Unexpired costs are expenses.
When a company acquires all of the common stock of a subsidiary, the books of the
subsidiary are no longer used.
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.
The entire firm may be a responsibility center for the firm’s president.
An example of a financing activity on the statement of cash flows is the conversion of
debt to common stock.
Companies must record research and development costs as expenses immediately.
Financial performance measures are usually not included in a balanced scorecard.
Line operating managers usually prepare and use the operating budget.
The accounting rate of return model ignores the time value of money.
Companies must assign all production-related costs to cost objects for external financial
reporting purposes.
The rate of return on net book value for equipment decreases as the equipment ages.
With perfect competition, at some point marginal costs begin to rise with increases in
production because facilities become inefficient.
Period costs become expenses during a future period.
Responsibility centers usually have a single goal that the management control system
monitors.
The account analysis method of measuring cost behavior does not rely on subjective
assessments.
Efficiency is the degree to which a goal or objective is met.
Noncontrolling interests appear on a consolidated balance sheet when a parent company
owns more than 50 percent but less than 100 percent of a subsidiary’s common stock.
A follow-up evaluation of capital-budgeting decisions is called a post-audit.
Traditional costing systems generally assign only production costs to products.
The matching convention attempts to match revenues and assets to a particular period.
An audit guarantees that there are absolutely no mistakes in the financial statements.
An efficient capital market is one in which an order to trade can be placed and executed
in a short period of time.
In imperfect competition, a firm must decrease the sales price to generate additional
sales.
In imperfect competition, marginal revenue usually decreases as volume increases.
Gross margin is the same as contribution margin for most companies.
In job-order costing, the journal entry to record the requisition of direct materials for
production would include a Debit to Direct Materials Inventory.
Ideal standards have an adverse effect on employee motivation.
Underapplied and overapplied fixed overhead has two components that include a
production-volume variance and a fixed overhead flexible budget variance.
Investors need more detailed information about products or services than managers.
It is profitable to extend processing or to incur additional costs on a joint product if the
additional revenue exceeds the joint cost.
The break-even point may be reduced by increasing the per unit variable cost.
Volume-driven costs can be easily traced to products or services.
During a period of inflation, the LIFO method reports a larger cost of goods sold
amount than FIFO.
Incentives do not increase managerial effort toward goal congruence.
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.
Stockholders’ equity is composed of paid-in capital and retained earnings.
Higher-level managers have the best information concerning local conditions.
Which statement about service organizations is FALSE?
A) Service organizations include law firms, banks, insurance companies and hospitals.
B) Service organizations do not make or sell tangible goods.
C) The service sector accounts for the majority of the employment in the United States.
D) Managers in service organizations do not need as much accounting information as
their counterparts in other types of organizations.
A small appliance manufacturer is deciding whether to accept or reject a special order
for 1,750 appliances. There is sufficient capacity available for the special order. What is
relevant information for the decision whether to accept or reject the special order?
A) the cost of the parts for the 1,750 appliances
B) the supervisor’s salary in the production area
C) the depreciation on assembly equipment
D) the accountant’s salary
Division South does not have excess capacity to produce Product Y. The division can
sell Product Y for $10 per unit outside the company. Variable costs are $6 per unit.
Division North wants to purchase Product Y from Division South to use in Product ZZ.
The selling price of Product ZZ is $25 per unit and variable costs to finish the product
after the transfer are $12 per unit. An outside supplier will sell Product Y for $12 per
unit. What is the maximum price Division North will pay for Product Y?
A) $12 per unit
B) $13 per unit
C) $25 per unit
D) none of the above
The Corrao 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 $88,400
Total Liabilities, December 31, 2012 $20,850
Total common shares outstanding, December 31, 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 debt-to-equity ratio at December 31, 2012?
A) 15.7%
B) 30.9%
C) 43.1%
D) 75.7%
Mark Company has the following information:
Month Budgeted Purchases
January $40,000
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 estimated cash disbursement in March from January purchases?
A) $3,052
B) $12,000
C) $14,500
D) $16,000
Johnson Company produces dolls. Each doll sells for $20.00. Variable costs per unit are
$14.00 and total fixed costs for the period are $300,000. What is the break-even volume
in dollars?
A) $50,000
B) $621,429
C) $1,000,000
D) $1,450,000
Karen Company manufactures three products from a joint process. Joint costs for the
year amounted to $300,000. The following data was available:
Product Units Produced Sales Value at Split-off
X 5,000 $70,000
Y 3,000 $30,000
Z 2,000 $100,000
Assume the physical-units method of allocating joint costs is used. What amount of
joint costs is allocated to Product X?
A) $70,000
B) $87,500
C) $150,000
D) $300,000
A major benefit of effective budgeting is that ________.
A) it compels managers to think ahead
B) it aids managers in communicating objectives to employees
C) it provides benchmarks to evaluate subsequent performance
D) all of the above
To evaluate managers’ decisions and the productivity of organizational units,
organizations use ________.
A) annual financial statements
B) quarterly financial statements
C) bimonthly financial statements
D) performance reports
Given below are the activities of the Tamara Company:
Credit sales $90,000
Cash sales $50,000
Cash collections from credit customers $36,000
Purchased inventory on account $27,000
Using the cash basis of accounting, the total revenues for Tamara Company are
________.
A) $56,000
B) $86,000
C) $90,000
D) $173,000
Simon Inc. currently produces 110,000 units at a cost of $440,000. The cost is variable.
Next year Simon Inc. expects to produce 115,000 units. Simon’s relevant range for
production is 100,000 to 120,000 units. If 115,000 units are produced next year, what is
the expected variable cost?
A) $420,000
B) $430,000
C) $440,000
D) $460,000
Audits of the financial statements of publicly held companies are conducted in
accordance with standards approved by the ________.
A) Financial Accounting Standards Board
B) Securities and Exchange Commission
C) Institute of Certified Public Accountants
D) Public Company Accounting Oversight Board
A cause and effect relationship between a ________ and a ________ is desirable in
order to obtain accurate and useful cost functions.
A) cost driver; cost function
B) cost function; resource cost
C) cost driver; resource cost
D) step cost; capacity cost
Zeman Company has no beginning and ending inventories, and reports the following
data about its only product:
Direct materials used $200,000
Direct labor $180,000
Fixed indirect manufacturing $100,000
Fixed selling and administrative $150,000
Variable indirect manufacturing $120,000
Variable selling and administrative $60,000
Selling price(per unit) $75
Units produced and sold 10,000
Zeman Company uses the contribution approach to prepare the income statement. What
is the contribution margin?
A) $150,000
B) $190,000
C) $250,000
D) $370,000
An investor in available-for-sale securities has the following information available at
December 31, 2012:
Market value of available-for-sale securities $8,000
Acquisition cost of available-for-sale securities $9,000
How does the investor report the change in market value on the available-for-sale
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 accumulated other comprehensive income account on the balance
sheet
D) $1,000 is subtracted from the accumulated other comprehensive income account on
the balance sheet
Monthly indirect production costs are $400,000. The cost-allocation base for indirect
costs is machine hours. The budgeted capacity for the month is 40,000 machine hours.
Product X used 5,000 machine hours, Product Y used 15,000 machine hours and
Product Z used 20,000 machine hours. How much of the indirect costs are allocated to
Products X and Y?
Product X Product Y
A) $2,500 $7,500
B) $5,000 $15,000
C) $50,000 $150,000
D) none of the above
Cost drivers are ________.
A) the different functions in the value chain
B) different types of functional areas in the firm
C) measures of activities that require the use of resources and thereby cause costs
D) different types of cost calculations
Managers can eliminate ________ costs entirely for a given year in dire times such as a
major recession. However, managers cannot eliminate ________ costs.
A) discretionary variable costs; committed variable costs
B) discretionary fixed costs; committed fixed costs
C) discretionary variable costs; committed fixed costs
D) committed fixed costs; committed variable costs
Spending less than budgeted for maintenance costs will result in a(n) ________
variance. When actual revenues exceed budgeted revenues, this results in a(n)
________ variance.
A) unfavorable; unfavorable
B) unfavorable; favorable
C) favorable; unfavorable
D) favorable; favorable
Tomlin Company spends $12,000 for a forklift with an estimated useful life of four
years. The company expects annual savings of $4,000 per year for four years, and a
salvage value of $5,000 at the end of 4 years. What is the payback period?
A) 2 years
B) 2.8 years
C) 3 years
D) 4 years
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
Assume a company uses process costing and has several processing departments. When
goods are transferred from Department X to Department Y, the journal entry requires a
Debit to ________ and a Credit to ________.
A) Work-In-Process Inventory—Department X; Work-In-Process Inventory—
Department Y
B) Finished Goods Inventory; Work-In-Process Inventory—Department Y
C) Cost of Goods Sold; Finished Goods Inventory
D) Work-In-Process Inventory—Department Y; Work-In-Process Inventory—
Department X
Spitzer Company is considering two investments. If the differential approach to
investment decisions is used, which of the following steps is NOT used?
A) list the differences in cash flows for each investment for each year
B) calculate the net present value of the differential cash flows
C) identify the relevant cash flows
D) calculate the net present value of the cash flows for each investment
What is the general rule for determining transfer prices on transferred products between
segments of a company? The transfer price equals ________ plus ________.
A) fixed costs; opportunity costs
B) outlay cost; sunk cost
C) outlay cost; variable cost
D) outlay cost; opportunity cost
The following information was compiled by Fabulous Incorporated:
Expected volume of production 50,000 units
Actual volume of production 47,500 units
Budgeted fixed overhead costs (for 50,000 budgeted units) $400,000
Actual fixed overhead costs $415,000
Actual variable overhead costs $790,000
Budgeted variable overhead costs (for 50,000 budgeted units) $855,000
Assume the cost-allocation base for overhead costs is units of production. What is the
fixed overhead flexible budget variance?
A) $15,000 Favorable
B) $15,000 Unfavorable
C) $20,000 Favorable
D) $20,000 Unfavorable
Brookfield Corporation has a joint process that produces three products: X, Y and Z.
Each product may be sold at split-off or processed further and then sold.
Joint-processing costs for a year amount to $100,000. Other data follows:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs after Split-Off at Completion
X $128,000 $16,000 $150,000
Y 75,000 26,000 99,000
Z 32,600 20,000 50,000
Processing Product X beyond the split-off point will cause profits to ________.
A) be unchanged
B) increase by $6,000
C) increase by $16,000
D) increase by $22,000
The most widely used capital budgeting models are ________.
A) payback method
B) accounting rate of return
C) return on investment
D) discounted cash flow methods
Missouri Company has a current production capacity level of 200,000 units per month.
At this level of production, variable costs are $0.60 per unit and fixed costs are $0.50
per unit. Current monthly sales are 173,000 units. Gates Company has contacted
Missouri Company about purchasing 20,000 units at $1.00 each. Current sales would
not be affected by the special order and no additional fixed costs would be incurred on
the special order. If the order is accepted, what is Missouri Company’s change in
profits?
A) $8,000 increase
B) $8,000 decrease
C) $10,000 increase
D) $10,000 decrease
DesPlaines Corporation has a joint process that produces three products: P, G and A.
Each product may be sold at split-off or processed further and then sold.
Joint-processing costs for a year amount to $25,000. The production level for each
product is 10,000 units. Other data follows:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs after Split-Off at Completion
P $12 $8 $20
G 10 4 17
A 15 6 19
If Product P is processed beyond the split-off point, profits will ________.
A) increase by $90,000
B) increase by $120,000
C) increase by $210,000
D) remain the same
Hybrid-costing systems use a combination of ________.
A) job-order costing and process costing ideas
B) activity-based costing and absorption costing
C) job-order costing and activity-based costing
D) job-order costing and costing for service organizations
On January 1, 2012, Preview Company acquired all of the stock of a subsidiary. The
following data is available:
Preview Company Subsidiary
Total assets $650 $400
Total liabilities $200 $190
Total stockholders’ equity $450 $210
The acquisition by the Preview Company represents a 100 percent interest in the
subsidiary. On January 1, 2012, the fair value of the subsidiary’s assets and liabilities
are equal to the book value. Preview Company paid $250 for the 100 percent interest in
the subsidiary. On January 1, 2012, what are the total assets on the consolidated balance
sheet? (Assume elimination entries are completed.)
A) $650
B) $800
C) $840
D) $1,050
Juan Company’s after-tax operating income was $882 million. Average total assets were
$5,900 million and average total stockholders’ equity was $4,050 million. Juan
Company’s cost of capital was 10%. Juan Company uses total assets as the measure of
invested capital. What is Juan Company’s residual income?
A) $187 million
B) $292 million
C) $477 million
D) $667 million
Gonzalez Company has two service departments, Maintenance and Human Resources.
Gonzalez 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
Assume the step-down method is used to allocate service department costs, and the
Maintenance Department is allocated first. The amount of cost allocated from the
Maintenance Department to the Finishing Department would be ________.
A) $31,500
B) $42,750
C) $47,250
D) $57,000
West Allis Bike Shop 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, West Allis Bike Shop purchased $6,000 of direct materials
and incurred $3,000 in conversion costs to produce 40 bicycles. The journal entry to
record the purchase of materials includes a Debit to ________.
A) Materials Inventory
B) Work-in-Process Inventory
C) Finished Goods Inventory
D) Cost of Goods Sold