Uses of cash are activities that require cash disbursements, which always decrease the
amount of cash on hand.
To adjust for underapplied overhead, the journal entry includes a debit to Cost of Goods
Sold and a credit to Manufacturing Overhead Control.
In a process costing system, labor and overhead costs are typically combined and
referred to as equivalent costs.
When a company outsources a product, it is easier to control product quality than if the
product is produced internally.
When using a standard costing system, the direct materials quantity variance is recorded
at the time direct materials are transferred to the production floor.
When production volume exceeds sales volume, net income will be higher when using
absorption costing than when using variable costing.
The predetermined overhead rate is calculated by dividing budgeted total
manufacturing overhead by budgeted activity level of application base.
An unfavorable spending variance may be caused by using variable overhead items
inefficiently.
An advantage of standard costing is that it gives visibility to the variances that arise in
the production process.
Like net present value, the internal rate of return considers the amount and timing of
future cash flows.
Which of the following is a shortcoming of ROI as a performance measure?
a. ROI can increase without any change in operations because of depreciation.
b. It can encourage some undesirable behavior by managers.
c. Both ROI can increase without any change in operations because of depreciation and
it can encourage some undesirable behavior by managers.
d. Neither ROI can increase without any change in operations because of depreciation
nor it can encourage some undesirable behavior by managers.
Which of the following authorities require that companies present comparative financial
statements that include both the current year and the previous year?
a. IRS
b. GAAP
c. IIA
d. GAAS
Which of the following is an advantage of the payback period?
a. It is a simple technique
b. Accounting records are generally not based on cash flow, so the information for the
calculation is readily available.
c. Since depreciation is not included in the calculation, the result is not distorted.
d. None of these answer choices are correct.
On January 1st of the current year Bratton Manufacturing borrowed $1,000,000 from
the First National Bank. On June 30st and December 31st Bratton made payments of
$10,000 each. How will these transactions be reported in the statement of cash flows?
a. $1,000,000 source of cash and $20,000 use of cash, both shown in the financing
section
b. $1,000,000 source of cash in the financing section and $20,000 use of cash in the
operating section as a use of cash
c. $1,000,000 source of cash in the investing section and $20,000 use of cash in the
operating section
d. $1,000,000 source of cash and $20,000 use of cash, both shown in the investing
section
If activity level decreases, what happens to the total fixed cost?
a.It remains the same.
b.It decreases.
c.It increases.
d.It depends on how much the activity level increases.
Indicators that measure successful progression toward the organization’s goals are
referred to as
a. Key performance indicators
b. Specific indicators
c. Lagging indicators
d. Dashboard indicators
Manufacturing costs are first recorded as an asset on the balance sheet and then
expensed on the income statement at the time
a. They are purchased
b. They are put into production.
c. They are completed.
d. They are sold.
People ‘s Construction Company has set a 15% required minimum rate of return. The
company ‘s CFO is considering investing in a $125,000 crane that is expected to
generate $25,000 in additional operating income. What is the crane ‘s residual income?
a. $4,500
b. $6,250
c. $15,000
d. $18,750
Which of the following is least likely to be a constrained resource?
a. Flour to make donuts.
b. Beads to make necklaces.
c. Specialized equipment.
d. All of these answer choices could be scarce resources.
Assume you are planning a spring break ski trip to Colorado. You are preparing a
budget of your costs. You are staying at a lodge that has a special where the lodge
charges you $80 per week for the ski lift regardless of how many times you ride. You
believe you will ride the ski lift 40 times during the week. The ski lift charge is an
example of a
a.Fixed cost.
b.Variable cost.
c.Mixed cost.
d.Step cost.
Mauldin Welding Shop is considering the purchase of new high-tech welding
equipment. If the equipment is purchased, Mauldin can avoid the cost of updating the
old equipment estimated to be $3,000. In determining the cash flows associated with the
new equipment, the cost of updating the old equipment will be
a. A cash outflow
b. A cash inflow
c. A sunk cost
d. Not relevant
Johnston Manufacturing Company purchased 14,000 switches to make 6,000 units. The
standard allows for 2 switches per unit. The company actually used 14,500 to produce
the 6,000 units. Johnson budgeted $0.75 per switch, but had to pay $0.80 per switch.
What is Johnston’s direct materials price variance for the period?
a. $500 unfavorable
b. $600 unfavorable
c. $700 unfavorable
d. $725 unfavorable
Some companies believe that as long as the sales revenue a customer generates exceeds
the cost of goods sold, that the customer is profitable. However, companies incur
product costs, selling costs, and administrative costs.
Required:
a. List three items that would be classified as product costs.
b. List three items that would be classified as selling costs.
c. List three items that would be classified as administrative costs.
Budgets assist managers which of the following aspects of management?
a. Planning
b. Controlling
c. Evaluating
d. All of these answer choices are correct.
Capital assets are also referred to as
a. Long-lived assets.
b. Balance sheet asset.
c. Cash assets.
d. Investment assets.
Assume you are a sales manager responsible for analyzing the profitability of the
customers in your territory. You have gathered the following information on one of your
customers:
Required:
a. Calculate the customer net profit.
b. Calculate the profit margin.
The difference between the static budget sales revenue and the flexible budget sales
revenue is referred to as the
a. Flexible budget variance
b. Static budget variance
c. Sales price variance
d. Sales volume variance
A disadvantage of decentralization is that
a. If lower-level managers do not understand the company ‘s strategies and goals, they
may make decisions that are not in the best interest of the organization as a whole.
b. Two or more operational managers may evaluate and make the same decision,
duplicating their efforts.
c. Managers tend to focus on their own units and often lose contact with others in the
organization.
d. All of these answer choices are correct.
Which of the following is not a component of the Cash Budget?
a. Cash available to spend
b. Short-term financing
c. Reconciliation of beginning and ending cash
d. Cash disbursements
Richardson Company has provided you with the following numbers pulled from various
budgets related to January 2014 activity:
Required:
Prepare a pro-forma income statement for Richardson Company
Explain target costing and calculate a target cost.
Academy Awards makes plaques and trophies. Last year the company’s workers clocked
600 more direct labor hours than the flexible budget amount of 10,000 hours to
complete 30,000 plaques and trophies. All workers were paid $8 per hour, which was
$0.50 more than the standard wage rate.
Required:
Calculate Academy Awards’ direct labor efficiency variance for the period.
Janitorial supplies used in the factory restrooms is an example of:
Three popular methods of identifying variable and fixed components of a cost are the
scattergraph method, the high-low method and regression analysis. Compare and
contrast these three methods.
Indicate which of the following statements relate to financial accounting versus
managerial accounting.
Dispose of under- and overapplied manufacturing overhead.
Murphy Company produces and sells only one product, heavy-duty cargo carriers for
trucks. The company is preparing its Selling and Administrative Expense Budget for the
month. The following information has been provided to assist in the budgeting process.
All of these expenses except depreciation are paid in the month they are incurred.
Required:
If Murphy has budgeted to sell 5,000 units during July, prepare the Selling and
Administrative Expense Budget for July.
Calculate cash flows provided (used) by operating activities using the indirect method.
