A management control system is a logical integration of techniques to gather and use
data and to evaluate performance.
A company will bid near the minimum sales price to establish a presence in new
markets or with a new customer.
A cash payment of accounts payable does not affect stockholders’ equity.
The current ratio equals current assets divided by current liabilities.
Accurate sales forecasting is essential to effective budgeting.
When allocating fixed costs from service departments to user departments, a
predetermined lump-sum allocation based on the long-range capacity available to the
user should be used.
Accounting information only helps assess past financial performance.
A cost of quality report displays the financial impact of organizational goals and
objectives.
Most scorecard and attention-directing information is produced on a nonroutine basis.
With increased global competition in many industries, companies are increasingly
limited in influencing product prices.
Under the cash basis of accounting, expenses are matched with the revenues they help
generate.
Currently attainable standards do not make allowances for spoilage and waste.
Accountants are sometimes forced to trade relevant information for accurate
information.
The absorption costing approach to the income statement is used by companies for
external financial reporting.
Dividends reduce stockholders’ equity when paid.
Key performance indicators for a balanced scorecard are usually grouped into two
categories.
Equivalent units are determined by multiplying the number of physical units by the
percentage of noncompletion.
Companies must assign all nonproduction costs to cost objects for internal management
purposes.
Local managers in decentralized organizations tend to duplicate services that may be
less expensive if centralized.
Joint cost allocations should be ignored for decisions such as selling a joint product at
the split-off point or processing it further.
A manufacturer has three types of inventory that include Raw Materials Inventory,
Work-In-Process Inventory and Merchandise Inventory.
An example of an operating activity on the statement of cash flows is cash dividends
received on investments. Assume the direct method is used.
Depreciation expense on assembly equipment used for several products is an example
of a direct cost for a manufactured product.
Productivity is a measure of inputs divided by outputs.
The proration method of disposing of overhead variances prorates the variance based on
the beginning of the reporting period account balances in Cost of Goods Sold,
Work-in-Process Inventory and Finished Goods Inventory.
The break-even point is located at the intersection of the total revenue line and the total
costs line on a cost-volume-profit graph.
Goal congruence exists when individuals aim at short-term goals and groups aim at
long-term organizational goals.
The relevant range is the limit of cost-driver level within which a specific relationship
between costs and the cost driver is valid.
Sales-activity variances measure how efficient managers have been in meeting the
planned sales goal.
Opportunity costs apply to resources that a company has committed to purchase.
Gross profit is the excess of sales over all expenses.
In process costing, a company has some unfinished units at the end of the accounting
period. ________ units are the number of completed units that could have been
produced from the inputs used to create the unfinished units.
A) Physical
B) Convertible
C) Fully-complete
D) Equivalent
When measuring invested capital for purposes of calculating return on investment,
managers in practice predominantly use ________.
A) net book value at current cost
B) net book value at historical cost
C) gross book value at historical cost
D) gross book value at replacement cost
Stefanko Manufacturing has prepared the following income statement:
Sales $450,000
Cost of goods sold 200,000
Gross margin 250,000
Operating expenses 196,000
Operating income $54,000
According to company records, $100,000 of Cost of Goods Sold and $100,000 of
Operating Expenses are fixed.
Required:
A) Compute the contribution margin.
B) Compute the contribution margin ratio.
C) Compute the break-even point in sales dollars.
In absorption costing, production volume does NOT affect the ________.
A) amount of fixed overhead costs applied to products
B) amount of variable overhead costs applied to products
C) budgeted amount of fixed overhead costs
D) amount of direct materials costs applied to products
________ arise as a result of strategic decisions about the scale and scope of an
organization’s activities.
A) Capacity costs
B) Discretionary fixed costs
C) Mixed costs
D) Committed fixed costs
An alternative term for cycle time is ________ time.
A) productivity
B) manufacturing
C) throughput
D) production
In imperfect competition, ________.
A) a firm will produce as many units as it can sell
B) the price a firm charges for a unit influences the quantity of units it sells
C) a firm does not have to reduce prices to generate additional sales
D) a firm should produce and sell units until the marginal revenue exceeds the marginal
cost
Purple Company has three service departments, X, Y and Z and two production
departments, P1 and P2. Costs in Departments X and Y are allocated based on square
feet and costs in Department Z are allocated based on direct labor hours.
The following data are available:
Direct costs Square feet occupied Direct labor hours
Service Department:
X $100,000 6,000 13,000
Y $225,000 4,000 7,000
Z $480,000 2,000 4,000
Producing Department:
P1 $750,000 10,000 20,000
P2 $600,000 6,000 10,000
Assume the direct method of allocating service department costs is used.
Required:
A) What is the total cost of Producing Department P1 after allocating the service
departments’ costs?
B) What is the total cost of Producing Department P2 after allocating the service
departments’ costs?
The following information was compiled by Frank Ironman Incorporated:
Expected volume of production 50,000 units
Actual volume of production 47,000 units
Budgeted fixed overhead costs (for 50,000 budgeted units) $200,000
Actual fixed overhead costs $220,000
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) $6,000 Favorable
B) $12,000 Unfavorable
C) $20,000 Favorable
D) $20,000 Unfavorable
To estimate cost functions using account analysis, each account is classified as a
________ cost or ________ cost with respect to ________.
A) mixed; fixed; sales volume in units
B) mixed; variable: sales volume in units
C) variable; fixed; a cost driver
D) mixed; fixed; production in units
Which of the following statements is FALSE?
A) Assets are economic resources that are expected to provide future benefits.
B) Liabilities are economic obligations or claims against the assets of an organization
by nonowners.
C) Assets must always equal the sum of liabilities and owners’ equity.
D) Owners’ equity equals the sum of assets and liabilities.
For the year ending December 31, 2014, Harkins Company reports net income of
$35,000 and depreciation expense of $12,000. The income tax expense for the year
ending December 31, 2014 is $20,000. The following data is available:
December 31, 2013 December 31, 2014
Cash $35,000 $16,000
Accounts Receivable $35,000 $45,000
Inventories $70,000 $100,000
Fixed Assets $440,000 $581,000
Accumulated Depreciation $120,000 $101,000
Accounts Payable $6,000 $74,000
Wages Payable $4,000 $25,000
What is the net cash provided by operating activities for the year ended December 31,
2014? Assume the indirect method is used.
A) $5,000
B) $26,000
C) $73,000
D) $96,000
Which of the following items is usually NOT important to special order decisions?
A) affect of special order on regular business
B) whether idle capacity is available
C) total fixed costs
D) increase in variable costs per unit due to special order
A cost function estimated with least squares regression has a coefficient of
determination of 0.95. This statistic indicates that the cost function is ________.
A) highly plausible
B) highly reliable
C) not predictable
D) not accurate
Camile 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 $50,000
Fixed selling and administrative $220,000
Variable indirect manufacturing $20,000
Variable selling and administrative $75,000
Selling price(per unit) $84
Units produced and sold 10,000
Camile Company uses the absorption approach to prepare the income statement. What
is the product cost per unit?
A) $20
B) $25
C) $27.50
D) $32.50
Jerome Company purchased common stock in Gonzalez Company. Jerome Company
treats the investment as available-for-sale securities. During the current year, Gonzalez
Company earned $4,000,000 and paid dividends of $1,000,000. Assume that Jerome
Company owns 10% of the outstanding shares of Gonzalez Company. Gonzalez
Company’s dividend will affect Jerome Company by ________.
A) increasing cash and investments by $100,000
B) increasing investments and investment revenue by $100,000
C) increasing cash and investment revenue by $100,000
D) increasing cash and decreasing investments by $100,000
Many organizations use a linear relationship with a single cost driver to describe a cost
even though the cost may have multiple cost drivers. Why?
A) This approach is easier and less expensive.
B) The cost of developing a more complex function is greater than the benefit.
C) Cost estimates from the simple function are accurate enough for most decisions.
D) All of the above
The cash basis of accounting recognizes the impact of transactions in the period when
________.
A) revenues and expenses occur
B) cash is received or disbursed
C) the accounting equation changes
D) assets or liabilities change
The matching concept matches ________ and ________.
A) assets; liabilities
B) assets; expenses
C) revenues; expenses incurred to generate revenues
D) net profit; expenses
The following information is presented for the Marathon Manufacturing Company.
— Direct labor rate standard is $11.55.
— Direct labor efficiency standard is 2.5 hours per unit.
— Budgeted production is 1,200 units.
— Production required 2,910 direct labor hours at a cost of $33,174.
— Actual production is 1,150 units.
What is the direct labor price variance?
A) $172.50 Favorable
B) $180.00 Unfavorable
C) $436.50 Favorable
D) $435.50 Unfavorable
Stewart Company has no beginning and ending inventories, and reports the following
information about its only product:
Direct materials used $29,000
Direct labor $17,000
Variable indirect production $13,000
Fixed indirect production $18,000
Variable selling and administrative expenses $22,000
Fixed selling and administrative expenses $11,000
Units produced and sold 10,000
Selling price per unit $25
Required:
A) Prepare an income statement using the contribution approach.
B) Prepare an income statement using the absorption approach.
The following information is available for Pet Store Company and its two divisions, Pet
Supplies and Training.
Whole Pet Supplies Training
Company Division Division
Net sales $170,000 $70,000 $100,000
Fixed costs:
Controllable by division managers 16,000 10,000 6,000
Controllable by others 8,000 6,000 2,000
Variable costs:
Cost of merchandise sold 46,000 28,000 18,000
Operating expenses 14,000 8,000 6,000
Unallocated costs 14,000
Required:
A) Compute the contribution margin for the Pet Supplies Division.
B) Compute the contribution controllable by the manager of the Training Division.
C) Compute the contribution by segment for the Training Division.
D) Compute the income before taxes for the whole company.
The ________ method recognizes that some service departments support the activities
in other service departments as well as those in production departments.
A) direct
B) indirect
C) step-down
D) cost driver
Some service department activities support customers rather than the production
process. These costs are traced directly to ________ instead of ________.
A) products; producing departments
B) producing departments; service departments
C) customers; producing departments
D) service departments; producing departments
Amanda Company is considering the replacement of a machine that is presently used in
production. The following data are available:
Old Machine New Machine
Original cost $200,000 $160,000
Useful life in years 10 5
Current age in years 5 0
Book value $100,000 –
Disposal value now $32,000 –
Disposal value in 5 years 0 0
Annual cash operating costs $20,000 $14,000
Adding all five years together, the total relevant costs to consider if the new machine is
purchased is ________.
A) $70,000
B) $100,000
C) $198,000
D) $230,000
The manufacturing costs of the Assembly Department for the month of July are as
follows:
Direct materials added $220,000
Direct labor costs added $190,000
Factory overhead costs applied $140,000
The company uses a process costing system. At July 31, the cost of the goods
completed and transferred to the Finishing Department was $563,000.
Required:
A) Prepare summary journal entries for the use of direct materials, direct labor and
factory overhead.
B) Prepare a journal entry for the transfer of completed goods.
In the long run, the selling price of a product should cover ________.
A) all variable costs only
B) all variable costs and some fixed costs
C) all fixed costs only
D) all variable costs and all fixed costs
The adjusting entry for ________ increases expenses and decreases assets.
A) wages expense
B) depreciation expense
C) unearned revenue
D) accruing interest expense
Dersey Company’s records reveal the following:
Division A
Market price of finished part to outsiders $74 per unit
Variable costs per part $50 per unit
Division B
Sale price of finished product per unit $105 per unit
Variable costs:
Division A(1 part) ?
Division B Processing 27 per unit
Division B Selling 12 per unit
Division B wants to buy the part from Division A. The variable costs of Division B will
be incurred whether it buys the part from Division A or from an outside supplier.
Division A has excess capacity. Division B can buy the part for $75 per unit from an
outside supplier. What is the lowest transfer price per unit Division A will accept from
Division B?
A) $24
B) $50
C) $66
D) $75
If capacity constraints prevent a segment from meeting internal and external demand
for a product, the opportunity cost of selling internally equals ________.
A) the variable cost of producing the product
B) the controllable costs of producing the product
C) the contribution margin the producing segment could have received from selling in
the external market rather than the internal market
D) the variable cost plus the avoidable fixed cost of producing the product
Garcia Company reports the following information:
Net operating income after taxes $100,000
Before-tax operating income $300,000
Average invested capital $500,000
After-tax cost of capital 10%
What is the residual income for Garcia Company?
A) $30,000
B) $50,000
C) $250,000
D) $450,000
The direct materials price variance reflects the effects of ________.
A) changing input prices, holding the quality of outputs constant
B) changing input quantities, holding the input price constant
C) changing input prices, holding the quantity of inputs constant
D) changing input quantities, while changing the input price
Most employees perform better when performance reports lead to ________.
A) goal congruence
B) managerial effort
C) managerial control
D) personal rewards