1) Service firms follow the same approach for indirect costs as manufacturing
companies because they develop a predetermined indirect cost allocation rate.
2) In most circumstances, all fixed costs can be eliminated by outsourcing a product.
3) The operating budgets of retailers and manufacturers are virtually identical.
4) Traditional accounting systems focus on historical information, while EMA systems
must also utilize future-oriented information.
5) A hotel would be an example of a company with high operating leverage.
6) Managers often approximate curvilinear costs and step costs as fixed costs.
7) The weighted average cost of capital is a component of the Return on Investment
(ROI) calculation.
8) Lean companies typically arrange production activities into self-contained cells.
9) One of the key benefits of budgeting is that it forces managers to plan.
10) Operating leverage refers to the relative amount of fixed and variable costs that
make up total costs for a company.
11) At any given volume, average fixed costs must equal average variable costs.
12) Refined costing systems can be used to allocate any indirect costs to any cost
objects.
13) At Sunrise Corporation, direct materials are added at the beginning of the process
and conversions costs are uniformly applied. Other details include:
What is the cost per equivalent unit for conversion costs?
A) $2.32
B) $2.08
C) $2.10
D) $2.25
14) Which of the following is a challenge an organization would face in implementing
an environmental management accounting system?
A) Environmental costs are traditionally hidden in overhead costs
B) Information systems are not equipped to deal with environmental information
C) Environmental accounting is a relatively new field and is still developing
D) All of the above
15) At Hodgson Corporation, direct materials are added at the beginning of the process
and conversions costs are uniformly applied. Other details include:
What are the total equivalent units for conversion costs?
A) 127,200
B) 125,300
C) 129,500
D) 138,700
16) The term ________ is best described as a “relationship among principal, interest
rate, and time.”
A) capital budgeting
B) time value of money
C) payback period
D) annuity
17) Assuming an interest rate of 10%, if you invest a lump sum of $5,000 now, the
balance of your investment in 7 years will be closest to
A) $12,970
B) $9,745
C) $23,340
D) $35,000
18) Rose Incorporated manufactures two types of vases, small and large. The following
per unit data are available:
Small VaseLarge Vase
Sale price$60$100
Variable costs$35$60
Machine hours required for 1 vase12
Total fixed costs are $600,000 and Rose Incorporated can sell a maximum of 25,000
units of each type of vase annually. Machine hour capacity is 50,000 hours per year.
A. Determine the contribution margin per unit for each type of vase
B. Determine the contribution margin per machine hour for each type of vase
C. Determine the number of units of each style of vase that Rose Incorporated should
produce to maximize operating income
D. What is the dollar amount of the maximum operating income as calculated in C
above?
19) Dozen Bakery makes cupcakes and cookies. Dozen gathered the following
information for the current year regarding its use of flour and butter (flour is a direct
material for cupcakes and butter is a direct material for cookies):
What is the standard direct material price per pound for the butter in the cookies?
A) $7.25/lb
B) $6.00/lb
C) $5.50/lb
D) $4.75/lb
20) Which of the following items do not represent monetary information in an
environmental management accounting system?
A) Cost to upgrade factory equipment to reduce emissions
B) Cost of hiring workers to comply with new EPA standard
C) Cost of secretarial services
D) Cost of materials used in lab to neutralize toxins
21) Landrum Corporation is considering investing in specialized equipment costing
$250,000. The equipment has a useful life of 5 years and a residual value of $20,000.
Depreciation is calculated using the straight-line method. The expected net cash inflows
from the investment are:
Landrum Corporation’s required rate of return on investments is 14%.
What is the accounting rate of return on the investment?
A) 7.60%
B) 5.60%
C) 18.40%
D) 44.40%
22) Schrute Farm Sales buys portable generators for $450 and sells them for $720. He
pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays
$2,000 a month rent for his store, and also pays $1,700 a month to his staff in addition
to the commissions. Mr. Schrute sold 200 generators in June. If Mr. Schrute prepares a
contribution margin income statement for the month of June, what would be his
contribution margin?
A) $241,200
B) $ 97,200
C) $46,800
D) $144,000
23) Grassland Corporation had actual manufacturing overhead costs of $32,500 for the
past year. Direct labor cost is $12.00 per hour. Manufacturing overhead is allocated at a
rate of $4.00 per direct labor hour. Manufacturing overhead was overallocated for the
year by $2,500.
Calculate:
a) allocated manufacturing overhead costs for year
b) actual number of direct labor hours worked in year
24) Which of the following condition(s) favors using departmental overhead rates in
place of a plantwide overhead rate?
A) Different departments incur different amounts and types of manufacturing overhead
B) Different jobs or products use the departments to a different extent
C) Both of the above
D) Neither of the above
25) The difference between sales dollars and total costs after breakeven point on a CVP
graph is the representation of
A) operating loss
B) slope of variable costs per unit
C) operating income
D) slope of fixed costs per unit
26) Traditional performance management systems can be adapted to include measures
of environmental costs, savings, and liabilities. The percentage of employees
participating in a diabetes walk is an example of a key performance indicator (KPI)
classified under which perspective of the balanced scorecard?
A) Learning and growth perspective
B) Customer perspective
C) Internal business perspective
D) Community perspective
27) (Present value tables are needed.) Family Fun Park is evaluating the purchase of a
new game to be located on its Midway. Family Fun has narrowed their choices down to
two: the Wacky Water Race game and the Whack-A-Mole game. Financial data about
the two choices follows.
What is the net present value of the Whack-A-Mole game?
A) $1,367
B) ($56)
C) $56
D) ($1,367)
28) Traditional performance management systems can be adapted to include measures
of environmental costs, savings, and liabilities. Revenue received from recycling scrap
metal at a manufacturing plant is an example of a key performance indicator (KPI)
classified under which perspective of the balanced scorecard?
A) Financial perspective
B) Customer perspective
C) Internal business perspective
D) Learning and growth perspective
29) Fosnight Enterprises prepared the following sales budget:
The expected gross profit rate is 30% and the inventory at the end of February was
$10,000. Desired inventory levels at the end of the month are 20% of the next month’s
cost of goods sold.
What are the total purchases budgeted for April?
A) $8,680
B) $10,920
C) $8,960
D) $9,240
30) Beta Company uses a predetermined overhead rate based on machine hours to
allocate manufacturing overhead to jobs. The company estimated that it would incur
$600,000 of manufacturing overhead during the year and that 250,000 machine hours
would be used. During the year, the company actually incurred manufacturing overhead
costs of $582,000 and 240,000 machine hours were used.
By how much was manufacturing overhead overallocated or underallocated for the
year?
A) $ 6,000 overallocated
B) $ 6,000 undererallocated
C) $18,000 underallocated
D) $18,000 overallocated
31) Contessa Corporation has fixed expenses of $200,000, and a unit sales price of $70.
Its variable cost per unit is $50. If it sells 8,500 posters, its operating income is a
A) gain of $820,000
B) loss of $30,000
C) gain of $370,000
D) gain of $225,000
32) Indirect materials, indirect labor, and indirect manufacturing costs are what type of
manufacturing cost?
A) Direct labor
B) Direct materials
C) Manufacturing overhead
D) Prime costs
33) The predetermined indirect cost allocation rate is computed as
A) total estimated indirect costs / total estimated amount of the allocation base
B) total amount of the allocation base / total estimated indirect costs
C) total estimated indirect costs + total estimated amount of the allocation base
D) total amount of the allocation base – total estimated indirect costs
34) The Southside Corporation budgeted 4,400 pounds of direct materials to make
2,600 units of product. The company actually used 4,800 pounds of direct materials to
make the 2,600 units. The direct materials quantity variance is $1,500 unfavorable.
What is the standard price per pound of direct materials?
A) $0.59
B) $2.22
C) $6.35
D) $3.75
35) Grosheim Incorporated has fixed expenses of $212,500 per year. Right now,
Grosheim Incorporated is selling its products for $125 per unit. Management is
contemplating a 25% increase in the selling price for the next year. Variable costs are
currently 40% of sales revenue and are not expected to change in dollar amount on a
per unit basis next year (the company will pay the same amount for variable costs next
year).
If fixed costs increase 10% next year, and the new selling price per unit goes into effect,
how many units will need to be sold to breakeven?
A) 1,133 units
B) 2,877 units
C) 233,750 units
D) 2,200 units
36) The Halpert Group produces a single product selling for $70 per unit. Variable costs
are $7 per unit and total fixed costs are $5,000. What is the contribution margin ratio?
A) 0.10
B) 0.63
C) 0.90
D) 1.11
37) Schrute Farm Sales buys portable generators for $450 and sells them for $720. He
pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays
$2,000 a month rent for his store, and also pays $1,700 a month to his staff in addition
to the commissions. Mr. Schrute sold 200
generators in June. If Mr. Schrute prepares a traditional income statement for the month
of June, what
would be his operating income?
A) $ 43,100
B) $ 54,00
C) $ 64,900
D) $144,000
38) List three ways that owners and investors use the statement of cash flows.
39) Describe a company that has some elements of all three types of companies. It is
part service company, part manufacturer, and part merchandiser.
40) The income statement and a partial balance sheet for Regovich Company is
presented below. Prepare the operating activities section of the statement of cash flows
using the indirect method.
Regovich Company
Income Statement
For the Current Year
Regovich Company
Partial Balance Sheet
End of this year
41) Sicily, Inc.., is considering investing $250,000 in a machine that will last 4 years
with no residual value. The new machine will generate annual operating income of
$55,000 per year for 4 years. What is the accounting rate of return?
42) Use the direct method of cash flows to answer the question.
Beginning A/R: $68,000Beginning Inventory: $42,500
Ending A/R: $79,000Ending Inventory: $47,000
Credit Sales: $745,000Beginning A/P: $29,000
Cost of Goods Sold: $412,000Ending A/P: $36,300
Compute the change in accounts payable for the year.
43) Use the indirect method of preparing a statement of cash flows to answer the
question.
Ending balances for Sunday Hut are listed below:
Net income for this year was $97,000 and dividends of $24,000 were declared and paid
this year.
What was the net cash inflow from financing activities?