1) If manufacturing overhead has been underallocated during the year, it means the jobs
have been undercosted.
2) The acid test ratio is a tighter measure of a company’s ability to pay current liabilities
than the current ratio.
3) The journal entry to record the use of direct labor in Processing Department #1
would include a credit to Wages Payable.
4) Equivalent units express the amount of work done during a period in terms of
partially completed units.
5) If all direct materials are added at the beginning of the production process, and the
units have made it 50% of the way through the production process, then the percentage
completion for direct materials is 50%.
6) When the profitability index is less than 1.00 for a project, that project has a positive
net present value.
7) To find the “cost per equivalent unit,” the “total costs to account for” are divided by
the “total direct materials.”
8) A receiving report is typically a duplicate of the purchase order but without the prices
and quantities pre-listed on the form.
9) The movement of parts is considered a non-value-added activity.
10) The income statements of manufacturing companies are more complex than those
of service or merchandising companies.
11) Companies should always use job costing rather than process costing.
12) Best Birdies produces ornate birdcages. The company’s average cost per unit is
$18.00 when it produces 2,200 birdcages. If $5,500 of the costs are fixed, and the plant
manager uses the average cost per unit to predict total costs, his forecast for 3,000
birdcages will be
A) $52,000
B) $39,600
C) $14,400
D) $54,000
13) Mountaintop golf course is planning for the coming season. Investors would like to
earn a 12% return on the company’s $45 million of assets. The company primarily
incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be
$20,000,000 for the golfing season. About 400,000 golfers are expected each year.
Variable costs are about $15 per golfer. Mountaintop golf course has a favorable
reputation in the area and therefore, has some control over the price of a round of golf.
Using a cost-plus approach, what price should Mountaintop charge for a round of golf?
A) $51.50
B) $71.00
C) $78.50
D) $ 0.21
14) Which of the following items would be reported as an operating activity on the
statement of cash flows?
A) Purchase of equipment
B) A payment of dividends
C) Payment for rent
D) Sale of equipment
15) O’Mally Department Stores is considering two possible expansion plans. One
proposal involves opening 5 stores in Indiana at the cost of $1,920,000. Under the other
proposal, the company would focus on Kentucky and open 6 stores at a cost of
$2,500,000. The following information is available:
The payback period for the Indiana proposal is closest to
A) 3.8 years
B) 5.0 years
C) 4.8 years
D) 38.4 years
16) The ________ from the balanced scorecard focuses on continuing to improve and
create value.
A) internal business perspective
B) learning and growth perspective
C) customer perspective
D) financial perspective
17) Rubber City Cycles manufactures carbon fiber bicycle frames for professional
racing and avid amateur cyclists. Rubber City has found a CNC (computer numerical
control) machine that will significantly reduce manufacturing waste while improving
the quality of the frames. The new CNC machine will increase annual fixed costs by
$13,750, but will decrease variable cost per unit by $150. Rubber City expects to sell
750 frames next year.
Annual data for the current system are as follows:
By what amount will the breakeven point in units increase (decrease) if Rubber City
purchases the new CNC machine?
A) (50)
B) 50
C) 250
D) (250)
18) Before the year began, Plastics Manufacturing estimated that manufacturing
overhead for the year would be $150,000 and that 25,000 direct labor hours would be
worked. Actual results for the year included the following:
If the company allocates manufacturing overhead based on direct labor hours, the
manufacturing overhead for the year would have been
A) $62,000 overallocated
B) $62,000 underallocated
C) $32,000 overallocated
D) $32,000 underallocated
19) Job order costing might be used by a
A) candy manufacturer
B) custom home builder
C) crude oil refinery
D) cereal maker
20) Buying and selling property, plant and equipment would be considered in
A) the investing portion of the statement of cash flows
B) the operating portion of the statement of cash flows
C) the financing portion of the statement of cash flows
D) none of the above portions of the statement of cash flows
21) The Nichols Corporation data for the current year:
What would a horizontal analysis report with respect to selling/general expenses?
A) There was a 5.62% decrease from prior to current year
B) There was a 5.95% increase from prior to current year
C) The current ratio is 1.06
D) Selling/general expenses are 8.08% of net sales revenue
22) Theresa Corporation, which manufactures baskets, is developing direct labor
standards. The basic direct labor rate is $23.00 per hour. Payroll taxes are 10% of the
basic direct labor rate, while fringe benefits such as vacation and health care insurance,
are $8.00 per hour. What is the standard rate per direct labor hour?
A) $33.30
B) $23.00
C) $25.30
D) $31.00
23) Fun Stuff Manufacturing produces frisbees using a three-step sequential process
that includes molding, coloring and finishing. When the frisbees and associated costs
are transferred from the molding process to the coloring process, which account is
debited?
A) WIP inventory- molding
B) WIP inventory- coloring
C) Raw materials inventory
D) WIP inventory finishing
24) The selling price of a particular product is $5.00 per unit, the variable expense is
$3.00 per unit, and the breakeven sales in dollars is $18,660, what are total fixed
expenses?
A) $12,440
B) $1,866
C) $3,732
D) $7,464
25) The reservations department for a car rental chain is likely to be classified as a(n)
A) cost center
B) investment center
C) profit center
D) revenue center
26) The ________ capital budgeting model is generally the simplest to compute.
A) accounting rate of return
B) net present value
C) internal rate of return
D) payback
27) Yummy Tummy Desserts has 3,200 quarts of ice cream in WIP inventory, with all
materials already added. The ice cream is 75% through the process. Assuming all
conversion costs are added evenly throughout the process, what are the equivalent units
for conversion costs?
A) 0
B) 3,200
C) 2,400
D) 800
28) The performance report for a ________ would typically include revenues and costs.
A) cost center
B) sales center
C) profit center
D) revenue center
29) Ready Company adds direct materials at the beginning of the process and adds
conversion costs throughout the process. Data for the finishing department follows:
What are the equivalent units for conversion costs?
A) 51,000
B) 56,000
C) 48,000
D) 61,000
30) Justin Time Guitars manufactures electric guitars. The following data relate to the
standards for direct labor:
Justin Time had the following actual results for March:
What is the direct labor efficiency variance for March?
A) $1,125 favorable
B) $1,125 unfavorable
C) $219 favorable
D) $219 unfavorable
31) Pluto Incorporated provided the following information regarding its single product:
The regular selling price for the product is $80. The annual quantity of units produced
and sold is 40,000 units (the costs above relate to the 40,000 units production level).
The company has excess capacity and regular sales will not be affected by this special
order. There was no beginning inventory.
What would be the effect on operating income of accepting a special order for 1,500
units at a sale price of $50 per product assuming additional fixed manufacturing
overhead costs of $10,000 are incurred?
A) Decrease by $42,000
B) Decrease by $32,000
C) Increase by $32,000
D) Increase by $42,000
32) On a traditional income statement, all manufacturing-related costs, whether fixed or
variable, are listed
A) above the gross profit line
B) above the contribution margin line
C) below the operating income line
D) above the sales line
33) An example of direct labor would be which of the following?
A) Salary of a production manager
B) Salary of the vice-president of operations
C) Wages of factory security
D) Wages of assembly line personnel
34) Scott Incorporated management has budgeted the following amounts for its next
fiscal year:
If fixed expenses increase by 10%, to maintain the original breakeven sales in units, the
selling price per unit would have to be
A) increased by 17.60%
B) increased by 105.60%
C) increased by 5.6%
D) decreased by 117.60%
35) There are 35,000 units started. 25,600 were completed and transferred out and the
9,400 remaining units were 65% complete for conversion costs. The total number of
equivalent units for conversion costs is
A) 25,600
B) 31,710
C) 22,750
D) 6,110
36) The ________ is generally considered to be the most superior method for making
capital budgeting decisions.
A) accounting rate of return method
B) net present value method
C) payback method
D) incremental method
37) “Capital expenditures budget” is best described by which of the following?
A) Details as to how the company expects to go from the beginning cash balance to the
desired ending cash balance
B) A system for evaluating the performance of each responsibility center and its
manager
C) A company’s plan for purchases of property, plant and equipment, and other
long-term assets
D) A budget that projects cash inflows and outflows and the end of period budgeted
balance sheet
38) Which of the following is not an example of a cost reduction reason to support
environmental sustainability?
A) Utilizing tax credits to upgrade to more energy efficient windows
B) Encouraging hotel guests to turn off air-conditioning units when leaving their rooms
C) Requiring employees to print on both sides of a piece of paper
D) Installing motion sensing lights in restrooms
39) On a cash flow statement prepared using the indirect method, which is not reported
as an operating activity?
A) Interest expense
B) Interest revenue
C) Proceeds from the sale of equipment
D) Dividend revenue
40) In ABC, how is the activity allocation rate computed?
A) The total estimated activity allocation base is divided by the total estimated activity
cost pool
B) The total estimated activity cost pool is divided by the total estimated activity
allocation base
C) The total estimated activity allocation base is multiplied by the total estimated
activity cost pool
D) You take the total estimated activity allocation base and subtract the total estimated
total activity cost pool
41) The journal entry to assign $1,700 of direct labor and $300 of indirect labor
involves a debit to
A) manufacturing overhead for $2,000
B) work in process inventory for $2,000
C) work in process inventory for $1,700 and a credit to manufacturing overhead for
$300
D) work in process inventory for $1,700 and manufacturing overhead for $300
42) Lewis Enterprises management has budgeted the following amounts for its next
fiscal year:
Requirements:
a.If Lewis Enterprises can reduce fixed expenses by $25,000, how will breakeven sales
in units be affected?
b.If Lewis Enterprises spends an additional $1,000 on advertising, sales volume should
increase by 2,000 units. What effect will this have on operating income?
c.If Lewis Enterprises can reduce fixed expenses by $40,000, by how much can
variable expenses per unit increase and still allow the company to maintain the original
breakeven sales in units?
d.If fixed expenses increase by 25%, to maintain the original breakeven sales in units,
what would be the selling price per unit have to be?
43) The ________ “measures whether the quantity of direct materials used to make the
actual number of outputs is within the standard allowed for that number of outputs.”
A) production volume variance
B) overhead flexible budget variance
C) price variance
D) quantity variance
44) The following information relates to Truman Unlimited for the past two years.
The price-earnings ratio for the current year is
A) 13.33
B) 1.97
C) 9.60
D) 13.50
45) Thomas Corporation recorded sales of $200,000 during March. Management
expects sales to increase 5% in April, another 2% in May, and another 10% in June.
Cost of goods sold is expected to be 80% of sales. What is the budgeted gross profit for
June?
A) $47,124
B) $43,697
C) $235,620
D) $42,840
46) Baron Corporation has two sequential processing departments: Assembly then
Shaping. The Shaping Department reports the following information. Conversion costs
are applied evenly throughout the process.
The total cost of units in ending WIP inventory-Shaping would be closest to
A) $36,140
B) $146,000
C) $237,250
D) $167,440
47) Using account analysis, what type of cost is the rental of a space at $6,000 per
month?
A) Mixed
B) Fixed
C) Step
D) Variable
48) Before the year began, Milkway Manufacturing estimated that manufacturing
overhead for the year would be $175,000 and that 25,000 direct labor hours would be
worked. Actual results for the year included the following:
If the company allocates manufacturing overhead based on direct labor hours, the
manufacturing overhead for the year would have been
A) $42,000 overallocated
B) $ 7,000 underallocated
C) $ 7,000 overallocated
D) $42,000 underallocated
49) Selected financial data for the Photocopies Division of Elizabeth’s Business
Machines is as follows:
What is the Photocopier Division’s sales margin?
A) 250.00%
B) 75.00%
C) 5.15%
D) 30.00%