In a manufacturing company, ________.
A) inventoriable costs only become an expense when the company sells the inventory
B) inventoriable costs become an expense as soon as the company finishes
manufacturing the product
C) there is only one inventory account
D) period expenses are reported as expenses in a future period
Job-order costing is used. When direct materials are requisitioned for production, which
of the following accounts is credited?
A) Work-In-Process Inventory
B) Accounts Payable
C) Finished Goods Inventory
D) Direct Materials Inventory
On March 1, a landlord received $10,000 rent for the month of April. On March 1, the
landlord will ________.
A) increase Cash and increase Rent Revenue
B) increase Cash and increase Unearned Rent Revenue
C) increase Cash and increase Paid-in Capital
D) increase Rent Expense and decrease Cash
Under the equity method of accounting for investments, the investor recognizes income
for ________.
A) the investor’s share of income earned by the investee company
B) dividends received from the investee company
C) the change in market value of the investee company’s stock
D) the amortization of goodwill associated with the investee company
When evaluating alternative uses of a capital asset, equivalent decisions are reached
using the opportunity cost approach and ________.
A) cost-volume-profit analysis
B) contribution margin approach
C) absorption costing approach
D) incremental analysis
Santelle Company processes copper ore into two products, C and U. The ore costs $5
per pound and conversion costs are $15 per pound. Santelle Company plans to produce
40,000 pounds of Product C and 20,000 pounds of Product U from 60,000 pounds of
ore. Product C sells for $30 per pound and Product U sells for $40 per pound. Assume
the company uses the relative-sales-value method of allocating joint costs. What
amount of joint costs is allocated to Product U?
A) $0
B) $400,000
C) $480,000
D) $685,714
Rachel Company manufactures phones in a two-department process that involves
Assembly and Finishing. The Assembly Department reported the follow data for the
past month:
Direct materials added $336,000
Direct labor 460,800
Factory overhead 230,400
Total costs to account for $1,027,200
Units started 80,000
Units completed and transferred 67,200
Units not complete 12,800
Units in beginning inventory 0
The partially complete units at the end of the month were 100 percent complete with
respect to materials and 75 percent complete with respect to conversion costs. The
journal entry to record the units completed and transferred to the Finishing Department
includes ________.
A) Debit to Work-in-Process Inventory, Finishing for $862,848
B) Credit to Work-in-Process Inventory, Finishing for $862,848
C) Debit to Work-in-Process Inventory, Assembly for $887,040
D) Credit to Work-in-Process Inventory, Assembly for $887,040
Gray Lake Company is considering the replacement of a machine that is presently used
in production. The following data are available:
Old Machine New Machine
Original cost $57,000 $35,000
Useful life in years 17 5
Current age in years 12 0
Book value $39,000 –
Disposal value now $8,000 –
Disposal value in 5 years 0 0
Annual cash operating costs $7,000 $4,000
Adding all five years together, the total relevant costs to consider if the old machine is
not replaced is ________.
A) $22,000
B) $31,000
C) $35,000
D) $39,000
Ernie Company is considering replacing a machine that is currently used in the
production process. The ________ is irrelevant to the replacement decision.
A) cost of the new machine
B) disposal value of old machine
C) book value of old machine
D) annual operating cost of old machine (2 years left)
Courts in the United States have ruled that pricing is predatory only if companies set
prices below the ________.
A) average full cost
B) average variable cost
C) average production cost
D) average fixed cost
Christian Company manufactures a part for its production cycle. The annual costs per
unit for 5,000 units of the part are as follows:
Per Unit
Direct materials $3.00
Direct labor 5.00
Variable factory overhead 4.00
Fixed factory overhead 2.00
Total costs $14.00
The fixed factory overhead costs are unavoidable. Another company has offered to sell
5,000 units of the same part to Christian Company for $15 per unit. The facilities
currently used to make the part could be rented out to another manufacturer for $20,000
a year. Christian Company should ________.
A) make the part to save $5,000
B) make the part to save $15,000
C) buy the part and rent facilities to save $5,000
D) buy the part and rent facilities to save $15,000
Assume you are preparing income statements for different segments. Which of the
following is NOT a fixed cost controllable by a segment manager?
A) salespersons’ salaries for segment
B) advertising costs in local paper to promote segment
C) training costs for new employees at segment
D) segment manager’s salary
Cleveland Corporation has a joint process that produces three products: X, Y and Z.
Each product may be sold at split-off or processed further and then sold.
Joint-processing costs for a year amount to $100,000. Other data follows:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs after Split-Off at Completion
X $128,000 $16,000 $140,000
Y 50,000 27,000 76,000
Z 25,600 10,000 40,000
To maximize profits, the corporation should process ________ further.
A) Product Z only
B) Product Y only
C) Product X only
D) Products X, Y and Z
Campbell Company’s records reveal the following:
Division A
Market price of finished part to outsiders $74 per unit
Variable costs per part $50 per unit
Division B
Sale price of finished product per unit $105 per unit
Variable costs:
Division A(1 part) ?
Division B Processing 27 per unit
Division B Selling 12 per unit
Division B wants to buy the part from Division A. The variable costs of Division B will
be incurred whether it buys the part from Division A or from an outside supplier.
Assume Division A is working at full capacity, and there is no excess capacity. Division
B can buy the parts from an outside supplier at $70 per unit. What is the lowest transfer
price per unit Division A should accept from Division B?
A) $24
B) $66
C) $70
D) $74
Sunday Company reports the following information on December 31, 2014:
Cash $20,000
Accounts receivable 112,000
Accounts payable 91,000
Accrued wages payable 6,000
Unearned revenue 2,000
Paid-in capital 59,000
Retained earnings 80,000
Inventory 30,000
Prepaid rent 4,000
Equipment (net) 12,000
What are total assets at December 31, 2014?
A) $162,000
B) $166,000
C) $178,000
D) $180,000
If the variable cost per unit increases, what is the effect on the break-even point?
(Assume no other changes.)
A) The break-even point increases.
B) The break-even point decreases.
C) The break-even point remains the same.
D) The break-even point is zero.
Perez Company had the following information available:
Expected Costs and Selling Price Based on 5,000 Units:
Variable manufacturing costs per unit $32
Fixed manufacturing costs per unit $20
Selling price per unit $70
Expected production level 5,000 units
In the flexible budget at 15,000 units, what is the total manufacturing cost?
A) $480,000
B) $580,000
C) $680,000
D) $780,000
Steve Harvey Company uses absorption costing and reports the following information:
Variances
Production Volume Variance $70,000 Unfavorable
Flexible Budget Variance for Fixed Factory Overhead $100,000 Unfavorable
Flexible Budget Variance for Variable Overhead $40,000 Favorable
Flexible Budget Variance for Direct Materials $20,000 Favorable
Before consideration of the above variances, the company has operating income of
$1,500,000. What is the operating income after considering the above variances?
A) $1,330,000
B) $1,390,000
C) $1,400,000
D) $1,560,000
The activity of Vegas Company for the month of April is given below:
Cash purchases of inventory $45,000
Credit purchases of inventory $50,000
Cash payment for credit purchases of inventory $12,000
Cash dividend paid $7,000
Wages earned and paid $12,000
Wages earned and unpaid $2,000
Rent paid for April, May and June $9,000
Using the cash basis of accounting, the total expenses for Vegas Company for the
month of April are ________.
A) $35,000
B) $78,000
C) $80,000
D) $95,000
Managers allocate the salaries of human resource personnel to a producing department.
The salaries are considered to be a(n) ________ for the producing department and a(n)
________ for the human resource department.
A) direct cost; indirect cost
B) indirect cost; direct cost
C) indirect cost; indirect cost
D) traceable cost; common cost
On January 1, 2015, Bernie Company acquired 80 percent of the outstanding shares of
Conner Company for $120. At the time of the acquisition, Conner Company’s total
assets were $550 and total liabilities were $400. The book value and fair value of
Conner’s assets and liabilities were equal. What is the balance in the Investment in
Conner Company account on the consolidated balance sheet immediately after the
acquisition of Conner Company’s stock? (Assume elimination entries are completed.)
A) $0
B) $120
C) $190
D) $440
One of the limitations of the balance sheet is that the dollar amounts for different assets
reflect different levels of inflation. That is the result of the ________ assumption.
A) recognition
B) matching
C) stable monetary unit
D) conservatism
The financial budget is used by managers to ________.
A) manage financial affairs
B) manage employee hiring patterns
C) manage the cash balance
D) plan for future stock dividends
Spending less than budgeted for maintenance costs will result in a(n) ________
variance. When actual revenues exceed budgeted revenues, this results in a(n)
________ variance.
A) unfavorable; unfavorable
B) unfavorable; favorable
C) favorable; unfavorable
D) favorable; favorable
If the total amount of fixed costs increases, what is the effect on the break-even point?
(Assume no other changes.)
A) The break-even point increases.
B) The break-even point decreases.
C) The break-even point remains the same.
D) The break-even point is zero.
The break-even point on the cost-volume-profit graph is where the ________.
A) total cost line intersects the net profit line
B) total cost line intersects the net loss line
C) revenue line intersects the total cost line
D) revenue line intersects the variable cost line
Retained earnings are a general claim against ________.
A) stockholders
B) creditors
C) paid in capital
D) total assets
Merchandising and manufacturing companies account for ________ in the same way.
A) design expenses
B) customer service expenses
C) selling expenses
D) all of the above
Product costs for absorption costing include direct materials, direct labor and ________.
A) fixed manufacturing overhead costs
B) variable manufacturing overhead costs
C) fixed and variable selling costs
D) fixed and variable manufacturing overhead costs
Ramon Company acquired 40% of the voting stock of Boulder Company for $40
million. At the end of Year 1, Boulder Company reports net income of $15 million and
pays cash dividends of $5 million. At the end of Year 1, the market value of Ramon
Company’s investment in Boulder Company is $44 million. What accounts will be
affected on Ramon Company’s books to account for the increase in market value of the
investment at the end of Year 1?
A) none
B) Cash increase $44 million and Stockholders’ Equity increase $44 million
C) Investments increase $44 million and Stockholders’ Equity increase $44 million
D) Investments increase $4 million and Stockholders’ Equity increase $4 million
For the year ending December 31, 2014, Martha Company reports net income of
$23,000 and depreciation expense of $7,000. The income tax expense for the year
ending December 31, 2014 is $20,000. The following data is available:
December 31, 2013 December 31, 2014
Cash $25,000 $16,000
Accounts Receivable $25,000 $45,000
Inventories $60,000 $100,000
Fixed Assets $330,000 $581,000
Accumulated Depreciation $110,000 $101,000
Accounts Payable $6,000 $74,000
Wages Payable $4,000 $25,000
What is the net cash provided (used) by operating activities for the year ended
December 31, 2014? Assume the indirect method is used.
A) $(20,000)
B) $23,000
C) $59,000
D) $69,000