If the segments in a firm buy from the same outside suppliers all the time, they are good
candidates for decentralization.
Markup is the amount by which cost exceeds price.
When adding or dropping a product line, fixed avoidable costs may be relevant costs.
If a small price increase causes large volume declines, demand is highly inelastic.
Under weighted-average process costing, the unit costs used for applying costs to
products are based on the total costs incurred to date, regardless of whether those costs
were incurred during or before the current period.
Managers in decentralized units may waste time negotiating with other units about
goods or services one unit transfers to the other.
The beginning available cash balance equals the beginning cash balance plus the
minimum cash balance desired.
Dividends paid are reported on the Retained Earnings Statement.
Companies must pay managers more if the managers bear more risk, assuming the
managers are risk averse.
An example of a strategic management decision is the selection of the product mix that
maximizes profits.
When compared to a decentralized organization, there are really no advantages to a
centralized organization.
An example of a strategic management decision is the establishment of a pricing policy
for a new product.
Discounted-cash-flow models focus on a project’s cash inflows and cash outflows
without regard to the time value of money.
If actual expenses are less than expected expenses, the expense variance will be
unfavorable.
Performance-based rewards can be monetary or nonmonetary.
A cost function is an algebraic equation used to describe the relationship between a cost
and its cost driver(s).
Depreciation expense is usually a disbursement listed on the cash budget.
The most widely used approach in disposing of an overhead variance is proration to the
affected accounts.
The high-low method uses estimated cost data to approximate the cost function.
According to agency theory, employment contracts will balance three factors that
include risk, incentive and the cost of measuring performance.
In the short run, the sales price of a good or service must be high enough to cover all
costs.
During a period of inflation, the LIFO method reports a lower ending inventory amount
than FIFO.
In most companies, variances are investigated only if they exceed a minimum dollar
amount or percentage deviation from budgeted amounts.
Accountants use actual overhead rates when applying overhead costs to jobs as they are
completed.
When there is beginning work-in-process inventory and process costing, the
weighted-average method of inventory costing must be used.
Two conventional ways of allocating joint costs to jointly-produced products are
physical units and relative sales value.
The maintenance department provides line support to the welding department in a
factory.
When using the step-down method, once a service department’s costs are allocated to
other departments, nothing is ever allocated back to it.
The centerpiece of a job-order costing system is the balanced scorecard.
Accounts receivable is a current asset.
Working capital is equal to current assets plus current liabilities.
When the amount of overhead applied to a product exceeds the amount incurred to
make the product, the difference is called overapplied overhead.
The maintenance department provides line support to the welding department in a
factory.
The CVP graph uses the assumption that costs are linear over the relevant range.
Litfin Company has the following information available for the month of March:
Units Transferred- Direct Conversion
in Costs Materials Costs
Work-in-process inventory, March 1 240 $33,600 0 $18,000
*Percent complete 100% 0% 62.5%
Transferred-in during March 400
Completed in March 440
Work-in-process inventory, March 31 200
*Percent complete 100% 0% 80%
Costs added in March $52,000 $13,200 $48,600
The company uses the weighted average cost method. What is the cost per equivalent
unit for March for direct materials?
A) $20.63
B) $22.00
C) $30.00
D) $33.00
Kingsway Company had the following information available for the past quarter:
Budgeted factory overhead costs $75,000
Actual factory overhead costs $80,000
Budgeted direct labor hours 20,000
Actual direct labor hours 21,000
Assume the cost driver for factory overhead costs is direct labor hours and a job uses
2,000 direct labor hours. The job was budgeted to use 2,100 direct labor hours. What
amount of factory overhead is applied to the job?
A) $7,140
B) $7,500
C) $7,875
D) $8,000
The following information is available for the Larry Company:
Net income for the year ended December 31, 2014 $127.4
Total stockholders’ equity, December 31, 2014 500.0
Total stockholders’ equity, December 31, 2013 400.0
Total liabilities, December 31, 2014 240.0
Total liabilities, December 31, 2013 182.0
What is the debt-to-equity ratio at December 31, 2014?
A) 27%
B) 41%
C) 48%
D) 51%
Fandry Company has obtained the following data concerning a new product:
Production Costs, Using traditional costing method $3.00 per unit
Production Costs, Using activity-based costing method $5.00 per unit
Nonproduction Costs, Using activity-based costing method $2.50 per unit
Fandry Company wants the price of the new product to cover all costs plus a 100%
markup. The production process used for the low volume product is very complicated
and it has a higher proportion of indirect costs than direct costs.
What price per unit should Fandry Company charge for the new product?
A) $6.00
B) $10.00
C) $11.00
D) $15.00
Van Dover Company purchased common stock in Sanchez Company. During the
current year, Sanchez Company earned $4,000,000 and paid dividends of $1,000,000.
Assume that Van Dover Company owns 30% of the outstanding shares of Sanchez
Company. Sanchez Company’s dividend will affect Van Dover Company by ________.
A) increasing cash and stockholders’ equity by $300,000
B) increasing investments and stockholders’ equity by $300,000
C) increasing cash and decreasing investments by $300,000
D) increasing cash and increasing investments by $300,000
The high-low method can be used to approximate a cost function. A disadvantage of
this method is ________.
A) it is difficult to apply due to rigorous calculations
B) it is very costly to use
C) it takes a long time to measure a cost function
D) it makes inefficient use of information because it does not use all the available data
Jesse Company has obtained the following data about a possible planned investment:
Cost $300,000
Terminal salvage value in 10 years 0
Annual cash operating savings excluding depreciation
for 10 years (end of year) $50,000
Estimated useful life in years 10
Minimum desired rate of return 10%
Present value of ordinary annuity, 10%, 10 periods 6.1446
Present value of one, 10%, 10 periods 0.3855
Income tax rate 40%
The company uses the straight-line depreciation method for taxes.
Required:
A) Compute the net present value of the investment.
B) Compute the net present value of the investment if the terminal salvage value is
estimated to be $50,000 in 10 years.
On January 1, 2014, Everest Company paid $4,000 for insurance that covers the period,
February 1, 2014 through January 31, 2015. Which of the following journal entries is
prepared on January 1, 2014?
A) Debit Insurance Expense $4,000 and Credit Cash $4,000
B) Debit Prepaid Insurance $4,000 and Credit Cash $4,000
C) Debit Cash $4,000 and Credit Insurance Expense $4,000
D) Debit Cash $4,000 and Credit Insurance Revenue $4,000
If an employee observes unethical behavior in an organization, the employee is first
obligated to ________.
A) report the behavior to the police
B) report the behavior to his or her supervisor
C) report the behavior to the Securities and Exchange Commission
D) follow the company’s policies for unethical behavior
Rodney Company has the following sales budget:
Month Cash Sales Credit Sales
September $100,000 $250,000
October 125,000 180,000
November 130,000 210,000
December 135,000 190,000
Collections of credit sales are 50% in the month of sale, 40% in the month following
sale, and 10% two months following sale. No uncollectible accounts are expected. What
are the estimated cash collections in September from September sales?
A) $100,000
B) $200,000
C) $225,000
D) $250,000
A company is unsure whether it is more cost efficient to make or buy a component used
in a manufactured product that is mass produced. What type of information is needed to
make this decision?
A) scorekeeping
B) attention directing
C) problem-solving
D) management auditing
The most widely used capital budgeting models are ________.
A) payback method
B) accounting rate of return
C) return on investment
D) discounted cash flow methods
Assume Mussa Company has the following information available:
Selling price per unit $100
Variable cost per unit $45
Fixed costs per year $420,000
Expected sales per year (units) 20,000
If fixed costs increase by $200,000, what is the expected operating income?
A) $280,000
B) $480,000
C) $680,000
D) $1,380,000
Helium Company has the following information available:
Selling price per unit $5.00
Variable cost per unit $3.50
Total fixed costs $90,000.00
Targeted net income $30,000.00
How many units must be sold to achieve the targeted net income?
A) 10,000 units
B) 27,000 units
C) 45,000 units
D) 80,000 units
Dersey 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.
Division A has excess capacity. Division B can buy the part for $75 per unit from an
outside supplier. What is the lowest transfer price per unit Division A will accept from
Division B?
A) $24
B) $50
C) $66
D) $75
The following information is presented for the Marathon Manufacturing Company.
— Direct labor rate standard is $11.55.
— Direct labor efficiency standard is 2.5 hours per unit.
— Budgeted production is 1,200 units.
— Production required 2,910 direct labor hours at a cost of $33,174.
— Actual production is 1,150 units.
What is the direct labor price variance?
A) $172.50 Favorable
B) $180.00 Unfavorable
C) $436.50 Favorable
D) $435.50 Unfavorable
An accounting firm is setting the audit fee for a proposed engagement. The budgeted
direct professional labor hours are 100 hours at a rate of $100 per hour. Indirect costs
are budgeted at 200% of the direct professional labor cost. Travel costs are budgeted at
$20,000. If the markup is 100% of total budgeted costs, what is the audit fee?
A) $30,000
B) $50,000
C) $100,000
D) $640,000
Which methods to approximate cost functions rely on a logical analysis of the cost
environment instead of an explicit analysis of prior cost data?
A) engineering analysis; account analysis
B) activity analysis; account analysis
C) visual fit method; high low method
D) least-squares regression analysis; activity analysis
When the actual volume of production exceeds the expected volume of production, the
production volume variance is ________ and fixed overhead is ________.
A) favorable; underapplied
B) favorable; overapplied
C) unfavorable; underapplied
D) unfavorable; overapplied
Presented below is the balance sheet of Hellman Company at January 1, 2015:
Cash $100
Net Fixed Assets 400
Total Assets $500
Accounts Payable $20
Long-term Bonds Payable 220
Stockholders’ Equity 260
Total Liabilities and Stockholders’ Equity $500
The balance sheet of Swenson Company at January 1, 2015 is below:
Cash $400
Net Fixed Assets 380
Total Assets $780
Accounts Payable $120
Long-term Bonds Payable 280
Stockholders’ Equity 380
Total Liabilities and Stockholders’ Equity $780
On January 1, 2015, Swenson Company acquired 100 percent of the outstanding
common stock of Hellman Company for $260 cash. The book value and fair value of
Hellman’s assets and liabilities were equal. The net income for the year ending
December 31, 2015 was $30 for Hellman Company. The net income for the year ending
December 31, 2015 was $40 for Swenson Company. There were no intercompany sales.
What is the net income on the consolidated income statement for the year ended
December 31, 2015?
A) $0
B) $30
C) $40
D) $70
Which of the following statements is FALSE?
A) Under the step-down method, after allocating Service Department 1 costs to Service
Department 2, we do not allocate any costs back to Service Department 1.
B) Under the step-down method, we ignore services provided by a service department
to itself.
C) The total amount of service department costs allocated to user departments is the
same for the step-down and direct methods.
D) Under the step-down method, the first service department to allocate costs to the
user departments is the one that provides the most service to the producing departments.
Each month Newton Company produces 30,000 units of a product that has variable
costs of $70 per unit. Total fixed costs for the month are $99,000. A special order is
received for 1,000 units at a price of $80 per unit. Newton Company has adequate
capacity for the special order. If Newton Company accepts the special order, what is the
profit to Newton Company from the special order?
A) $0
B) $6,700
C) $7,000
D) $10,000
What is earnings per share?
A) net income divided by weighted average number of preferred shares outstanding
B) net income divided by weighted average number of common shares outstanding
C) net income plus the weighted average number of common and preferred shares
outstanding
D) net income plus the weighted average number of bonds outstanding
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
Biden Company manufactures small jewelry boxes. The company is considering three
cost drivers for measuring support costs in the factory. The following cost functions
have been estimated using each cost driver:
Cost Driver Cost Function R 2
1. X = gluing time in hours Y = $20,000 + $5X R2 = 0.20
2. X = labor hours Y = $13,000 + $10X R2 = 0.55
3. X = machine hours Y = $15,000 + $7X R2 = 0.90
Which cost driver should be chosen?
A) gluing time in hours
B) labor hours
C) machine hours
D) labor hours x gluing time in hours
What is lean manufacturing?
A) eliminating the time products spend in activities that do not add value
B) reducing the time products spend in the production process
C) reducing the amount of inventories by ordering raw materials only when needed and
making products only when ordered by customers
D) continuous process improvements to eliminate waste from the entire enterprise
Hudson Company has two divisions. The following information is available:
North Division South Division
Revenue for year $300,000 $500,000
Operating income before taxes
for year $100,000 $90,000
Average invested capital for year $100,000 $200,000
Invested capital at end of year $200,000 $300,000
Tax rate 30% 30%
After-tax cost of capital for year 20% 15%
Required:
1. Using operating income after taxes as the income measure, compute the following for
each division:
A) Return on investment.
B) Return on sales
C) Capital turnover
D) Residual income
2. Which division is more successful? Why?
Which of the following item is irrelevant to the decision whether to process joint
products beyond the split-off point?
A) separable costs
B) additional costs from further processing beyond the split-off point
C) additional revenue from further processing beyond the split-off point
D) joint costs
When designing an accounting information system, the cost to acquire additional
information should be incurred ________.
A) at all times so the operating manager has more information to make decisions
B) when information overload does not occur
C) at all times because the benefit cannot be quantified
D) when the expected benefit of an improved decision exceeds the cost of the
information
If a department in a grocery store is under consideration to be eliminated, which of the
following cost(s) is(are) NOT relevant to the decision?
A) avoidable fixed expenses
B) unavoidable costs
C) common costs
D) B and C
The management accountant prepares the following performance report for a company’s
first year of operations:
Budget Actual Variance
Sales $100,000 $110,000 ?
Cost of Goods Sold 50,000 45,000 ?
Selling Expenses 20,000 19,000 ?
Administrative Expenses 10,000 11,000 ?
Operating Income $20,000 $35,000 ?
Required:
A) Compute variances for each line item on the income statement. Also indicate if the
variances are favorable or unfavorable.
Sharpie Company has variable costs of 75% of total revenues and fixed costs of $40
million per year. What is the break-even point in dollars?
A) $40 million
B) $53.33 million
C) $100 million
D) $160 million
It is misleading to use the absorption costing income statement to predict the effect of
changes in sales volume because ________.
A) variable production costs per unit do not change with small changes in sales volume
B) total fixed production costs do not change with small changes in sales volume
C) fixed production costs per unit do not change with small changes in sales volume
D) total variable production costs do not change with small changes in sales volume