Qualitative aspects of information can carry more weight than quantitative aspects in a
business decision.
One purpose of a post-audit is to provide information for improving future predictions
of cash flows.
The production volume variance measures the difference between applied and budgeted
fixed overhead.
Determining the key components of an Activity-Based Costing (ABC) system is the
first step in the design of an ABC system.
The account analysis method of measuring cost behavior does not rely on subjective
assessments.
The use of actual cost rates for allocating variable costs of service departments protects
the user departments from inefficiencies in service departments.
Most companies consider production volume variances to be beyond a manager’s
immediate control.
Generally Accepted Accounting Principles play an important role in management
accounting.
In general, use of economic profit or EVA will promote goal congruence and lead to
better investment decisions than the use of ROI.
Revenues from the by-product less separable costs associated with the by-product are
added to the cost of the main products.
A company’s treasury stock is outstanding but not issued.
Return on sales can be computed by multiplying return on investment by the capital
turnover.
Sunk cost is used to describe a historical cost or past cost.
The phrase ” cost distribution” refers to the allocation of total departmental costs to
revenue-producing products or services.
Favorable flexible budget variances are always good news.
Historical data may have a direct bearing on a decision made today.
The variable-costing income statement separates costs into fixed costs and variable
costs.
Volume-driven costs can be easily traced to products or services.
A budget is a qualitative expression of a plan of action.
An unallocated cost in one company may be an allocated cost in another company.
The allocation of joint costs to joint products should affect the decision to sell or
process the joint products further.
Unavoidable costs are never relevant in deciding whether to eliminate a product or
department.
If the total sales-activity variance and the static-budget variance are equal, there is no
flexible budget variance.
Activity-based costing systems focus on accumulating costs into key activities instead
of departments.
Future costs are irrelevant if they are the same under all feasible alternatives.
The indirect and direct methods of preparing the statement of cash flows show the same
amount of net cash provided by operating activities.
Favorable flexible budget variances are always good news.
The CVP graph uses the assumption that costs are linear over the relevant range.
Internal delays and lost sales are examples of opportunity costs for a firm.
Participative budgeting is the active participation of all affected employees in the
formulation of the budget.
The LIFO method reports the latest costs for ending inventory.
Least-squares regression provides statistical information about the reliability of its cost
estimates.
Public relations costs and top management salaries are examples of central corporate
support costs.
Pricing is not discriminatory if it reflects a cost differential incurred in providing the
good or service.
The absorption costing approach to the income statement is used by companies for
external financial reporting.
The production volume variance is calculated by the difference between actual volume
and applied volume.
Total quality management is the application of quality principles to the most important
of an organization’s departments to satisfy customers.
Joint costs include all inputs of material, labor and overhead that are incurred after the
split-off point.
The break-even point may be reduced by reducing total fixed costs and holding
everything else constant.
Ideal standards have an adverse effect on employee motivation.
Variable costing net income does not equal absorption costing net income due to
________.
A) variable selling costs
B) variable manufacturing overhead costs
C) fixed manufacturing overhead costs
D) variable and fixed manufacturing overhead costs
The traditional approach to quality control in the United States was to ________.
A) inspect products upon completion and reject or rework the defective products
B) prevent defects before they occur
C) set tolerance standards of zero defects
D) emphasize customer satisfaction over product quality
Hudson Company has two divisions. The following information is available:
North Division South Division
Revenue for year $300,000 $500,000
Operating income before taxes
for year $100,000 $90,000
Average invested capital for year $100,000 $200,000
Invested capital at end of year $200,000 $300,000
Tax rate 30% 30%
After-tax cost of capital for year 20% 15%
Required:
1. Using operating income after taxes as the income measure, compute the following for
each division:
A) Return on investment.
B) Return on sales
C) Capital turnover
D) Residual income
2. Which division is more successful? Why?
Lorna Corporation has determined the contribution margin ratio is 35% and the income
tax rate is 40%.
Required:
A) Assume break-even volume in dollars is $1,500,000. What are total fixed costs?
B) Assume Lorna Corporation wants after-tax net income of $300,000. What volume of
sales in dollars is necessary to achieve this net income?
Benson Company’s income statement showed rent expense of $16,000. The beginning
balance in Prepaid Rent was $5,000. The ending balance in Prepaid Rent was $3,000.
The cash paid for rent was ________.
A) $14,000
B) $16,000
C) $19,000
D) $24,000
To calculate economic value added, several adjustments are made to after tax operating
profit that include ________ and ________.
A) the use of LIFO inventory valuation; capitalization of research and development
costs
B) taxes paid rather than tax expense; capitalization of research and development costs
C) the use of average cost inventory valuation; current costs of fixed assets
D) the use of LIFO inventory valuation; current costs of fixed assets
On June 1, 2012, a company borrows $100,000 on a 10% note due to a bank in one
year. What amount of interest expense is reported for the year ending December 31,
2012?
A) $5,000
B) $5,833
C) $1,000
D) $10,000
Assume the following information for two products, Hawaii Fantasy and Hawaii Joy.
Hawaii Fantasy Hawaii Joy
Sales mix 2 units 1 unit
Selling price per unit $15 $100
Variable cost per unit $10 $40
Fixed expenses total $490,000 per year. What is the breakeven point in units for each
product?
A) 4,575 units of Hawaii Fantasy and 18,300 units of Hawaii Joy
B) 7,000 units of Hawaii Fantasy and 14,000 units of Hawaii Joy
C) 18,300 units of Hawaii Fantasy and 4,575 units of Hawaii Joy
D) 14,000 units of Hawaii Fantasy and 7,000 units of Hawaii Joy
Paper Company has a tax rate of 40% and a required rate of return of 10%.
Depreciation expense relating to operating equipment is $80,000 per year. The asset has
a five year life. The present value of one for five years at 10% is 0.6209. The present
value of an ordinary annuity of one for five years at 10% is 3.7908. What is the present
value of the after-tax cash flows from the annual depreciation expense over the life of
the equipment?
A) $0
B) $19,869
C) $80,000
D) $121,306
In a linear cost function, the fixed cost is ________.
A) dependent on the cost driver
B) dependent on the independent variable
C) independent of the cost driver
D) independent of the intercept
When using the visual-fit method to estimate a cost function, the variable cost per unit
of the cost driver is equal to the ________.
A) the point where the sketched line (through all or most of the data points) intersects
the x-axis
B) the point where the sketched line (through all or most of the data points) intersects
the y-axis
C) slope of the sketched line (through all or most of the data points)
D) any point on the sketched line divided by the fixed cost
The Wolter Company has provided the following information:
Income tax rate 50%
Selling price per unit $6.60
Variable cost per unit $5.00
Total fixed costs $46,000.00
Required:
A) Compute the break-even point in units.
B) Compute the sales volume in units necessary to generate an after-tax net income of
$10,000.
C) Compute the sales volume in units necessary to generate an after-tax net income of
$20,000.
Zeman Company reports the following information on December 31, 2014:
Cash $20,000
Accounts receivable 112,000
Accounts payable 91,000
Accrued wages payable 6,000
Unearned revenue 2,000
Paid-in capital 59,000
Retained earnings 80,000
Inventory 30,000
Prepaid rent 4,000
Equipment (net) 12,000
What are total liabilities at December 31, 2014?
A) $91,000
B) $97,000
C) $99,000
D) $179,000
Christian Corporation sells desks at $480 per desk. The variable costs are $300 per
desk. Total fixed costs for the period are $540,000. The break-even point in desks is
________.
A) 1,125
B) 1,800
C) 3,000
D) 4,230
Which of the following statements about managerial effort is FALSE?
A) Managerial effort is the exertion towards a goal.
B) Goal congruence must be accompanied by managerial effort.
C) Managerial effort includes all conscious actions that result in more efficiency and
effectiveness.
D) Managerial effort does not have to accompany goal congruence.
The statement of financial position is also called the ________.
A) income statement
B) statement of cash flows
C) statement of retained earnings
D) balance sheet
Apple Company pays 15% on the first $50,000 of pretax income and 30% on any
additional pretax income. Apple Company currently earns $52,000. An investment
under consideration is expected to add $20,000 in pretax income. What is the tax rate
on the additional income from the investment?
A) 15%
B) 22.5%
C) 30%
D) 43%
Rozman Company produces calendars in a one-department process. The following data
is available for the past month:
Work-in-process inventory, beginning 0
Units started 15,000
Units completed and transferred 12,000
Work-in-process inventory, ending 3,000
Direct materials added $30,000
Direct labor $20,700
Factory overhead costs $10,350
The units in process at the end of the month are 100 percent complete with respect to
direct materials and 50 percent complete with respect to conversion costs. What are the
equivalent units for conversion costs for the month?
A) 3,000
B) 12,000
C) 13,500
D) 15,000
Bombard Division has operating income of $200,000 for the year ending December 31,
2011. Average invested capital is $1,000,000 and the weighted-average cost of capital is
10%. The division is considering a new investment that would cost $500,000 and earn
15% annually. If economic profit is the performance metric, should the manager of the
Bombard Division accept the new investment?
A) No, because the return on investment of the division decreases with the new
investment.
B) No, because the return on investment of the division increases with the new
investment.
C) Yes, because the economic profit of the division increases with the new investment.
D) Yes, because the return on investment of the division increases with the new
investment.
Joint products should be processed beyond the split-off point if ________.
A) sale of the products are guaranteed
B) additional revenue from further processing exceeds additional expenses from further
processing
C) additional revenue from further processing exceeds the joint costs
D) the marginal revenue of the joint products before the split-off point exceeds the
marginal cost of the joint products
In the linear cost function derived from regression analysis, the cost driver is the
________ variable and the cost to be explained is the ________ variable.
A) dependent; independent
B) independent; dependent
C) intercept; dependent
D) constant; independent
The authors recommend that ________ costs should not be allocated to products or
services.
A) nonproduction
B) value-chain functions
C) central corporate support costs
D) service department costs
Jorgensen Company reported the following information about the production and sale
of its only product during the first month of operations:
Selling price per unit $300
Sales $480,000
Direct materials used $220,000
Direct labor $200,000
Variable factory overhead $60,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 400 units
Under variable costing, the contribution margin is ________.
A) $20,000
B) $40,000
C) $76,000
D) $104,000
Salmon Company manufactures greeting cards. Special glittery material is added at the
end of the process in the Printing Department. Conversion costs are applied uniformly
throughout the process. The weighted-average method of process costing is used. Data
for the Printing Department for the month of September follow:
Work-In-Process Inventory, September 1:
Units 22,500
Direct materials (0% complete) $0
Conversion costs (30% complete) $20,472
Units started in September 127,500
Units completed in September 123,000
Work-In-Process Inventory, September 30 27,000
Direct materials added in September $427,500
Conversion costs added in September $315,000
With regard to the Work-In-Process Inventory on September 30, materials are 0 percent
complete and conversion costs are 60 percent complete. The total cost of the ending
Work-In-Process Inventory is ________.
A) $39,042
B) $90,720
C) $128,520
D) $151,200
Management control systems in nonprofit organizations will probably never be as
highly developed as those in profit-seeking firms. Which of the following is NOT a
reason for this to occur?
A) Organizational goals are less clear in nonprofit organizations.
B) Employees in nonprofit organizations have different motivation drivers and
incentive drivers than their counterparts in profit-seeking firms.
C) There is less competitive pressure to improve management control systems in
nonprofit organizations.
D) There are low levels of discretionary fixed costs in nonprofit organizations.
Rocky Company had the following information:
Budgeted factory overhead costs $90,000
Actual factory overhead costs $80,000
Budgeted production setups 12,000
Actual production setups 11,500
Assume production setups are the cost driver for factory overhead costs. The budgeted
factory overhead rate is ________.
A) $6.25 per setup
B) $6.52 per setup
C) $6.78 per setup
D) $7.50 per setup
If an individual chunk of step costs applies to a large range of cost-driver activity, the
step costs are treated as ________ within that range.
A) variable costs
B) mixed costs
C) fixed costs
D) semivariable costs
Rainbow Company acquired 100 percent of the outstanding common stock of Ribbon
Company. At the date of acquisition, no goodwill was involved and the book value of
the assets and liabilities of Ribbon Company equal their fair values. Immediately after
the acquisition, an elimination entry is prepared in order to prepare consolidated
financial statements. Which of the following accounts are affected by the elimination
entry?
A) Investment in Ribbon Company and Investment Revenue
B) Stockholders’ Equity of Ribbon Company and Investment Revenue
C) Fixed Assets of Ribbon Company and Investment Revenue
D) Investment in Ribbon Company and Stockholders’ Equity of Ribbon Company
In a linear cost function, the slope measures the ________.
A) total fixed cost
B) total variable cost
C) variable cost per unit of cost driver
D) fixed cost per unit of cost driver
Marianne Company reports the following information on December 31, 2011:
Cash $70,000
Accounts receivable 102,000
Accounts payable 71,000
Accrued wages payable 6,000
Unearned revenue 2,000
Paid-in capital 59,000
Retained earnings ?
Inventory 30,000
Prepaid rent 4,000
Equipment (net) 12,000
What is total stockholders’ equity at December 31, 2011?
A) $20,000
B) $80,000
C) $139,000
D) $170,000
Woods Company is considering the purchase of some equipment. The initial investment
will be $100,000. The estimated useful life of the equipment will be 5 years, at which
point it will have a zero terminal salvage value. The annual savings in cash operating
costs at the end of each year, for five years, is $29,000. The company has a minimum
desired rate of return of 12%. The company uses straight-line depreciation for financial
reporting. Ignore income taxes. The cash operating savings of $29,000 do not include
depreciation expense.
Given:
The present value of ordinary annuity of one at 12% and 5 periods is 3.6048.
The present value of one at 12% and 5 periods is 0.5674.
Required:
Compute:
A) Net present value
B) Payback period
C) Accounting rate of return using the average investment
