Two common methods for comparing alternative investments are the total project
approach and the conversion approach.
In a make-or-buy decision, if plant facilities will remain idle when the decision is made
to outsource a part used in a product, then the opportunity cost of the plant facilities is
zero. Assume there are no alternative uses of the plant facilities available.
Prices based on variable costs represent a contribution approach to pricing.
Under the accrual basis of accounting, the impact of transactions is recorded when cash
is received or paid.
Discounted-cash-flow models do not focus on net income.
When making capital budgeting decisions, the manager should utilize the marginal tax
rate for the company instead of the average tax rate.
In retail sales, the limiting resource is often floor space.
Cubic feet are the logical cost driver for depreciation expense from heating and air
conditioning equipment. The cost object is the assembly department in a factory.
The relative-sales-value method of allocating joint costs requires a common physical
unit for measuring the output of each product.
Conflicts in the decision-making process can arise when superiors evaluate a manager’s
performance using a model consistent with the decision model used by the manager.
A cost accounting system typically includes two processes: cost allocation and cost
determination.
A cost accounting system typically includes two processes: cost allocation and cost
determination.
The production volume variance is calculated by the difference between actual volume
and applied volume.
The book value of an asset that is being replaced is a relevant cash flow in the net
present value method.
Goodwill can only be recognized when one company acquires another company.
A sole proprietorship is a business organized as a separate legal entity and owned by its
stockholders.
The direct materials price variance is based on the standard quantity of inputs allowed
for the actual output.
Research suggests that investors are not fooled by companies that choose the least
conservative accounting policies to increase net income.
An assumption of the CVP analysis is that the sales mix can fluctuate.
Companies must record research and development costs as expenses immediately.
If a company accepts a project with a negative NPV, the project will increase the value
of the firm.
A deduction for depreciation expense lowers a company’s tax liability.
Revenue and expense accounts are permanent stockholders’ equity accounts.
If an investor uses the equity method to account for a long-term equity investment, then
the investor records income when the investee reports net income.
The following rule applies when preparing the cash budget. If available cash plus net
cash receipts and disbursements is negative, then borrowing is necessary.
A century ago, a large proportion of labor costs were direct costs.
Accurate sales forecasting is essential to effective budgeting.
When sales exceed production, variable-costing income is greater than
absorption-costing income.
The direct method of cost allocation is generally preferred because it recognizes the
effect of support provided by service departments to other service departments.
Sunk cost is used to describe a historical cost or past cost.
In an economic downturn, a company could temporarily reduce or eliminate ________.
A) depreciation expense on corporate building
B) bond interest payment
C) property taxes on corporate building
D) advertising and promotion
Why do most nonprofit organizations face substantial difficulties in implementing
management control systems?
A) The outputs of nonprofit organizations are easy to measure.
B) It is difficult to measure the quantity of outputs from nonprofit organizations.
C) It is difficult to measure the quality of outputs from nonprofit organizations.
D) B and C
Roberts Company manufactures phones in a two-department process that involves
Assembly and Finishing. The Assembly Department reported the follow data for the
past month:
Direct materials added $336,000
Direct labor 460,800
Factory overhead 230,400
Total costs to account for $1,027,200
Units started 80,000
Units completed and transferred 67,200
Units not complete 12,800
Units in beginning inventory 0
The partially complete units at the end of the month were 100 percent complete with
respect to materials and 75 percent complete with respect to conversion costs. The
ending balance in Work-In-Process Inventory–Assembly is ________.
A) $140,160
B) $168,960
C) $862,848
D) $887,040
The acquisition of inventory on account will ________.
A) increase assets and decrease stockholders’ equity
B) decrease assets and decrease liabilities
C) increase assets and increase liabilities
D) increase assets and increase stockholders’ equity
On a classified balance sheet, the Equipment account is reduced by ________.
A) Allowance for Bad Debts
B) Allowance for Doubtful Accounts
C) Accumulated Depreciation
D) Depreciation Expense
A company manufactures household furniture at several different plants. When
preparing segmented income statements for each plant, unallocated costs do NOT
include ________.
A) Salaries of attorneys at corporate office
B) Salaries of human resources staff at corporate office
C) Advertising initiated at corporate office
D) Depreciation expense on testing equipment in plant
When manufacturing multiple products that are not initially separately identifiable,
manufacturing costs incurred after the split-off point are known as ________ costs.
A) joint
B) product
C) split-off
D) separable
Presented below is the production data for six months showing the mixed costs incurred
by Anderson Company.
Month Cost Units
July $5,890 4,100
August $4,012 3,200
September $7,480 6,300
October $9,000 7,500
November $5,800 5,800
December $7,336 6,600
Anderson Company uses the high-low method to analyze mixed costs. The cost
function is ________ where Y= Total Cost and X= Number of units.
A) Y = $440 + $1.12X
B) Y = $300 + $1.16X
C) Y = $440 + $1.20X
D) Y = $7,850 + $0.132X
Unfavorable variances ________ represent bad decisions made by managers.
A) always
B) sometimes
C) never
D) none of the above
Wehr Company has two departments. Relevant information is presented below:
Department 1 Department 2
Budgeted total assets $400,000 $500,000
Actual total assets $340,000 $450,000
Budgeted sales $400,000 $2,000,000
Actual sales $300,000 $2,100,000
Total company-wide advertising costs are $300,000. Assume the allocation base is
changed from budgeted sales to actual sales. The amount of advertising costs allocated
to Department 1 will ________.
A) increase by $12,500
B) increase by $25,000
C) decrease by $12,500
D) decrease by $25,000
Christian Company has the following data available:
Dividends declared in 2015 $8,000
Retained Earnings, December 31, 2014 $30,000
Net income for the year ended December 31, 2015 $14,000
Paid-in Capital, December 31, 2014 $29,000
Paid-in Capital, December 31, 2015 $26,000
What is the company’s total stockholders’ equity on December 31, 2015?
A) $36,000
B) $46,000
C) $62,000
D) $101,000
Sanchez Company has no beginning and ending inventories, and reports the following
data about its only product:
Direct materials used $100,000
Direct labor $80,000
Fixed indirect manufacturing $100,000
Fixed selling and administrative $170,000
Variable indirect manufacturing $20,000
Variable selling and administrative $90,000
Selling price(per unit) $100
Units produced and sold 12,000
Sanchez Company uses the absorption approach to prepare the income statement. What
is the manufacturing cost of goods sold?
A) $270,000
B) $300,000
C) $390,000
D) $500,000
John is a management accountant at DAP Inc. John has reason to believe that his
immediate supervisor (the controller), the chief financial officer and the company
president are engaged in accounting fraud that involves overstating assets and
understating liabilities. The company does not have a code of ethics or a set of policies
for ethical problems. According to the guidelines offered by the IMA, what should John
do?
A) Report the suspected wrongdoings to the local police.
B) Discuss the suspected wrongdoings with his immediate supervisor.
C) Discuss the suspected wrongdoings with the company president.
D) Report the suspected wrongdoings to the audit committee or the board of directors.
The following information is available for Pohler Company:
Current assets $100,000 Current liabilities $75,000
Property, plant and Long-term liabilities 100,000
equipment 50,000 Stockholders’ equity 125,000
Other assets 150,000 Total liabilities and
Total assets $300,000 stockholders’ equity $300,000
Invested capital is defined as total assets. Before-tax operating profit is $175,000.
After-tax operating profit is $125,000. The after-tax cost of capital is 10%. What is
economic profit?
A) $95,000
B) $125,000
C) $145,000
D) $175,000
Bush Company expects May sales to be $20,000. Approximately 40% of sales are cash
sales. Collection of credit sales are 50% in the month of sale, 40% in the month
following sale and 5% two months following sale. The remaining 5% is uncollectible.
________ is the expected cash collection in May from May sales.
A) $4,000
B) $6,000
C) $8,000
D) $14,000
When developing a price for a new product, the price must cover ________.
A) costs in phase-out and product development cycles only
B) costs in mature market and introduction to market cycles only
C) costs in product development and phase-out cycles plus direct production costs
D) costs incurred in all stages of the product life cycle
The following data are for the month of January for the Soloway Company. Assume the
cost driver is the number of units sold.
Static budget data:
Sales of 9,000 pairs at $90 per pair
Variable costs of $69 per pair
Total fixed costs $108,000
Actual results:
Sales of 9,600 pairs at $87 per pair
Variable costs of $72 per pair
Total fixed costs $109,200
Required:
A) What is the static budget operating income?
B) What is the sales activity variance for operating income?
C) What is the flexible budget variance for operating income?
For nonprofit organizations, the income statement is ________.
A) used
B) replaced with the statement of stockholders’ equity
C) replaced with the statement of activities
D) replaced with the statement of cash flows
The organizational goal of a hotel chain is to increase customer satisfaction. Which of
the following is NOT a valid performance measure to meet the organizational goal?
A) number of repeat customers
B) number of complaints by customers
C) occupancy rate
D) average room rate
Allocating fixed costs based on long-range plans may inadvertently result in a tendency
of mangers to ________.
A) underutilize available capacity
B) overestimate planned usage
C) underestimate planned usage
D) overestimate planned costs
To approximate cost functions for a particular manufacturing process, engineering
analysis relies on ________.
A) statistical analysis
B) mathematical analysis
C) graphs
D) actual observations of the ongoing process
The following data has been assembled for Robert Company. Use the high-low method.
Month Cost Hours
January $24,400 2,000
February $39,000 2,200
March $35,280 2,750
April $36,400 3,500
May $40,000 4,000
The cost function is ________ where Y = Total cost and X = Number of hours.
A) Y = $3,600 + $10.40X
B) Y = $8,800 + $7.80X
C) Y = $21,360 + $1.52X
D) Y = $26,672 + $1.84X
When determining the cost of a product, which of the following costs is often not
allocated?
A) Customer Service Expense
B) Research and Development Expense
C) Marketing Expense
D) Administrative Salaries Expense
Brother Company prints calendars. All direct materials are added at the inception of the
printing process. There were 20,000 units in beginning inventory with a direct material
cost of $1,000 and conversion costs of $3,760.
During the month of April, 160,000 calendars were started and 144,000 calendars were
completed. Direct materials cost $26,000 for the month of April. Conversion costs for
the month of April were $20,000.
Ending work-in-process units are 100% complete with regard to direct materials and
40% complete with regard to conversion costs. The weighted-average method of
process costing is used by Binding Company.
Required:
A) Compute the equivalent units for materials and conversion costs.
B) Compute the unit costs for materials and conversion costs.
C) Compute the cost of units transferred.
D) Compute the cost of ending work-in-process inventory.
A variable-costing transfer pricing system is appropriate when there is ________.
A) constrained capacity for the selling segment
B) constrained capacity for the buying segment
C) excess capacity for the selling segment
D) excess capacity for the buying segment
Which of the following is NOT a prevention activity for quality control?
A) improvements in production processes
B) engineering analyses to improve product design for better manufacturing
C) inspection of incoming materials
D) quality training of employees
McArthur Company makes three types of products. The company has two types of
customers. The cost to serve all customers is $12,000 and is allocated to customer types
based on the number of manager visits to customer locations. The following data are
available:
Product 1 Product 2 Product 3
Sales $5,000 $6,000 $30,000
Cost of goods sold 4,000 4,800 15,000
Gross margin $1,000 $1,200 $15,000
Customer Type 1 Customer Type 2
Product 1 Sales $500 $4,500
Product 2 Sales $1,000 $5,000
Product 3 Sales $16,000 $14,000
Manager visits 4 12
What is the cost to serve for Customer Type 1?
A) $2,400
B) $3,000
C) $9,600
D) $12,000
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
Elmbrook 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. A patient spent 8 hours in the pre-operating room, 4 hours in the
operating room and 96 hours on the surgery recovery floor. What amount of indirect
costs will be applied to this patient?
A) $336.00
B) $600.00
C) $7,680
D) $8,112
The Brucker Company makes mugs for which the following standards have been
developed:
Standard Inputs Expected Standard Price Expected
For Each Unit of Output Per Unit of Input
Direct Materials 5 ounces $2 per ounce
Direct Labor 1.5 hours $8 per hour
Production of 400 mugs was expected in July, but 440 mugs were actually completed.
Direct materials purchased and used were 2,100 ounces at an actual price of $2.30 per
ounce. Direct labor cost for the month was $5,310, and the actual pay per hour was
$9.00. What is the direct material price variance for July?
A) $400 Favorable
B) $400 Unfavorable
C) $630 Favorable
D) $630 Unfavorable