In capital rationing, alternative proposals that survive initial screening and further
analysis using present value methods are normally evaluated in terms of:
a. net income.
b. qualitative factors.
c. maximum cost.
d. net cash flow.
If the contribution margin ratio for Harrison Company is 38%, sales were $425,000, and
fixed costs were $100,000, what was the operating income?
a. $163,500
b. $161,500
c. $54,730
d. $61,500
What cost concept used in applying the costplus approach to product pricing includes
total manufacturing costs and total selling and administrative expenses in the “cost”
amount to which the markup is added?
a. Variable cost concept
b. Total cost concept
c. Product cost concept
d. Opportunity cost concept
A 90day, 8% note for $10,000 dated May 1 is received from a customer on account. The
maturity value of the note is (Assume 360 days in a year):
a. $10,000.
b. $10,800.
c. $10,200.
d. $9,800.
Adding a review of operations by an internal audit staff weakens internal control.
a. True
b. False
Which of the following is not reported as revenue on the income statement?
a. Unearned revenue
b. Fees revenue
c. Commissions revenue
d. Rent revenue
The standard factory overhead rate of Quaker Inc. is $10 per direct labor hour ($8 for
variable factory overhead and $2 for fixed factory overhead) based on 100% capacity of
30,000 direct labor hours. The standard cost and the actual cost of factory overhead for
the production of 5,000 units during May were as follows:
Standard:25,000 hours at $10$250,000
Actual:Variable factory overhead202,500
Fixed factory overhead60,000
What is the amount of the fixed factory overhead volume variance?
a. $12,500 favorable
b. $10,000 unfavorable
c. $12,500 unfavorable
d. $10,000 favorable
Basic analytical method in which all items are expressed only in relative terms
(percentages of a common base) and are often useful for comparing one company with
another or for comparing a company with industry averages are:
a. profitability analysis.
b. percentage statements.
c. horizontal analysis.
d. commonsized statements.
Currently, fixed costs are $810,000, the unit selling price is $60, and the unit variable
cost is $48. What would be the breakeven sales (in units), if the variable cost is
increased by $2?
a. 16,200 units
b. 57,875 units
c. 81,000 units
d. 67,500 units
The profit center income statement should include only controllable revenues and
expenses.
a. True
b. False
Efficient Corporation uses a standard cost system. The following information was
provided for the period that just ended:
Actual price per gallon$11.75
Actual gallons of material used5,000
Actual hourly labor rate$17.00
Actual hours of production24,300
Standard price per gallon$12.00
Standard gallons per completed unit1/2
Standard hourly labor rate$12.00
Standard time per completed unit3 hrs.
Units completed during the period9,000
The direct labor rate variance is:
a. $135,000 unfavorable.
b. $89,100 favorable.
c. $89,100 unfavorable.
d. $121,500 unfavorable.
A partnership is owned by two or more individuals.
a. True
b. False
The sales budget is the starting point for preparation of the direct labor cost budget.
a. True
b. False
Which of the following transactions changes the mix of only liabilities?
a. Paying off accounts payables by raising a shortterm loan
b. Writing off accounts receivable as bad debt
c. Financing the purchase of land with a longterm loan
d. Paying accounts receivable with cash
Defense contractors would be more likely to use which of the following cost concepts
in pricing their product?
a. Variable cost
b. Product cost
c. Total cost
d. Fixed cost
Materials used by Boone Company in producing Division C’s product are currently
purchased from outside suppliers at a cost of $20 per unit. However, the same materials
are available from Division A. Division A has unused capacity and can produce the
materials needed by Division C at a variable cost of $17 per unit. A transfer price of $19
per unit is negotiated and 60,000 units of material are transferred, with no reduction in
Division A’s current sales.
How much would Division C’s operating income increase?
a. $0
b. $180,000
c. $60,000
d. $120,000
Answer Corporation uses standard cost system. The standard costs and actual costs for
direct materials, direct labor, and factory overhead for the manufacture of 2,500 units of
product are as follows:
Standard Costs
Direct materials2,500 kilograms @ $8
Direct labor7,500 hours @ $12
Actual Costs
Direct materials2,600 kilograms @ $8.75
Direct labor7,400 hours @ $11.40
Factory overhead (100% capacity 10,000 hrs.):
Variable cost @ $2 per hour
Total variable cost, $18,000
Fixed cost @ $0.80 per hour
Total fixed cost, $8,000
The amount of the direct labor time variance is:
a. $1,200 favorable.
b. $1,140 unfavorable.
c. $1,200 unfavorable.
d. $1,140 favorable.
If sales total $2,000,000, fixed costs total $600,000, and variable costs are 60% of the
sales, the contribution margin ratio is 40%.
a. True
b. False
The terms acidtest ratio and quick ratio refer to the same ratio which measures the
instant debtpaying ability of a company.
a. True
b. False
One of the conditions for paying a cash dividend is formal action by the board of
directors.
a. True
b. False
Which of the following is not a approach used for setting transfer prices?
a. Market price approach
b. Revenue price approach
c. Negotiated price approach
d. Cost price approach
What pricing method is most likely to be used if there are several providers in the same
market and there is sufficient demand for the product?
a. Demandbased method
b. Total cost method
c. Costplus method
d. Competitionbased method
Which of the following is the correct order for preparing financial statements?
a. Income statement, Statement of cash flows, Retained earnings statement, Balance
sheet
b. Retained earnings statement, Income statement, Statement of cash flows, Balance
sheet
c. Statement of cash flows, Retained earnings statement, Balance sheet, Income
statement
d. Income statement, Retained earnings statement, Balance sheet, Statement of cash
flows
The following data relate to direct labor costs for the current period:
Standard costs36,000 hours at $23.50
Actual costs35,000 hours at $23.00
What is the direct labor time variance?
a. $23,000 unfavorable
b. $23,500 unfavorable
c. $23,500 favorable
d. $23,000 favorable
Which of the following transactions changes the mix of assets only?
a. Paid for supplies with cash.
b. Borrowed money from Second National Bank.
c. Received money for fees earned.
d. Received a utility bill.
A budget that provides the starting point for the preparation of a direct labor cost budget
is the:
a. selling and administrative expenses budget.
b. capital expenditures budget.
c. production budget.
d. factory overhead budget.
If the unit selling price is $50, the volume of sales is $450,000, sales at the breakeven
point amount to $375,000, and the maximum possible sales are $550,000, the margin of
safety will be 2,000 units.
a. True
b. False
The markup determined by management should be sufficient to earn:
a. manufacturing cost plus the selling and administrative expenses.
b. the desired profit plus cover any costs and expenses that are not included in the cost
amount.
c. only costs and expenses that are not included in the cost amount.
d. only the desired profit.
Perill Co. has a fiveday workweek (Monday through Friday). Employees earn $650 per
day. How much cash will be paid on Friday?
a. $650
b. $1,950
c. $1,300
d. $3,250
If title to merchandise purchases passes to the buyer when the goods are shipped from
the seller, the terms are:
a. n/30.
b. FOB shipping point.
c. FOB destination.
d. consigned.
If the proceeds from a sale of equipment is greater than the book value of the equipment
as on the date of sale, a loss is recorded.
a. True
b. False
Which of the following types of business is popular for its ease and low cost of
organizing?
a. Notforprofit
b. Corporation
c. Partnership
d. Proprietorship
The costs of services charged to a profit center based on the usage of the service are
called:
a. operating expenses.
b. noncontrollable charges.
c. service department charges.
d. activity charges.
Currently, Unicy Company’s unit selling price is $25, the variable cost is $17, and the
total fixed costs are $85,000. A proposal is being evaluated to increase the selling price
to $27.
(a)Compute the current breakeven sales (in units).
(b)Compute the anticipated breakeven sales (in units), assuming that the unit selling
price is increased and all costs remain constant.
When an adjusting entry is made to record insurance expense and reduce the prepaid
insurance account, which section of the statement of cash flows is affected?
a. Cash Flow from Operating Activities
b. Cash Flow from Investing Activities
c. Cash Flow from Financing Activities
d. There is no effect on the statement of cash flows.