Jimmy Industries Inc. reported the following information about the production and sale
of its only product during the first month of operations:
Selling price per unit $65.00
Sales $78,000
Direct materials used $25,000
Direct labor $42,000
Variable factory overhead $17,000
Fixed factory overhead ?
Variable selling and administrative expenses $3,000
Fixed selling and administrative expenses $5,000
Gross profit $30,000
Production volume variance 0
The company sold one-half of the units it produced. The company uses absorption
costing. Fixed factory overhead costs included in the ending inventory of finished
goods are ________.
A) 0
B) $6,000
C) $8,400
D) $12,000
At 60,000 machine hours, Norwall Company’s static budget for variable overhead costs
is $180,000. At 60,000 machine hours, the company’s static budget for fixed overhead
costs is $300,000. Machine hours are the cost driver of all overhead costs. The static
budget is based on 60,000 machine hours. At 60,000 machine hours, the company
produces 40,000 units. The following data is available:
Actual units produced and sold 42,000
Actual machine hours 64,000
Actual variable overhead costs $185,600
Actual fixed overhead costs $302,400
What is the variable overhead spending variance?
A) $6,400 Unfavorable
B) $6,400 Favorable
C) $1,000 Favorable
D) $1,000 Unfavorable
Wininger Company has two departments. Relevant information is presented below:
Department 1 Department 2
Budgeted gross margin $100,000 $500,000
Actual gross margin $200,000 $600,000
Budgeted sales $500,000 $2,000,000
Actual sales $300,000 $2,100,000
Corporate management salaries are $3,000,000. The salaries are allocated based on
sales using the preferred approach. What amount of salaries is allocated to Department
1?
A) $300,000
B) $375,000
C) $600,000
D) $750,000
The salary foregone by a person who quits a job to start a business is an example of a(n)
________.
A) sunk cost
B) opportunity cost
C) depreciable cost
D) outlay cost
The balanced scorecard is a system that strikes a balance between ________ and
________ performance measures.
A) financial; nonfinancial
B) strategic; nonstrategic
C) innovative; tutorial
D) goal-oriented; strategic-oriented
Lindsey Company has two service departments, Maintenance and Human Resources.
Lindsey 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 $50,400 $35,000 $42,000 $70,000
Square footage 1,600 800 3,200 2,400
Number of employees 16 24 40 60
If the direct method is used to allocate service department costs, then the cost allocated
from the Human Resources Department to the Finishing Department is ________.
A) $14,000
B) $16,800
C) $21,000
D) $33,600
Which of the following is used to develop flexible budgets?
A) fixed overhead variances
B) static budget variances
C) flexible budget variances
D) cost functions
A multiple step income statement has several measures of profit that do NOT include
________.
A) operating income
B) gross margin
C) income before taxes
D) cost of sales
Which of the following statements about management control systems is FALSE?
A) In designing management control systems, top managers must consider the system’s
impact on the employee behavior desired by the organization.
B) The management control system should be designed to achieve the best possible
alignment between managerial effort and goal congruence.
C) The design of a management control system should consider the responsibilities of
managers and the amount of autonomy they have.
D) Profit-center managers always have more decentralized decision-making authority
than cost-center managers.
When reconciling net income to net cash provided by operating activities, a(n)
________ is an addition to net income.
A) increase in inventories
B) increase in accounts receivable
C) increase in wages payable
D) decrease in taxes payable
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
Preferred stock has priority over common stock in ________.
A) voting rights
B) distribution of assets in liquidation
C) payment of dividends
D) B and C
The schedule of cash collections from customers has ________.
A) cash sales only
B) collections on credit sales only
C) A and B
D) budgeted purchases
What is the sequence of steps(order of preparation) for the financial budget?
A) sales budget, capital budget, cash budget, budgeted income statement
B) sales budget, operating expense budget, purchases and cost of goods sold budget
C) capital budget, cash budget, budgeted balance sheet
D) disbursements for purchases, disbursements for operating expenses, cash budget
Cash collections from customers are included in the ________ section of the statement
of cash flows. Assume the direct method is used.
A) operating
B) investing
C) financing
D) noncash
The following information pertains to Arnez Company:
Total assets $150,000
Net operating profit after taxes $12,000
Total current liabilities $110,000
Total expenses $160,000
Total liabilities $115,000
Total revenues $180,000
Invested capital is defined as total assets minus current liabilities. The after-tax cost of
capital is 10%. What is the economic profit?
A) $8,000
B) $20,000
C) $40,000
D) $50,000
The cash paid for taxes is included in the ________ section of the statement of cash
flows. Assume the direct method is used.
A) operating
B) investing
C) financing
D) noncash
Which of the following costs is NOT relevant to an equipment replacement decision?
A) cost of new equipment
B) operating cost of new equipment
C) operating cost of old equipment(several years left)
D) cost of old equipment
Berea Company expects to sell 19,000 units. Total fixed costs are $84,000 and the
contribution margin per unit is $6.00. Berea’s tax rate is 40%. What is the margin of
safety in units?
A) 3,000 units
B) 5,000 units
C) 7,500 units
D) 14,000 units
If the selling price per unit increases, what is the effect on the break-even point?
(Assume no other changes.)
A) The break-even point increases.
B) The break-even point decreases.
C) The break-even point remains the same.
D) The break-even point is zero.
A nonoperating item on a multiple-step income statement that reflects financial
decisions is ________.
A) gain from sale of inventory
B) interest expense
C) income tax expense
D) operating profit
Which of the following statements is FALSE about information used for decision
making?
A) Precise but irrelevant information is worthless for decision making.
B) Imprecise but relevant information can be useful for decision making.
C) Relevant information must be reasonably accurate but not precisely so.
D) Relevant information must be totally accurate or it is useless.
Economic profit is ________ less ________.
A) net operating profit; capital charge
B) residual income; capital charge
C) income before interest expense and taxes; capital charge
D) income before interest expense but after taxes; capital charge
Performance reports compare actual results to ________. Performance reports also
report ________.
A) budgeted results; bonuses awarded
B) objectives; variances
C) planned results; variances
D) projected results; stock options granted
Kansas Company uses activity-based costing. The company produces and sells 20,000
units at $22 per unit. Kansas Company’s product cost is calculated as follows:
Variable costs $10 per unit
Fixed costs $2 per unit
Setup costs $3 per unit
Total costs $15 per unit
A total of 500 setups at a cost of $120 per setup are required to produce the 20,000
units. Kansas Company has received a special order to sell 5,000 units at $12 per unit.
Kansas Company has excess capacity available, but these 5,000 units would require 60
setups. If Kansas Company accepts the special order, what is the increase or decrease in
net income?
A) $0
B) decrease $5,000
C) decrease $15,000
D) increase $2,800
Keller Company has the following income statement for the year ending December 31,
2016:
Sales $1,562
Cost of goods sold 806
Gross profit 756
Operating expenses:
Wage expense 160
Depreciation expense 16
Rent expense 106
Miscellaneous expense 10
Total operating expenses 292
Operating income 464
Income tax expense 162
Net income $302
If Keller Company prepares a common size income statement, what will they report for
Rent expense?
A) 2.3%
B) 4.3%
C) 4.4%
D) 6.8%
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
The following information is available for Potter Company:
Total Current Assets $356,000
Total Current Liabilities $203,000
Total Assets $1,000,000
Total Liabilities $500,000
Cash $100,000
What is the current ratio?
A) 0.76
B) 1.75
C) 2.05
D) 2.51
Todd Company has two production departments called Assembly and Finishing. The
maintenance department serves both production departments. Maintenance costs are
allocated based on labor hours. Budgeted fixed costs for the maintenance department
are $30,000. Budgeted variable costs for the maintenance department are $5.00 per
labor hour. Other relevant data follow:
Assembly Finishing
Capacity available 20,000 labor hours 15,000 labor hours
Capacity used 15,000 labor hours 9,000 labor hours
Actual maintenance department costs:
Fixed $36,000
Variable $100,000
The amount of variable maintenance department costs allocated to the Finishing
Department should be ________.
A) $37,500
B) $42,000
C) $45,000
D) $75,000
The Joseph Company used regression analysis to predict the annual cost of utilities. The
results were as follows:
Utilities Cost
Explained by Direct Labor Hours
Constant 2,500
Standard error of Y estimate 0.7
R-Squared 0.85
No. of observations 30
Degrees of freedom 28
X Coefficient 0.84
Standard error of coefficient 0.92
The coefficient of determination is ________.
A) 0.70
B) 0.84
C) 0.85
D) 0.92
Noonan Company used regression analysis to predict the annual cost of indirect
materials. The results were as follows:
Indirect Materials Cost
Explained by Units Produced
Constant 4,200
Standard error of Y estimate 2,300
R-Squared 0.84
No. of observations 22
Degrees of freedom 20
X Coefficient 2.30
Standard error of coefficient 2.70
The variable cost per unit of product is ________.
A) $0.84
B) $1.00
C) $2.30
D) $2.70