Preferred stockholders receive cash dividends before common stockholders.
Managers evaluated using net book value for plant assets will tend to replace assets
sooner than managers evaluated using gross book value.
In an absorption-costing income statement, revenue less variable manufacturing costs is
equal to the gross margin.
Projects that recoup their investment quickly may be less risky than those that require a
longer time.
A corporation is not a separate legal entity from its owners.
The direct method sequence of allocations begins with the service department that
renders the greatest service to the greatest number of other service departments.
A cost object is anything for which a separate measurement of costs is desired.
Depreciation expense is usually a disbursement listed on the cash budget.
The use of cost drivers to allocate central corporate support costs to products such as
revenue or total assets represent an ” ability to bear” philosophy.
A favorable materials price variance may lead to an unfavorable materials usage
variance.
Joint costs are not allocated to a by-product.
In job-order costing, time cards record the materials used in particular jobs.
Freight and installation costs are added to the cost of equipment.
A manufacturer has three types of inventory that include Raw Materials Inventory,
Work-In-Process Inventory and Merchandise Inventory.
In retail sales, the limiting resource is often floor space.
The IRR model determines the interest rate at which the NPV of an investment equals
zero.
When referring to a cost function, plausibility refers to whether you can rely upon the
cost function for predicting the future.
Variable costs per unit of the cost driver increase when the cost-driver level increases in
the relevant range.
The sales mix is the relative proportions or combinations of quantities of different
products that constitute total sales.
The first and most basic component in a management control system is the employee’s
goals.
The LIFO method reports the latest costs for ending inventory.
Cash collections from customers in any given month include the current month’s cash
sales and expected collections on credit sales.
Activity-based budgets are an example of functional budgeting.
Profit-center managers always have more decentralized decision-making authority than
cost-center managers.
A general rule for transfer pricing is that the transfer price should equal the sum of
outlay cost and opportunity cost.
Revenues do not affect stockholders’ equity.
A favorable expense variance is when budgeted expenses are less than actual expenses.
Retained earnings indicate the amount of cash available for distribution to shareholders.
The degree to which information is relevant or precise often depends on the degree to
which it is qualitative or quantitative.
When compared to a decentralized organization, there are really no advantages to a
centralized organization.
Total static budget variances are equal to the sum of activity-level variances and
flexible budget variances.
Gross margin focuses on sales in relation to variable costs.
Variances are deviations from planned results.
Return on investment equals operating income divided by investment.
In practice, companies generally prorate overhead variances when it would materially
affect ________ and ________.
A) inventory valuations; stock dividends
B) inventory valuations; cash dividends
C) inventory valuations; net income
D) stock option plans; manager bonuses
Engineering analysis and account analysis are similar because ________.
A) both provide timely results
B) both do not develop a cost function
C) both provide more objective results than the high-low method
D) both require the subjective judgment of the analyst
The board of directors of Schwinn Company declared a cash dividend. Two weeks later,
the dividend was disbursed to stockholders. The dividend disbursement will ________.
A) decrease net income
B) decrease stockholders’ equity
C) decrease liabilities
D) increase stockholders’ equity
The difference in variable costing operating income and absorption costing operating
income equals ________.
A) the change in Work-In-Process Inventories times the budgeted fixed overhead rate
B) the change in Finished Goods Inventories times the budgeted fixed overhead rate
C) the change in Raw Materials Inventories times the budgeted variable overhead rate
D) the change in Work-In-Process Inventories times the budgeted variable overhead rate
Wetzel Company has actual fixed overhead costs of $14,500. Fixed overhead costs
based on the flexible budget and the standard use of the cost driver are $14,400. Actual
variable overhead costs are $14,700. Flexible budget costs for variable overhead costs
are $15,000. What is the flexible-budget variance for fixed overhead costs?
A) $100 Favorable
B) $100 Unfavorable
C) $300 Favorable
D) $300 Unfavorable
Which statement is FALSE?
A) Each different sales-mix of products has a different break-even point.
B) Changes in the sales-mix of products sold affects a company’s net operating profit.
C) Changes in the sales-mix of products sold affects a company’s contribution margin.
D) If the sales-mix of products sold changes, the break-even point does not change.
A popular approach to performance measurement that integrates financial and
nonfinancial measures and links them to the organization’s goals and objectives is
called the ________.
A) balanced scorecard
B) contribution approach
C) quality control approach
D) TQM approach
________ budgeting is when budgets are formulated with the active involvement of all
affected employees.
A) Rolling
B) Team
C) Participative
D) Zero-based
If capacity constraints prevent a segment from meeting internal and external demand
for a product, the opportunity cost of selling internally equals ________.
A) the variable cost of producing the product
B) the controllable costs of producing the product
C) the contribution margin the producing segment could have received from selling in
the external market rather than the internal market
D) the variable cost plus the avoidable fixed cost of producing the product
Source documents are associated with ________.
A) Generally Accepted Accounting Principles
B) implicit transactions
C) explicit transactions
D) compound entries
The only difference between the net income between variable costing and absorption
costing is the treatment of ________.
A) variable selling costs
B) variable administrative costs
C) fixed selling costs
D) fixed manufacturing overhead costs
The following information is available for Munter Manufacturing Company.
— Direct materials price standard is $3.25 per pound.
— Direct materials quantity standard is six pounds per finished unit.
— Budgeted production is 25,000 finished units.
— 175,000 pounds of direct materials were purchased for $525,000.
— 175,000 pounds of direct materials were used in production.
— 25,600 finished units of product were produced.
What is the direct materials price variance?
A) $43,750 Unfavorable
B) $43,750 Favorable
C) $350,000 Unfavorable
D) $350,000 Favorable
A stockholders contributed $100,000 in exchange for stock in the company. What is the
effect of this transaction?
A) assets increase and liabilities increase
B) assets increase and revenues increase
C) expenses increase and revenues increase
D) assets increase and paid-in capital increases
The variable overhead spending variance combines ________ and ________ effects.
A) price; quantity
B) price; efficiency
C) efficiency; sales activity
D) rate; sales activity
Customers with a low cost to serve have ________.
A) small order quantities
B) many order changes
C) large amount of pre-sales support
D) small amount of post-sales support
An investor holds 1% of the outstanding stock of an investee. The investor plans to hold
the stock for a long time. The investor reports the dividends received from the stock as
________.
A) an increase in the investment account
B) a decrease in the investment account
C) dividend revenue on the income statement
D) equity in earnings of the investee on the income statement
The key to determining the financial difference between two alternative courses of
action is to identify the ________.
A) opportunity cost of each alternative
B) marginal cost
C) differential costs and revenues
D) joint cost of both alternatives
A mixed-cost function is graphed as a ________.
A) nonlinear line
B) curved line
C) line with a break for fixed costs
D) straight-line
Gollerowski Company has determined the following information for the year ended
December 31, 2015:
Direct labor used $16,840
Direct material used $26,300
General and administrative expenses $14,240
Indirect production costs $56,780
Selling expenses $13,599
Work-In-Process Inventory, January 1, 2015 0
Work-In-Process Inventory, December 31, 2015 0
Finished Goods Inventory, January 1, 2015 0
Finished Goods Inventory, December 31, 2015 ?
Cost of Goods Sold $80,000
Requirements:
A) What is the Cost of Goods Manufactured for the year ended December 31, 2015?
B) What is Finished Goods Inventory at December 31, 2015?
Corrao Company manufactures a part for its production cycle. The costs per unit for
10,000 units of the part are as follows:
Per Unit
Direct materials $20.00
Direct labor 13.00
Variable factory overhead 15.00
Fixed factory overhead 14.00
Total costs $62.00
The fixed factory overhead costs are unavoidable. Assuming no other use for the
facilities, what is the highest price that Corrao Company should be willing to pay for
the part?
A) $33
B) $47
C) $48
D) $62
Misalignment between the ________ stressed in budgets and ________ used to reward
employees and managers can limit the advantages of budgeting.
A) performance goals; participative goals
B) performance goals; performance measures
C) sales goals; bonuses
D) resource goals; bonuses
Joe Anthony Company recently issued 20,000 shares of $1.00 par value common stock
for $40,000. This transaction will increase the ________.
A) Common stock account by $20,000
B) Common stock account by $40,000
C) Paid in capital in excess of par account by $40,000
D) Retained earnings account by $40,000
When the actual volume is less than the expected volume, the fixed overhead costs are
________.
A) favorable
B) overapplied
C) overbudgeted
D) underapplied
LL Company produces and sells a product that has variable costs of $9 per unit and
fixed costs of $200,000 per year. If production decreases from 50,000 to 40,000 units,
the total cost per unit will ________.
A) increase by $1
B) increase by $13
C) decrease by $1
D) decrease by $14
In most organizational settings, superior ________ performance usually follows from
superior ________ performance.
A) financial; nonfinancial
B) nonfinancial; financial
C) financial; strategic
D) nonfinancial; strategic
An ideal performance metric would measure and reward the manager for ________
factors, and neither reward nor punish the manager for ________ factors.
A) allocated; unallocated
B) controllable; uncontrollable
C) unallocated; allocated
D) uncontrollable; controllable
Michael Company manufactures two models of pens, a standard model and a deluxe
model. Three activities have been identified in the production of the pens. The
following information is available:
Number of Number of Number of Direct
Product Setups Components Labor Hours
Standard 22 8 375
Deluxe 28 12 225
Cost Pool Total Costs Cost Driver
Setup Costs $15,000 Number of setups
Assembly Costs $36,000 Number of components
Labor Costs $9,000 Number of direct labor hours
If activity-based costing is used, the total cost assigned to the deluxe model is
________.
A) $22,500
B) $26,625
C) $33,375
D) $37,500
In absorption costing, costs are separated into two categories of ________.
A) fixed costs and variable costs
B) variable costs and manufacturing costs
C) fixed costs and manufacturing costs
D) manufacturing costs and nonmanufacturing costs
With mixed costs, the fixed cost element is viewed as the ________ and the variable
cost element is viewed as the ________.
A) step cost; cost of capacity
B) cost of capacity; incremental cost of using capacity
C) variable cost; cost of capacity
D) step cost; mixed cost
Bender Company has two service departments, Maintenance and Human Resources.
Bender Company also has two production departments, Mixing and Finishing.
Maintenance costs are allocated based on square footage while Human Resources costs
are allocated based on number of employees. The following information has been
gathered for the current year:
Human
Maintenance Resources Mixing Finishing
Direct costs $50,400 $33,600 $42,000 $70,000
Square footage 1,600 800 3,200 2,400
Number of employees 16 24 48 64
If the direct method is used to allocate service department costs, then the total cost of
the Maintenance Department after the Human Resources Department cost allocation
would be ________.
A) $33,600
B) $50,400
C) $54,600
D) $70,000
Winston Company has variable costs of $5 per unit and a selling price of $10 per unit.
Fixed costs are $100,000. Planned unit sales for 2015 are 25,000 units. Actual unit sales
for 2014 were 22,000 units. What is the margin of safety in units for 2015?
A) 2,000 units
B) 3,000 units
C) 5,000 units
D) 7,000 units
On July 1, Singh Company paid 6 months’ insurance in advance. The policy covers the
period of July 1 through December 31. The total payment was $5,400. At the time of
the payment, the company set up the Prepaid Insurance account for $5,400. What is the
balance in the Prepaid Insurance account on August 31?
A) 0
B) $1,800
C) $2,700
D) $3,600
The following information is available for the Thompson Company:
Sales for year $1,000,000
Average invested capital for year $500,000
Return on investment 10%
What is the capital turnover ratio?
A) 0.10
B) 0.35
C) 0.50
D) 2.00
Texas Company produces and sells 22,000 units of a single product. Costs associated
with this level of production are as follows:
Direct materials $15 per unit
Direct manufacturing labor $45 per unit
Variable manufacturing overhead $25 per unit
Fixed manufacturing overhead $40 per unit
Variable selling costs $10 per unit
The product normally sells for $160 per unit. Texas Company has received a special
order to sell 2,000 units at $120 per unit. With the special order, variable selling costs
will increase by $5 per unit to $15 per unit. Texas Company has excess production
capacity.
Required:
Compute the amount by which the operating income of Texas Company would change
if the special order was accepted.
Differentiate between a static budget variance and a flexible budget variance.
The sections of the statement of cash flows are listed below:
Sections of Statement of Cash Flows
O = Operating activities
I = Investing activities
F = Financing activities
Required:
For each of the following items, identify the section of the statement of cash flows you
would find the item. Assume the direct method is used.
_____ 1. Paid taxes of $15,000.
_____ 2. Borrowed $35,000 from the bank on a long-term note payable.
_____ 3. Collected $690,000 from customers.
_____ 4. Received $40,000 in dividend income.
_____ 5. Paid $12,000 to suppliers for inventory.
_____ 6. Issued common stock for $170,000 cash.
_____ 7. Purchased $120,000 in long-term securities for cash.
_____ 8. Paid $18,000 dividend on common stock.
_____ 9. Purchased land for $345,000 cash.
_____ 10. Sold long-term securities for cash. No gain or loss on sale.
_____ 11. Paid $210,000 on long-term debt.
_____ 12. Received $31,000 cash on sale of equipment. No gain or loss on sale.
For the year ended December 31, 2015, the following information is available for the
Kansas Company:
Sales $891,000
Cost of goods sold 662,000
Depreciation expense 16,000
Amortization expense 3,000
Wage expense 91,000
Rent expense 4,000
Loss on sale of fixed assets 2,000
Interest expense 13,000
Income tax expense 38,000
Total expenses 829,000
Net income $62,000
December 31, 2014 December 31, 2015
Cash $10,000 $12,800
Accounts receivable $10,000 $19,200
Inventory $20,000 $14,100
Prepaid rent $2,000 $1,700
Accounts payable $22,000 $24,400
Wages payable $12,000 $11,300
Taxes payable $2,000 $3,100
Required:
Prepare the operating activities section of the statement of cash flows for the year
ending December 31, 2015. Use the indirect method.
Texas Company produces and sells 22,000 units of a single product. Costs associated
with this level of production are as follows:
Direct materials $15 per unit
Direct manufacturing labor $45 per unit
Variable manufacturing overhead $25 per unit
Fixed manufacturing overhead $40 per unit
Variable selling costs $10 per unit
The product normally sells for $160 per unit. Texas Company has received a special
order to sell 2,000 units at $120 per unit. With the special order, variable selling costs
will increase by $5 per unit to $15 per unit. Texas Company has excess production
capacity.
Required:
Compute the amount by which the operating income of Texas Company would change
if the special order was accepted.
The Monk Company reports the following accounts and balances on December 31,
2015.
Accounts Payable $14,400
Accounts Receivable 8,000
Cash 26,000
Equipment 80,000
Land 56,000
Long-term Note Payable 70,000
Merchandise Inventory 28,800
Paid-in Capital ?
Retained Earnings 14,400
Required:
Prepare a balance sheet at December 31, 2015.
Olson Company has the following data:
Month Budgeted Purchases
January $225,000
February 190,000
March 200,000
April 220,000
May 150,000
Purchases are paid as follows:
10% in the month of purchase
80% one month after purchase
10% two months after purchase
Required:
Prepare a schedule of cash disbursements for purchases for March, April and May.
Stangle Company manufactures ties. When 28,000 ties are produced, the costs per unit
are:
Direct materials $0.60
Direct manufacturing labor $3.00
Variable manufacturing overhead $1.20
Fixed manufacturing overhead $1.60
Variable selling $0.80
Fixed selling $1.13
The ties normally sell for $22 each. The company has received a special order for 2,000
ties at $8.00 per tie. The company will incur an additional variable selling cost of $1.50
per unit with the special order. The company has excess capacity.
Required:
Compute the amount by which the operating income would change if the order were
accepted.
Describe a balanced scorecard and identify the categories of key performance indicators
advocated by Kaplan and Norton.
The following transactions occurred at Clarkson Company:
1. The company acquired $200 of inventory on credit.
2. The company rendered services billed at $100 on account.
3. The company paid $175 in accounts payable.
4. The company’s owner invested $375 in cash.
5. The company acquired equipment costing $575 on account.
6. The company paid $25 for inventory.
Required:
In the chart below, indicate if each transaction increases, decreases or has no effect on
Assets, Liabilities and Stockholders’ Equity.
Transaction Assets Liabilities Stockholders’ Equity
1. Increase Increase No effect
———————————————————————————————————-
———-
2.
———————————————————————————————————-
———-
3.
———————————————————————————————————-
———-
4.
———————————————————————————————————-
———-
5.
———————————————————————————————————-
———-
6.
———————————————————————————————————-
———-
The Pinsky Company has the following information available:
Month Budgeted Sales
March $150,000
April 153,000
May 151,000
June 254,500
July 252,500
The gross profit rate is 40% and the desired ending inventory level is 20% of the next
month’s cost of sales.
Required:
Prepare a purchases and cost of goods sold budget for April, May and June.
Using activity analysis, Arnoldson Company has identified the appropriate cost driver
for maintenance costs in a factory as the number of machine hours. The maintenance
costs have been observed as follows within the relevant range of 5,000 to 8,000
machine-hours.
Month Maintenance Cost Machine Hours
January $7,900 5,600
February $8,500 7,100
March $7,400 5,000
April $8,200 6,500
May $9,100 7,300
June $9,800 8,000
July $7,800 6,200
Required:
1. Estimate the cost function using the high-low method.
2. If you were going to use the visual-fit method to estimate the cost function, what
steps will you take?
The facilities housekeeping department at St. Luke’s Hospital has determined that the
appropriate cost driver for housekeeping costs is patient-days. There are 10,000
patient-days per month. The department has collected the following accounts for the
past month:
Monthly Housekeeping Expenses Amount
Supervisors’ Salaries Expense $10,000
Depreciation Expense—Scrubbing Machines $5,000
Cleaning Supplies Expense $7,000
Hourly Workers’ Wages Expense $100,000
Insurance Expense—Scrubbing Machines $2,000
Required:
Estimate the cost function using the account analysis method.
Donald Company has the following information:
Cash Balance, May 31 $45,000
Dividends paid in June 12,000
Cash paid for operating expenses in June 36,800
Equipment depreciation expense in June 4,500
Patent amortization expense in June 2,000
Cash collections on sales in June 99,000
Merchandise purchases paid in June 56,200
Purchase equipment for cash in June 17,500
Donald Company wants to keep a minimum cash balance of $10,000. Assume that
borrowing occurs at the beginning of the month and repayments occur at the end of the
month. Interest of 1% is paid in cash at the end of each month when debt is outstanding.
Borrowing and repayments are carried out in multiples of $1,000.
Required:
Prepare a cash budget for June.
Cooley Company reports the following accounts and balances at December 31, 2015:
Accounts Payable $22,800
Accounts Receivable 18,800
Cash 24,400
Land 82,400
Machine 129,200
Merchandise Inventory 63,600
Long-term Note Payable 79,200
Short-term Note Payable 14,400
Paid-in Capital 200,000
Retained Earnings ?
Sales Revenue 122,000
Cost of Goods Sold 80,000
Operating Expenses 40,000
Required:
Prepare a balance sheet at December 31, 2015. Also, prepare an income statement for
the year ended December 31, 2015. Ignore depreciation expense and interest expense.
The balance sheet for Orlando Company at December 31, 2009 is given below:
Current Assets:
Cash $78
Accounts Receivable 76
Inventory 54
Total Current Assets $208
Long-term Assets:
Fixed Assets $322
Less: Accumulated Depreciation (136)
Net Fixed Assets $186
Total Assets $394
Current Liabilities:
Accounts Payable $44
Taxes Payable 14
Total Current Liabilities $58
Long-term Bonds Payable 60
Total Liabilities $118
Stockholders’ Equity:
Paid-in Capital $100
Retained Earnings 176
Total Stockholders’ Equity $276
Total Liabilities and Stockholders’ Equity $394
Required:
Prepare a common-size balance sheet.
Marvin Company has the following sales budget:
Month Cash Sales Credit Sales
February $14,000 $30,000
March 12,800 32,000
April 10,800 28,000
Collections of credit sales are 40% in the month of sale, 50% in the month after sale
and 10% two months after sale. No uncollectible accounts are expected.
Required:
Prepare a schedule of cash collections for April.
Wyoming Company had the following information for the year ended December 31,
2015 and December 31, 2016.
December 31, 2016 December 31, 2015
Equipment $186,000 $156,000
Accumulated depreciation 62,000 54,000
Depreciation expense for the year ended December 31, 2016 was $18,000. Equipment
that cost $20,000 was sold at a $3,000 loss. The equipment had accumulated
depreciation of $10,000.
Required:
Prepare the investing section of the statement of cash flows for the year ended
December 31, 2016.