1) Management uses budgeting to express its plans and to assess how well it’s reaching
its goals.
2) Cost for direct materials, direct labor and manufacturing overhead are assigned to
each job.
3) Two main benefits of ABC are (1) more accurate product cost information and (2)
more detailed information on the costs of activities and the drivers of those costs.
4) An EMA system must make visible the environmental costs hidden in overhead by a
traditional accounting system.
5) Managerial accountants no longer perform routine mechanical accounting tasks in
most companies.
6) Internal users such as managers are the primary users of managerial accounting
information.
7) If a company wants to determine a product’s cost, it must assign both direct and
indirect costs.
8) In a flexible budget, total fixed costs do not change as production volume changes.
9) A labor time record is an essential component of accounting in a service firm.
10) Total mixed costs can be expressed as y = vx, where y = total variable cost, v =
variable cost per unit of activity, and x = volume of activity.
11) The statement of cash flows reflects cash flows during a period of time.
12) Capital budgeting methods will not work with unequal cash flows during the capital
asset’s life. Other methods must be utilized in those cases.
13) The fixed overhead budget variance measures the difference between the actual
fixed overhead costs incurred and the budgeted fixed overhead costs.
14) Which of the following describes the products and services of companies that are
price-setters?
A) They tend to be unique
B) They are priced by managers using a target-costing emphasis
C) They tend to have a lot of competitors
D) They tend to be commodities
15) Activities that are included in the operating activities section of the statement of
cash flows include which of the following?
A) Activities that obtain the cash needed to launch and sustain the business
B) Activities that increase or decrease long-term assets
C) Activities that create revenue or expenses in the entity’s major line of business
D) None of the above
16) How is the cost of indirect materials used in the factory recorded?
A) Debit to work in process inventory
B) Debit to manufacturing overhead
C) Debit to raw materials inventory
D) Debit to direct materials expense
17) The Bedford Corporation reported the following income statement and balance
sheet amounts and additional information for the end of the current year.
Inventory and prepaid expenses account for $30,000 of the current year’s current assets.
Average inventory for the current year is $36,250.
Average net accounts receivable for the current year is $45,000.
There are 35,000 shares of common stock outstanding.
Total dividends paid during the current year were $17,000.
The market price per share of common stock is $20.
What is the debt ratio for the current year?
A) 1.98
B) .53
C) 2.43%
D) .44
18) (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 Wacky Water Race game?
A) $(746)
B) $(1,306)
C) $1,306
D) $746
19) The journal entry needed to record the completion of a job includes a
A) debit to cost of goods sold
B) debit to work in process inventory
C) debit to finished goods inventory
D) debit to raw materials inventory
20) Sherwin Chemicals produces commercial strength cleansing supplies. Two of its
main products are window cleanser that uses ammonia, and floor cleanser that uses
bleach. Information for the most recent period follows:
What is the direct material quantity variance for the bleach?
A) $378 favorable
B) $378 unfavorable
C) $978 favorable
D) $978 unfavorable
21) Brittany Furniture manufactures two products: Couches and Beds. The following
data are available:
The company can manufacture two couches per machine hour and one bed per machine
hour. The company’s production capacity is 900 machine hours per month.
What is the contribution margin ratio for Couches?
A) 30.0%
B) 42.86%
C) 170.00%
D) 23.08%
22) Sky High Seats manufactures seats for airplanes. The company has the capacity to
produce 100,000 seats per year, but is currently producing and selling 75,000 seats per
year. The following information relates to current production:
If a special sales order is accepted for 3,000 seats at a price of $300 per unit, and fixed
costs increase by $10,000, how would operating income be affected? (NOTE: Assume
regular sales are not affected by the special order.)
A) Decrease by $80,000
B) Increase by $230,000
C) Increase by $90,000
D) Increase by $80,000
23) Discuss and compare absorption costing income statements with variable costing
income statements. In your discussion, address the following questions:
a.What is the main difference between the two methods?
b.Under what circumstances will the operating income under each method be the same?
c.What situation will cause the absorption costing income to be higher than the variable
costing income?
d.What situation will cause the absorption costing income to be lower than the variable
costing income?
e.Why would a company use absorption costing to prepare its income statements?
f.Why would a company use variable costing to prepare its income statements?
24) Jennings Manufacturing gathered the following flexible budget information:
How much is the total budgeted overhead cost at 90% of normal capacity?
A) $230,000
B) $100,000
C) $217,000
D) $207,000
25) Madden Corporation manufactures t-shirts, which is its only product. The standards
for t-shirts are as follows:
During the month of January, the company produced 1,250 t-shirts. Related production
data for the month follows:
What is the direct labor rate variance for the month?
A) $90 favorable
B) $90 unfavorable
C) $340 favorable
D) $340 unfavorable
26) Sustainability is concerned not only with the impact on the environment, but also
with the impact on people and profit. The “triple bottom line” measures an entity’s
impact on profit, people, and planet. A local accounting firm that participates in Habitat
for Humanity is impacting which element of the triple bottom line?
A) Profit
B) People
C) Planet
D) None of the above
27) Using traditional costing instead of ABC costing might lead to all of the following
except
A) cutting back on high-volume products that appear unprofitable
B) expanding low-volume products that appear profitable
C) raising the selling price of low-volume products
D) raising the selling price of high-volume products
28) Beartowne Enterprises uses an activity-based costing system to assign costs in its
auto-parts division.
The following units were produced in December with the following information:
Total manufacturing costs for Part 003 is
A) $28,125
B) $18,750
C) $35,125
D) $25,750
29) Active Lifestyle Beverages gathered the following information for Job #928:
What is the direct labor rate variance?
A) $125 favorable
B) $125 unfavorable
C) $135 favorable
D) $135 unfavorable
30) Feeney Furniture prepared the following sales budget:
Credit collections are 15% two months following the sale, 50% in the month following
the sale and 30% in the month of sale. The remaining 5% is expected to be
uncollectible.
What are the total cash collections in May?
A) $21,500
B) $63,500
C) $65,900
D) $75,600
31) Wallace Industries wanted to determine the relationship between its monthly
operating costs and a potential cost driver, machine hours. The output of a regression
analysis showed the following information (note: only a portion of the regression
analysis results is presented here):
What is the cost equation based upon the results of the regression analysis?
A) y = $072x
B) y = $0.72x + $2,945.95
C) y = $2,945.95x + $0.72
D) y = $2,945.95 + $0.72
32) What could cause a sales volume variance for fixed expenses?
A) Insurance costs on the factory rise unexpectedly during the year due to a crisis in the
insurance industry
B) The union calls for a strike of factory workers and temporary workers are hired to
fill in for the striking employees
C) The lease on the manufacturing facility is renegotiated and the lease payments
increase during the year
D) The number of units actually sold falls within a different relevant range than the
static budget sales volume
33) To allocate manufacturing overhead to specific jobs, the needed journal entry would
include a
A) credit to work in process inventory
B) debit to manufacturing overhead
C) debit to cost of goods sold
D) credit to manufacturing overhead
34) The following data pertain to costs at Summit Company:
The fixed cost per unit is
A) $3.75
B) $15.00
C) $18.75
D) $11.25
35) A system in which companies purchase raw materials only when needed is called
A) ABC
B) external failure costs
C) internal failure costs
D) JIT production
36) Among other products, Nabisco makes Oreo cookies. Which type of company is
Nabisco?
A) Service
B) Manufacturer
C) Retailer
D) Wholesaler
37) The journal entry to issue $600 of direct materials and $40 of indirect materials
involves a debit to
A) manufacturing overhead for $640
B) work in process inventory for $640
C) work in process inventory for $600 and a credit to manufacturing overhead for $40
D) work in process inventory for $600 and a debit to manufacturing overhead for $40
38) “Combined cash budget” is best defined by which of the following?
A) A company’s plan for purchases of property, plant and equipment, and other
long-term assets
B) Details as to how the company expects to go from the beginning cash balance to the
desired ending cash balance
C) A system for evaluating the performance of each responsibility center and its
manager
D) A budget that projects assets, liabilities, and stockholders’ equity at the end of a
period
39) On a cost of quality report, which of the following cost items should be classified as
an external failure cost?
A) Net cost of scrap
B) Technical support provided to suppliers
C) Customer returns of defective products
D) Supplies used in the quality inspection program
40) What term represents the fixed cost component in the equation: y = vx + f?
A) y
B) v
C) f
D) vx
41) Helga’s Pretzels sells pretzels for $5. The variable costs for each pizza are $3, while
the total fixed costs are $1,500. The contribution margin for 1,500 pretzels is
A) $1,500
B) $3,000
C) $7,500
D) $6,000
42) Company X sells widgets. The following information summarizes the company’s
operating activities for the year:
What is total operating expense?
A) $3,000
B) $2,500
C) $3,500
D) $4,500
43) The following information was gathered for the FALSE to Corporation for the most
recent year. Manufacturing overhead is allocated using direct labor hours.
Compute:
a)Predetermined manufacturing overhead rate
b)Manufacturing overhead allocated for the year
c)Amount of over/underallocated overhead at the end of the year
44) Note the following data:
Costs of units transferred to finished goods would be closest to
A) $3,002,300
B) $1,531,200
C) $2,900,000
D) $3,314,200
45) List and describe three reasons why a company and its managers could benefit from
the use of budgeting.
46) Cornell Enterprises currently produces several products. Model L78 is showing a
net operating loss as indicated by the following condensed income statement prepared
for the year ended December 31 .
You have been hired by Cornell Enterprises to help analyze the decision as to whether
to eliminate Model L78 . Upon investigation, you discover that if Model L78 is
eliminated, $20,000 of the fixed costs shown on the above condensed income statement
can be eliminated. The rest of the fixed costs allocated to Model L78 are common fixed
costs that will be allocated to the remaining two products produced by Cornell
Enterprises.
Determine if Cornell Enterprises should discontinue Model L78 .
47) Match the appropriate terms with the correct definitions.
48) Elite Office Furniture received a special order for 1,200 units of its executive chairs
at a selling price of $90 per chair. Elite Office Furniture has enough capacity to accept
the order. No additional selling costs will be incurred. Unit costs to make and sell this
product are as follows: Direct Materials $45; Direct Labor $19; Variable Manufacturing
Overhead $6; Fixed Manufacturing Overhead $12; and Variable Selling Costs $5.
What will be Elite Office Furniture’s change in operating income if they accept the
special order? Should Elite Office Furniture accept the order? Explain why or why not.
49) The following amounts were taken from the general ledger of the Excellent
Manufacturing Company. Compute the cost of goods manufactured and the cost of
goods sold for the company for the year.
50) Neeley Incorporated had the following fixed costs:
The company also had the following variable costs:
Variable manufacturing costs$ 124,000
Variable marketing costs$ 30,000
Variable administrative costs$ 28,000
The company produced and sold 55,000 units of the product during the year at a selling
price of $9.00 per unit. The company had no inventory at the beginning of the year.
Required: Prepare a contribution margin income statement for the year.
