The corporate culture is a larger influence on the ethical climate of an organization than
a code of ethics.
An operating budget is the major part of the master budget that focuses on the balance
sheet and supporting schedules.
When adding or dropping a product line, variable costs are the only relevant costs.
The break-even point may be reduced by increasing the per unit variable cost.
Total fixed costs increase when the cost-driver level increases in the relevant range.
The overhead cost applied to a job is equal to the budgeted overhead rate times the
budgeted amount of the cost driver.
The variable overhead spending variance is the difference between the actual variable
overhead cost and the amount of variable overhead cost budgeted for the actual level of
cost driver activity.
A cost is a sacrifice of resources for a particular purpose.
The contribution margin per unit of a given product guides managers when deciding
which product to emphasize in a sales mix.
Operating income summarizes the results of basic operating activities of a company.
An example of a strategic management decision is the decision to outsource a particular
value-chain function.
U.S. multinational companies must follow the Internal Revenue Code when setting
transfer prices.
In the net present value method, the only relevant operating cash flows are the ones that
differ among alternatives.
A multiple-step income statement includes a subtotal for gross profit.
Joint costs include all inputs of material, labor and overhead that are incurred after the
split-off point.
Under the accrual basis of accounting, the impact of transactions is recorded when cash
is received or paid.
A company can increase the accuracy of its product cost information by converting
indirect costs to direct costs.
Under the cash basis of accounting, expenses are matched with the revenues they help
generate.
The logical cost driver for building rent cost of $10,000 is square feet. The cost object is
the assembly department in a factory.
The keys to successful management control in any organization are proper training of
employees, motivation of employees and consistent monitoring of performance
measures.
The relevant information for a sell or process further decision for joint products
includes the costs incurred before the split-off point.
The variable overhead efficiency variance indicates to management how much variable
overhead cost it may waste by not controlling the use of cost-driver activity.
Collecting cost and operational data is the first step in the design of an Activity-Based
Costing system.
The marginal income tax rate is the tax rate paid on additional amounts of pretax
income.
Liabilities are the entity’s economic obligations to owners.
Favorable variances do not require investigation.
Decentralization is more popular in nonprofit organizations than in profit-seeking
organizations.
The contribution controllable by segment managers is used to evaluate the performance
of segment managers.
Target costing sets prices by computing an average cost and then adding a desired
markup.
Traditional costing systems generally allocate nonproduction value-chain costs to
products.
Amounts due from customers are called accounts payable.
Examples of activity centers with indirect costs include receiving, testing and
packaging.
When using accelerated depreciation methods, most of the depreciation taken on an
asset occurs at the end of its life.
Sales-activity variances measure how efficient managers have been in meeting the
planned sales goal.
A measure of labor productivity is sales revenue divided by the number of employees.
Storing inventories and transporting incomplete products in a plant are examples of
non-value-added activities.
In designing management control systems, top managers should consider the system’s
impact on the behavior of employees.
Ideal standards make no provision for waste, spoilage and machine breakdowns.
A deduction for depreciation expense lowers a company’s tax liability.
The following data are for Pablo Corporation:
Flexible Budget for
Actual Static Budget Actual Sales Activity
Units 18,000 16,000 18,000
Sales $360,000 $320,000 $360,000
Variable costs 234,000 192,000 216,000
Contribution margin $126,000 $128,000 $144,000
Fixed costs 76,000 80,000 80,000
Operating income $50,000 $48,000 $64,000
The flexible budget variance for operating income is ________.
A) $2,000 Favorable
B) $2,000 Unfavorable
C) $14,000 Favorable
D) $14,000 Unfavorable
Activity-based costing systems should be used instead of traditional costing systems if
________.
A) indirect production costs are a large percentage of production costs
B) different products consume resources at different rates
C) only one product is produced
D) A and B
Which of the following explains the change in Retained Earnings from the beginning of
the year to the end of the year?
A) revenues and expenses
B) contributions by owners
C) purchases of inventory
D) a purchase of a plant asset
Incremental costs are the ________ generated by a proposed alternative.
A) additional revenues
B) additional revenues or reduced costs
C) reduced costs
D) additional costs or reduced revenues
When preparing the budgeted income statement, which of the following is the source
for the amount of operating expenses?
A) schedule of disbursements for operating expenses
B) purchases budget
C) schedule of disbursements for purchases
D) operating expense budget
Jerome Company reported cost of goods sold of $700,000, a decrease in inventory of
$60,000, and an increase in accounts payable of $30,000. How much cash was paid to
suppliers?
A) $605,000
B) $610,000
C) $725,000
D) $795,000
Which of the following types of organizations can use management by objectives?
A) profit-seeking organizations only
B) nonprofit organizations only
C) universities, hospitals and churches only
D) all of the above
Most companies that follow accrual basis accounting recognize revenue after they
________.
A) receive cash from the customer
B) deliver goods or perform services
C) pay cash for operating expenses
D) provide warranty service on a product
The wages expense of Florida Corporation was $45,000 as per its income statement.
Beginning wages payable was $6,000. Ending wages payable was $3,000. The cash
paid to employees was ________.
A) $42,000
B) $45,000
C) $48,000
D) $50,000
Wehr Corporation produces one product. Total fixed costs are $600,000.
The unit selling price is $60.00 and the unit variable cost is $45.00.
Required:
A) Compute the contribution margin per unit.
B) Compute the contribution-margin ratio.
C) Compute the break-even point in units.
D) Compute the break-even point in dollars.
Which of the following organizations oversees the CMA Exam?
A) American Institute of Certified Public Accountants
B) Chartered Accountants Institute
C) Institute of Management Accountants
D) American Institute of Certified Management Accountants
Diulio Company produces a product in a process-costing system involving several
departments. The company uses the weighted-average method of process costing. The
first department’s data for the month of April follow:
Units in beginning work-in-process inventory 15,000
Units started during April 140,000
Units completed during April 120,000
Units in ending work-in-process inventory 35,000
Direct materials added in current month $168,000
Conversion costs added in current month $186,000
Direct materials-beginning work-in-process inventory $25,750
Conversion costs-beginning work-in-process inventory $3,225
Stage of Completion:
Materials Conversion Costs
Beginning work-in-process inventory 50% 40%
Ending work-in-process inventory 50% 30%
Required:
A) Compute equivalent units for materials and conversion costs.
B) Compute the cost per unit for materials and conversion costs. Round to two decimal
places.
C) Compute the cost of the units transferred.
D) Compute the cost of the ending work-in-process inventory.
Salerno Company has two service departments, Maintenance and Cafeteria, as well as
two production departments, Mixing and Bottling. Maintenance Department costs are
allocated based on square footage and Cafeteria Department costs are allocated based
on number of employees. The following data was available:
Maintenance Cafeteria Mixing Bottling
Direct costs $200,000 $120,000 $76,000 $85,000
Square footage 1,000 2,000 4,000 6,000
Number of employees 30 20 60 100
Direct labor hours 8,000 6,000
Assume the direct method is used to allocate service department costs to producing
departments.
Required:
A) Determine the total costs of the Mixing Department after allocating the service
departments’ costs.
B) Determine the total costs of the Bottling Department after allocating the service
departments’ costs.
Butters Company pays wages of $400 per day. The work week begins on Monday and
ends on Friday. Wages are paid weekly on Friday. The current month ends on a
Wednesday. The adjusting entry at the end of the month will ________.
A) increase liabilities by $400
B) increase liabilities by $800
C) increase liabilities by $1,200
D) increase liabilities by $2,000
The following information is available for Potter Company:
Total Current Assets $356,000
Total Current Liabilities $203,000
Total Assets $1,000,000
Total Liabilities $500,000
Cash $100,000
What is the current ratio?
A) 0.76
B) 1.75
C) 2.05
D) 2.51
The weighted-average method of process costing adds the cost of all work done in the
current period to ________.
A) the ending work-in-process inventory
B) all costs estimated to be incurred in the next department
C) the cost of the work done in the preceding period to the current period’s ending
work-in-process inventory
D) the cost of the work done in the preceding period to the current period’s beginning
work-in-process inventory
Margaret Company has the following information:
Month Budgeted Purchases
January $26,800
February 29,000
March 30,520
April 29,480
May 27,680
Purchases are paid as follows:
10% in the month of purchase
50% one month after purchase
40% two months after purchase
What is the expected balance in Accounts Payable on May 31?
A) $2,948
B) $11,792
C) $24,912
D) $36,704
When comparing management accounting and financial accounting, which of the
following statements is FALSE?
A) Management accounting has a future orientation whereas financial accounting has a
past orientation.
B) Management accounting prepares detailed reports whereas financial accounting
prepares summary reports.
C) Management accountants are constrained by the principles of reporting promulgated
by the Institute of Management Accountants whereas financial accountants are
constrained by Generally Accepted Accounting Principles.
D) Behavioral considerations are of primary importance in management accounting, but
not in financial accounting.
Which of the following is NOT an underlying assumption of cost-volume-profit
analysis?
A) We can classify expenses into fixed and variable categories.
B) In multiproduct companies, sales mix will be constant.
C) Revenues and expenses are linear over the relevant range.
D) The inventory level changes significantly during the period.
When allocating service department costs to producing departments, which of the
following guidelines is NOT followed?
A) Allocate variable- and fixed-cost pools separately.
B) Establish the cost-allocation procedure before rendering the service.
C) Evaluate performance using flexible budgets for each service department.
D) Establish the cost-allocation procedure after rendering the service.
The Technical Services Department of Wichita State University leased a photocopy
machine for $2,000 per month plus $0.04 per copy. Additional budgeted variable
operating costs were $0.02 per copy. The Technical Services Department estimated the
machine would produce 30,000 copies per month. The Accounting Department
estimated is would make 6,000 copies per month but it actually made 4,000 copies.
Assume fixed and variable cost pools are allocated separately. What is the amount of
fixed cost allocated to the Accounting Department for the month?
A) $200
B) $267
C) $360
D) $400
California Company has 40,000 shares of its common stock outstanding. Utah
Company owns 15,000 shares of California Company’s stock. Which of the following
methods should Utah Company use to account for its investment in California
Company?
A) market-value
B) equity
C) consolidated
D) available-for-sale
Nonoperating items on a multiple-step income statement do NOT include ________.
A) interest income
B) interest expense
C) gain from disposal of a fixed asset
D) selling expenses
On a cost-volume-profit graph, the vertical distance between the Revenue line and the
Total Cost line represents ________ or ________.
A) mixed cost; step cost
B) variable cost; fixed cost
C) net profit; net loss
D) step cost; fixed cost
Jorgensen Company used least squares regression analysis to obtain the following
output:
Maintenance Department Cost
Explained by Number of Labor Hours
Constant 8,200
Standard error of Y estimate 630
R2 0.94
No. of observations 20
Degrees of freedom 18
X coefficient 2.21
Standard error of coefficient 0.0966
Required:
A) What is the total fixed cost of the maintenance department?
B) What is the variable cost per labor hour for the maintenance department?
C) What is the linear cost function?
D) What is the coefficient of determination? Comment on the goodness of fit.
Bonneville Company is producing a subassembly used in the production of a product.
The costs incurred for the subassembly follow:
Per Unit
Direct materials $6.00
Direct labor 4.00
Variable factory overhead 1.00
Fixed supervisor salary 3.00
Depreciation expense on factory equipment 2.00
General fixed factory overhead allocated 5.00
Total costs $21.00
The above per unit costs are based on 8,000 units. An outside supplier will provide
8,000 subassemblies for $19 per unit. The supervisor will be terminated if the
subassemblies are not produced in house. The idle factory will be used to manufacture
another product with a contribution margin of $60,000. What should Bonneville do?
A) make the subassemblies and save $20,000
B) make the subassemblies and save $40,000
C) buy the subassemblies and save $20,000
D) buy the subassemblies and save $40,000
Evaluation of capital investments based on economic profit motivates managers to
invest in projects that ________ because those investments increase the division’s
economic profit.
A) earn a return in excess of the project’s return on investment
B) earn a return in excess of the segment’s return on investment
C) earn a return in excess of the cost of capital
D) earn a return in excess of the segment’s net income
During the month of May, Lucas Clothing transferred 140,000 shirts to Finished Goods
Inventory. There was no beginning work-in-process inventory. The company had
40,000 shirts in process at May 31 and the shirts were 75 percent complete with respect
to conversion costs. All direct materials are added at the beginning of the production
process. The equivalent units for conversion costs for May are ________.
A) 140,000
B) 150,000
C) 170,000
D) 180,000
The following information is available for Trump Corporation:
Total fixed costs $300,000
Variable costs per unit $100
Selling price per unit $200
If total fixed costs increased to $600,000, then the break-even volume in dollars would
increase by ________.
A) 10.0%
B) 50.0%
C) 100%
D) 200%
The following information was gathered for all the products made by the BBB
Company:
Budgeted direct labor hours 8,000
Actual direct labor hours 8,100
Budgeted factory overhead costs $224,000
Actual factory overhead costs $224,970
Assume the cost driver for factory overhead costs is direct labor hours. What is the
amount of overapplied or underapplied overhead?
A) $970 underapplied
B) $970 overapplied
C) $1,830 underapplied
D) $1,830 overapplied
In the short run, when managers set prices for products, the minimum selling price
should be equal to ________.
A) all variable costs of producing, selling and distributing the good or service
B) all fixed costs of producing, selling and distributing the good or service
C) all fixed and variable costs of producing, selling, and distributing the good or service
D) all manufacturing costs
Wisconsin Company reported selected accounts as follows:
December 31, 2014 December 31, 2015
Accounts payable $20,000 $30,000
Bonds payable $40,000 $28,000
Common stock $20,000 $24,000
Dividends of $8,800 were declared and paid by December 31, 2015. What was the net
cash flow from financing activities for the year ended December 31, 2015?
A) $6,800 cash outflow
B) $16,800 cash outflow
C) $6,800 cash inflow
D) $16,800 cash inflow
In practice, when developing a budget, two extremes used for guidance are ________
and ________.
A) participative budget; zero-base budget
B) strategic budget; long-range budget
C) financial planning budget; strategic budget
D) zero-base budget; activities of current or prior period
Return on investment can be computed as ________ times ________.
A) residual income; capital turnover
B) return on assets; asset turnover
C) return on sales; capital turnover
D) net income; cost of capital
The balance sheet for Orlando Company at December 31, 2009 is given below:
Current Assets:
Cash $78
Accounts Receivable 76
Inventory 54
Total Current Assets $208
Long-term Assets:
Fixed Assets $322
Less: Accumulated Depreciation (136)
Net Fixed Assets $186
Total Assets $394
Current Liabilities:
Accounts Payable $44
Taxes Payable 14
Total Current Liabilities $58
Long-term Bonds Payable 60
Total Liabilities $118
Stockholders’ Equity:
Paid-in Capital $100
Retained Earnings 176
Total Stockholders’ Equity $276
Total Liabilities and Stockholders’ Equity $394
Required:
Prepare a common-size balance sheet.
Fill in the blanks to complete the flexible budget for Mammoth Company. Assume the
different levels of output are in the relevant range.
____________________________________________________________
Budget Various Levels of Output
Formula
Per Unit
Units 3,000 4,000 5,000
Sales $25 _____ _____ _____
Variable costs:
Manufacturing _____ _____ $32,000 _____
Administrative $2.625 _____ _____ _____
Fixed costs:
Manufacturing _____ _____ $25,000
Administrative $12,500 _____ _____
Operating income _____ _____ _____
O’Brien Company has the following information:
Cash Balance, June 30 $50,000
Dividends paid in July 60,000
Cash paid for operating expenses in July 185,500
Depreciation expense in July 12,000
Cash collections on sales in July 510,000
Merchandise purchases paid in July 180,000
Purchase equipment for cash in July 94,500
O’Brien Company wants to maintain a minimum cash balance of $50,000. Assume that
borrowing occurs at the beginning of the month and repayments occur at the end of the
month. Interest of 1% per month is paid in cash at the end of each month debt is
outstanding. Borrowing and repayment is carried out in multiples of $1,000.
Required:
Prepare a cash budget for July.
The facilities housekeeping department at St. Luke’s Hospital has determined that the
appropriate cost driver for housekeeping costs is patient-days. There are 10,000
patient-days per month. The department has collected the following accounts for the
past month:
Monthly Housekeeping Expenses Amount
Supervisors’ Salaries Expense $10,000
Depreciation Expense—Scrubbing Machines $5,000
Cleaning Supplies Expense $7,000
Hourly Workers’ Wages Expense $100,000
Insurance Expense—Scrubbing Machines $2,000
Required:
Estimate the cost function using the account analysis method.
The variable costing income statement for Bouve Company is seen below:
Sales (6,000 units × $35) $210,000
Variable expenses:
Beginning inventory (680 units × $20) $13,600
Variable cost of goods manufactured
(6,400 units × $20) 128,000
Available for sale 141,600
Less: Ending inventory (1,080 units × $20) 21,600
Variable manufacturing cost of goods sold 120,000
Variable selling and administrative expenses 24,000
Contribution margin 66,000
Fixed expenses:
Fixed factory overhead 20,000
Fixed selling and administrative expenses 15,300
Operating income $30,700
Required:
Prepare an absorption-costing income statement for the same period of time. Assume
that actual fixed costs were equal to budgeted fixed costs and the budgeted fixed
overhead rate was constant over the period examined. Assume the production volume
variance equals zero.
The balances on December 31, 2015 are available for Matthew Company:
Accounts payable $2,550
Accounts receivable 3,550
Accumulated depreciation 6,250
Retained earnings, December 31, 2014 6,450
Cash 2,300
Cost of goods sold 52,300
Depreciation expense 2,500
Dividends declared 8,800
Equipment 29,000
Income tax expense 10,700
Interest expense 1,150
Inventory 6,250
Long-term notes payable 11,500
Paid-in capital 4,450
Prepaid rent 350
Rent expense 4,000
Sales 120,000
Wage expense 41,900
Wages payable 3,000
Required:
Prepare a multiple-step income statement for the year ended December 31, 2015.
Olson Company has the following data:
Month Budgeted Purchases
January $225,000
February 190,000
March 200,000
April 220,000
May 150,000
Purchases are paid as follows:
10% in the month of purchase
80% one month after purchase
10% two months after purchase
Required:
Prepare a schedule of cash disbursements for purchases for March, April and May.
The following balances are available for Thompson Company on December 31, 2015:
Accumulated depreciation $21,800
Accounts payable 11,200
Accounts receivable 9,800
Additional paid-in capital 24,000
Common stock 6,000
Cash 7,400
Fixed assets 89,400
Interest payable 2,400
Inventory 13,600
Long-term notes payable 28,000
Prepaid rent 2,500
Retained earnings ?
Wages payable 6,400
Required:
Prepare a classified balance sheet at December 31, 2015.
Trebowski Company prepared the following absorption-costing income statement for
the first year of operations. The income statement is for the fiscal year ended May 31,
2015:
Sales (16,000 units) $320,000
Cost of Goods Sold 216,000
Gross Margin 104,000
Selling and administrative expenses 46,000
Operating income $58,000
Additional data follow:
Variable selling and administrative expenses $1.50 per unit
Variable manufacturing costs $11.00 per unit
Direct materials inventory, May 31, 2015 0
Work-in-process inventory, May 31, 2015 0
Units produced 17,500 units
Units expected to be produced 17,500 units
Required:
Assume actual fixed costs were equal to budgeted fixed costs. Prepare a
variable-costing income statement for the year ended May 31, 2015.
The Pinsky Company has the following information available:
Month Budgeted Sales
March $150,000
April 153,000
May 151,000
June 254,500
July 252,500
The gross profit rate is 40% and the desired ending inventory level is 20% of the next
month’s cost of sales.
Required:
Prepare a purchases and cost of goods sold budget for April, May and June.
The income statement for Rozman Company for the year ended December 31, 2013 is
given below:
Sales $1,600
Cost of goods sold 872
Gross profit 728
Operating expenses 436
Operating income 292
Income tax expense 66
Net income $226
Required:
Prepare a common-size income statement.
Phillip Corporation has the following sales budget:
Month Budgeted Sales
May $84,000
June 100,000
July 92,000
August 110,000
September 90,000
Credit sales are 80% of total sales. Collections of credit sales are 80% in the month of
sale, 15% in the month after sale and 5% are never collected.
Required:
Prepare a schedule of cash collections for June, July and August.
The following transactions occurred at Clarkson Company:
1. The company acquired $200 of inventory on credit.
2. The company rendered services billed at $100 on account.
3. The company paid $175 in accounts payable.
4. The company’s owner invested $375 in cash.
5. The company acquired equipment costing $575 on account.
6. The company paid $25 for inventory.
Required:
In the chart below, indicate if each transaction increases, decreases or has no effect on
Assets, Liabilities and Stockholders’ Equity.
Transaction Assets Liabilities Stockholders’ Equity
1. Increase Increase No effect
———————————————————————————————————-
———-
2.
———————————————————————————————————-
———-
3.
———————————————————————————————————-
———-
4.
———————————————————————————————————-
———-
5.
———————————————————————————————————-
———-
6.
———————————————————————————————————-
———-
Lorenzo Company is considering the purchase of equipment with an eight year life that
requires a $1,600,000 investment. At the end of eight years, the equipment will have no
salvage value. For eight years, the equipment will provide net income at the end of each
year as follows:
Sales $3,000,000
Less: Variable Expenses 1,800,000
Contribution margin 1,200,000
Less: Fixed Expenses:
Advertising 700,000
Depreciation on equipment 200,000
Net income $300,000
Other information follows:
Required rate of return 18%
Tax rate 30%
Depreciation method for tax purposes Straight-line
Present value of ordinary annuity of one
at 18% for 8 periods 4.0776
Present value of one at 18% for 8 periods 0.266
Required:
1. Compute the after tax annual cash flows generated by the equipment.
2. Compute the equipment’s net present value.
3. If the salvage value of the equipment is $10,000, compute the equipment’s net present
value.
Describe a balanced scorecard and identify the categories of key performance indicators
advocated by Kaplan and Norton.
The following information is available for Anderson Company at December 31, 2016:
Additional paid-in capital, common $490,000
Common stock, $5 par value, 40,000 shares issued 200,000
Dividends payable 415,000
Long-term investment in Jacobs Company 1,400,000
Marketable securities 610,000
Retained earnings 242,000
Treasury stock, common, 8,000 shares 176,000
Required:
Prepare the stockholders’ equity section of a classified balance sheet at December 31,
2016. Assume 400,000 shares of common stock are authorized to be issued.