A company is considering two investment projects. If they use the total project
approach and the differential approach, both approaches produce ________.
A) different answers
B) similar answers
C) the same answer
D) not enough information is given to make an assessment
Why is it important to identify the most appropriate cost drivers for a particular
product?
A) so managers can identify the activities necessary to manufacture a product
B) so managers can control product costs better
C) so managers can predict product costs better and make better decisions
D) B and C
Kansas Company uses activity-based costing. The company produces and sells 20,000
units at $22 per unit. Kansas Company’s product cost is calculated as follows:
Variable costs $10 per unit
Fixed costs $2 per unit
Setup costs $3 per unit
Total costs $15 per unit
A total of 500 setups at a cost of $120 per setup are required to produce the 20,000
units. Kansas Company has received a special order to sell 5,000 units at $12 per unit.
Kansas Company has excess capacity available, but these 5,000 units would require 60
setups. If Kansas Company accepts the special order, what is the increase or decrease in
net income?
A) $0
B) decrease $5,000
C) decrease $15,000
D) increase $2,800
Historical or past information has no ________ bearing on a decision made by
management. Historical or past information can have a(n) ________ bearing on a
decision made by management.
A) indirect; direct
B) direct; indirect
C) measurable; material
D) material; significant
Lorna Corporation and Carol Corporation are moving companies. Comparative data for
20X4 and 20X5 are given below:
Lorna Carol
Corporation Corporation
Sales revenue 20X4 $8,400,000 $4,400,000
20X5 9,900,000 6,175,000
Number of employees 20X4 8,000 5,500
20X5 10,000 6,500
Assume that each 20X4 dollar is equivalent to 1.75 of each 20X5 dollar, due to
inflation. Taking inflation into account, what is Lorna Corporation’s 20X4 productivity
measure in terms of revenue per employee?
A) $950.00
B) $990.00
C) $1,050.00
D) $1,837.50
Joshua Company produces and sells a product that has variable costs of $7 per unit and
fixed costs of $200,000 per year. If production increases from 20,000 units to 25,000
units, the total cost will ________.
A) increase by $35,000
B) decrease by $2 per unit
C) decrease by $8 per unit
D) stay the same
During the month of May, Masters Company transferred 140,000 gadgets to Finished
Goods Inventory. There was no beginning work-in-process inventory. The company had
40,000 gadgets in process at May 31 and the gadgets were 50 percent complete with
respect to conversion costs. All direct materials are added at the end of the production
process. The equivalent units for materials for May are ________.
A) 90,000
B) 140,000
C) 160,000
D) 180,000
Cantrall Company is trying to decide which product to manufacture. Expected direct
materials costs are $4.00 per unit for each product. The expected direct labor costs are
$2.00 per unit for one product and $4.00 per unit for another product. In choosing
between the two products, the direct materials costs are ________ and the direct labor
costs are ________.
A) relevant; irrelevant
B) irrelevant; relevant
C) relevant; relevant
D) irrelevant; irrelevant
Stickel Company has the following sales budget:
Month Cash Sales Credit Sales
September $100,000 $200,000
October 125,000 190,000
November 207,000 199,000
December 67,000 144,000
Collection of credit sales are 50% in the month of sale, 40% in the month following
sale, and 10% two months following sale. No uncollectible accounts are expected. What
is the expected balance of Accounts Receivable at October 31?
A) $95,000
B) $110,000
C) $115,000
D) $180,000
Nebraska Company gave a long-term note payable in the amount of $285,000 to
acquire a new piece of land. This transaction will be reported on the statement of cash
flows as a ________.
A) investing activity
B) financing activity
C) investing and financing activity
D) noncash investing and financing transaction
John Company purchased common stock in Garcia Company. John Company treats the
investment as available-for-sale securities. During the current year, Garcia Company
earned $4,000,000 and paid dividends of $1,000,000. Assume that John Company owns
10% of the outstanding shares of Garcia Company. Garcia Company’s net income will
affect John Company in which of the following ways?
A) increasing cash and investments by $400,000
B) increasing stockholders’ equity and investments by $400,000
C) increasing cash and stockholders’ equity by $400,000
D) no effect
A company identifies the following goals and objectives:
Increase sales 10 percent each year.
Increase profits 5 percent each year.
Increase total plant assets 5 percent each year.
Which of the following budgets identifies the overall goals and objectives of an
organization?
A) sales budget
B) master budget
C) strategic plan
D) financial planning model
Which of the following statements is FALSE?
A) Under the step-down method, after allocating Service Department 1 costs to Service
Department 2, we do not allocate any costs back to Service Department 1.
B) Under the step-down method, we ignore services provided by a service department
to itself.
C) The total amount of service department costs allocated to user departments is the
same for the step-down and direct methods.
D) Under the step-down method, the first service department to allocate costs to the
user departments is the one that provides the most service to the producing departments.
Woodridge Corporation has a joint process that produces three products: P, G and A.
Each product may be sold at split-off or processed further and then sold.
Joint-processing costs for a year amount to $25,000. The production level for each
product is 1,000 units. Other data follows:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs after Split-Off at Completion
P $12 $9 $21
G 10 4 17
A 15 6 19
Assume Woodridge Corporation processes the joint products beyond the split-off point
that will maximize net income. Woodridge Corporation’s net income is ________.
A) $12,000
B) $15,000
C) $17,000
D) $25,000
Under the equity method of accounting for investments, the acquisition cost of an
investment is adjusted for ________.
A) dividends received only
B) investor’s share of earnings or losses of investee after investment date only
C) changes in market value of investment
D) dividends received and investor’s share of earnings or losses of investee after
investment date
The final output of the operating budget is ________.
A) budgeted statement of stockholders’ equity
B) budgeted balance sheet
C) budgeted income statement
D) budgeted statement of cash flows
If sales are the cost driver, unfavorable flexible budget variances result from ________.
A) actual costs exceeding planned costs
B) planned costs exceeding actual costs
C) actual sales exceeding planned sales
D) planned sales exceeding actual sales
John Company has the following sales budget:
Month Cash Sales Credit Sales
September $100,000 $200,000
October 125,000 180,000
November 130,000 210,000
December 135,000 190,000
Collections of credit sales are 50% in the month of sale, 40% in the month following
sale, and 10% two months following sale. No uncollectible accounts are expected. What
is the expected balance in Accounts Receivable at December 31?
A) $95,000
B) $116,000
C) $190,000
D) $210,000
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
The joint formulation by a manager and his or her superior of a set of goals and plans
for achieving the goals for a forthcoming period is known as ________.
A) capital budgeting
B) managerial effort
C) management control system
D) management by objectives
In imperfect competition, ________.
A) a firm will produce as many units as it can sell
B) the price a firm charges for a unit influences the quantity of units it sells
C) a firm does not have to reduce prices to generate additional sales
D) a firm should produce and sell units until the marginal revenue exceeds the marginal
cost
Bunch Company is considering the production of a new product. Bunch Company has
the following data available:
Expected product life 4 years
Expected sales (units) over product life 2,000
Variable production costs $42 per unit
Variable selling costs $16 per unit
Annual fixed production costs $15,000
Annual fixed selling costs $5,000
Research and development costs $184,000
What is the total cost of the product over the product life cycle?
A) $116,000
B) $196,000
C) $264,000
D) $380,000
The Todd Dolhun Company has the following information available:
Targeted after-tax net income $120,000
Total fixed costs $300,000
Contribution margin per unit $2
Tax rate 40%
How many units should be sold to achieve the targeted after-tax net income?
A) 180,000
B) 210,000
C) 250,000
D) 300,000
Dolly Madison Company is considering two investments. The relevant data follows:
Project A Project B
Cost $200,000 $300,000
Annual cash savings(end of year) $50,692 $60,995
Terminal salvage value $50,000 $70,000
Estimated useful life in years 5 5
Minimum desired rate of return 10% 10%
Method of depreciation Straight-line Straight-line
Present Value Present Value
Of $1 of Ordinary
for 5 periods Annuity of $1
for 5 periods
5% 0.7835 4.3295
6% 0.7473 4.2124
7% 0.713 4.1002
8% 0.6806 3.9927
10% 0.6209 3.7908
12% 0.5674 3.6048
14% 0.5194 3.4331
Ignoring taxes, the internal rate of return for Project A is approximately ________.
A) 8%
B) 10%
C) 12%
D) 14%
In considering whether to produce a single product, the associated direct materials and
direct labor costs would probably be ________.
A) relevant qualitative factors
B) relevant quantitative factors
C) irrelevant qualitative factors
D) irrelevant quantitative factors
Product costs for absorption costing include direct materials, direct labor and ________.
A) fixed manufacturing overhead costs
B) variable manufacturing overhead costs
C) fixed and variable selling costs
D) fixed and variable manufacturing overhead costs
At the date of acquisition by a parent company, the fair value of a subsidiary’s fixed
assets was larger than their book value. When preparing consolidated financial
statements, the fixed assets of the subsidiary are ________ and depreciation expense is
________.
A) decreased to fair value; decreased
B) increased to fair value; increased
C) not adjusted; not adjusted
D) increased to fair value; not adjusted
The ownership claim arising from the reinvestment of previous profits is called
________.
A) net assets
B) stockholders’ equity
C) investment income
D) retained earnings
Sanchez Company has two service departments, Maintenance and Human Resources.
Sanchez 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 800 400 1,600 1,200
Number of employees 8 12 24 32
Assume the step-down method is used to allocate service department costs and the
Maintenance Department is allocated first. What are the total costs of the Mixing
Department after the allocation of service department costs?
A) $210,750
B) $275,500
C) $277,000
D) $279,250
Atlanta Senior Center is planning its annual fundraiser. The event committee has
developed the following budget for the event.
Ballroom rental $3,000
Entertainment $2,500
Printing $600 plus $9 per person
Food $30 per person
Decorations $700 plus $5 per person
Required:
A) Determine the cost function.
B) If Atlanta Senior Center charges $100 per person, and 1,000 people attend, how
much profit will be derived by this event?
The weighted-average method of process costing adds the cost of all work done in the
current period to ________.
A) the ending work-in-process inventory
B) all costs estimated to be incurred in the next department
C) the cost of the work done in the preceding period to the current period’s ending
work-in-process inventory
D) the cost of the work done in the preceding period to the current period’s beginning
work-in-process inventory