1) The cost equation determined by regression analysis is usually more accurate than
the line determined by the high-low method.
2) Sunk costs should be considered when deciding whether to sell a product as is or
process it further.
3) A price variance for production inputs is the difference between the actual unit price
of an input and the standard unit price of the input, multiplied by the actual input
quantity.
4) The variable cost per unit of activity increases as activity increases.
5) A purchase order is used to order needed materials from suppliers.
6) If all direct materials are added at the beginning of the production process, and the
units have made it 50% of the way through the production process, then the percentage
completion for direct materials is 0%.
7) The cost of training employees would be classified as a prevention cost.
8) The financial budgets project the collection and payment of cash, as well as forecast
the company’s budgeted balance sheet.
9) There are two types of responsibility centers.
10) The storage of raw materials is considered a value-added activity.
11) Lean thinking is both a philosophy and a business strategy of manufacturing
without waste.
12) Which of the following is TRUE about lean thinking?
A) Customer orders drive the production process
B) Inventory levels are maintained at high levels
C) Raw materials are purchased in large quantities
D) Finished goods are produced ahead of customers’ orders to protect against running
out of finished goods inventory
13) Sales revenue is $750,000; actual manufacturing overhead is $120,000; allocated
manufacturing overhead is $95,000; and cost of goods sold before adjustment is
$380,000. What is the actual gross profit?
A) $395,000
B) $370,000
C) $345,000
D) $250,000
14) Companies that wish to demonstrate their commitment to international quality
standards may become certified by what organization?
A) SEC
B) IFRS
C) IMA
D) ISO
15) By increasing ________, a manager can increase operating income under
absorption costing.
A) variable costs
B) fixed costs
C) production
D) leased assets
16) Buxton Corporation is evaluating a capital investment project which would require
an initial investment of $240,000 to purchase new machinery. The annual revenues and
expenses generated specifically by this project each year during the project’s nine year
life would be:
The residual value of the machinery at the end of the nine years would be $15,000. The
payback period of this potential project in years would be closest to
A) 2.6
B) 3.6
C) 3.1
D) 1.4
17) Best Birdies produces ornate birdcages. The company’s average cost per unit is
$18.00 when it produces 2,200 birdcages. If $5,500 of the costs are fixed, and the plant
manager uses the cost equation to predict total costs, his forecast for 3,000 birdcages
will be
A) $52,000
B) $54,000
C) $39,600
D) $14,400
18) Regarding activity-based costing systems, which of the following statements is
TRUE?
A) ABC systems accumulate overhead costs by departments
B) ABC costing systems are less complex and, therefore, less costly than traditional
systems
C) ABC costing systems have separate indirect cost allocation rates for each activity
D) ABC costing systems can be used in manufacturing firms only
19) Which of the following statements about budgeting is not TRUE?
A) Budgeting is an aid to planning and control
B) The operating budget should be prepared by top management, rather than
mid-management personnel, because they have the overall objectives of the company in
mind
C) Budgets help to coordinate the activities of the entire organization
D) Budgets promote communication and coordination between departments
20) The only difference in the balance sheets of various types of businesses (for
example, manufacturing vs. service) is
A) current liabilities
B) current assets
C) investments
D) equity
21) Which of the following budgets is a major part of the master budget and focuses on
the income statement and its supporting schedules?
A) cash
B) operating
C) capital expenditures
D) financial
22) Sky High Seats manufactures seats for airplanes. The company has the capacity to
produce 100,000 seats per year, but is currently producing and selling 75,000 seats per
year. The following information relates to current production:
If a special sales order is accepted for 2,500 seats at a price of $320 per unit, fixed costs
increase by $5,000, and variable marketing and administrative costs for that order are
$25 per unit, how would operating income be affected? (NOTE: Assume regular sales
are not affected by the special order.)
A) Increase by $187,500
B) Decrease by $182,500
C) Increase by $182,500
D) Increase by $245,000
23) Selected financial data for The Portland Porcelain Works Coffee Mug Division is as
follows:
What is The Portland Porcelain Works Coffee Mug Division sales margin?
A) 57.60%
B) 18.00%
C) 320.00%
D) 7.83%
24) The ________ is the most important section on the statement of cash flows because
it reflects the day-to-day operations that determine the future of an organization.
A) operating section
B) financing section
C) investing section
D) None of the above
25) Mayfield Company sells two products, Blue models and Plaid models. Blue models
sell for $45 per unit with variable costs of $30 per unit. Plaid models sell for $50 per
unit with variable costs of $25 per unit. Total fixed costs for the company are $19,950.
Mayfield Company typically sells two Blue models for every three Plaid models. What
is the breakeven point in total units?
A) 190 units
B) 266 units
C) 950 units
D) 2,217 units
26) Sally’s Gift Baskets sells gift baskets, on average, for $125; each gift basket costs,
on average, $60. Debby pays salaries each month of $1,300 and her store rent is $1,000
per month. She also pays sales commissions of 5% of the sales price. In May, 140 gift
baskets were sold.
Required:
a.Prepare a traditional income statement for the month of May.
b.Prepare a contribution margin income statement for the month of May.
27) Preparing financial statements in accordance with GAAP is an example of
A) integrity
B) competence
C) credibility
D) objectivity
28) Weissfeld Corporation manufactures a single product. The direct materials standard
calls for 5 pounds of direct material per unit. The standard for direct material cost per
pound is $10. A computer error has wiped out the records for the direct labor standards
but the following information is found for the month of October:
Required:
a. Calculate the number of pounds of direct materials purchased and used during
October.
b. Calculate the materials quantity variance.
c. Calculate the standard direct labor rate per hour.
d. Calculate the standard direct labor hours allowed for October’s production.
29) If both fixed expenses and the selling price per unit increase while variable costs
per unit are unchanged, which of the following statements is TRUE?
A) Breakeven point in units increases
B) Breakeven point in units could increase, decrease, or remain the same
C) Breakeven point in units decreases
D) Breakeven point in units remains unchanged
30) The budget committee
A) rarely has the final say on the budget
B) usually is made up of the accounting staff
C) usually is made up of managers from all areas of the value chain
D) usually is made up of the Board of Directors
31) A company uses the indirect method to prepare the statement of cash flows. It sold a
piece of equipment at a loss of $3,600. The equipment was purchased several years ago
for $70,500 and had accumulated depreciation of $56,900. What is reported under the
operating activities section on the statement of cash flows?
A) Cash proceeds of $10,000 are subtracted from net income
B) Cash proceeds of $10,000 are added to net income
C) The loss of $3,600 is subtracted from net income
D) The loss of $3,600 is added to net income
32) A company is deciding whether to purchase hybrid cars for its salespeople or
gasoline-engine cars. All of the following costs would be relevant to its decision except
A) the cost per gallon of gasoline
B) the purchase price of the hybrid model
C) the book value of the current fleet of sales vehicles
D) the purchase price of the gasoline-engine model
33) In performing a vertical analysis of a balance sheet, which of the following is
generally used as the base amount?
A) Total liabilities
B) Net assets
C) Total assets
D) Total stockholder’s equity
34) In a(n) ________ center, managers are accountable for both revenues and costs.
A) cost
B) profit
C) equity
D) investment
35) 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 acid-test ratio for the current year?
A) 0.53
B) 1.98
C) 8.46
D) 1.46
36) On the line in front of each statement, enter the letter corresponding to the term that
best fits that statement. You may use a letter more than once and some letters may not
be used at all.
A. bill of materials F. job cost record
B. cost driver G. process costing
C. materials requisition H. labor time record
D. invoice I. receiving report
E. purchase order J. job costing
____a bill from a supplier
____a list of all of the raw materials needed to manufacture a job
____system for assigning costs to a specific unit or to a small batch of products or
services that pass through production steps as a distinct identifiable job
____a written or electronic document authorizing the purchase of specific raw materials
from a specific supplier
____system for assigning costs to large numbers of identical units that usually proceed
in a continuous fashion through a series of uniform production steps or processes
____a written or electronic document that requests specific materials be transferred
from the raw materials inventory storeroom to the production floor
____a written or electronic document listing the quantity and type of raw materials
received in an incoming shipment
37) Duquesne Incorporated recently implemented an activity-based costing system.
Total results from all products manufactured in the current year are:
Activity cost poolTotal costTotal activity
Assembly$7,5001,500machine-hours
Packaging$3,150450number of orders
Quality control inspections$900200number of inspections
Duquesne manufactures sprinkler heads for commercial applications. Annual
production and sales of one of its heads, is 2,300. The following relates to the most
recent year.
Annual machine hours1,000
Annual number of orders125
Annual number of inspections400
Direct materials cost per unit$15.00
Direct labor cost per unit$5.00
Required:
1> Calculate the activity cost pool rates for each of the three activity cost pools listed.
2> Calculate the average cost of one sprinkler head.
38) Differentiate between fixed and variable costs and give an example of each.
39) Use the direct method of cash flows to answer the question.
Beginning A/R: $68,000Beginning Inventory: $42,500
Ending A/R: $79,000Ending Inventory: $47,000
Credit Sales: $745,000Beginning A/P: $29,000
Cost of Goods Sold: $412,000Ending A/P: $36,300
Compute the change in accounts receivable for the year.
40) Flawless Lawns Manufacturing produces lawn edgers. The company has a policy
that the ending inventory in any month must be 10% of the following month’s expected
sales. On March 31, Flawless Lawns Manufacturing had 140 lawn edgers in inventory.
Flawless Lawns Manufacturing expects to sell the following number of lawn edgers in
each of the next four months:
Required:
Prepare a production budget for the second quarter, with a column for each month and
for the quarter.
41) McCartney Services has a customer website to take orders, answer customer
questions, and address customer complaints. The costs associated with this customer
website over the past six months are listed below:
Management at McCartney Services believes that the customer website costs are a
mixed cost and would like to use the high-low method to estimate their future costs
using the number of website hits in any given month as the cost driver.
Required:
1>Using the high-low method, estimate the variable cost per website hit and the
monthly fixed costs associated with the customer website.
2>Write the cost equation for estimating the customer website expenses for McCartney
Services using the results from Requirement 1 .
3>If McCartney Services expects 9,500 website hits for July, what are their anticipated
customer website costs for July?
42) Identify and describe the three sections of the statement of cash flows.
43) The Toth Company bought a new specialty machine that cost $100,000 with a
4-year life with no residual value. The company plans to generate annual cash inflows
of $30,000 each year for 4 years. Calculate the accounting rate of return.
44) Buller Manufacturing is considering acquiring another facility for a cost of
$610,000. The required payback period is 4.5 years. Assume annual net cash inflows
are $150,000 for the first two years and $125,000 for years 3 and 4 . What must the
inflow be in the fifth year to meet the 4.5 year payback period?
45) Describe service, merchandising, and manufacturing companies.