Historical data may have a direct bearing on a decision made today.
The internal rate of return and the net present value methods usually result in the same
investment decisions.
Cost assignment is attaching costs to one or more cost objects, such as activities and
departments.
The four categories of quality costs include production costs, appraisal costs, internal
failure costs and external failure costs.
An unfavorable production volume variance decreases the manufacturing costs shown
on the income statement.
Two popular methods for allocating service department costs to user departments are
the direct method and the step-up method.
A value-added cost is the cost of an activity that a company can eliminate without
affecting the product’s value to the customer.
In practice, proration of overhead variances among the affected accounts is undertaken
when it materially affects inventory valuations and net income.
A company uses the going concern convention when it is in a near-bankrupt situation.
The break-even point is the level of revenue at which revenue equals fixed costs.
Companies use cost-plus pricing for products where management actions can influence
the market price.
During an engineering analysis, knowledge about new costs may be obtained from
experiments with prototypes.
Account analysis is used to identify appropriate cost drivers and their effects on the
costs of making a product or providing a service.
The sales budget should be the responsibility of line management.
The cash budget begins with the ending cash balance from the previous period.
The indirect and direct methods of preparing the statement of cash flows show the same
amount of net cash provided by operating activities.
In most companies, variances are investigated only if they exceed a minimum dollar
amount or percentage deviation from budgeted amounts.
An example of a strategic management decision is the selection of the product mix that
maximizes profits.
In perfect competition, the profit-maximizing volume is the quantity at which the
difference between the sales price and marginal cost is at its greatest.
Financial statements for partnerships do not make distinctions between paid-in capital
and retained earnings.
A sales budget is a prediction of sales under a given set of conditions.
The elements of a financial budget for a merchandising firm include the capital budget,
the cash budget and the budgeted balance sheet.
There are fewer benefits from budgeting in companies with uncertain or complicated
environments.
Computer-integrated manufacturing systems do not use robots.
Line items on common-size financial statements are expressed in percentages of some
base such as total assets.
A company’s treasury stock is outstanding but not issued.
Investments acquired with the intent to resell them in the near future are called trading
securities.
Goodness of fit pertains to how well a cost function predicts cost behavior.
Return on sales equals gross profit divided by sales.
Generally, companies use aggregate measures of performance when conducting
performance evaluations of managers.
Regardless of the nature of a company’s production system, there will always be
resources that are shared among different products.
When comparing productivity measures over time, changes in the rate of inflation may
cause the comparisons to be misleading.
Assume a company uses process costing. When factory overhead is applied to the units
in production, Finished Goods Inventory is the Debit part of the journal entry.
Managers cannot eliminate discretionary fixed costs.
Currently attainable standards are levels of performance that can be achieved by
realistic levels of effort.
An example of a financing activity on the statement of cash flows is the payment of
cash dividends.
The value chain refers to the various stages through which a product passes.
The use of high-technology methods rather than labor in manufacturing products
usually means a much greater fixed-cost component to total costs.
Which of the following is NOT a tangible asset?
A) inventories
B) land
C) equipment
D) goodwill
Which of the following statements is FALSE?
A) Discounted cash flow models focus on future cash inflows and outflows.
B) Discounted cash flow models consider the time value of money.
C) Discounted cash flow models focus on net income.
D) Discounted cash flow models compare cash outflows today to the present value of
future cash flows.
Maureen Company has the following income statement for the year ending December
31, 2016:
Sales $1,562
Cost of goods sold 806
Gross profit 756
Operating expenses:
Wage expense 110
Depreciation expense 76
Rent expense 36
Miscellaneous expense 70
Total operating expenses 292
Operating income 464
Income tax expense 162
Net income $302
If Maureen Company prepares a common size income statement, what will they report
for Wage expense?
A) 7.0%
B) 10.2%
C) 34.4%
D) 66.1%
________ costs are costs of manufacturing two or more products that are not separately
identifiable as individual products until their split-off point.
A) Separable
B) Joint
C) Incremental
D) Sunk
Under the contribution approach to the income statement, the difference between sales
and ________ is contribution margin.
A) cost of goods sold
B) manufacturing costs
C) all variable expenses
D) all fixed expenses
The amount of actual operating income may differ from the static budget amount for
operating income because ________.
A) actual output levels were not the same as in the static budget
B) actual variable costs were higher than expected variable costs
C) actual fixed costs were higher than expected fixed costs
D) all of the above
How do we assign indirect costs to cost objects?
A) based on the proportion of indirect costs to total costs
B) based on the proportion of indirect costs to direct costs
C) in proportion to the cost object’s use of a cost-allocation base
D) based on the amount of direct cost used by the cost object
St. Vincent’s Hospital uses a job-order costing system for all patients who have surgery.
The following information is available:
Budgeted indirect costs—pre-operating room $84,000
Budgeted indirect costs—operating room $66,000
Budgeted indirect costs—surgery recovery floor $600,000
Budgeted nursing hours—pre-operating room 4,000
Budgeted nursing hours—operating room 1,000
Budgeted nursing hours—surgery recovery floor 7,500
The cost driver for all indirect costs is nursing hours. The hospital uses a budgeted rate
for indirect costs. The budgeted rate for indirect costs for the operating room is
________.
A) $21.00
B) $66.00
C) $69.75
D) $80.00
When making a make-or-buy decision for a part used in a product, which of the
following item is relevant to the decision?
A) variable costs of making the part
B) contribution margin on new products manufactured in idle area not used for making
part
C) rental income from idle plant when not making the part
D) all of the above
Bernice 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 has excess capacity. Division Y can buy the component
from an outside supplier for $32 per unit. What is the lowest transfer price per unit at
which Division X would be willing to sell to Division Y?
A) $8
B) $22
C) $24
D) $32
Companies do not amortize indefinite-life intangible assets. What do companies do
each year for these assets?
A) only report them on the balance sheet
B) only apply an impairment test annually
C) only report them on the statement of stockholders’ equity
D) A and B
Indian Company has the following information available for variable overhead costs.
Direct labor hours are the cost driver for variable overhead costs.
Actual variable overhead costs $5,120
Standard variable overhead costs $3.00 per hour
Actual direct labor hours 2,000 hours
Standard direct labor hours per unit 3 hours
Units produced 1,000
What is the variable overhead spending variance?
A) $880 Favorable
B) $1,000 Unfavorable
C) $3,880 Favorable
D) $3,880 Unfavorable
Which budget is used to develop the schedule of cash disbursements for operating
expenses?
A) purchases and cost of goods sold budget
B) cash disbursements budget
C) operating expense budget
D) cash budget
The static budget variance is equal to the sum of ________ and ________.
A) direct materials variance; direct labor variance
B) fixed overhead variance; variable overhead variance
C) flexible budget variance; activity-level variance
D) direct materials price variance; direct materials quantity variance
Which of the following statements is FALSE?
A) Traditional costing systems generally assign only production costs to products.
B) Traditional costing systems use a single cost pool for all indirect production costs.
C) Traditional cost systems work well with simple production processes.
D) Traditional cost systems allocate a cost pool to cost objects using multiple cost
drivers.
The concentration of decision-making authority only at the highest levels of the
organization is called ________.
A) management by objective
B) balanced scorecard
C) decentralization
D) centralization
In deciding whether to add or delete a product, the insurance expense associated with
the custom-built equipment used to produce the product is an ________ cost. Assume
the equipment will be sold if the company discontinues the product.
A) avoidable fixed
B) avoidable variable
C) unavoidable fixed
D) unavoidable variable
An investment of $42,000 is expected to generate the following annual cash flows:
Year 1 $10,000
Year 2 $15,000
Year 3 $15,000
Year 4 $12,000
Assume straight-line depreciation is used. Ignore income taxes. What is the payback
period?
A) 3 years
B) 3.17 years
C) 3.83 years
D) 4 years
In perfect competition, all firms charge the same market price. The only decision for
managers is ________.
A) how to minimize costs
B) how to maximize average revenue
C) how much to produce
D) how to minimize marginal costs
Which statement regarding fixed costs is TRUE?
A) Discretionary fixed costs preserve management’s flexibility.
B) Committed fixed costs preserve management’s flexibility.
C) Both discretionary and committed fixed costs preserve management’s flexibility.
D) Discretionary fixed costs limit management’s flexibility.
Margaret Company has been producing and selling 100,000 units per year. They have
excess capacity, and there are no beginning and ending inventories. The following
budget was prepared for the next year:
Selling price per unit $11.00
Direct materials per unit $5.00
Direct labor per unit $3.00
Variable manufacturing overhead per unit $1.00
Variable selling and administrative per unit $0.25
Total fixed manufacturing overhead costs $50,000
Total fixed selling and administrative $15,000
Required:
A) Prepare an income statement using the contribution approach.
B) Prepare an income statement using the absorption approach.
The classic balanced scorecard developed by Robert Kaplan and David Norton includes
four categories of key performance indicators. Which of the following items is NOT
one of the categories used by Kaplan and Norton?
A) financial
B) customers
C) innovation and learning
D) quality control
________ is a name for a system that first accumulates indirect resource costs for each
of the activities of an organization and then assigns the cost of each activity to the cost
objects that require that activity.
A) Activity-based management
B) Activity-based costing
C) Cost accounting
D) Activity-based cost allocation
Burtard Chemical makes a variety of chemicals. The company uses process costing.
Materials are added at the end of the process. Conversion costs are added evenly
throughout the process. The company has no beginning work-in-process inventory. The
Mixing Department had the following data:
Units started and completed 8,000
Units started and 30% complete 2,500
Direct materials costs $126,000
Direct labor costs $31,250
Factory overhead costs $30,000
Required:
A) Compute the equivalent units for materials and conversion costs.
B) Compute the cost per unit for materials and conversion costs.
C) Compute the cost of the goods completed and transferred.
D) Compute the cost of the ending work-in-process inventory.
Nealy Company has the following information available:
Revenue $500,000
Variable production costs $100,000
Fixed production costs $100,000
Variable selling costs $50,000
Fixed selling costs $50,000
What is the contribution margin?
A) $300,000
B) $350,000
C) $400,000
D) $450,000
The ownership claim arising from funds contributed by the owners of the business is
called ________.
A) liabilities
B) retained earnings
C) note payable
D) paid-in capital
The flexible budget variance for variable overhead costs is composed of a(n) ________
variance and a(n) ________ variance.
A) efficiency; effective
B) spending; rate
C) quantity; efficiency
D) spending; efficiency
Orlando Company manufactures phones in a two-department process that includes
Assembly and Finishing. Information about the Assembly Department follows:
Direct materials added $310,000
Direct labor 460,000
Factory overhead 230,000
Total costs to account for $1,000,000
There was no beginning inventory and 80,000 units were started in the Assembly
Department. By the end of the month, 67,200 units were completed and transferred to
the Finishing Department and 12,800 units were still in process. The partially complete
units were 100 percent complete with regard to direct materials but 75 percent complete
with regard to conversion costs. The equivalent units for materials for the month for the
Assembly Department are ________.
A) 12,800
B) 67,200
C) 76,800
D) 80,000
Whitney Company is contemplating three different equipment investments. The
relevant data follows:
Proposal D Proposal O Proposal G
Cost $200,000 $300,000 $830,000
Annual cash savings (end of year) $40,000 $70,000 $150,000
Terminal salvage value $10,000 $5,000 $20,000
Estimated useful life in years 10 10 10
Minimum desired rate of return 12% 12% 12%
Method of depreciation Straight-line Straight-line Straight-line
The present value factor of an ordinary annuity of one for 10 periods at 12% is 5.6502.
The present value factor of one for 10 periods at 12% is 0.322.
Required:
A) Compute the net present value of each investment. Ignore income taxes.
B) If only one investment can be acquired, which investment should be chosen?
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