A stream of equal cash flows received at set time intervals is called an annuity.
Total manufacturing cost is also referred to as cost of goods manufactured.
The only difference between variable and absorption costing is the treatment of variable
overhead costs.
In a trend analysis of cost of goods sold over the last three months, all cost of goods
sold accounts are shown as a percentage of the current quarter.
All capital assets are depreciable assets.
Preparing the statement of cash flows using the indirect method starts with net income
and converts it to cash flows provided by operating activities.
When evaluating managerial actions, which of the following alternate measures
overcomes many of the problems with ROI?
a. Residual Income
b. EVA
c. Both Residual Income and EVA.
d. Neither Residual Income nor EVA.
Assume you are planning a spring break ski trip to Colorado. You are preparing a
budget of your costs. You are staying at a lodge that has a special where the lodge
charges you $25 for the first 30 ski lift rides and an additional charge of $5 for each ride
in excess of 30. You believe you will ride the ski lift 40 times during the week, so you
budget $75. The ski lift charge is an example of a
a.Fixed cost.
b.Variable cost.
c.Mixed cost.
d.Step cost.
Jenny’s Cutting Station is a new concept in haircuts; low cost and very quick. Set in a
local mall, Jenny’s offers 15 minute haircuts for harried shoppers who do not have time
for lengthy appointments. To ensure that the clients are in and out quickly, she
schedules her 5 employees based on expected client traffic. Each of the employees is
paid $1,200 per month, with part of their pay coming from client tips. Jenny pays rent
and overhead costs of $2,000 per month. Because of the quick nature of the service,
Jenny doesn’t have time to clean combs in between clients, so she uses a new comb for
each customer, at a cost of $.55 each. She also provides shampoo and conditioner for
each client at a cost of $.95 per client. The average price for a haircut is $12. Jenny pays
herself $5,000 per month. What is Jenny’s contribution margin per haircut?
a.$11.45
b.$10.50
c.$11.05
d.$10.20
Nobles Corporation provided the following income statement for two of its divisions:
East and West.
Nobles ‘ actual weighted-average cost of capital is 10% and its tax rate is 30%. The East
division balance sheet showed $300,000 of assets ($60,000 current and $240,000
long-term) and $320,000 of liabilities ($120,000 current and $200,000 long-term). The
West division reported $360,000 of assets ($80,000 current and $280,000 long-term)
and $260,000 of liabilities ($60,000 current and $200,000 long-term).
Required:
a. Calculate the economic value added for each division.
b. Which of the two managers will be rated higher on performance? Why?
Assume total fixed costs of $160,000, variable costs per unit of $6, and contribution
margin per units of $4. What are the sales dollars required to earn a target net income of
$50,000 assuming a tax rate of 20%?
a. $350,000
b. $556,250
c. $525,000
d. $500,000
Match the following terms to the appropriate statement by placing the letter to the left
of each statement. a. Brewery e. Reconciliation of physical unit flow
formula
b. Conversion costs f. Reconciliation of costs of production formula
c. Equivalent units g. Shipbuilding
d. Process costing system h. Work in process
When the units produced is less than the units sold
a. Ending inventory on the balance sheet is lower under absorption costing than under
variable costing.
b. Ending inventory on the balance sheet is higher under absorption costing than under
variable costing.
c. Ending inventory on the balance sheet is the same under absorption costing and
variable costing.
d. Cannot be determined with the information given.
Martin, Inc. is preparing a direct labor budget for the next quarter. Which of the
following items will Martin not need to complete the budget?
a. Actual sales
b. Standard hourly labor rate
c. Standard direct labor hours per unit
d. Budgeted production
A company is preparing its cash budget for the first quarter of the year. It has $8,000 in
cash at the beginning of the period. Cash sales for the quarter are budgeted at $180,000.
Selling and administrative expenses are budgeted at $58,000, which includes $12,000
depreciation. Cash expenses are paid in the month incurred. Cash payment for
inventory purchases are budgeted at $135,000. The desired cash balance on March 31 is
$10,000. How much financing will the company need during the quarter?
a. $0
b. $3,000
c. $5,000
d. $7,000
GAAP-based income statements categorize expenses based on
A.Business function
B.Cost behavior
C.Dollar amount
D.Contribution margin
Determine the fixed cost given the following information:
Highest level of activity – 880 units at a total cost of $4,800
Lowest level of activity – 240 units at a total cost of $1,600
a.$229
b.$400
c.$2,600
d.$3,200
Santa’s Toys Company makes retro wooden toys. The company also maintains retail
stores throughout the Southeastern United States. Classify each of the following costs
as a product or period cost.
a. Depreciation on delivery truck
b. Rent on factory building
c. Cost of advertising products on local TV channel
d. Cost of sandpaper used to sand wooden parts of toys
e. Depreciation on lathe used in the production of toys
f. Salaries for sales staff in retail stores
g. Cost of lease for retail space at the local malls
h. Utility costs for factory building
i. Cost of supplies used in home office
j. Insurance coverage for home office
At what point are manufacturing costs expensed?
a. When finished goods are sold
b. When they are transferred out of Work in Process
c. When they are entered into production
d. At the end of the accounting period
When a company declares a cash dividend, which of the following is the correct
reporting on the statement of cash flows?
a. A use of cash in the operating section
b. A use of cash in the investing section
c. A use of cash in the financing section
d. Declaring a dividend is not reported on the statement of cash flows
When using a process costing system, the formula to reconcile the physical unit flow is
a. Beginning WIP units + Units started = Units transferred out + Ending WIP units
b. Beginning WIP units + Units transferred out = Units started + Ending WIP units
c. Units started – Beginning WIP units= Units transferred out + Ending WIP units
d. Beginning WIP units + Units transferred out = Units started – Ending inventory
The safest way to make sure that all investing activities have been identified is to
a. Go through a company’s balance sheet line by line
b. Go through a company’s income statement line by line
c. Go through all purchase orders processed during the period
d. Identify any invoices received for property and equipment
Which of the following is a consideration other than the financial impact that managers
should address when choosing whether or not to expand their operations?
a. Will an increase in production and sales reduce existing customer service levels?
b. Should the company risk hiring a new sales representative?
c. Will the expected extra sales become reality?
d. All of these answer choices are correct.
Using the payback method to evaluate capital projects is a simpler method than either
net present value or internal rate of return. Answer the following questions relating to
the payback method.
a. What does the payback period measure?
b. How is the payback period calculated when the annual cash flows are equal?
c. How is the payback period calculated when the annual cash flows are not equal?
Amos, Inc. uses a standard cost system with the following labor standards for one unit
of product: standard hours 0.2 and standard wage rate $9. During January, Amos
incurred 3,700 hours of direct labor and paid $32,760 in wages in production of 18,000
units.
Required:
Calculate the direct labor rate and efficiency variances and indicate whether the
variances are favorable or unfavorable.
You have been assigned to a team responsible for improving certain processes in your
company. The team is considering participating in a benchmarking study as a way to
improve the company’s performance.
Required:
Define benchmarking and best practice. Also discuss how your company might benefit
from benchmarking with an organization outside its industry.
Identify the difference between a cost center, a profit center, and an investment center.
Identify potential causes of the direct labor rate and efficiency variances.
Distinguish between product and period costs.
Ledbetter Industries makes and sells two types of outdoor canvas canopies. Ledbetter
has provided you with the following timeline information stated in hours for its two
products: Standard and Deluxe.
a. Calculate the manufacturing cycle time for each product. b. Calculate the
manufacturing cycle efficiency for each product.
River Rafters produces angler kayaks. The company uses a job order costing system.
During the period, the company incurred the following costs to complete job #322:
direct materials, $52,000 and direct labor, $37,000. The company also incurred $14,000
of administrative costs and $8,000 of selling costs to complete this job. Job #322
required 1,600 machine hours. Factory overhead was applied to the job at a rate of $25
per machine hour. If job #322 resulted in 150 kayaks, what was the cost of goods sold
per kayak?
Holding all other things equal, the ROI is affected by a change in:
If a cost was incurred to support the company as a whole, then it is a common cost.