Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
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124. Which of the following is not usually a responsibility of the controller?
A. Preparing budgets and performance reports
B. Filing tax returns
C. Managing cash and marketable securities
D. Providing information for management decisions
125. Which of the following skills are needed by those who desire a high-level career in
management accounting?
A. Written and oral communication skills
B. Interpersonal skills
C. Knowledge of the industry in which their firm competes
D. All of these answer choices are correct.
126. For which one of the following is a company’s treasurer typically held responsible?
A. Reporting information to the IRS
B. Maintaining relationships with investors and creditors
C. Preparing audited financial statements
D. Preparing and analyzing budgets
127. Many companies have a chief financial officer (CFO). Which of these positions is most likely to
report directly to the CFO?
A. Controller
B. Chief executive officer
C. Janitor
D. Production supervisor
128. Sleep Time produces mattresses. During February, each mattress had has a variable cost of
$260, fixed costs of $56,000 per month, and a unit selling price of $500. If the company
produces and sells 400 mattresses in March February, how much profit will the company
expect for March assuming that the number of mattresses sold and the selling price per
mattress remains the same as that of February?
A. $96,000
B. $160,000
C. $40,000
D. $200,000
129. Sleep Time produces mattresses. Each mattress has a variable cost of $260, fixed costs of
$56,000 per month, and a unit selling price of $500. If the company produces and sells 400
mattresses in February, how much is the unit cost per mattress?
A. $260
B. $400
C. $240
D. $100
130. Triatt Resort has 200 rooms. Each room rents at $130 per night and variable costs total $42
per room per night of occupancy. The fixed costs total $18,700 per month. If 70% of the rooms
are occupied each of the 30 nights in June, how much will total variable costs be for June?
A. $546,000
B. $369,600
C. $176,400
D. $252,000
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131. Triatt Resort has 200 rooms. Each room rents at $130 per night and variable costs total $42
per room per night of occupancy. The fixed costs total $18,700 per month. If Triatt is able to
increase occupancy from 70% to 80%, by how much will total costs increase per day during
June?
A. $840
B. $2,710
C. $1,870
D. $1,760
132. Triatt Resort has 200 rooms. Each room rents at $130 per night and variable costs total $42
per room per night of occupancy. The fixed costs total $18,700 per month. If Triatt spends an
additional $30,000 in June on advertising, it estimates it can expect an occupancy rate of 85%.
What will be the monthly financial impact of spending this additional money on advertising over
an occupancy level of 70% during June?
A. Profit will increase by $49,200
B. Profit will increase by $7,800
C. Total fixed costs will decrease.
D. Total costs will increase by $1,260
133. A company purchases machinery costing $60,000 in October of 2017. Five years later,
management discovers better, more efficient machine that could be purchased for $80,000 to
replace the existing machine. Management has determined that they are able to sell the
original machine for $15,000. In making the decision about buying the new machine, how
much are total sunk costs?
A. $60,000
B. $80,000
C. $15,000
D. $20,000
134. Leah Berry is entering her senior year as an accounting major and has a number of options for
her summer break. Her options for the 3-month break follow:
(1) Work full time at a local accounting firm making $3,200 per month.
(2) Take a summer class which will cost $600 and work half time making $1,600
per month.
(3) Take two classes at a cost of $1,200 and not work at all during the summer.
Leah’s opportunity cost of taking two classes if she chooses option 3 over option 1 would be
A. $3,200 per month.
B. $2,000 per month.
C. $1,200 per month.
D. $1,600 per month.
135. Leah Berry is entering her senior year as an accounting major and has a number of options for
her summer break. Her options for the 3-month break follow:
(1) Work full time at a local accounting firm making $3,200 per month.
(2) Take a summer class which will cost $600 and work half time making $1,600
per month.
(3) Take two classes at a cost of $1,200 and not work at all during the summer.
Leah’s incremental revenue if she chooses option 1 over option 2 would be
A. $1,000 per month.
B. $2,200 per month.
C. $1,600 per month.
D. $1,000 per month.
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
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136. Leah Berry is entering her senior year as an accounting major and has a number of options for
her summer break. Her options for the 3-month break follow:
(1) Work full time at a local accounting firm making $3,200 per month.
(2) Take a summer class which will cost $600 and work half time making $1,600 per
month.
(3) Take two classes at a cost of $1,200 and not work at all during the summer.
Leah’s incremental profit (or loss) if she chooses option 2 over option 1 would be
A. ($2,200) per month.
B. ($1,600) per month.
C. ($1,000) per month.
D. $1,000 per month.
137. Flash Eyes sells mascara. In June, it produced and sold 10,000 tubes of mascara. For the
month, total variable costs were $21,000 and fixed costs totaled $24,000. In July, the company
produced and sold 11,000 tubes of mascara. Which of the following statements is correct for
July?
A. Total variable costs will be $21,000
B. Variable costs per unit will be $2.10
C. Variable costs per unit will be $4.50
D. Total fixed costs will be $26,400
138. Flash Eyes sells mascara. In June, it produced and sold 10,000 tubes of mascara. Total
variable costs were $21,000 and fixed costs totaled $24,000. Which of the following
statements is correct if Flash Eyes produced and sold 9,000 units in July?
A. Fixed cost per unit will be $2.67
B. Total fixed costs will be $21,600
C. Variable costs in total will be $40,500
D. Variable costs per unit will be $2.33
139. Vita Boost Pets produces a line of cat food. In August, it produced and sold 1,000 bags of
food. Total fixed costs were $19,000. In September, it produced 2,000 bags of food. Which of
the following statements is true for September?
A. Total fixed costs will be $38,000.
B. Total fixed costs will be $9,500
C. Fixed cost per unit will be $19.00.
D. Fixed costs per unit will be $9.50.
140. Harrison Carpets incurred the following costs for March when 3,000 square feet of carpet were
produced and sold:
• $18,500 for nylon thread used on carpet
• $5,000 for scotch guard for carpet
• $7,200 for jute backing to reinforce the carpet
• $6,800 for glue to be used in the manufacturing process
• $13,000 for insurance (half for administrative activities, half for production
activities)
• $9,000 for production employees’ wages
• $6,500 for rent and utilities in the factory
How much are total fixed costs for April if 3,500 square feet of carpet are produced and sold?
A. $19,500
B. $32,500
C. $77,000
D. $22,750
Chapter 1 Managerial Accounting in the Information Age
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141. Harrison Carpets incurred the following costs for March when 3,000 square feet of carpet were
produced and sold:
• $18,500 for nylon thread used on carpet
• $5,000 for scotch guard for carpet
• $7,200 for jute backing to reinforce the carpet
• $6,800 for glue to be used in the manufacturing process
• $13,000 for insurance (half for administrative activities, half for production
activities)
• $9,000 for production employees’ wages
• $6,500 for rent and utilities in the factory
How much are total variable costs if 3,500 square feet of carpet are produced and sold in
April?
A. $77,000
B. $46,500
C. $54,250
D. $43,750
142. Harrison Carpets incurred the following costs for March when 3,000 square feet of carpet were
produced and sold:
• $18,500 for nylon thread used on carpet
• $5,000 for scotch guard for carpet
• $7,200 for jute backing to reinforce the carpet
• $6,800 for glue to be used in the manufacturing process
• $13,000 for insurance (half for administrative activities, half for production
activities)
• $9,000 for production employees’ wages
• $6,500 for rent and utilities in the factory
How much are variable costs per unit if 3,500 square feet of carpet are produced and sold in
April?
A. $22.00
B. $15.50
C. $12.50
D. $18.86
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
1-22
Answers to Multiple Choice
MATCHING
Chapter 1 Managerial Accounting in the Information Age
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143. Match each of the following terms with the phrase that most closely describes it. Each answer
may be used only once.
1.
Noncontrollable costs
2.
Opportunity costs
3.
Supply Chain Management systems
4.
Sunk costs
5.
Customer Relationship Management systems
6.
Variable costs
7.
Budgets
8.
Controllable costs
9.
Direct costs
10.
Fixed costs
11.
Incremental costs
12.
Indirect costs
13.
Enterprise Resource Planning system
A. Costs that increase or decrease in total in response to increases or decreases in the
level of business activity
B. Costs that are directly traceable to a product, activity, or department
C. Costs that a manager can influence
D. The difference in costs between decision alternatives
E. Costs incurred in the past that are not relevant to present decisions
F. Costs that cannot be influenced by a manager
G. Financial plans prepared by management accountants
H. Value of the benefits forgone when one decision alternative is selected over another
I. Costs that cannot be directly traced to a product, activity, or department, or are not
worth tracing
J. Costs that do not change in total with changes in the level of business activity
K. Systems that prepare a master production schedule and provide support across
various other departments of the company
L. Allows companies and suppliers to share information to improve efficiency in getting
inputs
M. Allows customer data analysis and support, often in online format for customers
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
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EXERCISES
144. Below is a performance report that compares budgeted and actual profit in the shoe
department of Clara Boutique for the month of June:
Budget
Actual
Difference
$680,000
$672,000
($8,000)
330,000
325,000
5,000
120,000
123,000
(3,000)
$230,000
$224,000
($6,000)
Evaluate the department in terms of its increases or decreases in sales and expenses. Do you
believe it would be useful to investigate either or both of the increases in expenses? Explain.
Answer
The actual sales is less than budgeted sales by 1.2% ($8,000 ÷ $680,000), while the cost of
merchandise was 1.5% less than the budgeted amount. Salaries exceeded budget by 2.5%.
The investigation should focus first on salaries, and possibly on the cost of merchandise, since
both changes are disproportionate to the decrease in sales.
145. The distinction between fixed costs and variable costs is an extremely important concept in
managerial accounting. For each of the following phrases, indicate if the phrase is more
closely related to fixed costs (FIX) or to variable costs (VAR) in reference to the number of
units produced.
_____ a. Hourly wages for assembly workers in an food manufacturing firm
_____ b. Changes on a per unit basis when the level of production changes
_____ c. Depreciation calculated by the straight line method for factory machines
_____ d. Monthly rent cost
_____ e. Changes in total when the level of production changes
_____ f. Wheels used on toy truck by a toy manufacturer
_____ g. Janitor’s salary at a factory
_____ h. Does not change in total when the level of production changes
_____ i. Flour used to produce brownies by a snack manufacturer
_____ j. Does not change on a per unit basis when the level of production
changes
Chapter 1 Managerial Accounting in the Information Age
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146. In a month when Walt Enterprises plans to make and sell 200,000 recycle bins, its total fixed
costs are expected to be $420,000 and its total variable costs are expected to be $350,000. If
the production level changes to 180,000 units, what is the expected total cost?
Answer
147. In a period when North Edge Shirt Company plans to make and sell 55,000 shirts, its total
fixed costs are expected to be $108,000, and its total variable costs are expected to be
$178,750. If the production level changes to 60,000 units, what is the expected cost per shirt?
Answer
148. Identify each of the following statements as fixed costs or variable costs.
______ a. A cost that changes in total with changes in the activity level
______ b. A cost that decreases on a per-unit basis when activity levels increase
______ c. A cost that varies on a per-unit basis with changes in the activity level
______ d. A cost that remains constant per unit with changes in the level of business activity
______ e. A cost that remains the same in total with changes in the activity level
Answer
149. Indicate whether each of the following costs is most likely a fixed cost or a variable cost for a
car wash company.
______ a. Depreciation on the car wash building
______ b. Car blow dryer depreciation
______ c. Salary of the car wash manager
______ d. Wages of employees who dry the cars
______ e. The cost of water used in car washes
Answer
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
1-26
150. Hanover Gears plans to produce 6,000 rotor gears in July. The production budget for this level
of activity is:
Labor (variable) $35,000
Rent 6,000
Depreciation 4,000
Materials costs 7,000
Packaging 3,000
Other fixed costs 8,000
Calculate the total cost and the cost per unit if the production level is changed to 5,000 units.
Answer
151. Parvez Painting provides painting services for residential and commercial customers five days
per week (Monday through Friday). Due to customer requests, the company owner, Juan
Parvez, is considering staying open on Saturday. If the company stays open on Saturday, it
can generate $1,600 of daily revenue and will operate for 52 extra days per year. The
incremental daily costs will be $700 for labor, $200 for paint, brushes, and supplies, $40 for
transportation, and $80 for office staff. These costs do not include a share of monthly rent
totaling $220, or a share of depreciation related to office equipment totaling $170. Prepare an
estimate of the incremental profit for the year.
Chapter 1 Managerial Accounting in the Information Age
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152. Vickshay Bolts has fixed costs of $40,000 and variable costs of $100,000 during a period
when 10,000 units were produced.
a. Complete the following table based on the information for Vickshay Bolts:
Cost per unit
This type of cost in total
Fixed costs
Variable costs
Total cost
b. Now assume that production changes to 12,500 units and complete this table:
Cost per unit
This type of cost in total
Fixed costs
Variable costs
Total cost
c. What conclusions can you draw about the behavior of each of the following if the level
of production decreases?
1. Fixed cost per unit
2. Variable cost per unit
3. Fixed costs in total
4. Variable costs in total
Cost per unit
Cost per unit
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
1-28
153. Reef Paradise is a five-star resort on the island of St. Thomas. Late on Friday, it had 10 of its
400 rooms available when the desk clerk received a call from the Hyatt Hotel that had made a
booking error leaving six couples with no rooms even though their reservations were
confirmed. Hyatt wants to send their customers to the Reef Paradise at the same rate the
guests would have been charged at the Hyatt, $190 per room, rather than Reef’s normal rate
of $240 per room.
a. If Reef Paradise accepts the guests, how much will the incremental revenue be?
b. List four examples of incremental costs that Reef Paradise will incur if it accepts the
guests.
154. Sanchez Sweets is in the process of preparing a production cost budget for May. Actual costs
in April for production of 7,000 batches of cookies were:
Ingredients cost $ 7,200
Rent 1,100
Labor cost 3,300
Depreciation 900
Other fixed costs 700
Total $13.200
The company is currently producing and selling 80,000 batches of cookies annually with each
batch sold for $8.00. The company is considering lowering the price to $7.50 per batch for
which management estimates this will increase sales to 90,000 batches. Ingredients and labor
are the only variable costs.
a. What is the incremental cost associated with producing an extra 10,000 batches of
cookies?
b. What is the incremental revenue associated with the price reduction?
c. Should Sanchez Sweets lower the price of its cookies?
Chapter 1 Managerial Accounting in the Information Age
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155. Sanchez Sweets is in the process of preparing a production cost budget for May. Actual costs
in April for production of 5,000 batches of cookies were:
Ingredients cost $ 7,200
Rent 1,100
Labor cost 3,300
Depreciation 900
Other fixed costs 700
Total $13.200
Ingredients and labor are the only variable costs.
a. Using this information, prepare a budget for May. Assume that production will increase
to 8,000 batches of cookies, reflecting an anticipated sales increase related to a
change in selling price.
b. Calculate the actual cost per unit in April and the budgeted cost per unit in May.
Explain why the cost per unit is expected to decrease.
Answer
156. The manager of quality control at Zenic Products, a medical products company, purchased a
new lab machine for $44,000 two years ago during 2017. This year, a new machine, which is
faster and more precise than the current model, is available in the market. In deciding whether
or not to purchase the new machine, indicate if the manager should consider each of the
following costs and why.
a. The original cost of the old machine
b. The value at which the old machine can be sold in the used equipment market
Answer
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
1-30
157. Jones Cola sells bottled beverages. During the past year, 40,000 bottles were produced and
sold at a price of $1.20 per bottle. Variable cost per unit was $0.45 and total fixed costs were
$150,000. Jones Cola would like to raise the price per bottle to $1.50, but feels that this will
reduce sales to 36,000 bottles per year. Perform the appropriate incremental analysis of this
situation. Clearly label the incremental revenues, incremental costs, and incremental profits.
Should Jones Cola raise its price?
Answer
158. ZBar Supplies is currently producing 20,000 tape dispensers per month, but has the capacity
to produce 25,000 tape dispensers without incurring any additional fixed costs. The selling
price is $5.00 per dispenser and variable cost per unit is $2.00. Total fixed costs are $35,000.
Marathon Corporation approaches ZBar with a proposal to buy 4,000 dispensers at a price of
$4.25 per unit. Prepare the incremental analysis that ZBar should use to evaluate this
situation. Assuming that other customers are not affected, should ZBar accept Marathon’s
offer?
Chapter 1 Managerial Accounting in the Information Age
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CHALLENGE EXERCISES
159. Fiesta Shirts produces two types of t-shirts—crew neck and v-neck. The variable cost of
producing each crew neck shirt is $4.25, and $4.50 per shirt for each v-neck. Fixed costs per
shirt are $1.50 per shirt when the production level is 12,000 of both types of shirts. The fixed
cost is for factory costs including rent, depreciation, and insurance. Crew necks are currently
sold for $7.00 each, while v-necks are sold for $8.00 each. During the past year, the company
has sold 12,000 of each type of shirt. The company estimates it can sell 14,000 crew neck
shirts during the upcoming year if it reduces the selling price to $6.50 per shirt.
a. Prepare the incremental analysis to evaluate this situation for the coming year.
b. Should Fiesta Shirts reduce the selling price? Why or why not?
c. Why is the fixed cost of each shirt not used in the incremental analysis?
d. Why does the analysis in part “a” exclude amounts related to the v-neck shirts?
Answer
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
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160. Junk Food Palace has two product lines: candy and chips. Information for the month of June is
presented below:
Candy
Chips
Units sold
5,000
8,000
Revenue
$7,500
$16,000
Variable costs
4,000
8,800
Fixed costs
2,000
2,000
Net income (loss)
$1,500
$ 5,200
a. A potential new customer has asked to buy 1,000 candy products and 1,500 chips
products at 80% of the price paid by other customers. Prepare an incremental analysis
that will help Junk Food Palace’s managers decide whether to accept the order from
the customer.
b. Suppose Junk Food Palace decided to accept the order. Identify three other
considerations that management should consider before accepting the order.
Incremental revenue (1,000 × $1.20) + (1,500 × $1.60)
Incremental cost ($0.80 × 1,000) + ($1.10 × 1,500)
(2,450)
Incremental profit
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SHORT-ANSWER ESSAYS
161. What information is typically included in a performance report? How does an effective
manager use this information?
Answer
162. Explain the principle of “management by exception.”
Answer
163. List and briefly describe four of the five differences between managerial accounting and
financial accounting.
164. A store manager is being evaluated. Explain the difference between controllable costs and
noncontrollable costs as they should be used in this evaluation. Provide examples of costs that
are controllable and those that are noncontrollable.
Answer
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
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165. Performance measures influence the actions of managers. List two performance measures
and the actions that are likely to result if these measures are implemented.
Answer
166. What is incremental analysis? When is it appropriate to use this technique?
Answer
167. Explain what an Enterprise Resource Planning System is and how has it reduced costs for
businesses?