Par value is the value that is printed on the face of the stock certificate.
In a linear mixed cost function, the slope of the function is the fixed cost per unit of the
cost driver.
One of the first questions a manager should consider when explaining a large variance
is whether expectations are valid.
Unexpired costs are expenses.
A budget is an example of an informal business plan.
Product life cycles may range from a few months to many years.
The total project approach to investments can be used to compare any number of
projects.
Traditional costing systems generally assign only production costs to products.
In practice, proration of overhead variances among the affected accounts is undertaken
when it materially affects inventory valuations and net income.
Under the direct method of preparing the statement of cash flows, the cash collected
from customers is determined for the operating activities section.
A disadvantage of decentralization in organizations is higher overhead costs due to
duplication.
The Allowance for Bad Debts account is added to the Accounts Receivable account on
the balance sheet.
Dysfunctional decisions are decisions that conflict with organizational goals and
objectives.
A general rule for transfer pricing is that the transfer price should equal the sum of
outlay cost and opportunity cost.
Accounts receivable is a current asset.
Revenue and expense accounts are permanent stockholders’ equity accounts.
Companies with high levels of operating leverage are less risky than companies with
low levels of operating leverage.
One purpose of a post-audit is to provide information for improving future predictions
of cash flows.
In job-order costing, the journal entry to record actual factory overhead costs incurred
would include a Credit to Factory Department Overhead Control.
The excess of revenues over expenses is called a net profit.
The Investment in Subsidiary account appears on a consolidated balance sheet.
An example of an implicit transaction is cash received on account.
A recognized loss on the sale of a long-term asset causes a company’s tax liability to
decrease.
One of a treasurer’s responsibilities is tax administration.
The costs of accumulating and processing information frequently decline under
decentralization.
Pricing is not discriminatory if it reflects a cost differential incurred in providing the
good or service.
Discounted-cash-flow models are not based on the theory of compound interest.
The Sarbanes-Oxley Act requires companies to disclose whether the company has
adopted a code of ethics for senior financial officers.
In job-order costing, the journal entry to record the completion of goods would include
a Debit to Cost of Goods Sold.
A recognized loss on the sale of a long-term asset causes a company’s tax liability to
decrease.
The existence of a parent company and a subsidiary requires special accounting
procedures.
Gross margin is the same as contribution margin for most companies.
Lisle 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 10,000
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 3 17
A 15 6 19
Product G ________.
A) should be sold at split-off point to maximize profits
B) should be processed further to increase profits by $30,000
C) should be processed further to increase profits by $40,000
D) should be processed further to increase profits by $70,000
When preparing segmented income statements, unallocated costs do NOT include
________.
A) cost of public relations department
B) salaries of top management
C) corporate level advertising
D) segment level advertising
Managers in profit centers are responsible for controlling ________ and ________.
A) costs; invested capital
B) revenues; invested capital
C) revenues; costs
D) expenses; invested capital
________ is the degree to which an organization minimizes the ________ used to
achieve an objective.
A) Efficiency; costs
B) Efficiency; resources
C) Effectiveness; resources
D) Effectiveness; costs
In a(n) ________ center, managers are responsible for costs only.
A) profit
B) cost
C) investment
D) accounting
________ is an approach for establishing a market-based transfer price.
A) Full cost plus a normal profit markup
B) External market price less selling and delivery costs saved from selling internally
C) External market price plus a profit markup
D) Variable cost plus unavoidable fixed cost
When preparing a budgeted balance sheet, the balance for the inventory account is
found on the ________.
A) sales budget
B) cash budget
C) operating expense budget
D) purchases and cost of goods sold budget
The West and East Divisions are divisions in the same company. Currently the East
Division buys a part from West Division for $384 per unit. The West Division wants to
increase the price of the part it sells to East Division by $96 to $480. The manager of
the East Division has stated that he cannot pay that much insofar as the division’s profit
goes below zero. The manager of the East Division can buy the part from an outside
supplier for $448 per unit. The cost data pertaining to the part is supplied by the West
Division:
Direct materials $136
Direct labor 200
Variable overhead 40
Fixed overhead 42
If West Division does not produce the parts for the East Division, it will be able to
avoid one-third of the fixed manufacturing overhead costs. The West Division has
excess capacity but no alternative uses for the facilities. West Division normally sells
the part outside the company for $400 per unit. What is the minimum transfer price per
unit that West Division should charge East Division?
A) $376
B) $390
C) $400
D) $448
The balance sheet for James Company is given below:
Cash $242
Accounts Receivable 200
Inventory 388
Prepaid Insurance 70
Fixed Assets 452
Accumulated Depreciation (228)
Total Assets $1,124
Accounts payable $152
Wages payable 32
Notes payable 420
Paid-in capital 160
Retained earnings 360
Total liabilities and stockholders’ equity $1,124
If a common-size balance sheet was prepared, what would James Company report for
accounts receivable?
A) 13.5%
B) 17.3%
C) 17.8%
D) 86.3%
An investor in securities accounted for by the equity method has the following
information available at December 31, 2012:
Market value of securities $10,000
Acquisition cost of securities $8,000
How does the investor report the change in market value on the securities at December
31, 2012?
A) adjustment to Investment account
B) unrealized gain of $2,000 on income statement
C) adjustment to ” other comprehensive income” account
D) not reported
Decreasing cycle time ________.
A) results in a lower-quality product
B) creates reduced flexibility in the production process
C) results in slower reactions to customer requests
D) requires smooth-running processes
The Lindsey Company used regression analysis to predict the annual cost of utilities.
The results were as follows:
Utilities Cost
Explained by Direct Labor Hours
Constant 5,000
Standard error of Y estimate 595
R-Squared 0.87
No. of observations 30
Degrees of freedom 28
X Coefficient 4.02
Standard error of coefficient 0.81
The linear cost function is ________ where Y = Total utilities cost and X = Number of
direct labor hours.
A) Y = $5,000 + $0.87X
B) Y = $5,000 + $0.81X
C) Y = $595 + $0.81X
D) Y = $5,000 + $4.02X
When allocating central corporate support costs to products, companies often use
revenues as the allocation base because ________.
A) revenues are the cost driver
B) revenues approximate the actual cost driver
C) revenues represent an ” ability to bear” philosophy of cost allocation
D) revenues represent the actual usage of resources
Freedom Company has three departments. Data for the most recent year are presented
below:
Dept. X Dept. Y Dept. Z
Sales $400 $200 $80
Variable expenses 128 52 34
Unavoidable fixed expenses 96 52 12
Avoidable fixed expenses 116 104 54
Required:
A) Compute the operating income for Freedom Company.
B) Compute the contribution margin for each department.
C) Compute the operating income for each department.
D) Which department(s) should be eliminated? Why?
Cash receipts of interest income are reported in the ________ section of the statement
of cash flows. The direct method is used.
A) operating activities
B) investing activities
C) financing activities
D) noncash investing and financing activities
Sherry Company manufactures phones in a two-department process that involves
Assembly and Finishing. The Assembly Department reported the follow data for the
past month:
Direct materials added $336,000
Direct labor 460,320
Factory overhead 204,000
Total costs to account for $1,000,320
Units started 80,000
Units completed and transferred 67,200
Units not complete 12,800
Units in beginning inventory 0
The partially complete units at the end of the month were 100 percent complete with
respect to materials and 75 percent complete with respect to conversion costs. The unit
cost of conversion costs is ________.
A) $3.00
B) $6.00
C) $8.65
D) $9.00
A linear cost function is estimated over the relevant range of 0 to 1,000 orders. The
equation estimated is: Y = $25,000 + $89X where Y equals the total order-processing
cost and X equals the number of orders. If the number of orders increases to 1,800,
what is the predicted total order-processing cost?
A) $25,000
B) $160,200
C) $185,200
D) cannot be determined
Goods undergoing the production process but not fully complete are called ________.
A) Merchandise Inventory
B) Raw Materials Inventory
C) Finished Goods Inventory
D) Work-in-Process Inventory
When examining the output from regression analysis, the fixed cost measure is labeled
the ________ by most computer programs.
A) coefficient of determination
B) X coefficient
C) standard error of estimate
D) constant or intercept
Starbucks experiments with adding ice cream sundaes to its menu at several stores in
the state of Washington Financial reports are prepared showing revenues and costs for
the new menu item. Based on the reports, management at the corporate office will then
decide whether to permanently add or remove the new menu item. The financial reports
are an example of ________ information.
A) scorekeeping
B) attention directing
C) problem-solving
D) management auditing
Who is usually responsible for sales activity variances for income?
A) operating managers in factory
B) marketing managers
C) research and development function
D) product design function
In practice, when developing a budget, two extremes used for guidance are ________
and ________.
A) participative budget; zero-base budget
B) strategic budget; long-range budget
C) financial planning budget; strategic budget
D) zero-base budget; activities of current or prior period
Regression analysis uses ________ to fit a cost function to all the historical data.
A) visual placement
B) engineering analysis
C) statistical analysis
D) activity analysis
In a job-order system, accountants apply factory overhead costs to Work-In-Process
Inventory by using the ________. The company does not use activity-based costing.
A) actual overhead costs
B) budgeted indirect costs for value chain functions
C) budgeted overhead rate
D) actual overhead rate
Kaprelian 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 variable manufacturing cost of goods sold is ________.
A) $256,000
B) $272,000
C) $320,000
D) $384,000
An opportunity cost is ________.
A) the additional costs generated by a proposed alternative
B) the difference in total cost between two alternatives
C) a cash disbursement in the future
D) the maximum available benefit foregone by using a resource for a particular purpose
instead of the best alternative use
Michael Company uses job-order costing. The company has gathered the following
data:
Direct materials purchased for cash $60,000
Direct materials requisitioned $50,000
Direct labor costs incurred $90,000
Factory overhead costs incurred $60,000
Cost of goods completed $180,000
Cost of goods sold $170,000
Sales for cash $300,000
Factory overhead applied ?
Factory overhead costs are applied at 90% of direct labor costs.
Required:
A) Prepare the required journal entries for the above transactions.
B) Prepare the journal entry to dispose of the overhead variance using the immediate
write-off method.
Maralee Company’s records reveal the following:
Division X
Market price of finished component to outsiders $32 per unit
Variable costs per component $24 per unit
Division Y
Sale price of finished product $42 per unit
Variable costs:
Division X (1 component) ?
Division Y Assembly 9 per unit
Division Y Packaging 4 per unit
Division Y wants to buy the component from Division X. The variable costs of Division
Y will be incurred whether it buys the component from Division X or from an outside
supplier. Assume Division X is working at full capacity; there is no excess capacity.
Division Y can buy the component from an outside supplier for $32 per unit. What is
the lowest transfer price per unit Division X should accept from Division Y for the
component?
A) $8 per unit
B) $22 per unit
C) $24 per unit
D) $32 per unit
Treasury stock is ________.
A) unissued shares of stock
B) the number of shares of stock that cannot be sold in the future
C) shares of stock held in other companies for investment purposes
D) shares of stock already issued that are later repurchased by the corporation that
originally issued them
Beckowski Company had the following information available for its specialty product:
Standards for one unit of product:
Direct Materials: 5 pounds at $2 per pound
Direct Labor: 0.50 hour at $16 per hour
Materials and Labor Used to produce 8,500 units:
Direct Materials: 46,000 pounds at ? per pound
Direct Labor: 4,000 hours at $16.80 per hour
If the Direct Materials Price Variance is $4,600 Unfavorable, what is the actual cost per
pound of direct materials used?
A) $1.80
B) $1.90
C) $2.00
D) $2.10
Three cost drivers are used to estimate the cost of processing insurance claims. The cost
drivers are: (1) claim amount, (2) age of vehicle in accident and (3) age of driver in
accident. The percentages attributable to the cost drivers are 50% for claim amount, and
15% for each of the other two cost drivers. What is the cost to process Claim #101? The
claim amount is $1,000. The age of the vehicle is 5 years. The age of the driver is 20
years.
A) $3.00
B) $3.75
C) $500
D) $503.75
________ costs provide evidence about a manager’s performance. ________ costs do
not provide evidence about a manager’s performance.
A) Allocated; unallocated
B) Controllable; uncontrollable
C) Uncontrollable; controllable
D) Allocated; third party
Under accrual basis accounting, unexpired costs are considered to be ________.
A) expenses if cash has been paid
B) expenses if cash has not been paid
C) assets
D) accrued liabilities
Davidson Company produces a part that is used in the manufacture of one of its
products. The costs associated with the production of 5,000 units of this part are as
follows:
Direct materials $108,000
Direct labor 156,000
Variable factory overhead 70,000
Fixed factory overhead 168,000
Total costs $502,000
Of the fixed factory overhead costs, $72,000 are avoidable. Assuming there is no other
use for the facilities. What is the highest price Davidson Company should be willing to
pay for 5,000 units of the part?
A) $264,000
B) $334,000
C) $406,000
D) $502,000
Which of the following costs is a direct cost for a manufactured product?
A) Depreciation Expense on factory equipment used for several products
B) Wages Expense of an assembly worker who works specifically on the product
C) Accountants who determine the product costs for all the products manufactured
D) Factory Supervisor Salary Expense where the supervisor oversees the production of
several different types of products