John Company has two service departments, Maintenance and Human Resources. John
Company also has two production departments, Mixing and Finishing. Maintenance
costs are allocated based on square footage while Human Resources costs are allocated
based on number of employees. The following information has been gathered for the
current year:
Human
Maintenance Resources Mixing Finishing
Direct costs $126,000 $84,000 $105,000 $175,000
Square footage 800 400 1,600 1,200
Number of employees 8 12 24 32
If the direct method is used to allocate service department costs, then the total cost of
the Mixing Department after allocation would be ________.
A) $36,000
B) $105,000
C) $108,000
D) $213,000
Which of the following is NOT a component of the operating budget?
A) sales budget
B) operating expense budget
C) capital budget
D) budgeted income statement
An investor in trading securities has the following information available at December
31, 2012:
Market value of trading securities $8,000
Acquisition cost of trading securities $9,000
How does the investor report the change in market value on the trading securities at
December 31, 2012?
A) unrealized loss of $1,000 on income statement
B) unrealized gain of $1,000 on income statement
C) $1,000 is added to other comprehensive income account on the balance sheet
D) $1,000 is subtracted from the other comprehensive income account on the balance
sheet
The final output of the operating budget is ________.
A) budgeted statement of stockholders’ equity
B) budgeted balance sheet
C) budgeted income statement
D) budgeted statement of cash flows
Freund Company produces calendars in a one-department process. The following data
is available for the past month:
Work-in-process inventory, beginning 0
Units started 15,000
Units completed and transferred 12,000
Units in ending inventory 3,000
Direct materials added $30,000
Direct labor $20,700
Factory overhead costs $10,350
The units in process at the end of the month are 100 percent complete with respect to
materials and 60 percent complete with respect to conversion costs. What are the total
costs to account for?
A) $20,700
B) $30,000
C) $50,700
D) $61,050
The following information is available for the Platinum Company:
Net income for the year ended December 31, 2014 $127.4
Retained earnings, December 31, 2014 150.0
Retained earnings, December 31, 2013 180.0
Total assets, December 31, 2014 470.0
Total assets, December 31, 2013 442.0
Total liabilities, December 31, 2014 280.0
Total liabilities, December 31, 2013 182.0
What is the debt-to-equity ratio at December 31, 2014?
A) 0.29
B) 1.47
C) 1.90
D) 2.00
The static budget is based on the ________ level of output and the flexible budget is
based on the ________ level of output.
A) actual; expected
B) expected; actual
C) expected; planned
D) actual; projected
If a company eliminates all discretionary costs due to a severe recession, this could
________.
A) ensure that the company reports a net loss
B) ensure that the company reports a net profit
C) reestablish a company’s competitive position in an industry
D) impair a company’s competitive position in an industry
Maury Company’s revenues are $300 for the year. Average invested capital for the year
is $240. Expenses are currently 84% of revenues. If Maury Company can reduce its
expenses to 70% of revenues, return on investment will be ________.
A) 20%
B) 37.5%
C) 70%
D) 93.75%
Bernard Bassuluchi Company uses a job-order costing system and has the following
data available:
Beginning Direct Materials Inventory $26,000
Beginning Work-In-Process Inventory $64,000
Beginning Finished Goods Inventory $58,000
Direct materials purchased on account $148,000
Direct materials requisitioned $82,000
Direct labor cost incurred $130,000
Factory overhead incurred $146,000
Cost of goods completed $292,000
Cost of Goods Sold $256,000
Overhead application rate (based on direct labor cost) 125%
The journal entry to record the purchase of direct materials would include a ________.
A) Debit to Work-In-Process Inventory for $82,000
B) Debit to Direct Materials Inventory for $148,000
C) Credit to Direct Materials Inventory for $148,000
D) Credit to Work-In-Process Inventory for $148,000
Conner Company has the following information:
Actual operating loss at 5,000 units $(11,000)
Budgeted operating income at 5,000 units $5,000
Budgeted operating income at 10,000 units $12,000
Planned level of operations 10,000 units
Actual level of operations 5,000 units
Assume units of output are the cost driver for product costs. What is the static budget
variance for operating income?
A) $11,000 Unfavorable
B) $12,000 Unfavorable
C) $23,000 Unfavorable
D) $23,000 Favorable
The following information pertains to the Southern Division of Swenson Company:
Net Sales $5,000
Variable Costs:
Cost of merchandise sold 1,200
Operating expenses 450
Fixed costs:
Controllable by segment manager 600
Controllable by others 250
Unallocated costs 750
The contribution by segment is ________.
A) $2,350
B) $2,500
C) $2,750
D) $3,350
The Middleton Company reports the following information:
Sales for the year ended December 31, 2012 $106,950
Gross profit for the year ended December 31, 2012 $45,150
Net income for the year ended December 31, 2012 $7,300
Total Current Assets, December 31, 2012 $18,700
Total Current Liabilities, December 31, 2012 $7,600
Total Assets, December 31, 2012 $48,400
Total Liabilities, December 31, 2012 $20,850
Average common shares outstanding in 2012 1,000
Market price per share, December 31, 2012 $75.00
Dividends per share, for the year ended December 31, 2012 $5.00
What is the earnings per share for the year ended December 31, 2012?
A) $0.26
B) $3.88
C) $7.30
D) $106.95
To determine the cost of a product, which of the following are followed?
A) first step, cost assignment and second step, cost allocation
B) first step, cost accumulation and second step, cost assignment
C) first step, cost allocation and second step, cost apportionment
D) first step, cost absorption and second step, cost attribution
For trading securities, changes in the market value of the securities are included in
________. For available-for-sale securities, changes in the market value of the
securities are included in ________.
A) Other Comprehensive Income; Other Comprehensive Income
B) Other Comprehensive Income; Retained Earnings
C) Retained Earnings; Other Comprehensive Income
D) Retained Earnings; Retained Earnings
Wheel and Sprocket Company uses a backflush-costing system to account for bicycles.
Bicycles are scheduled for production only after orders are received and products are
shipped to customers immediately upon completion. No Finished Goods Inventory is
maintained and product costs are applied directly to Cost of Goods Sold. The standard
cost for materials is $150 per bicycle. The standard cost for conversion costs is $75 per
bicycle.
During the current month, Wheel and Sprocket Company purchased $6,000 of direct
materials and incurred $3,000 in conversion costs to produce 40 bicycles. The journal
entry for the incurrence of conversion costs includes a Debit to ________.
A) Finished Goods Inventory for $3,000
B) Work-In-Process Inventory for $3,000
C) Conversion Costs for $3,000
D) Cost of Goods Sold for $3,000
A car lease payment is computed based solely on the number of miles driven. This is an
example of a ________.
A) variable cost
B) mixed cost
C) step cost
D) stair cost
Which is NOT a reason for a static budget variance?
A) Actual sales volume was higher than projected sales volume.
B) Actual variable costs were higher than static budget variable costs.
C) Actual fixed costs were higher than static budget fixed costs.
D) Actual sales volume in current period was higher than projected sales volume in last
period.
When an upholstered chair is the cost object, minor materials, such as tacks and nails,
used to manufacture the chair would probably be classified as a(n) ________.
A) direct production cost
B) direct nonproduction cost
C) indirect production cost
D) indirect nonproduction cost
The financial budget includes ________.
A) the capital budget and the sales budget only
B) the capital budget and the budgeted income statement only
C) the capital budget, the cash budget and the budgeted balance sheet
D) the cash budget and the purchases budget only
Costs uncontrolled by a segment manager should be ________ when evaluating the
performance of the segment manager.
A) considered
B) weighed heavily
C) weighed lightly
D) ignored
________ is a capital budgeting model that ignores the time value of money and
focuses on the profitability of an investment project.
A) Payback model
B) Internal rate of return model
C) Accounting rate of return model
D) Real options model
The production volume variance appears when ________.
A) the actual production volume equals the expected production volume used in
computing the fixed overhead rate
B) the actual production volume deviates from the expected production volume used in
computing the fixed overhead rate
C) the actual production volume deviates from the expected production volume used in
computing the variable overhead rate
D) the actual production volume equals the expected production volume used in
computing the variable overhead rate
The joint formulation by a manager and his or her superior of a set of goals and plans
for achieving the goals for a forthcoming period is known as ________.
A) capital budgeting
B) managerial effort
C) management control system
D) management by objectives
Step Company has total variable costs of 80% of total revenues and fixed costs of $20
million per year. What is the break-even point expressed in total revenue dollars?
A) $10 million
B) $12.5 million
C) $20 million
D) $100 million
Stanley Company has identified the following activities related to indirect production
costs:
Activity Activity Costs Cost Drivers
Machine Setup $180,000 1,500 setup hours
Materials Handling $50,000 12,500 pounds of materials
Electric Power $20,000 20,000 kilowatt hours
Stanley Company has obtained the following data concerning two products:
Product 1 Product 2
Number of units produced 4,000 20,000
Direct materials cost $20,000 $25,000
Direct labor cost $12,000 $20,000
Number of setup hours 100 120
Pounds of materials used 500 1,500
Kilowatt-hours 1,000 2,000
Using an activity-based costing system, what amount of materials handling cost is
assigned to Products 1 and 2?
Product 1 Product 2
A) $2,000 $6,000
B) $8,333 $41,667
C) $12,500 $37,500
D) $20,000 $30,000
Benville Hospital uses a job-order costing system for all patients who have surgery. The
following information is available:
Budgeted indirect costs—pre-operating room $84,000
Budgeted indirect costs—operating room $66,000
Budgeted indirect costs—surgery recovery floor $600,000
Budgeted nursing hours—pre-operating room 4,000
Budgeted nursing hours—operating room 1,000
Budgeted nursing hours—surgery recovery floor 7,500
The cost driver for all indirect costs is nursing hours. The hospital uses a budgeted rate
for indirect costs. The budgeted rate for indirect costs for the surgery recovery floor is
________.
A) $42.00
B) $45.75
C) $75.00
D) $80.00
Information is relevant in business decisions if it is a(n) ________.
A) expected future revenue or it differs among alternatives
B) expected future revenue and it differs among alternatives
C) past revenue and it differs among alternatives
D) expected future revenue that differs from past revenue
One of the limitations of the balance sheet is that the dollar amounts for different assets
reflect different levels of inflation. That is the result of the ________ assumption.
A) recognition
B) matching
C) stable monetary unit
D) conservatism
Cornish Company is preparing a cash budget for the month of June. The following
information is available:
Cash Balance, May 31, 2015 $11,000
Cash collections from customers in June 43,000
Depreciation expense in June 10,000
Cash paid for equipment in June 20,000
Cash paid for merchandise in June 20,000
Cash paid for operating expenses in June 20,000
Cash dividend paid in June 5,000
The minimum cash balance desired is $5,000. What are the net cash receipts and
disbursements for the month of June?
A) $(2,000)
B) $(3,000)
C) $(22,000)
D) $(32,000)
Many managers set prices by cost plus pricing. What is cost plus pricing? Assume it is a
long run decision.
A) average cost per unit plus markup per unit
B) average target cost plus markup per unit
C) average cost per unit minus markup per unit
D) average target cost minus markup per unit
The only difference between the net income between variable costing and absorption
costing is the treatment of ________.
A) variable selling costs
B) variable administrative costs
C) fixed selling costs
D) fixed manufacturing overhead costs
When using the step-down method of allocating service department costs, service
departments provide support activities to ________.
A) producing departments only
B) producing departments and other service departments
C) service departments only
D) producing departments and corporate central offices only
Which of the following approaches should be used to compare four investment
alternatives?
A) total project approach
B) sensitivity analysis
C) payback method
D) differential approach
