Equipment should be evaluated for possible replacement only as it nears the end of its
useful life.
A capital investment with an internal rate of return equal to or greater than the required
rate of return is considered to be an acceptable investment.
Product cost flows are cyclical in that the set of transactions that record the acquisition
of raw materials, the conversion of raw materials to finished goods, and the sale of
finished goods and related collection of cash occur over and over again.
The practice of buying goods and services from other companies is commonly known
as vertical integration.
The basic cash budget format is total cash available – total cash disbursed = surplus or
shortage of cash +/- the effects of financing = ending cash.
Many companies use variable costing for internal reporting and evaluation of managers.
Total quality control cost is the sum of voluntary and failure costs.
Hutton Company reported a $750 unfavorable overhead variance on a recent
performance report. This means that factory overhead was underapplied during the
period.
Estimated overhead costs are applied to work in process at the time the goods are sold.
During February 2014, Benke Manufacturing Company paid $18,000 in property taxes
on one of its factory buildings. This overhead cost should be allocated to units
completed during the month it was paid.
Variable costs can often be used as a proxy for long-term costs.
Flexible budget amounts for variable costs and revenues come from multiplying
standard per unit amounts by the planned volume of production.
What amount of cash would result at the end of one year, if $15,000 is invested today
and the rate of return is 8%? (Do not round your PV factors.)
A. $16,200
B. $13,889
C. $15,000
D. $1,200
O’Hare Company, is a manufacturing firm that uses a job-order cost system to
determine the costs of its products. O’Hare Company counted the production supplies
on hand at year-end and determined that the amount used was $125. The recognition of
this event on the financial statements would include an increase to:
A. Supply expense.
B. Work in process.
C. Manufacturing overhead.
D. Finished goods.
The time value of money concept recognizes that a dollar today is worth more than a
dollar tomorrow. Which of the following is not a factor in causing the present value of
cash inflows to diminish over time?
A. Current expenses.
B. Earning potential, such as interest.
C. Risk of uncollectability.
D. Inflation reduces future purchasing power.
Which product costing system distributes costs evenly across total production?
A. Process cost system
B. Job order cost system
C. Standard cost system
D. Variable cost system
All of the following variances are unfavorable except?
A. Materials usage
B. Sales price
C. Sales volume
D. Labor price
Select the incorrect statement regarding flexible budgets.
A. Flexible budgets often show the estimated revenues and costs at multiple volume
levels.
B. A flexible budget is used to compare actual to budgeted amounts.
C. A flexible budget is also known as a master budget.
D. Standard prices and costs are used in preparing a flexible budget.
Pro Tool Company expects to produce 24,000 total units during the current period. The
costs and cost drivers associated with four activity cost pools are given below:
Production of 1,000 units of an auto towing tool required 800 labor hours, 12 setups,
and consumed 30% of the product sustaining activities. How much total overhead cost
will be allocated to this product if the company allocates overhead on the basis of a
single overhead allocation rate based on direct labor hours?
A. $18,400
B. $10,000
C. $100,000
D. $40,000
All of the following are capital investment decisions except:
A. acquiring $100,000 of common stock.
B. buying a $5,000,000 manufacturing plant.
C. purchasing equipment for $80,000.
D. paying $600,000 to renovate a restaurant.
Select the correct statement regarding managerial and financial accounting.
A. Users of managerial accounting information desire greater aggregation than do users
of financial accounting information.
B. Both managerial and financial accounting use economic and physical data in
addition to financial data.
C. Financial accounting is more highly regulated than managerial accounting.
D. Timeliness is more important in financial accounting than in managerial accounting.
The inventory purchases budget is based on which budget?
A. Cash budget
B. Sales budget
C. Selling and administrative expense budget
D. None of these answers is correct.
Which of the following applications is most suited for developing flexible budgets?
A. Database
B. Graphics
C. Spreadsheet
D. Word processing
Which of the following statements is true?
A. Fixed costs are sometimes relevant for decision making.
B. Opportunity costs are never relevant to decision making.
C. Information must be exactly accurate to be relevant to decision making.
D. A cost that is relevant in one decision context is relevant in other decision contexts.
The following balance sheet information is provided for Apex Company for 2014:
What is the company’s working capital?
A. $20,300
B. $4,900
C. $22,900
D. $24,500
Select the incorrect statement regarding sunk costs.
A. Sunk costs cannot be avoided.
B. Sunk costs are relevant if they differ between the alternatives.
C. Sunk costs are costs that have been incurred in past transactions.
D. Sunk costs include historical costs such as equipment acquisition costs.
Steuben Company produces dog houses. During 2013, Steuben Company incurred the
following costs:
Based on the above information, which of the following would not be treated as a
product cost:
A. office manager’s salary
B. rent expense incurred on manufacturing facility
C. depreciation on manufacturing equipment
D. salaries of factory machine operators
What happens to break-even volume when the sales price per unit decreases?
A. Break-even volume increases.
B. Break-even volume decreases.
C. Break-even volume stays the same.
D. None of these answers is correct.
Which of the following is not an example of a cost object and its related cost driver?
A. Option A
B. Option B
C. Option C
D. Option D
The difference between actual materials cost per unit and the standard materials cost per
unit multiplied by actual quantity used is known as a:
A. Sales volume variance.
B. Materials price variance.
C. Labor price variance.
D. Materials usage variance.
Shia Company makes a product that is expected to require 2 hours of labor per unit of
product. The standard cost of labor is $5.20. Shia actually used 2.1 hours of labor per
unit of product. The actual cost of labor was $5.30 per hour. Shia made 1,000 units of
product during the period. Based on this information alone, the labor price variance is:
A. $200 unfavorable.
B. $200 favorable.
C. $210 favorable.
D. $210 unfavorable.
All of the following would be considered a fixed cost for a bottled water company
except:
A. Rent on warehouse facility
B. Depreciation on its manufacturing equipment
C. Hourly wages for machine operators
D. Property taxes on its factory building
Select the incorrect statement regarding cost flows through a process cost system.
A. The process cost system is patterned after the physical flow of products as they move
through the production process.
B. The three inventory accounts used are maintained on a perpetual basis.
C. Product costs are accumulated separately by job.
D. A separate work in process account is maintained for each department or process.
Old Virginia Meat Processing Plant processes hogs to produce three joint products:
bacon, sausage, and pork chops. The company incurs common processing costs of
$100,000 per batch. Each batch yields 15,000 pounds of bacon, 18,000 pounds of
sausage, and 7,000 pounds of pork chops. Pork chops can be sold for $3.00 per pound.
The bacon and sausage products are sold at the split-off point for $3.25 per pound and
$3.50 per pound, respectively.
Required:
1) Allocate Old Virginia’s joint costs using pounds produced as the allocation base.
2) Allocate Old Virginia’s joint costs using the relative sales value at split-off method.
3) Assume that the pork chops are processed further after the split-off point at an
additional cost of $4,000 and that joint costs are allocated based on pounds produced.
What would be the total cost assigned to pork chops?
Indicate whether each of the following statements is true or false.
Employees often find that budgets are constraining and limiting.
Budgets establish standards by which performance is evaluated.
The attitudes and actions of upper-level management have little impact on the
effectiveness of a company’s budget.
Participative budgeting means that a company’s budget should be prepared with the
input of lower-level employees.
In preparing a budget, information flows occur only from the bottom up.
What is an activity base, and how does the activity base relate to a variable cost?
Indicate whether each of the following statements is true or false.
An ordinary annuity assumes that cash flows occur at the beginning of each period.
To say that an investment earns the desired rate of return assumes that all cash flows
generated by the investment are reinvested at the desired rate of return.
Managers should not use two different methods in evaluating capital investment
decisions because different methods generally give different results.
Copley Corporation uses a required rate of return of 10% for its capital investment
decisions. A particular project had a negative net present value. For this project, the
actual rate of return was expected to be more than 10%.
The net present value of a capital investment project is calculated by subtracting the
present value of expected cash inflows from the cost of the investment.
Gamble Company has contribution margin of $20 per unit and a break-even point of
10,000 units. If Gamble sells 9,999 units, what would be its net income or loss? Explain
how you calculated your answer.
Write an equation for each item provided:
Indicate whether each of the following statements is true or false.
A restaurant or drycleaner is considered to be a manufacturing company.
Service companies cannot have an inventory of raw materials.
Service companies accumulate cost information for the services they provide to
customers.
Information about the cost of services provided is useful in budgeting, and budgeting is
important for service companies.
A service company typically reports Finished Goods on its balance sheet.
Describe how accumulation of costs in a job-order cost system parallels the
manufacturing process.
What aspects of variances should managers consider in deciding which variances to
investigate?