Investors need more detailed information about products or services than managers.
If a company uses the variable-costing approach, a manager may be tempted to produce
unneeded units to increase operating income.
Gross margin is a subtotal on a variable-costing income statement.
The variable-costing method does not include fixed overhead costs in a product’s costs.
Perfection standards and ideal standards are different.
A profit center can exist in a nonprofit organization.
Discounted-cash-flow models are not based on the theory of compound interest.
A budget is an example of an informal business plan.
Variable expenses are divided into avoidable and unavoidable costs.
Market focus group studies and surveys may be used by a firm to determine the price of
a product or service.
An efficient capital market is one in which an order to trade can be placed and executed
in a short period of time.
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 accounting reports are usually prepared for a period of one year or less.
Generally, the most difficult part of capital budgeting decisions is predicting accurately
the relevant cash flows.
Companies can reduce or eliminate committed fixed costs when demand falls during an
economic downturn.
If an investor uses the equity method to account for a long-term equity investment, then
the investor records income when the investee pays a dividend.
Managers may use the payback period as a rough estimate of the riskiness of a project.
The cost-benefit balance is the primary consideration in choosing among accounting
systems.
“Cooking the books” refers to recording fictitious sales or omitting costs.
It is recommended that standard costs be used instead of actual costs for cost-based
transfer prices.
A flexible budget adjusts for changes in sales volume and other cost-drivers.
Unlike job-order costing, process costing requires only one Work-In-Process Inventory
account.
The following rule applies when preparing the cash budget. If available cash plus net
cash receipts and disbursements is negative, then borrowing is necessary.
The wages of the janitor in the factory are direct costs for a manufactured product.
The quantity variance and efficiency variance for direct labor are different types of
variances.
Value engineering is used primarily during the distribution stage of the value chain.
An increase in the sales price per unit will cause a decrease in the break-even point.
Multinational companies use transfer pricing to minimize their worldwide income
taxes, duties and tariffs.
An engineering analysis is often not timely in measuring the cost function.
Two conventional ways of allocating joint costs to jointly-produced products are
physical units and relative sales value.
Total quality management (TQM) ________.
A) does not advocate high quality levels for all products
B) is not used in the development of organizational goals
C) promotes maximizing the cost of quality
D) focuses on the prevention of defects and on the achievement of customer satisfaction
The Savage Company makes mugs for which the following standards have been
developed:
Standard Inputs Expected Standard Price Expected
For Each Unit of Output Per Unit of Input
Direct Materials 5 ounces $2 per ounce
Direct Labor 1.5 hours $8 per hour
Production of 400 mugs was expected in July, but 440 mugs were actually completed.
Direct materials purchased and used were 2,100 ounces at an actual price of $2.20 per
ounce. Direct labor cost for the month was $5,310, and the actual pay per hour was
$9.00. What is the direct material quantity variance for July?
A) $200 Favorable
B) $200 Unfavorable
C) $220 Favorable
D) $220 Unfavorable
In process costing, each department computes the product cost of ________.
A) completed goods transferred out of the department only
B) completed goods waiting to be sold only
C) uncompleted goods in the department only
D) uncompleted goods in the department and completed goods transferred out of the
department
A disadvantage of the accounting rate of return model is ________.
A) it focuses on cash flows
B) it is inconsistent with accrual accounting
C) it is not based on the familiar financial statements
D) it ignores the time value of money
A hospital adds a new addition and needs to acquire some new equipment for the
addition. The cost driver for the equipment is patient-days per month. The new addition
increases the patient-days per month outside the relevant range. What type of
equipment costs will change as a result of the addition?
A) discretionary fixed costs
B) discretionary variable costs
C) committed fixed costs
D) committed variable costs
When should a company use an activity-based flexible budget with multiple cost
drivers instead of a simple flexible budget with one cost driver?
A) when a significant portion of costs vary with only one cost driver
B) when a significant portion of costs vary with the number of units of output
C) when a significant portion of costs vary with the number of units of sales
D) when a significant portion of costs vary with cost drivers other than units of output
The manager of a(n) ________ responsibility center is responsible for the revenues,
costs and invested capital from the center.
A) profit
B) cost
C) investment
D) accounting
The adjusting entry that recognizes revenue earned on deferred revenues results in a(n)
________.
A) increase in liabilities and a decrease in stockholders’ equity
B) decrease in liabilities and a decrease in stockholders’ equity
C) increase in liabilities and an increase in stockholders’ equity
D) decrease in liabilities and an increase in stockholders’ equity
Which financial statement summarizes the operating performance of a company over a
period of time?
A) statement of cash flows
B) statement of stockholders’ equity
C) balance sheet
D) income statement
Linda Company manufactures gadgets in one department. The following information is
available:
Work-In-Process Inventory, beginning 0
Units started 60,000
Units completed and transferred 48,000
Work-In-Process Inventory, end 12,000
Direct materials added $240,000
Direct labor $164,780
Factory overhead $82,000
The units in the ending Work-In-Process Inventory are 0 percent complete with respect
to materials and 50 percent complete with respect to conversion costs. Direct materials
are added at the end of the process. The cost of one completed unit is ________.
A) $8.14
B) $8.57
C) $9.57
D) $10.18
Knowledge about the behavior of different costs in a service department such as
maintenance can be used to ________.
A) plan costs
B) provide feedback to managers
C) make decisions about the most efficient use of resources
D) all of the above
The Foreign Corrupt Practices Act requires ________.
A) companies to cease conducting business with companies in some foreign countries
B) companies to reject bribes from companies in foreign countries
C) companies to have an appropriate system of internal controls
D) companies to prepare a separate report on their accounting information system
In make-or-buy decisions for a part for a product, relevant costs include ________.
A) some variable costs of making the part
B) all variable costs of making the part
C) fixed costs that can be avoided in the future if the part is purchased
D) B and C
Presented below is the balance sheet of Hansen Company at January 1, 2015:
Cash $100
Net Fixed Assets 400
Total Assets $500
Accounts Payable $20
Long-term Bonds Payable 220
Stockholders’ Equity 260
Total Liabilities and Stockholders’ Equity $500
The balance sheet of Monty Company at January 1, 2015 is below:
Cash $400
Net Fixed Assets 380
Total Assets $780
Accounts Payable $120
Long-term Bonds Payable 280
Stockholders’ Equity 380
Total Liabilities and Stockholders’ Equity $780
On January 1, 2015, Monty Company acquired 100 percent of the outstanding common
stock of Hansen Company for $260 cash. The book value and fair value of Hansen’s
assets and liabilities were equal.
What is the amount of Total Liabilities on the consolidated balance sheet immediately
after the acquisition of Hansen Company’s stock? (Assume elimination entries are
completed.)
A) $0
B) $380
C) $400
D) $640
Lorna Corporation and Carol Corporation are moving companies. Comparative data for
20X4 and 20X5 are given below:
Lorna Carol
Corporation Corporation
Sales revenue 20X4 $8,400,000 $4,400,000
20X5 9,900,000 6,175,000
Number of employees 20X4 8,000 5,500
20X5 10,000 6,500
Assume that each 20X4 dollar is equivalent to 1.75 of each 20X5 dollar, due to
inflation. Taking inflation into account, what is Lorna Corporation’s 20X4 productivity
measure in terms of revenue per employee?
A) $950.00
B) $990.00
C) $1,050.00
D) $1,837.50
Winter Company has no beginning and ending inventories, and reports the following
data about its only product:
Direct materials used $200,000
Direct labor $80,000
Fixed indirect manufacturing $100,000
Fixed selling and administrative $300,000
Variable indirect manufacturing $20,000
Variable selling and administrative $60,000
Selling price(per unit) $150
Units produced and sold 10,000
Winter Company uses the absorption approach to prepare the income statement. What is
the gross margin?
A) $740,000
B) $1,040,000
C) $1,100,000
D) $1,160,000
Variable selling expenses affect the calculation of ________ on the contribution income
statement. Variable selling expenses do NOT affect the calculation of ________ on the
absorption income statement.
A) gross margin; contribution margin
B) operating income; contribution margin
C) contribution margin; gross margin
D) gross margin; operating income
Timothy 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 $30,000 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 setup cost assigned to the standard model is
________.
A) $33
B) $8,400
C) $13,200
D) $44,000
Dixie Company is considering the purchase of equipment for $360,000. The equipment
will have a ten year life with no terminal salvage value. Straight-line depreciation will
be used for tax purposes. It is expected that the equipment will generate annual sales of
$180,000 and annual production costs, exclusive of depreciation, of $120,000. The tax
rate is 40%. What is the net annual after-tax cash flow from the equipment?
A) $14,400 cash inflow
B) $24,000 cash inflow
C) $36,000 cash inflow
D) $50,400 cash inflow
Zeman Company has the following information available for the month of March:
Units Transferred- Direct Conversion
in Costs Materials Costs
Work-in-process inventory, March 1 240 $33,600 0 $18,000
*Percent complete 100% 0% 62.5%
Transferred-in during March 400
Completed in March 440
Work-in-process inventory, March 31 200
*Percent complete 100% 0% 80%
Costs added in March $52,000 $13,200 $48,600
The company uses the weighted average cost method. What is the cost per equivalent
unit for March for conversion costs?
A) $22.00
B) $40.91
C) $104.06
D) $111.00
Cost-based transfer prices are easy to implement but can lead to ________ decisions.
A) questionable
B) negotiated
C) dysfunctional
D) autonomous
________ are relevant in deciding whether to add or delete a department from a
department store.
A) Avoidable fixed expenses
B) Common costs
C) Unavoidable fixed expenses
D) None of the above
To estimate the monthly maintenance cost for the maintenance department in a hospital,
the following monthly costs are available:
Monthly Expense Costs
Supervisor Salary Expense $3,000
Depreciation Expense—Maintenance Equipment $5,000
Repairs Expense—Maintenance Equipment $5,000
Supplies Expense $7,000
Wages Expense—Maintenance Workers $10,000
The Supervisor Salary Expense and the Depreciation Expense are fixed costs. The
remaining expenses are variable costs. There are 1,000 patient days in a month, which
is the cost driver for maintenance costs. Estimate the cost function where Y is the
monthly maintenance cost and X is the variable cost per patient day.
A) Y = $8 + $22X
B) Y = $8,000 + $22,000X
C) Y = $8,000 + $22X
D) Y = $30,000 + $22,000X
Variable costing considers fixed manufacturing overhead costs as a(n) ________.
A) inventoriable cost
B) product cost
C) future cost
D) immediate expense
________ use(s) the output of an activity-based cost accounting system to improve the
operational control of an organization.
A) Cost accounting
B) Cost-volume-profit models
C) Activity-based management
D) Traditional costing system
What is the 80-20 rule used when selecting cost allocation bases for the budgeted
overhead rate?
A) 80% of the cost-allocation bases drive 20% of the overhead costs
B) 20% of the cost-allocation bases drive 80% of the overhead costs
C) 80% of the overhead rate is determined by 20% of the cost-allocation bases
D) 20% of the overhead rate is determined by 80% of the cost-allocation bases
A widespread problem in practice is that the decision model used by managers for
________ and the model used by their superiors in ________ are different.
A) outsourcing; incremental analysis
B) outsourcing; differential analysis
C) decision making; performance evaluation
D) operational decisions; joint costing
In a linear cost function, the fixed cost is ________.
A) dependent on the cost driver
B) dependent on the independent variable
C) independent of the cost driver
D) independent of the intercept
In deciding whether to add or delete a product, the salary of the plant manager is an
________. Assume the plant manager supervised the production of several products.
A) avoidable fixed cost
B) avoidable variable cost
C) unavoidable fixed cost
D) unavoidable variable cost
Barber Company has the following information available for the most current year:
Paid-in capital, January 1, 2014 $475,000
Retained earnings, January 1, 2014 $100,000
Total revenues in 2014 $870,000
Total expenses in 2014 $550,000
Dividend declared in 2014 $70,000
Dividend paid in 2014 $0
Investments by owners in 2014 $10,000
What was the total amount of Retained Earnings for Barber Company at December 31,
2014?
A) $30,000
B) $250,000
C) $350,000
D) $420,000
Classifying costs as controllable or uncontrollable by a segment manager is ________
and ________.
A) objective; easily undertaken
B) objective; subject to controversy
C) subjective; easily undertaken
D) subjective; subject to controversy