When a company acquires all of the common stock of a subsidiary, the books of the
subsidiary are no longer used.
Accounts payable, wages payable and income taxes payable are all considered to be
current liabilities.
An assumption of the CVP analysis is that the sales mix can fluctuate.
The disposal value of old equipment is relevant in equipment replacement decisions.
XBRL is an integrated information system that supports all functional areas of a
business.
Managers should apply plausibility and reliability to obtain accurate and useful cost
functions.
Costs that can be allocated to a cost object are called direct costs.
A full-cost transfer price can potentially create dysfunctional decisions.
In the NPV method, errors in forecasting terminal disposal values are usually not
crucial because the present value of these cash flows is small.
Opportunity costs and outlay costs are widely used synonyms.
In a regression analysis, the constant from the linear cost function is a measure of
reliability.
Companies with high levels of operating leverage are less risky than companies with
low levels of operating leverage.
An example of an operating activity on the statement of cash flows is cash dividends
received on investments. Assume the direct method is used.
One of a treasurer’s responsibilities is tax administration.
Internal delays and lost sales are examples of opportunity costs for a firm.
A budget is a qualitative expression of a plan of action.
Inventory turnover is the number of times the average inventory is sold per year.
When using accelerated depreciation methods, most of the depreciation taken on an
asset occurs at the end of its life.
Return on sales can be computed by multiplying return on investment by the capital
turnover.
A century ago, a large proportion of labor costs were direct costs.
The behavioral implications of an accounting system refer to the system’s effects on the
firm’s customers.
The CVP graph shows how costs behave over different relevant ranges.
Precise but irrelevant information is worthless for decision making.
In companies with high operating leverage, small changes in sales volume result in
large changes in net income.
The proponents of gross book value for purposes of calculating return on investment
maintain that it facilitates comparisons between years and between plants or divisions.
Decentralization is most successful when an organization’s segments are relatively
independent of one another.
EVA equals adjusted after-tax operating income minus capital turnover.
The total manufacturing cost and full cost approaches to pricing often fail to highlight
different cost behavior patterns.
Measures of performance do not have to be consistent with organizational goals.
A change in the tax rate will not affect the break-even point.
The first and most basic component in a management control system is the employee’s
goals.
The Cheeseman Company makes tables and the following standards have been
developed:
Standard Inputs Expected Standard Price Expected
For Each Unit of Output Per Unit of Input
Direct Materials 10 pounds $4 per pound
Direct Labor 3 hours $16 per hour
Production of 230 tables was expected in July, but 250 tables were actually completed.
Direct materials purchased and used were 2,200 pounds at an actual price of $4.50 per
pound. Direct labor cost for the month was $10,620, and the actual pay per hour was
$18.00. What is the direct material price variance for July?
A) $800 Favorable
B) $800 Unfavorable
C) $1,100 Favorable
D) $1,100 Unfavorable
Black Company manufactures gadgets in one department. The following information is
available:
Work-In-Process Inventory, beginning 0
Units started 60,000
Units completed and transferred 48,000
Work-In-Process Inventory, end 12,000
Direct materials added $240,000
Direct labor $164,780
Factory overhead $82,000
The units in the ending Work-In-Process Inventory are 0 percent complete with respect
to direct materials and 50 percent complete with respect to conversion costs. Direct
materials are added at the end of the process. The total cost of units completed and
transferred is ________.
A) $90,240
B) $411,360
C) $459,360
D) $488,400
Jupiter Company has the following information:
Month Budgeted Sales
January $76,000
February 85,000
March 100,000
April 79,000
Budgeted Operating Expenses Per Month
Wages $15,000
Advertising 12,000
Depreciation 3,000
Sales Commissions 4% of sales
All cash expenses are paid as incurred. What are the budgeted total cash disbursements
for operating expenses in March?
A) $3,680
B) $30,000
C) $31,000
D) $34,000
Bombard Division has operating income of $200,000 for the year ending December 31,
2011. Average invested capital is $1,000,000 and the weighted-average cost of capital is
10%. The division is considering a new investment that would cost $500,000 and earn
15% annually. If economic profit is the performance metric, should the manager of the
Bombard 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 economic profit of the division increases with the new investment.
D) Yes, because the return on investment of the division increases with the new
investment.
Fixed indirect production costs affect the calculation of ________ on the absorption
income statement. Fixed indirect production costs do NOT affect the calculation of
________ on the contribution income statement.
A) contribution margin; gross margin
B) gross margin; contribution margin
C) operating income; gross margin
D) contribution margin; operating income
Presented below is the balance sheet of Holmes 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 Montvale 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, Montvale Company acquired 100 percent of the outstanding
common stock of Holmes Company for $260 cash. The book value and fair value of
Holmes’ assets and liabilities were equal. What is the balance in the Investment in
Holmes Company account on the consolidated balance sheet immediately after the
acquisition of Holmes Company’s stock? (Assume elimination entries are completed.)
A) $0
B) $260
C) $380
D) $500
Gomez Company has no beginning and ending inventories, and reports the following
data about its only product:
Direct materials used $470,000
Direct labor $180,000
Fixed indirect manufacturing $130,000
Fixed selling and administrative $150,000
Variable indirect manufacturing $120,000
Variable selling and administrative $60,000
Selling price(per unit) $100
Units produced and sold 30,000
Gomez Company uses the contribution approach to prepare the income statement. What
is the operating income?
A) $1,890,000
B) $2,100,000
C) $2,190,000
D) $2,250,000
From the view of the company as a whole, managers should accept investment projects
that earn more than the ________. ________ should not be used for investment
decisions.
A) return on investment; Return on sales
B) return on sales; Capital turnover
C) cost of capital; Return on investment
D) capital turnover; Return on sales
Donahoo Manufacturing Company had the following information available for the year:
Direct materials used $44,000
Direct labor costs incurred $7,700
Indirect labor costs incurred $3,030
Depreciation Expense on factory building $19,000
Depreciation Expense on factory machines $100,000
Insurance Expense on factory building $1,200
Depreciation Expense on office equipment $12,000
Insurance expense on corporate office $1,300
Supplies Expense for factory $5,000
Utilities Expense for factory $2,000
Wages Expense for factory janitors $5,000
Lease Expense for factory computers $10,000
Finished Goods Inventory, end of year $32,000
Finished Goods Inventory, beginning of year $12,000
Work-In-Process Inventories and Raw Materials Inventories were negligible at the
beginning and end of the year.
Required:
A) Compute the Cost of Goods Manufactured for the year.
B) Compute the Cost of Goods Sold for the year.
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
To calculate income before taxes for a segmented company as a whole, take
contribution by segments and subtract ________.
A) allocated costs
B) unallocated costs
C) costs controllable by segment managers
D) costs controllable by third parties
In process costing, which of the following cost(s) is(are) usually included in
transferred-in costs?
A) direct materials cost only
B) conversion costs only
C) direct materials cost and conversion costs
D) none of the above
Where does a company find forecasted financial statements for a five to ten year
period?
A) strategic plan
B) master budget
C) rolling budget
D) long-range plan
Which of the following statements is NOT a benefit of decentralization?
A) Lower-level managers are able to make faster and better decisions on local decisions
than higher-level managers.
B) By delegating decision-making authority to local managers, higher-level managers
free up time to deal with larger issues and fundamental strategy.
C) Local managers can develop management skills.
D) Managers in decentralized units may spend time negotiating transfer prices for
goods transferred between units.
Damon Company sold 10,000 shares of $1 par value common stock. The selling price
was $9.00 per share. After the sale, what is the capital in excess of par value?
A) $80,000
B) $90,000
C) $100,000
D) $110,000
Michael Company had the following data:
Retained earnings, January 1, 2015 $45,000
Depreciation expense for 2015 $7,000
Cost of goods sold for 2015 $102,000
Paid-in capital, January 1, 2015 $26,000
Rent expense for 2015 $12,000
Sales for 2015 $194,000
Dividends declared in 2015 $15,000
Wage expense for 2015 $40,000
Prepaid rent, January 1, 2015 $2,000
What is the balance in Retained Earnings on December 31, 2015?
A) $61,000
B) $63,000
C) $65,000
D) $74,000
In deciding whether to add or delete a product, the salary of the plant manager is an
________. Assume the plant manager supervised the production of several products.
A) avoidable fixed cost
B) avoidable variable cost
C) unavoidable fixed cost
D) unavoidable variable cost
Fixed indirect production costs affect the calculation of ________ on the absorption
income statement. Fixed indirect production costs do NOT affect the calculation of
________ on the contribution income statement.
A) contribution margin; gross margin
B) gross margin; contribution margin
C) operating income; gross margin
D) contribution margin; operating income
Three cost drivers are used to estimate the cost of processing insurance claims. The cost
drivers are: (1) claim amount, (2) age of vehicle in accident and (3) age of driver in
accident. The percentages attributable to the cost drivers are 50% for claim amount, and
15% for each of the other two cost drivers. What is the cost to process Claim #101? The
claim amount is $1,000. The age of the vehicle is 5 years. The age of the driver is 20
years.
A) $3.00
B) $3.75
C) $500
D) $503.75
Bush Company expects May sales to be $20,000. Approximately 40% of sales are cash
sales. Collection of credit sales are 50% in the month of sale, 40% in the month
following sale and 5% two months following sale. The remaining 5% is uncollectible.
________ is the expected cash collection in May from May sales.
A) $4,000
B) $6,000
C) $8,000
D) $14,000
According to the Statement of Ethical Professional Practice drafted by the IMA, the
standard of integrity states that each member has a responsibility to ________.
A) communicate information fairly and objectively
B) mitigate actual conflicts of interest
C) recognize and communicate professional limitations or other constraints that would
preclude responsible judgment or successful performance of an activity
D) disclose delays or deficiencies in information
Worbel Company has variable costs of $5 per unit and a selling price of $10 per unit.
Fixed costs are $100,000. Planned unit sales for 2015 are 25,000 units. Actual unit sales
for 2014 were 22,000. What is the margin of safety in dollars for 2015?
A) $5,000
B) $20,000
C) $30,000
D) $50,000
To calculate the numbers in a flexible budget, managers use ________.
A) cost functions developed from regression analysis
B) flexible budget formulas
C) cost functions obtained from the high-low method
D) all of the above
Relevant information refers to ________ that will differ among the alternative courses
of action.
A) future costs only
B) future revenues only
C) past costs and revenues
D) future costs and revenues
A measure of how much of the fluctuation of a cost is explained by changes in the cost
driver is ________.
A) least squares regression analysis
B) standard error of coefficient
C) standard error of constant
D) coefficient of determination
________ 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
Which of the following is NOT an example of efficient performance?
A) Direct labor hours used per unit were less than expected.
B) Direct material used per unit was less than expected.
C) More outputs were achieved with less inputs than predicted.
D) More outputs were produced than expected.
Andy Basil 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 $225.00
Sales $360,000
Direct materials used $176,000
Direct labor $100,000
Variable factory overhead $44,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Production volume variance 0
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 400 units
Under absorption costing, what is the Cost of Goods Sold?
A) $256,000
B) $272,000
C) $320,000
D) $360,000
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
Kingsway Company had the following information available for the past quarter:
Budgeted factory overhead costs $75,000
Actual factory overhead costs $80,000
Budgeted direct labor hours 20,000
Actual direct labor hours 21,000
Assume the cost driver for factory overhead costs is direct labor hours and a job uses
2,000 direct labor hours. The job was budgeted to use 2,100 direct labor hours. What
amount of factory overhead is applied to the job?
A) $7,140
B) $7,500
C) $7,875
D) $8,000
In job-order costing, the journal entry to record the application of factory overhead
costs to jobs includes a Debit to ________.
A) Factory Department Overhead Control
B) Factory Department Overhead Applied
C) Finished Goods Inventory
D) Work-In-Process Inventory
Examples using activity-based costing generally show that traditional costing systems
________ high-volume, simple products and ________ low-volume, complex products.
A) undercost; overcost
B) overcost; undercost
C) undercost; undercost
D) overcost; overcost
A grocery store manager is responsible for the operating performance of three grocery
stores in a small city. From the manager’s point of view, which of the following is NOT
a controllable cost?
A) cost of advertising for grocery stores sent to residents in local area
B) cost of advertising for grocery stores included in local newspaper
C) cost of flyers with grocery store coupons sent to local residents
D) insurance premium on three store buildings