The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and
no residual value, is expected to yield total net income of $200,000 for 5 years. The
expected average rate of return on investment computed is 20%.
a. True
b. False
Lauder Company had fixed costs of $282,500, variable costs of $645,000, and actual
sales amounted to $1,100,000. If the company has a breakeven point at $750,000 in
sales revenue, determine (a) the margin of safety expressed in dollars, (b) the margin of
safety expressed as a percentage of sales, (c) the contribution margin ratio, and (d) the
operating income.
Frogue Corporation uses a standard cost system. The following information was
provided for the period that just ended:
Actual price per kilogram$3.00
Actual kilograms of material used31,000
Actual hourly labor rate$18.20
Actual hours of production4,900 labor hours
Standard price per kilogram$2.80
Standard kilograms per completed unit6 kilograms
Standard hourly labor rate$18.00
Standard time per completed unit1 hr.
Actual total factory overhead$34,900
Actual fixed factory overhead$18,000
Standard fixed factory overhead rate$1.20 per labor hour
Standard variable factory overhead rate$3.80 per labor hour
Maximum plant capacity15,000 hours
Units completed during the period5,000
The direct labor cost variance is:
a. $1,310 favorable.
b. $820 favorable.
c. $1,310 unfavorable.
d. $820 unfavorable.
Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units
of Arks and 18,000 units of Bins. Related data are:
Unit SellingUnit VariableUnit Contribution
ProductPriceCostMargin
Arks$ 80$20 $60
Bins 120 40 80
Assuming that last year’s fixed costs totaled $910,000, what was Kennedy’s breakeven
point in units?
a. 9,100 units
b. 13,000 units
c. 13,227 units
d. 13,542 units
Reporting under managerial accounting is not restricted by specific rules such as
generally accepted accounting principles (GAAP).
a. True
b. False
Statements in which all items are expressed as percentages with no dollar amounts are
called commonsized statements.
a. True
b. False
The indirect method of preparing the statement of cash flows reconciles net income
with net cash flows from operating activities.
a. True
b. False
Which method of depreciation considers residual value in computing the normal
periodic depreciation?
a. Straightline
b. MACRS
c. Doubledecliningbalance
d. Accelerated
Standard and actual costs for direct materials for the manufacture of 2,000 units of
product were as follows:
Actual costs2,750 lbs. @ $8.10
Standard costs2,800 lbs. @ $8.00
Determine the (a) quantity variance, (b) price variance, and (c) total direct materials
cost variance.
A(n) _____ provides product costs for each quantity of a product that is manufactured.
a. process costing
b. job order costing
c. activity based costing
d. DuPont costing
Receivables not expected to be collected within one year are reported in the fixed assets
section of the balance sheet.
a. True
b. False
Hill Co. can further process Product O to produce Product P. Product O is currently
selling for $65 per pound and costs $42 per pound to produce. Product P would sell for
$82 per pound and would require an additional cost of $13 per pound to produce. The
differential cost of producing Product P is $55 per pound.
a. True
b. False
A bank reconciliation should be prepared periodically because:
a. the depositor’s records and the bank’s records are in agreement.
b. the bank has not recorded all of its transactions.
c. any differences between the depositor’s records and the bank’s records should be
determined, and any errors made by either party should be discovered and corrected.
d. the bank must make sure that its records are correct.
Expenses that cannot be traced directly to operations are identified as:
a. other revenue.
b. operating expenses.
c. cost of goods sold.
d. other expenses.
The highly liquid investments that a company may invest in when they temporarily
have excess cash are called _____.
a. cash equivalents
b. bank overdrafts
c. cash short and over
d. vouchers
When an account receivable is collected in cash, the total assets of the business
increase.
a. True
b. False
Indicate whether each of the following activities would be reported on the statement of
cash flows as an operating activity, an investing activity, a financing activity, or does
not appear on the statement of cash flows.
(a)Cash paid for building
(b)Cash paid to suppliers
(c)Cash paid for dividends
(d)Cash received from customers
(e)Cash received from the sale of capital stock.
(f)Cash received from the sale of a building
(g)Borrowed cash from a bank
Taxes receivable is classified as:
a. other receivable.
b. notes receivable.
c. accounts receivable.
d. trade receivables.
The effect of every transaction is an increase or a decrease in one or more of the
accounting equation elements.
a. True
b. False
In a job order cost accounting system, the effect of the flow of direct materials into
production will be:
a. increase in WorkinProcess and decrease in Materials Inventory.
b. increase in Materials Inventory and decrease in WorkinProcess.
c. increase in Factory Overhead and decrease in Materials Inventory.
d. increase in WorkinProcess and decrease in Supplies.
The prices of bonds are quoted on bond exchanges as a percentage of the bonds’ face
value.
a. True
b. False
Under which method of inventory costing is the ending inventory assumed to be
composed of the most recent costs?
a. Average cost
b. Lastin, firstout
c. Firstin, lastout
d. Firstin, firstout
Operating expenses directly traceable to or incurred for the sole benefit of a specific
department and usually subject to the control of the department manager are termed
indirect expenses.
a. True
b. False
Product cost consists of factory overhead.
a. True
b. False
The ratio that indicates the percentage of each sales dollar available to cover the fixed
costs and to provide operating income is termed as contribution margin ratio.
a. True
b. False
The excess of actual operating income over a minimum acceptable operating income is
called:
a. net profit.
b. gross profit.
c. nonoperating income.
d. residual income.
Target costing is arrived at by:
a. taking the selling price and subtracting desired profit.
b. taking the selling price and adding desired profit.
c. taking the selling price and subtracting the budget standard cost.
d. taking the budget standard cost and reducing it by 10%.
Paul’s Delivery Service is considering selling one of its smaller trucks that is no longer
needed in the business. The truck originally costed $23,000 and has accumulated
depreciation of $10,000. The truck can be sold for $14,000. Another company is
interested in leasing the truck. It will pay $4,800 per year for three years. Paul’s
Delivery Service will continue to pay the taxes and license fees for the truck, but all
other expenses will be paid by the lessee. Management assumes the expenses for the
taxes and license will be $300 per year. Which of the following statements is correct?
a. Paul’s Delivery Service should sell the truck because the differential loss from leasing
is $500.
b. Paul’s Delivery Service should lease the truck because the differential income from
leasing is $12,200.
c. Paul’s Delivery Service should lease the truck because the differential income from
leasing is $300.
d. Paul’s Delivery Service is indifferent as to whether the company should lease or sell
the truck because there is no differential income or loss between the alternatives.
An unfavorable time variance is caused by:
a. a shortage of skilled employees.
b. improper scheduling of skilled employees.
c. lack of enough sales orders.
d. owquality (inferior) direct materials.
Which of the following assets never loses its ability to provide service and, as a result,
does not need to be depreciated?
a. A copyright
b. Office equipment
c. A patent
d. Land
The cost of a manufactured product generally consists of direct materials cost, direct
labor cost, and factory overhead cost.
a. True
b. False
On June 1, Unidevo, Inc. purchased $2,300 worth of supplies on account. Prior to the
purchase, the balance in the supplies account was $350. On December 31, the fiscal
yearend for Unidevo, it is determined that $500 of supplies still remain. What is the
balance in the supplies account after adjustment?
a. $0
b. $1,800
c. $500
d. $2,300
Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units
of Arks and 18,000 units of Bins. Related data are:
Unit SellingUnit VariableUnit Contribution
ProductPriceCostMargin
Arks$ 80 $20 $60
Bins 120 40 80
What was Kennedy’s overall product’s unit contribution margin?
a. $67.20
b. $70.00
c. $72.00
d. $100.00
In computing _____, output is measured as the percentage of units from a process that
pass inspection.
a. standard units
b. process yield
c. process variance
d. utilization rate