A customer’s check received in settlement of an account receivable is considered cash.
a. True
b. False
The excess of cash flowing in from revenues over the cash flowing out for expenses is
termed net discounted cash flow.
a. True
b. False
When an entry is made to adjust the supplies account and recognize supplies expense
for the period, 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.
The following financial information was summarized from the accounting records of
Globe Corporation for the current year ended December 31:
Northern Southern Corporate
Division Division Total
Cost of goods sold$310,000$175,000
Direct operating expenses250,000115,000
Net sales600,000410,000
Interest expense$12,000
General overhead101,000
Income tax26,700
The gross profit for the Southern Division is:
a. $150,000.
b. $295,000.
c. $235,000.
d. $120,000.
Which of the following transactions will affect the profitability metric of a company?
a. Rent received in advance
b. Prepaid insurance
c. Purchase of supplies on account
d. Fees received in cash for services provided
Production estimates for August are as follows:
Estimated inventory (units), August 112,000
Desired inventory (units), August 319,000
Expected sales volume (units), August75,000
For each unit produced, the direct materials requirements are as follows:
Direct material A ($5 per lb.)3 lbs.
Direct material B ($15 per lb.)1/2 lb.
The total direct materials purchases of materials A and B required for August
production is:
a. $1,260,000 for A; $630,000 for B.
b. $1,080,000 for A; $540,000 for B.
c. $1,125,000 for A; $562,500 for B.
d. $1,170,000 for A; $585,000 for B.
If the total unit cost of manufacturing Product Y is currently $40 and the total unit cost
after modifying the style is estimated to be $48, the differential cost for this situation is
$8.
a. True
b. False
Using a standard costing system for nonmanufacturing expenses is easily administered
because the expenses generally relate to a repetitive, measurable output.
a. True
b. False
Which of the following ratios provides a solvency measure that shows the margin of
safety of noteholders or bondholders and also gives an indication of the potential ability
of the business to borrow additional funds on a longterm basis?
a. Ratio of net sales to assets
b. Rate earned on stockholders’ equity
c. Number of days’ sales in receivables
d. Ratio of fixed assets to longterm liabilities
The process by which management plans, evaluates, and controls longterm investment
decisions involving fixed assets is called:
a. absorption cost analysis.
b. variable cost analysis.
c. capital investment analysis.
d. costvolumeprofit analysis.
Which of the following is an example of a factory overhead cost?
a. Repair and maintenance cost on the administrative building
b. Factory heating and lighting cost
c. Insurance premiums on salespersons’ automobiles
d. President’s salary
The standard factory overhead rate is $7.50 per machine hour ($6.20 for variable
factory overhead and $1.30 for fixed factory overhead) based on 100% capacity of
80,000 machine hours. The standard cost and the actual cost of factory overhead for the
production of 15,000 units during August were as follows:
Actual:Variable factory overhead$360,000
Fixed factory overhead104,000
Standard:60,000 hours at $7.50450,000
What is the amount of the variable factory overhead controllable variance?
a. $12,000 unfavorable
b. $12,000 favorable
c. $14,000 unfavorable
d. $26,000 unfavorable
Changes in technology, machinery, or production methods may make past cost data
irrelevant for future operations.
a. True
b. False
Equality of the accounting equation means that no errors have occurred.
a. True
b. False
The breakeven point (in units) is calculated by dividing the total estimated fixed costs
by the net sales of a period.
a. True
b. False
Medicare taxes are paid only by employee.
a. True
b. False
Materials used by MeetaProducts Inc. in producing Division A’s product are currently
purchased from outside suppliers at a cost of $12 per unit. However, the same materials
are available from Division B. Division B has unused capacity and can produce the
materials needed by Division A at a variable cost of $7 per unit. A transfer price of $9
per unit is established, and 35,000 units of material are transferred with no reduction in
Division B’s current sales.
How much would Division B’s operating income increase?
a. $75,000
b. $175,000
c. $105,000
d. $70,000
The performance of a profit center manager is evaluated by comparing the profit
center’s operating income:
a. with the other profit centers’ operating income.
b. with the profit center’s budgeted operating income.
c. with the organization’s budgeted net income.
d. with the organization’s nonoperating income.
Which of the following businesses is a retail business?
a. H&R Block
b. Becker Law Office
c. Little Tykes Day care
d. Kohl’s
Green Co. incursa cost of $15 per pound to produce Product X, which it sells for $26
per pound. The company can further process Product X to produce Product Y. Product
Y would sell for $30 per pound and would require an additional cost of $10 per pound
to be produced. The differential cost of producing Product Y is _____.
a. $30 per pound
b. $15 per pound
c. $26 per pound
d. $10 per pound
Dividing estimated total factory overhead costs by estimated activity base will give the
_____.
a. underabsorbed factory overhead rate
b. predetermined factory overhead rate
c. HTMLENTITY#8203HTMLENTITYoverabsorbed factory overhead rate
d. HTMLENTITY#8203HTMLENTITYactual factory overhead rate
In preparing a bank reconciliation, the amount indicated by a credit memorandum for a
note receivable collected by the bank is added to the cash balance per books.
a. True
b. False
Which of the following is the effect on a company’s liquidity and profitability metrics
when it purchases a piece of equipment?
a. Its free cash flow decreases.
b. Its free cash flow increases.
c. Its asset turnover increases.
d. Its asset turnover remains unaffected.
Budgets are normally used by both profitmaking businesses and nonprofit
organizations.
a. True
b. False
_____ is the excess of sales over variable costs.
a. Fixed cost
b. Contribution margin
c. Operating income
d. Incremental cost
When managers of separate divisions or units are delegated the responsibility for
managing their operations, the operational responsibility is said to be _____.
a. amalgamated
b. accumulated
c. negotiated
d. decentralized
When a corporation issues bonds, it executes a contract with the bondholders known as
a bond debenture.
a. True
b. False
Predetermined Factory Overhead Rate is calculated as:
a. HTMLENTITY#8203HTMLENTITYEstimated Total Factory Overhead Costs +
Estimated Activity Base.
b. HTMLENTITY#8203HTMLENTITYEstimated Total Factory Overhead Costs –
Estimated Activity Base.
c. HTMLENTITY#8203HTMLENTITYEstimated Total Factory Overhead Costs
HTMLENTITY#xD7HTMLENTITY Estimated Activity Base.
d. HTMLENTITY#8203HTMLENTITYEstimated Total Factory Overhead Costs
Estimated Activity Base.
Omega Inc. is expecting a reduction of $25,000 in fixed costs of $725,000. What will
be the change in breakeven sales (in units), if selling price per unit is $50 and the unit
variable cost is $35?
a. 48,333 units
b. 46,667 units
c. 1,667 units
d. 2,500 units
The standard factory overhead rate is $12 per machine hour ($10 for variable factory
overhead and $2 for fixed factory overhead) based on 100% capacity of 42,000
machine hours. The standard cost and the actual cost of factory overhead for the
production of 2,000 units were as follows:
Actual: Variable factory overhead$350,500
Fixed factory overhead84,000
Standard: 35,000 hours @ $12420,000
Determine the (a) volume variance, (b) controllable variance, and (c) total factory
overhead cost variance.
Both accounts receivable and notes receivable represent claims that are expected to be
collected in cash.
a. True
b. False