C) multiple; optimal
D) one; optimal
Corbin Company has prepared the following sales budget:
Month Cash Sales Credit Sales
September $99,000 $250,000
October 225,000 180,000
November 310,000 210,000
December 94,000 170,000
Collections of credit sales are 50% in the month of sale, 40% in the month following
sale, and 10% two months following sale. No uncollectible accounts are expected. What
is the expected balance in Accounts Receivable at November 30?
A) $77,500
B) $105,000
C) $123,000
D) $210,000
The Collander Company reports the following information:
Sales for the year ended December 31, 2012 $106,950
Gross profit for the year ended December 31, 2012 $45,150
Net income for the year ended December 31, 2012 $7,300
Total Current Assets, December 31, 2012 $18,700
Total Current Liabilities, December 31, 2012 $5,600
Total Assets, December 31, 2012 $48,400
Total Liabilities, December 31, 2012 $20,850
Total common shares outstanding, December 31, 2012 1,000
Market price per share, December 31, 2012 $75.00
Dividends per share, for the year ended December 31, 2012 $5.00
What is the current ratio at December 31, 2012?
A) 0.90
B) 1.00
C) 2.32
D) 3.34