1) If the standard to produce a given amount of product is 500 direct labor hours at $15
and the actual was 600 hours at $17, the time variance was $1,500 favorable.
2) Depletion is the process of transferring the cost of intangible assets to an expense
account.
3) If a business sells four products, it is not possible to estimate the break-even point.
4) Under the cash basis of accounting, no adjustments are necessary prior to the
preparation of the financial statements.
5) Depreciation expense on factory equipment is part of factory overhead cost.
6) “Brand name” recognition is an example of goodwill.
7) Average rate of return equals estimated average annual income divided by average
investment.
8) The accrual basis recognizes liabilities at the time the business incurs the obligation
to pay for the services or goods purchased.
9) Obligations that depend on past events and that are based on future transactions are
contingent liabilities.
10) Materials inventory consists of the costs of direct and indirect materials that have
not yet entered the manufacturing process.
11) The most effective means of presenting standard factory overhead cost variance
data is through a selling overhead cost budget.
12) Standard costs serve as a device for measuring efficiency.
13) Direct materials costs are included in the conversion costs of a product.
14) Merchandise inventory shrinkage will increase Merchandise Inventory.
15) There are only two internal control objectives: to ensure accurate financial reports,
and to ensure compliance with applicable laws.
16) Financial reporting systems that are guided by the principle of exceptions concept
focus attention on variances from standard costs.
17) Minimum cash balance maintained in the bank account is called line of credit.
18) If fixed costs are $300,000 and variable costs are 70% of break-even sales, profit is
zero when sales revenue is $1,000,000.
19) The standard fixed factory overhead rate is based on 100% capacity of 50,000 direct
labor hours. The standard costs and the actual costs for factory overhead for the
production of 8,000 units during the current month were as follows:
If there was a $9,000 unfavorable volume variance for December, what is the standard
fixed factory overhead cost rate?
A.$1.00
B.$0.90
C.$2.40
D.$0.80
20) 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%
21) Which of the following is not a commonly used approach for setting transfer prices?
A.Market price approach
B.Revenue price approach
C.Negotiated price approach
D.Cost price approach
22) Knowing how costs behave to change in the level of activity is useful to
management for all the following reasons except for:
A.predicting customer demand
B.predicting profits as sales and production volumes change
C.estimating costs
D.changing an existing product production
23) Accrued expenses are ordinarily reported on the balance sheet as:
A.assets
B.liabilities
C.fixed assets
D.prepaid expenses
24) Materials used by Ford Company in producing Division A’s product are currently
purchased from outside suppliers at a cost of $30 per unit. However, the same materials
are available from Division B. Division B has unused capacity and can produce the
materials needed by Division A at a variable cost of $20 per unit.
(a) If a transfer price of $25 per unit is established and 60,000 units of material are
transferred with no reductions in Division B’s current sales, how much would Ford
Company’s total income from operations increase?
(b) How much would the income from operations of Division A increase?
(c) How much would the income from operations of Division B increase?
(d) If the negotiated price approach is used, what would be the range of acceptable
transfer prices?
25) Which of the following is not an example of selling expenses?
A.Salespersons’ salaries
B.Office staff salaries
C.Depreciation of store equipment
D.Advertising
26) The internal rate of return method is used to analyze a $831,500 capital investment
proposal with annual net cash flows of $250,000 for each of the six years of its useful
life.
27) Flow, Inc. received cash from fees earned. How does this transaction affect the
Statement of Cash Flows?
A.Increase cash from Operating Activities
B.Increase cash from Investing Activities
C.Increase cash from Financing Activities
D.No effect on the Statement of Cash Flows
28) The condensed income statement for a business for the past year is as follows:
Management is considering the discontinuance of the manufacture and sale of Product
T at the beginning of the current year. The discontinuance would have no effect on the
total fixed costs and expenses or on the sales of Product U. What is the amount of
change in net income for the current year that will result from the discontinuance of
Product T?
A.$60,000 increase
B.$85,000 increase
C.$85,000 decrease
D.$60,000 decrease
29) Materials used by Boone Company in producing Division C’s product are currently
purchased from outside suppliers at a cost of $20 per unit. However, the same materials
are available from Division A. Division A has unused capacity and can produce the
materials needed by Division C at a variable cost of $17 per unit. A transfer price of $19
per unit is negotiated and 60,000 units of material are transferred, with no reduction in
Division A’s current sales.
How much would Boone’s total income from operations increase?
A.$180,000
B.$240,000
C.$120,000
D.$300,000
30) If Martin, Inc. sold $550,000 worth of merchandise, had $50,000 returned, and then
the balance paid during the 2% discount period, how much was Martin’s net sales?
A.$500,000
B.$550,000
C.$490,000
D.$510,000
31) When a firm uses internal auditors, it is adhering to which of the following internal
control elements?
A.Risk assessment
B.Control procedures
C.Monitoring
D.Information and communication
32) Which of the following costs is a mixed cost?
A.Salary of a factory supervisor
B.Electricity costs of $2 per kilowatt-hour
C.Rental costs of $5,000 per month plus $0.30 per machine hour of use
D.Straight-line depreciation on factory equipment
33) The accrual basis of accounting recognizes:
A.revenues when cash is received and expenses when cash is paid
B.revenues when earned and expenses when cash is paid
C.revenues when cash is received and expenses when incurred
D.revenues when earned and expenses when incurred
34) Inventory refers to the:
A.merchandise held for sale in the normal course of business
B.materials sold during the year
C.assets purchased to assist the production process
D.claims arising from the purchase of raw material
35) Costs that vary in total in direct proportion to changes in an activity level are called:
A.fixed costs
B.sunk costs
C.variable costs
D.differential costs
36) Which of the following group of accounts are all assets?
A.Cash, Accounts Payable, Buildings
B.Accounts Receivable, Revenue, Cash
C.Prepaid Expenses, Buildings, Patents
D.Unearned Revenues, Prepaid Expenses, Cash
37) If the buyer is to pay the delivery expense of delivering merchandise, delivery terms
are stated as:
A.FOB shipping point
B.FOB destination
C.FOB n/30
D.FOB buyer
38) Which of the following ratios provides a solvency measure that shows the margin of
safety of noteholders or bondholders and also gives an indication of the potential ability
of the business to borrow additional funds on a long-term basis?
A.Ratio of fixed assets to long-term liabilities
B.Ratio of net sales to assets
C.Number of days’ sales in receivables
D.Rate earned on stockholders’ equity
39) Which of the following is most likely be a period cost?
A.Depreciation on factory lunchroom furniture
B.Salary of telephone receptionist in the sales office
C.Salary of a security guard for the factory parking lot
D.Computer chips used by a computer manufacturer
40) The total earnings of an employee during a payroll period, including bonuses and
overtime pay, is referred to as:
A.take-home pay
B.pay net of taxes
C.net pay
D.gross pay
41) A disadvantage of static budgets is that they:
A.start with a clean slate
B.cannot be used by service companies
C.do not show possible changes in underlying activity levels
D.show the expected results of a responsibility center for several levels of activity
42) The income statement for August indicates net income of $50,000. The corporation
also paid $10,000 in dividends during the same period. If there was no beginning
balance in stockholders’ equity, what is the ending balance in stockholders’ equity?
A.$40,000
B.$50,000
C.$10,000
D.$60,000
43) Assume that Crowson Co. sold 8,000 units of Product A and 2,000 units of Product
B in the last year. The unit contribution margins for Products A and B are $20 and $45,
respectively. Crowson has fixed costs of $350,000. The break-even point in units is:
A.14,000 units
B.25,278 units
C.8,000 units
D.10,769 units
44) Under a premium-price emphasis, a business designs products that possess _____
for which customers are willing to pay a premium price.
A.unique attributes
B.high costs
C.high demand
D.longer warranties
45) Accompanying the bank statement was a debit memorandum for an NSF check
received from a customer. This item would require an adjusting entry including a:
A.debit to Accounts Receivable
B.debit to Cash
C.debit to Accounts Payable
D.credit to Accounts Payable
46) A corporation purchases 5,000 shares of its own $20 par common stock for $35 per
share, recording it at cost. What will be the effect on total stockholders’ equity?
A.Increase $175,000
B.Increase $100,000
C.Decrease $175,000
D.Decrease $100,000
47) The following units are available for sale during the year:
Determine ending inventory cost by (a) FIFO method, (b) LIFO method, and (c)
average cost method.
48) Which of the following expenditures would not be included in the cost of a fixed
asset?
A.Freight costs
B.Vandalism
C.Sales taxes
D.Surveying fees
49)
Refer to Cokes balance sheet and answer the following questions:
