Karen is a Certified Management Accountant and is bound by the IMA’s Standards of
Ethical Conduct. Her superior has asked her to try to influence the firm’s outside
auditors with expensive gifts and favors. If Karen complies, she will violate the
competence standard.
A favorable flexible budget materials variance may indicate that the price per unit of
materials was lower than expected and that less material was used than expected or
either of these.
Fixed costs are relevant for decision making if they vary between the alternatives and
are future-oriented.
The weighted average method of process costing does not account for the state of
completion of units in beginning inventory.
The work in process account is debited when production workers are paid.
When a capital investment is expected to provide unequal annual cash inflows, the
payback period can be calculated by accumulating the incremental cash inflows until
the sum equals the amount of the original investment.
When the effect of income taxes is considered in a capital budgeting analysis, the
amount of depreciation expense must be added back to after-tax income to calculate the
annual cash inflow.
Only the principle portion of a mortgage payment is considered to be a cash outflow for
financing activities.
Activity-based costing does not use volume-based cost drivers.
Because management accountants prepare and analyze financial information used by
company decision-makers, they are considered to be at the forefront of corporate
governance.
If a project has a positive net present value, its internal rate of return will exceed the
firm’s hurdle rate.
The practice of relaxing constraints is likely to increase a business’s profitability.
In a job-order cost system a separate job cost sheet is maintained for each job to
facilitate costing.
Costs that are not related to any specific product, batch, or unit of production are
referred to as facility-level costs.
Under the indirect method, the increase or decrease in long term assets is handled in the
investing section of a cash flow statement.
A company that uses a process cost system would calculate the cost per equivalent unit
and then use that amount to allocate costs between the goods transferred out and the
beginning work in process inventory.
Upstream costs are classified as product costs and downstream costs are classified as
period costs for financial reporting purposes.
An annuity is a series of equal payments over equal time intervals that earn a constant
rate of return.
A company’s total profit can be affected by the method used to allocate joint costs.
The contribution margin format income statement classifies costs according to their
behavior patterns.
Hughes Company paid production workers $25,550 cash. These wages will be
classified as:
A. manufacturing overhead.
B. work in process.
C. cost of goods sold.
D. salary expense.
Which of the following is an activity-based cost driver?
A. Number of machine setups
B. Material cost
C. Machine hours
D. All of these answers are correct.
The following information relates to Cruz Manufacturing for 2013:
Based on this information, what is the company’s cost of goods sold for 2013?
A. $86,000
B. $120,000
C. $114,000
D. $170,000
Engineering design costs are generally referred to as:
A. Batch-level costs.
B. Facility-level costs.
C. Unit-level costs.
D. Product-level costs.
At the beginning of the period, Cambridge Company estimated that sales would be
10,000 units. Actual sales totaled 14,000 units. The manager was very excited about the
unexpected additional income that the extra 4,000 units would produce. Imagine her
surprise upon seeing the following report:
The company’s owner is very upset, charging that the manager did a lousy job of
controlling costs.
Required:
1) Prepare a performance report that can be used to evaluate the owner’s charge that the
manager did a poor job of controlling costs. Be sure to label variances as favorable or
unfavorable.
2) Is the owner justified in charging the manager with poor cost control? Why or why
not?
In preparing the statement of cash flows by the indirect method, which of the following
is a correct statement of one of the general rules to convert net income to a cash-basis
equivalent?
A. Losses on the sale of long term assets are subtracted from net income.
B. All non-cash expenses and losses are subtracted from net income.
C. Increases in current assets are subtracted from net income.
D. Decreases in current liabilities are added to net income.
Select the correct statement regarding quantitative and qualitative information.
A. To be relevant, qualitative data need not be quantified.
B. Relevant information cannot have both quantitative and qualitative characteristics.
C. Qualitative data should only be considered when quantitative data are inconclusive.
D. To be relevant, qualitative data need not differ between the alternatives but must be
future oriented.
Which of the following would appear on a selling and administrative expense budget,
but would not appear on a schedule of cash payments for selling and administrative
expenses?
A. Cost of goods sold
B. Depreciation expense
C. Salary expense
D. Sales expense
Bates Company currently produces and sells 4,000 units of a product that has a
contribution margin of $5 per unit. The company sells the product for a sales price of
$20 per unit. Fixed costs are $20,000. The company has recently invested in new
technology and expects the variable cost per unit to fall to $12 per unit. The investment
is expected to increase fixed costs by $15,000. After the new investment is made, how
many units must be sold to break-even?
A. 2,917 units
B. 4,375 units
C. 7,000 units
D. 4,000 units
The work in process account for Chambers Company contained the following entries:
Debit of $80,000 for direct raw materials
Debit of $120,000 for direct labor
Debit of $60,000 for manufacturing overhead
Ending balance, $84,000, associated with Job #2
The company uses a job-order cost system. Work was only performed on two jobs
during the period. The beginning balance in work in process was zero. What was the
cost of Job #1, which was started and completed during the period?
A. $180,000
B. $148,000
C. $132,000
D. $176,000
ABX Company produces two types of computer speakers. The Prestige line is made to
provide excellent sound for the most demanding applications. The Standard line is
geared toward workplace use and delivers average performance. During its most recent
accounting period, the company incurred $50,000 of inspection costs. Its production
activities were classified into four cost centers, unit-level, batch-level, product-level,
and facility-level. The following cost and cost driver information is provided for the
unit-level and batch-level cost centers:
Required:
1) Allocate the inspection cost between the two products assuming the inspection cost is
driven by a) only unit-level activities; b) only batch-level activities.
2) How should managers of the company determine which allocation is more
appropriate?
When Vanguard Company district managers submitted their preliminary budget
proposals, top management discovered that the southern district manager had requested
a new project management information system. Unfortunately, the system is
incompatible with the system used at headquarters. Which of the following advantages
of budgeting reduces the likelihood that the company will end up with two incompatible
systems?
A. Planning
B. Coordination
C. Performance measurement
D. Corrective measures
Newton Corporation was started on January 1, 2014. The company entered into the
following transactions during the year (Assume all transactions involve cash):
1) Acquired $2,000 of capital from the owners.
2) Purchased $600 of direct raw materials.
3) Used $400 of these direct raw materials in the production process.
4) Paid production workers $800 cash.
5) Paid $400 for manufacturing overhead (applied and actual overhead are the same).
6) Started and completed 200 units of inventory.
7) Sold 50 units at a price of $12 each.
8) Paid $80 for selling and administrative expenses.
The amount of net income for 2014 was:
A. $100.
B. $75.
C. $50.
D. $120.
Which of the following statements is incorrect?
A. In deciding whether to investigate a variance, managers should not consider the
materiality of the variance.
B. A material variance is one that will influence stockholders’ investment decisions.
C. The primary advantage of a standard cost system is to price products consistently.
D. None of these answers is correct.
During the year Link Company completed 1,300 units of product. Ending inventory
consisted of 400 units that were 50% complete. The total dollar cost associated with
production of inventory was $90,000. The cost per equivalent whole unit would be
which of the following?
A. $54.00
B. $69.22
C. $60.00
D. $83.82
Sheddon Industries produces two products. The products’ identified costs are as
follows:
The company’s overhead costs of $108,000 are allocated based on labor cost. Assume
4,000 units of product A and 5,000 units of Product B are produced. What amount of
production costs would be assigned to Product A? (Do not round your intermediate
calculations.)
A. $36,000
B. $111,000
C. $68,000
D. None of these answers is correct.
An investment that costs $5,000 will produce annual cash flows of $2,000 for a period
of 4 years. Given a desired rate of return of 8%, the investment will generate a present
value index of (Do not round your PV factors and intermediate calculations):
A. 0.755.
B. 1.600.
C. 2.500.
D. 1.325.
All of the following are categories of quality costs except:
A. prevention costs.
B. design costs.
C. internal failure costs.
D. appraisal costs.
In the below graph which shows the relationship among components of quality cost,
Line “C” depicts:
A. failure costs.
B. internal quality cost.
C. voluntary quality failure costs.
D. prevention costs.
Financial statement analysis involves forms of comparison including:
A. Comparing changes in the same item over a number of periods.
B. Comparing key relationships within the same year.
C. Comparing key items to industry averages.
D. All of these answers are correct.
The following information was drawn from the year-end balance sheets of White, Inc.
The amount of net income shown on the 2014 income statement was $17,500. What is
the amount of cash outflows for dividends?
A. $7,500
B. $25,000
C. $17,500
D. $10,000
Indicate whether each of the following statements is true or false.
In analysis of a capital investment, a cost saving is treated as a cash inflow.
The expected salvage value of an asset is a source of a cash outflow that should be
considered in capital investment analyses.
Many capital investments require an increase in the amount of a company’s working
capital.
Incremental revenues are treated as cash outflows in capital investment analyses.
An increase in working capital, which may occur near the beginning of a capital
investment project, is treated as a cash outflow.
Why is the time value of money often taken into account in analyzing a capital
investment?
How can participative budgeting improve the effectiveness of a company’s budgeting
process?
What can cause cash flow from operating activities be greater than net income from
operations?
Assuming the use of the indirect method to prepare the statement of cash flows, indicate
whether each of the following items would be added to net income, subtracted from net
income or not included in the operating activity section. Use the letters “A” for added;
“S” for subtracted or “N” for not included in operating activity section.
How does variable cost per unit behave when volume decreases?
What is a primary disadvantage of the high-low method of analyzing a mixed cost?
Bates Golf Supply produces a golf bag that sells for $220. Although the company’s
production capacity is 5,000 bags per year, only 4,000 bags are currently being
produced and sold. The production costs for 4,000 bags are as follows:
Golf Mart Stores has offered to purchase 1,000 golf bags as a one-time special purchase
at a price of $170 per bag.Required:
1) Prepare a quantitative analysis that indicates whether the special order should be
accepted.
2) What qualitative factors should be considered in this special order decision?
