1) Under variable costing, fixed manufacturing overhead is expensed immediately as a
period cost.
2) Net present value and the internal rate of return are examples of discounted cash flow
models used in capital budgeting decisions.
3) The equation for a straight line is y = fx + v, where y is the total cost, f is the fixed
cost per unit, x is the volume of activity, and v is the variable cost per unit.
4) Sunk costs are irrelevant to the decision making process.
5) An R-square statistic of 0 indicates a perfect level of correlation between costs and
the cost driver.
6) When units are transferred from Processing Department #1 to Processing Department
#2, a credit is made to WIP-Processing Department #1 to reflect the transferred-out
costs.
7) Batch-level activities and costs are incurred again each time a batch is produced.
8) Service companies do not prepare a cost of goods sold, inventory, and purchases
budget.
9) The cost of inspecting and packaging each unit the company produces would be
considered a facility-level activity cost.
10) The payback and accounting rate of return models are conceptually better than the
discounted cash flow models because they are based on cash flows, and they consider
both profitability and the time value of money.
11) Value-engineering is accomplished by eliminating, reducing, or simplifying all
non-value added activities, and examining whether value-added activities could be
improved.
12) A company’s distribution system is an important part of the value chain.
13) Which of the following types of companies would combine cost of goods sold,
inventory, and purchases into one budget?
A) Manufacturing
B) Merchandising
C) Service
D) All of the above
14) If all direct materials are added at the end of the production process, and the units
have made it 50% of the way through the production process, then the percentage
completion for direct materials is
A) 50%
B) 100%
C) 0%
D) none of the above
15) How are manufacturing costs treated in process costing?
A) The manufacturing costs are added only when the goods are in finished inventory
B) The manufacturing costs are added only when the goods are sold
C) The manufacturing costs always follow the physical movement of the product
D) None of the above
16) When absorption costing is used and management bonuses are related to operating
income, managers are more likely to
A) decrease inventory levels
B) increase inventory levels
C) keep inventory levels consistent
D) steal from the company
17) Jackie’s Snacks sells fudge, caramels, and popcorn. It sold 12,000 units last year.
Popcorn outsold fudge by a margin of 2 to 1 . Sales of caramels were the same as sales
of popcorn. Fixed costs for Jackie’s Snacks are $14,000. Additional information
follows:
The breakeven sales volume in units for Jackie’s Snacks is
A) 2,800
B) 6,000
C) 7,000
D) 1,250
18) Using account analysis, what type of cost is an electric bill that charges a flat
monthly fee plus a charge for each kilowatt hour of electricity used?
A) Fixed
B) Mixed
C) Step
D) Variable
19) Nadal Company is debating the use of direct labor cost or direct labor hours as the
cost allocation base for allocating manufacturing overhead. The following information
is available for the most recent year:
If Nadal Company uses direct labor hours as the allocation base, what would the
allocated manufacturing overhead be for the year?
A) $324,800
B) $350,000
C) $400,000
D) $371,200
20) There are several reasons an organization might pursue sustainable initiatives. “A
national hotel chain instituted a paper-saving program that reduced the cost of office
paper purchased by 20% annually.” This situation is an example of which type of reason
to implement sustainable initiatives?
A) Cost reduction
B) Regulatory compliance
C) Stakeholder influence
D) Competitive strategy
21) Given breakeven sales in units of 45,000 and a unit contribution margin of $4, how
many units must be sold to reach a target operating income of $18,000?
A) 4,500
B) 40,500
C) 49,500
D) 72,000
22) Which of the following costs is an example of a fixed cost?
A) Sales commissions
B) Salary of plant manager
C) Direct materials
D) Delivery costs
23) To record depreciation on factory equipment, the needed journal entry would
include a
A) credit to manufacturing overhead
B) debit to work in process inventory
C) credit to accumulated depreciation
D) debit to depreciation expense
24) Runnin’ Wild Family Fun Center bought new go-karts for its recreation facility. The
useful life is 6 years. The go-karts had a total cost of $5,100 and will generate $1,700
total cash inflows each year for the life of the go-karts. The residual value of the
go-karts is $650. The payback period in years is closest to
A) 3.38
B) 3.00
C) 2.62
D) 2.17
25) Which of the following systems focuses on activities as the fundamental cost
objects and uses the costs of those activities as building blocks for compiling the
indirect costs of products and other cost objects?
A) Job costing
B) Activity-based costing
C) Process costing
D) Product costing
26) The ________ ratio measures the ability of a company to pay all current liabilities if
they came due immediately.
A) inventory turnover
B) current
C) day’s sales in receivables
D) acid-test
27) Which of the following is not one of the IMA’s overarching ethical principles?
A) Fairness
B) Responsibility
C) Honesty
D) Creativity
28) Which method are managers using when they use their judgment to classify costs as
variable, fixed, or mixed?
A) High-low method
B) Account analysis
C) Regression analysis
D) Low-high method
29) What data point can be used to solve for the fixed cost component when using the
high-low method?
A) The “high” month
B) Either the “high” or the “low” month
C) The “low” month
D) Any month in the data set
30) Mama’s Favorite Appliances manufactures two products: Food Processors and
Espresso Machines. The following data are available:
The company can manufacture two food processors per machine hour and three
espresso machines per machine hour. The company’s production capacity is 1,200
machine hours per month.
What is the contribution margin per machine hour for food processors?
A) $350
B) $225
C) $75
D) $150
31) (Present value tables are needed.) Cleveland Cove Enterprises is evaluating the
purchase of an elaborate hydraulic lift system for all of its locations to use for the boats
brought in for repair. The company has narrowed their choices down to twothe B14
Model and the F54 Model. Financial data about the two choices follows.
What is the total present value of future cash inflows from the F54 Model?
A) $(48,605)
B) $186,725
C) $191,395
D) $167,035
32) Sander Enterprises prepared the following sales budget:
The expected gross profit rate is 40% 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 is the desired ending inventory on May 31?
A) $1,120
B) $1,440
C) $1,680
D) $8,400
33) Venus Crates manufactures custom crates for a variety of uses. The following data
have been recorded for Job 551, which was recently completed. Direct materials used
cost $7,200. There were 82 machine hours used on this job. The predetermined
overhead rate is $30 per machine hour used. There were 175 direct labor hours worked
on this job at a direct labor wage rate of $24 per hour.
What is the total manufacturing cost of Job 551?
A) $13,860
B) $4,200
C) $2,460
D) $7,457
34) The actual cost of direct materials is $10.50 per pound. The standard cost per pound
is $10.25. During the current period, 9,100 pounds of direct materials were used in
production and 17,500 pounds were purchased. The standard quantity of direct
materials for actual units produced is 17,300 pounds. How much is the direct materials
quantity variance?
A) $84,050 favorable
B) $84,050 unfavorable
C) $86,100 unfavorable
D) $86,100 favorable
35) Management can use job cost information for each of the following except
A) determining cost of goods sold
B) determining the profitability of different jobs
C) bidding on custom jobs
D) all of the listed choices are possible uses of job cost information
36) A company purchases land using its common stock. If the company prepares the
statement of cash flows using the indirect method or the direct method, where would
this transaction appear?
A) The purchase of land would be presented in the financing activities section as a cash
payment under both methods
B) The purchase of land would be presented in the investing activities section as a cash
payment under both methods
C) The purchase of land would be presented in the operating activities section as a
reduction in net income under the indirect method and as a cash payment under the
direct method
D) The purchase of land would be presented in the non-cash investing and financing
activities section under both methods
37) Mom and Pop’s Ice Cream Shoppe sells ice cream cones for $5.00 per customer.
Variable costs are $2.25 per cone. Fixed costs are $3,000 per month. What is the
company’s contribution margin per ice cream cone?
A) $2.25
B) $2.75
C) $0.55
D) $1.82
38) How will the amount of cash payments to employees be computed if a company
uses the direct method to prepare the statement of cash flows?
A) Cash payments to employees will be equal to salary expense plus the beginning
balance in salary payable
B) Cash payments to employees will be equal to salary expense plus the ending balance
in salary payable
C) Cash payments to employees will be equal to salary expense plus the decrease in
salary payable
D) Cash payments to employees will be equal to salary expense plus the increase in
salary payable
39) If the selling price per unit is $70, variable expenses per unit are $45, target
operating income is $38,000, and total fixed expenses are $22,000, how many units
must be sold to reach the target operating income?
A) 880
B) 2,400
C) 1,520
D) 543
40) Part P40 is a part used in the production of air conditioners at Jackson Corporation.
The following costs and data relate to the production of Part P40:
Jackson Corporation can purchase the part from an outside supplier for $4.25 per unit.
If they purchase from the outside supplier, 50% of the fixed costs would be avoided. If
Jackson Corporation makes the part, how much will its operating income be?
A) $47,500 greater than if the company bought the part
B) $20,000 greater than if the company bought the part
C) $7,500 greater than if the company bought the part
D) $32,500 less than if the company bought the part
41) Which of the following is a characteristic of a variable cost?
A) Variable costs are fixed in total
B) Variable costs fluctuate in total with production and sales
C) Variable costs do not change in total over any range
D) All of the above may be characteristic of a variable cost
42) Enter the letter of the type of company on the line in front of each statement. Letters
may be used more than once or not at all.
A)service company
B)merchandising company
C)manufacturing company
____generally has no inventory
____has three types of inventory
____inventory consists of freight-in and the cost of the product
____has the highest percentage of labor costs
____Wal-Mart is this type of company
43) The goal of value-engineering is to
A) improve value-added activities
B) eliminate or reduce non-value added activities
C) both A and B
D) none of the above
44) Paper Clip Company sells office supplies. The following information summarizes
the company’s operating activities for the year:
What is total operating expense?
A) $33,000
B) $19,500
C) $23,500
D) $23,000
45) The following information is provided by Alexandria Corporation:
The units in ending WIP inventory were 75% complete for materials and 50% complete
for conversion costs.
What are the total equivalent units for direct materials?
A) 12,750
B) 3,750
C) 5,000
D) 14,000
46) Money borrowed for a mortgage would be a(n) ________ activity.
A) operating
B) financing
C) investing
D) non-cash
47) (Present value tables are required.) Interior Products, Inc. is evaluating the purchase
of a new machine to use in its manufacturing process. The new machine would cost
$41,000 and have a useful life of 6 years. At the end of the machine’s life, it would have
a residual value of $2,500. Annual cost savings from the new machine would be
$12,400 per year for each of the six years of its life. Interior Products, Inc. has a
minimum required rate of return of 16% on all new projects. The net present value of
the new machine would be closest to
A) $3,669
B) $5,719
C) $4,694
D) $46,719