Inaccurate allocation of joint costs to the individual products could cause an
unprofitable product to appear to be profitable.
If a company has to pay a given amount of income taxes over the life of a capital
investment, managers of the company should seek to pay the taxes as early as possible
in the investment’s life.
An increase in prevention costs will often reduce a firm’s overall costs of quality.
Strategic planning deals with the establishment of a long term company objectives.
In an activity-based costing system, a volume-based cost driver is appropriate for
product-level activities.
If the master budget prepared at a volume level of 10,000 units includes direct materials
of $40,000, a flexible budget based on a volume of 12,000 units would include direct
materials of $48,000.
Under the terms of the Sarbanes-Oxley Act, a company and its external auditor are
required to report on the effectiveness of the company’s system of internal controls.
The 10,000 units in Department B that are 30% complete are equivalent to 3,000 whole
units.
The amount of the depreciation tax shield can be calculated by multiplying the amount
of depreciation expense by the tax rate.
Cash from the sale of treasury stock would be classified as an investing cash flow.
The first step in implementing an activity-based costing system is to trace overhead
costs to one or more departments.
In a highly automated manufacturing company, labor costs vary considerably with
volume of production.
Costs associated with holding inventory include hidden costs, such as low employee
motivation.
By the end of the year, Shirley Company’s manufacturing overhead account had a
$1,500 credit balance. This means that overhead was underapplied during the year.
Anderson Company produces a variety of products, some in labor-intensive
departments and some in heavily automated departments. Using a company-wide
overhead allocation rate based on direct labor will result in overcosting some products
and undercosting others.
Trenton Company is a manufacturing company with several processing departments.
The company uses a process cost system. When goods are complete, the product cost
transferred to finished goods inventory includes the sum of product costs from all the
processing departments.
If actual volume is smaller than the budgeted or expected volume, then a favorable
volume variance will occur.
In a process cost system, a transferred-in cost is the same thing as raw materials cost.
Target costing begins with determining the cost of the product and then focusing on
developing ways to sell the product at a price that will enable the company to achieve
its desired profit margin.
Which of the following is not a joint product with the other products listed?
A. Cheese
B. Cream
C. Butter
D. Eggs
Benson Company received cash of $1,000,000 from issuing common stock. As a result
of this transaction, the company’s debt to equity ratio will:
A. Decrease.
B. Increase.
C. Remain the same.
D. Cannot be determined.
Which of the following is not an example of budget gamesmanship that may occur in a
company?
A. Lowballing
B. Budget slack
C. Making the numbers
D. None of these answers is correct.
Select the incorrect statement regarding the use of average unit costs.
A. Average costs should be calculated for a sufficiently long time period to capture
seasonal fluctuations in costs.
B. Average costs are often more relevant for decision making than are actual costs.
C. Average cost information can help managers evaluate performance of the company
or departments in the company.
D. Cost averaging should be used only for fixed costs, and not for variable costs.
Jones Manufacturing Company experienced an accounting event that affected its
financial statements as indicated below:
Which of the following accounting events could have caused the indicated effects on
the firm’s accounting equation?
A. Purchased raw materials inventory on account.
B. Recognized revenue from merchandise sold for cash.
C. Transferred cost of goods manufactured from work in process to finished goods
inventory.
D. None of these.
Purchases on account are given below:
55% of the month’s purchases will be paid in the month of the purchase; the remaining
45% will be paid in the following month.
How much will the cash payments for purchases be in November?
A. $35,500
B. $34,500
C. $40,000
D. $36,000
The voluntary costs of quality include:
A. internal failure costs.
B. external failure costs.
C. appraisal costs.
D. All of these answers are correct.
Benitez Company currently outsources a relay switch that is a component in one of its
products. The switches cost $20 each. The company is considering making the switches
internally at the following projected annual production costs:
The company expects an annual need for 5,000 switches. If the company makes the
product, it will have to utilize factory space currently being leased to another company
for $1,500 a month. If the company decides to make the parts, total costs will be:
A. $10,500 more than if the switches are purchased.
B. $27,000 less than if the switches are purchased.
C. $20,000 less than if the switches are purchased.
D. $30,500 more than if the switches are purchased.
Preston Company has three divisions. The company should consider a cost to be a
direct cost of a division if:
A. It meets guidelines imposed by generally accepted accounting principles.
B. It can be traced to a division in a cost-effective manner.
C. It is a variable cost.
D. It can be allocated to a division.
As of December 31, 2013, Gant Corporation had a current ratio of 1.29, quick ratio of
1.05, and working capital of $18,000. The company uses a perpetual inventory system
and sells merchandise for more than it cost. On January 1, 2014, Gant sold inventory on
account for $6,000. Which of the following statements is incorrect?
A. Gant’s current ratio will increase.
B. Gant’s quick ratio will decrease.
C. Gant’s working capital will increase.
D. None of these answers is correct.
Tucker Company’s work in process account decreased by $1,000 while its finished
goods account increased by $500. Assuming total manufacturing costs were $5,000,
what was the company’s cost of goods sold amount?
A. $3,500
B. $4,500
C. $4,000
D. $5,500
Which of the following statements about a cost-volume-profit graph is correct?
A. A cost-volume-profit graph is prepared with activity (number of units) on the vertical
axis.
B. The intersection of the total sales line and the total cost line represents the
break-even point.
C. The area above the break-even point represents the area of loss.
D. The total cost line intersects the vertical axis at the dollar amount of total variable
costs.
Indicate whether each of the following statements is true or false.
A predetermined overhead rate should not be used to allocate overhead costs when
volume varies during the year.
A predetermined overhead rate is calculated using estimated cost and volume data.
A predetermined overhead rate is calculated by dividing costs by volume, using a
measure of volume such as direct labor hours or direct materials cost.
A company may need to allocate overhead costs to products to make pricing decisions
for the products.
Accounting reports at the end of the fiscal year are based on estimated costs rather than
actual costs.
Which of the following software applications is most useful for performing C-V-P
sensitivity analysis?
A. Database software
B. Spreadsheet software
C. Presentation software
D. Word processing software
For purposes of decision making, avoidable costs are costs that:
A. were incurred in the past.
B. will not be incurred in the future, regardless of the alternative chosen.
C. differ between alternatives.
D. None of these.
Which of the following is an appropriate cost driver for issuance of purchase orders?
A. Number of units
B. Number of purchase orders
C. Number of set ups
D. Either A or B would be appropriate
Select the incorrect statement regarding fixed and variable costs.
A. Fixed cost per unit remains constant as the number of units increases.
B. Total variable cost is represented by a straight line sloping upward from the origin
when total variable cost is graphed versus number of units.
C. The concept of relevant range applies to both fixed costs and variable costs.
D. The terms “fixed” and “variable” refer to the behavior of total cost.
Abbot Company spent less than expected for materials and more than expected for
labor. Select the incorrect statement from the following.
A. You can always expect unfavorable labor variances if you have favorable material
variances.
B. In order to facilitate cost control, it will be necessary to analyze the price and
quantity of each resource used in production.
C. It cannot be determined from the information provided whether employees were paid
higher wages or if they worked more hours.
D. It cannot be determined from the information provided whether the company paid a
lower purchase price for materials or if workers used less materials.
Which of the following statement(s) is/are correct?
I. A predetermined overhead rate is used to assign estimated overhead costs to work in
process inventory.
II. The predetermined overhead rate is calculated by dividing estimated overhead cost
by the estimated volume or level of activity.
III. The most common means of allocating overhead costs is to calculate a
predetermined overhead rate at the end of the period.
A. I
B. I and III
C. II
D. I and II
Joseph Company has variable costs of $80 per unit, total fixed costs of $200,000, and a
break-even volume of 5,000 units. If the variable cost per unit decreases by $8, how
many units must Joseph Company sell to break-even?
A. 2,778 units
B. 2,500 units
C. 6,250 units
D. 4,167 units
Select the correct statement about the master budget.
A. The master budget is a group of detailed budgets and schedules representing the
company’s operating and financial plans for the past accounting period.
B. The master budget usually includes operating budgets and capital budgets, and pro
forma financial statements.
C. The budgeting process usually begins with preparing the strategic budgets.
D. Preparing the master budget begins with the cash budget.
Dennis Corporation prepared the following data (in dollars) for the current year:
Using the indirect method, what is the net cash flow from operating activities?
A. $146,800
B. $133,300
C. $101,200
D. $118,000
The following information was drawn from the year-end balance sheets of White, Inc.
White, Inc., issued $30,000 in bonds during 2014. The bonds were issued at face value.
All bonds were retired at face value. What is the amount of cash outflow for the
payment of bond liabilities?
A. $75,000
B. $25,000
C. $55,000
D. $105,000
Sanchez Company makes and sells two models of dog houses, the Puppy Palace and the
Canine Castle:
Sanchez has determined that it would break even at an annual sales volume of 5,000
units, of which 75% would be Puppy Palaces. What is the amount of Sanchez’s
estimated annual fixed costs?
What kinds of cash flows are reported as investing activities on the statement of cash
flows?
Indicate whether each of the following statements about outsourcing decisions is true or
false.
An outsourcing decision involves a purchase offer from a customer at a
lower-than-normal selling price.
Outsourcing would increase a company’s level of vertical integration.
To evaluate an outsourcing decision, a manager should compare the avoidable cost of
making an item to the cost of buying it.
The decision to outsource a particular product is not affected by the amount of the
product needed.
Reliability of the supplier is a critical issue in an outsourcing decision.
Discuss three practical implications of misclassifying product and/or period costs.
Explain how to calculate contribution margin per unit.