Opportunity costs apply to resources that a company has committed to purchase.
Joint costs are not allocated to a by-product.
The balance sheet shows a company’s financial status at only one point in time.
The book value of an asset that is being replaced is a relevant cash flow in the net
present value method.
Measures in equivalent units are found only in manufacturing situations.
The absorption approach to the income statement emphasizes the distinction between
fixed and variable costs.
In job-order costing, the journal entry to record the requisition of direct materials for
production would include a Debit to Direct Materials Inventory.
Managers may use the payback period as a rough estimate of the riskiness of a project.
Projects that recoup their investment quickly may be less risky than those that require a
longer time.
With perfect competition, at some point marginal costs begin to rise with increases in
production because facilities become inefficient.
Markup is the amount by which cost exceeds price.
The product life cycle for an automobile is usually a few months.
The direct method of preparing the operating activities section of the statement of cash
flows begins with net income.
The direct method of preparing the operating activities section of the statement of cash
flows begins with net income.
In job-order costing, actual factory overhead rates are used to apply factory overhead
costs to jobs.
Line managers are directly involved with making and selling the organization’s products
or services.
The term “cost center” may be used to describe responsibility centers that are assigned
responsibility for capital investment.
A set of machines may be a responsibility center for a production supervisor.
A key driver of performance is the culture within the organization that fosters continual
learning and growth.
Target costing is most effective at reducing costs if used during the product design
phase.
An increase in the sales price per unit will cause a decrease in the break-even point.
The flexible budget variance for direct labor equals the labor price variance plus the
labor quantity variance.
The income statement measures performance over a given amount of time.
The product life cycle for an automobile is usually a few months.
Adjusting entries at the end of an accounting period record explicit transactions.
Many companies derive their competitive advantage from their information, not their
physical facilities.
For multinational companies, worldwide income taxes do not influence the setting of
transfer prices.
Unavoidable costs are never relevant in deciding whether to eliminate a product or
department.
The costs of accumulating and processing information frequently decline under
decentralization.
An example of a financing activity on the statement of cash flows is the payment of
cash dividends.
Process costing averages costs over large numbers of nearly identical products.
Advertising is an example of the ________ function of the value chain.
A) distribution
B) selling
C) marketing
D) promotion
When estimating the cost of the maintenance department in a hospital for a month, what
cost driver should be used?
A) number of patients per month
B) number of nurses working per month
C) number of operations per month
D) number of patients per month times the length of stay per patient
In periods of inflation, FIFO leads to ________ gross profit than LIFO.
A) lower
B) the same
C) higher
D) not enough information
In a merchandising company, ________.
A) selling and administrative costs are period costs
B) insurance expense on the corporate building is a product cost
C) Work-In-Process Inventory may be present
D) Finished Goods Inventory may be present
In a manufacturing firm, the computation of Cost of Goods Manufactured does NOT
use ________.
A) Finished Goods Inventory, ending balance
B) indirect production costs
C) direct labor costs
D) direct materials used
________ use(s) the output of an activity-based cost accounting system to improve the
operational control of an organization.
A) Cost accounting
B) Cost-volume-profit models
C) Activity-based management
D) Traditional costing system
The monthly indirect production cost is Depreciation Expense on Assembly Equipment
of $100,000. The cost allocation base is number of machine hours. The expected level
of production in a month is 10,000 machine hours. What is the amount of indirect
production cost per unit assigned to Product 1 and Product 2. Product 1 requires 10
machine hours per unit. Product 2 requires 20 machine hours per unit.
Product 1 Product 2
A) $1 $2
B) $10 $20
C) $100 $200
D) none of the above
Salinas Company has two service departments, Maintenance and Human Resources.
Salinas Company also has two production departments, Mixing and Finishing.
Maintenance costs are allocated based on square footage while Human Resources costs
are allocated based on number of employees. The following information has been
gathered for the current year:
Human
Maintenance Resources Mixing Finishing
Direct costs $126,000 $84,000 $105,000 $175,000
Square footage 800 100 1,300 1,100
Number of employees 20 12 28 32
Assume the step-down method is used to allocate service department costs. Which
department should be allocated first?
A) Maintenance
B) Human Resources
C) Mixing
D) Finishing
Ramon Company acquired 40% of the voting stock of Boulder Company for $40
million. At the end of Year 1, Boulder Company reports net income of $15 million and
pays cash dividends of $5 million. At the end of Year 1, the market value of Ramon
Company’s investment in Boulder Company is $44 million. What accounts will be
affected on Ramon Company’s books to account for the increase in market value of the
investment at the end of Year 1?
A) none
B) Cash increase $44 million and Stockholders’ Equity increase $44 million
C) Investments increase $44 million and Stockholders’ Equity increase $44 million
D) Investments increase $4 million and Stockholders’ Equity increase $4 million
Ruth Company has a tax rate of 40% and a required rate of return of 12%. The company
has new equipment that saves $200,000 per year in labor costs. What is the annual
after-tax cash flow from the labor cost savings?
A) $80,000 cash outflow
B) $80,000 cash inflow
C) $120,000 cash outflow
D) $120,000 cash inflow
Each month Fig Company produces 11,000 units of a product that sells for $18 per unit,
and has variable costs of $12 per unit. Total fixed costs for the month are $77,000. A
special order is received for 5,000 units at a price of $14 per unit. Fig Company has
adequate capacity for the special order. If Fig Company accepts the special order, what
is the profit to Fig Company from the special order?
A) $0
B) $10,000
C) $22,000
D) $99,000
Comparing a company’s current ratio today with the same company’s current ratio for
the past ten years is called a(n) ________.
A) cross-sectional comparison
B) benchmark comparison
C) industry comparison
D) time-series comparison
Barnard Company owns a 60 percent interest in Simon Company. For the year ended
December 31, 2016, the net income of Barnard Company was $80 and the net income
of Simon Company was $10. What is the balance in the Noncontrolling Interests
account on the consolidated income statement for the year ending December 31, 2016?
A) $0
B) $4
C) $6
D) $48
Depreciation Expense on the Heating and Air Conditioning Equipment for the factory
of $50,000 is allocated to five departments. The cost-allocation base for this expense is
the number of cubic feet, which equals 100,000 cubic feet. Information for five
departments is below:
Department Square Feet Cubic Feet
Department A 15,000 15,000
Department B 5,000 5,000
Department C 30,000 20,000
Department D 20,000 35,000
Department E 10,000 25,000
How much Depreciation Expense is allocated to Department A?
A) $2,500
B) $7,500
C) $15,000
D) $18,750
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
The section of the annual report that explains major changes in the income statement,
changes in liquidity and capital resources and the impact of inflation is called the
________.
A) notes to the financial statements
B) appendix to the financial statements
C) internal control report
D) management’s discussion and analysis
Shaley Company has two divisions and the following information available:
a. Net sales were $130,000. $90,000 was attributed to the Jewel Division.
b. Variable costs were $80,000. 40% was attributed to the Song Division.
c. Total separable fixed costs controllable by division managers were $30,000, of which
$20,000 applied to the Jewel Division.
d. Total separable fixed costs, not controllable by division managers were $10,000 in
the Jewel Division and $4,000 in the Song Division.
e. Unallocated costs were $7,000.
Required:
1. Prepare a contribution approach income statement for the company as a whole and
each division.
2. Which division manager should receive a bonus? Why?
In an economic downturn, a company could temporarily reduce or eliminate a(n)
________.
A) property taxes on factory building
B) insurance on factory building
C) lease payments on computers in corporate headquarters
D) public relations department
Sunrise Motel’s cost function is given as:
Y = $75,000 + $9.50X
Where:
Y = annual custodial cost
X = number of guest-days of occupancy
In the current year, Sunrise Motel has 8,000 guest days. In the next year, Sunrise Motel
expects an occupancy level of 10,000 guest days. (All costs next year will remain in the
same relevant range as the current year.) What is the expected fixed custodial cost for
next year?
A) $7.50
B) $50,000
C) $62,500
D) $75,000
Beckowski Company had the following information available for its specialty product:
Standards for one unit of product:
Direct Materials: 5 pounds at $2 per pound
Direct Labor: 0.50 hour at $16 per hour
Materials and Labor Used to produce 8,500 units:
Direct Materials: 46,000 pounds at ? per pound
Direct Labor: 4,000 hours at $16.80 per hour
If the Direct Materials Price Variance is $4,600 Unfavorable, what is the actual cost per
pound of direct materials used?
A) $1.80
B) $1.90
C) $2.00
D) $2.10
Presented below is the balance sheet of Harry 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 Marvelous 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, Marvelous Company acquired 100 percent of the outstanding
common stock of Harry Company for $260 cash. The book value and fair value of
Harry’s assets and liabilities were equal.
What is the amount of Total Stockholders’ Equity on the consolidated balance sheet
immediately after the acquisition of Harry Company’s stock? (Assume elimination
entries are completed.)
A) $0
B) $260
C) $380
D) $640
Fast growing companies tend to have ________ price-earnings ratios.
A) low
B) high
C) stable
D) erratic
Listed below are selected accounts for Dentice Corporation:
December 31, 2013 December 31, 2014
Accounts Receivable $20,000 $40,000
Inventory $70,000 $30,000
Accounts Payable $20,000 $88,000
Wages payable $22,000 $1,000
For the year ended December 31, 2014, net income was $50,000 and depreciation
expense was $0. The net cash provided by operating activities for the year ending
December 31, 2014 was ________. Assume the indirect method is used.
A) $70,000
B) $90,000
C) $108,000
D) $117,000
Companies do not amortize indefinite-life intangible assets. What do companies do
each year for these assets?
A) only report them on the balance sheet
B) only apply an impairment test annually
C) only report them on the statement of stockholders’ equity
D) A and B
Jeff Company produces a part that is used in the manufacture of one of its products. The
annual costs associated with the production of 11,000 units of this part are as follows:
Direct materials $25,000
Direct labor 34,000
Variable indirect production costs 65,000
Fixed indirect production costs 40,000
Total costs $164,000
A supplier is willing to sell 11,000 units of the part to Jeff Company for $12.50 per unit.
When examining the fixed indirect production costs, Jeff Company determines $10,000
is avoidable.
Required:
A) If there are no alternative uses for the facilities, should Jeff Company take advantage
of the supplier’s offer?
B) If Jeff Company decides to buy the part from the supplier, Jeff Company can rent out
the idle facilities for $50,000 per year. Should Jeff Company take advantage of the
supplier’s offer?
The following information pertains to the Southern Division of Olson Company:
Net Sales $5,250
Variable Costs:
Cost of merchandise sold 1,200
Operating expenses 450
Fixed costs:
Controllable by segment manager 600
Controllable by others 1,250
Unallocated costs 1,150
The contribution controllable by a segment manager is ________.
A) $2,350
B) $2,500
C) $3,000
D) $3,350
If the actual volume of production differs from the expected volume of production, the
same variable overhead costs per unit are used for ________ and ________ purposes.
A) budgeting; employee motivation
B) budgeting; product costing
C) flexible budgets; employee hiring
D) planning; employee hiring
Barber Company manufactures tape dispensers. The Assembly Department reported the
follow data for the past month:
Units started and completed 70,000
Units started and not complete 10,000
Units in beginning inventory 0
Direct materials costs $480,000
Conversion costs $240,000
The partially complete units at the end of the month were 100 percent complete with
respect to materials and 50 percent complete with respect to conversion costs. The cost
of one completed unit in the Assembly Department is ________.
A) $9.00
B) $9.20
C) $9.42
D) $10.29
FIFO provides inventory valuations that approximate the actual ________ of inventory
at the balance sheet date.
A) cost
B) market value
C) average cost
D) sales value
As cost-driver level increases in the relevant range, a fixed cost does not change
________, but the fixed cost ________ becomes progressively smaller.
A) per unit of cost driver; total
B) in total; per unit of cost driver
C) per-unit; per unit of cost driver
D) in total; per year
On January 1, 2014, a company had 100 units of inventory. A company acquired 100
units of inventory on January 31, 2014 and 100 units on December 1, 2014. The
company sold 100 units on December 31, 2014, which was the company’s only sale.
Under FIFO, the cost of goods sold would come from ________.
A) the purchase cost of beginning inventory
B) the purchase cost on January 31, 2014
C) the purchase cost on December 1, 2014
D) an average of the cost over the two purchase dates
The Stelloh 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 $7,600
Total Assets, December 31, 2012 $48,400
Total Liabilities, December 31, 2012 $20,850
Average total common shares outstanding in 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 dividend payout for the year ended December 31, 2012?
A) 6.7%
B) 9.7%
C) 65.8%
D) 68.5%
Systematically varying budget data input to determine the effects of each change on the
budget is called ________ analysis.
A) operating budget
B) financial budget
C) sensitivity
D) master budget
The sections of the statement of cash flows are listed below:
Sections of Statement of Cash Flows
O = Operating activities
I = Investing activities
F = Financing activities
Required:
For each of the following items, identify the section of the statement of cash flows you
would find the item. Assume the direct method is used.
_____ 1. Paid taxes of $15,000.
_____ 2. Borrowed $35,000 from the bank on a long-term note payable.
_____ 3. Collected $690,000 from customers.
_____ 4. Received $40,000 in dividend income.
_____ 5. Paid $12,000 to suppliers for inventory.
_____ 6. Issued common stock for $170,000 cash.
_____ 7. Purchased $120,000 in long-term securities for cash.
_____ 8. Paid $18,000 dividend on common stock.
_____ 9. Purchased land for $345,000 cash.
_____ 10. Sold long-term securities for cash. No gain or loss on sale.
_____ 11. Paid $210,000 on long-term debt.
_____ 12. Received $31,000 cash on sale of equipment. No gain or loss on sale.
Marvin Company has the following sales budget:
Month Cash Sales Credit Sales
February $14,000 $30,000
March 12,800 32,000
April 10,800 28,000
Collections of credit sales are 40% in the month of sale, 50% in the month after sale
and 10% two months after sale. No uncollectible accounts are expected.
Required:
Prepare a schedule of cash collections for April.
The income statement for Rozman Company for the year ended December 31, 2013 is
given below:
Sales $1,600
Cost of goods sold 872
Gross profit 728
Operating expenses 436
Operating income 292
Income tax expense 66
Net income $226
Required:
Prepare a common-size income statement.
Each year, Madsen Company purchases 8,000 units of a part that it needs for production
of its product. The supplier notified Madsen Company that a price increase will take
effect shortly, which will bring the price of the part to $25 per part. Madsen Company is
considering the use of idle facilities to produce the part. The annual production costs to
produce the needed 8,000 parts are as follows:
Direct materials $17,500
Direct labor 30,000
Variable indirect production costs 14,000
Fixed indirect production costs 33,500
The idle facilities could also be rented out at an annual rent of $99,000. All the fixed
indirect production costs are avoidable.
Required:
Determine if Madsen Company should buy the part or produce it internally.
Listed below are the transactions for Kaiman Company:
1. The owners invest $100,000 in the company in exchange for common stock.
2. The company purchases equipment costing $30,000 with a note payable. The
equipment has a ten year life and no salvage value. The company uses the straight-line
method of depreciation.
3. The company purchases inventory costing $10,000 by paying cash.
4. The company paid $8,000 for four months’ rent in advance.
5. The company sold inventory for $9,000 cash. The cost of the inventory was $5,000.
6. The company used one month of rent.
7. The company declared a cash dividend of $500.
8. Depreciation expense on the equipment was recorded for the month.
Required:
Prepare journal entries for the above transactions.
Wheel Company has the following balances at December 31, 2015:
Retained earnings, December 31, 2014 $30,000
Cost of goods sold 56,000
Depreciation expense 1,450
Dividends 8,000
Income tax expense 2,000
Interest expense 1,050
Rent expense 1,700
Sales 68,000
Wage expense 6,800
Required:
Prepare a multiple-step income statement for the year ended December 31, 2015.
Why will management control systems in nonprofit organizations probably never be as
highly developed as those in profit-seeking firms?
The income statement and comparative balance sheets for Sterling Company are
presented below:
Sterling Company
Income Statement
For the Year Ended December 31, 2015
Sales $586,000
Cost of goods sold 311,000
Depreciation expense 14,000
Amortization expense 3,000
Wage expense 88,000
Rent expense 24,000
Loss on sale of fixed assets 2,600
Interest expense 4,900
Income tax expense 56,000
Total expenses 503,500
Net income $82,500
December 31, 2014 December 31, 2015
Cash $16,300 $19,900
Accounts receivable 27,900 36,300
Inventory 53,900 48,200
Prepaid rent 1,800 2,000
Land 22,000 32,000
Fixed assets 118,000 130,000
Accumulated depreciation (39,000) (46,000)
Patent 11,000 12,000
Total assets $211,900 $234,400
Accounts payable 21,100 27,700
Wages payable 5,700 6,200
Interest payable 400 1,600
Taxes payable 7,900 6,800
Bonds payable, due 2020 36,000 44,000
Common stock 32,000 35,000
Retained earnings 108,800 113,100
Total liabilities and
Stockholders’ equity $211,900 $234,400
Required:
Prepare a statement of cash flows using the indirect method for the year ended
December 31, 2015. No land was sold in 2015. Land was purchased using bonds
payable for $8,000 and cash for $2,000. A fixed asset was sold in 2015 for $4,100.
Purchases of fixed assets and patents were for cash.
Stangle Company manufactures ties. When 28,000 ties are produced, the costs per unit
are:
Direct materials $0.60
Direct manufacturing labor $3.00
Variable manufacturing overhead $1.20
Fixed manufacturing overhead $1.60
Variable selling $0.80
Fixed selling $1.13
The ties normally sell for $22 each. The company has received a special order for 2,000
ties at $8.00 per tie. The company will incur an additional variable selling cost of $1.50
per unit with the special order. The company has excess capacity.
Required:
Compute the amount by which the operating income would change if the order were
accepted.
A manufacturing company has identified several costs. Indicate whether each of the
following costs is an Inventoriable cost(I) or a Period cost(P):
_____ 1. Rent Expense on factory equipment
_____ 2. Cost of subassemblies used in producing product
_____ 3. Wages of machine operators in factory
_____ 4. Rent Expense on computers at corporate office
_____ 5. Wage Expense for janitors in factory
_____ 6. Repairs Expense for factory equipment
_____ 7. Office Supplies Expense at corporate office
_____ 8. Wage Expense for janitors at corporate office
_____ 9. Wages of security guards at corporate office
_____ 10. Property taxes on factory building and land
_____ 11. Wages of security guards at factory
_____ 12. Wages of forklift driver in factory
_____ 13. Supplies Expense for factory
_____ 14. Wages of forklift operators in factory
_____ 15. Distribution Expenses
Lorenzo Company is considering the purchase of equipment with an eight year life that
requires a $1,600,000 investment. At the end of eight years, the equipment will have no
salvage value. For eight years, the equipment will provide net income at the end of each
year as follows:
Sales $3,000,000
Less: Variable Expenses 1,800,000
Contribution margin 1,200,000
Less: Fixed Expenses:
Advertising 700,000
Depreciation on equipment 200,000
Net income $300,000
Other information follows:
Required rate of return 18%
Tax rate 30%
Depreciation method for tax purposes Straight-line
Present value of ordinary annuity of one
at 18% for 8 periods 4.0776
Present value of one at 18% for 8 periods 0.266
Required:
1. Compute the after tax annual cash flows generated by the equipment.
2. Compute the equipment’s net present value.
3. If the salvage value of the equipment is $10,000, compute the equipment’s net present
value.
O’Brien Company has the following information:
Cash Balance, June 30 $50,000
Dividends paid in July 60,000
Cash paid for operating expenses in July 185,500
Depreciation expense in July 12,000
Cash collections on sales in July 510,000
Merchandise purchases paid in July 180,000
Purchase equipment for cash in July 94,500
O’Brien Company wants to maintain a minimum cash balance of $50,000. Assume that
borrowing occurs at the beginning of the month and repayments occur at the end of the
month. Interest of 1% per month is paid in cash at the end of each month debt is
outstanding. Borrowing and repayment is carried out in multiples of $1,000.
Required:
Prepare a cash budget for July.
Phillip Corporation has the following sales budget:
Month Budgeted Sales
May $84,000
June 100,000
July 92,000
August 110,000
September 90,000
Credit sales are 80% of total sales. Collections of credit sales are 80% in the month of
sale, 15% in the month after sale and 5% are never collected.
Required:
Prepare a schedule of cash collections for June, July and August.
