Some level of decentralization in an organizational structure creates benefits for most
organizations.
When using the direct method of preparing the statement of cash flows, depreciation
expense is added to net income.
In job-order costing, time cards record the materials used in particular jobs.
Company activities such as processing orders, billing customers, and moving materials
can be cost objects.
The degree to which information is relevant or precise often depends on the degree to
which it is qualitative or quantitative.
Total variable costs increase when the cost-driver level increases in the relevant range.
Gross profit equals sales minus cost of goods sold.
When using the NPV model, it is assumed that we can borrow or lend money at the
same interest rate.
Sales forecasts are usually prepared under the direction of the top sales executive.
Most scorecard and attention-directing information is produced on a nonroutine basis.
Source documents used in job-order costing include material requisition forms and time
cards.
Equivalent units are computed to assign costs to partially completed units.
A cash budget is a business plan that includes a set of schedules and financial
statements.
Financial accounting reports are usually prepared for a period of one year or less.
Past costs are irrelevant in equipment replacement decisions.
Revenues from the by-product less separable costs associated with the by-product are
added to the cost of the main products.
Sales forecasts are usually prepared under the direction of the top sales executive.
The preferred cost driver for allocating central corporate support costs to products is
either actual or estimated usage.
The most popular inventory system that companies use for process costing with
beginning inventories is the weighted-average method.
In the IMA’s Statement of Ethical Professional Practice, integrity is one of the standards
explained.
The chemical and glass industries normally use job costing.
Due to the decline in indirect costs in most companies, allocating indirect costs is no
longer necessary to determine accurate product costs.
The Sarbanes-Oxley Act requires companies to disclose whether the company has
adopted a code of ethics for senior financial officers.
Discriminatory pricing is the act of charging different prices to different customers for
the same product or service.
If the fair value of a subsidiary’s assets exceeds their book value when the subsidiary is
acquired, the assets of the subsidiary are written up at the time consolidated financial
statements are prepared.
The difference between the gross margin and the market price is the target cost for a
new product.
If a company uses the variable-costing approach, a manager may be tempted to produce
unneeded units to increase operating income.
Par value is the value that is printed on the face of the stock certificate.
The operating budget is a better measure of a company’s long-term performance than
the financial budget.
Qualitative factors do not affect a make-or-buy decision.
The contribution controllable by segment managers is used to evaluate the performance
of segment managers.
Free cash flow equals net cash from operating activities minus capital expenditures.
Measures in equivalent units are found only in manufacturing situations.
There are fewer benefits from budgeting in companies with uncertain or complicated
environments.
Variable overhead costs may have a production volume variance.
A five year recovery period for a long-term asset means ________.
A) the number of years it takes to recover the cost of a long-term asset
B) the number of years a company expects to use a long-term asset
C) the number of years a company can depreciate a long-term asset for tax purposes
D) the number of years a long-term asset will generate future cash inflows
Janitors clean the factory at the end of each workday. The wages of the janitors are used
to determine the cost of the only manufactured product in the factory. What is a good
cost driver for the wages of the janitors?
A) number of janitors
B) number of kilowatt hours used
C) number of machine hours on cleaning machines
D) number of labor hours worked by janitors
Managers in profit centers are responsible for controlling ________ and ________.
A) costs; invested capital
B) revenues; invested capital
C) revenues; costs
D) expenses; invested capital
Due to the economic downturn, a company has reduced charitable donations to
community groups. This is an example of a ________.
A) variable cost
B) committed fixed cost
C) capacity cost
D) discretionary fixed cost
To design a management control system that meets an organization’s needs, managers
must identify what motivates employees, ________ and ________.
A) develop performance measures based on these employee motivators; establish a
monitoring and reporting structure for the performance measures
B) develop performance measures to encourage managerial effort; establish a
monitoring and reporting structure for productivity
C) develop performance measures that meet organizational objectives; establish an
accounting system to measure productivity
D) develop performance measures based on goal congruence; establish an accounting
system to measure goal congruence
Dooley Company has the following information available for variable overhead costs.
Direct labor hours are the cost driver for variable overhead costs.
Actual variable overhead costs $4,700
Standard variable overhead costs $1.20 per hour
Actual direct labor hours 3,750 hours
Standard direct labor hours per unit 5 hours
Units produced 700
What is the variable overhead efficiency variance?
A) $300 Favorable
B) $300 Unfavorable
C) $500 Favorable
D) $500 Unfavorable
The annual after-tax cash operating inflows of a newly purchased machine are expected
to be $60,000. The expected useful life of the machine is 5 years. The after-tax
minimum desired rate of return, including an inflation factor, is 25%. The inflation rate
is 10% per year. After adjusting for inflation, what is the rate of return used to find the
net present value of the machine?
A) 10%
B) 15%
C) 25%
D) none of the above
Which of the following is the benefit of depreciation expense on a plant asset when
considering investment decisions with taxes?
A) increased future operating income
B) future tax deduction
C) increased cost of plant asset
D) decreased cost of plant asset
Assume Hull Company has the following information available:
Selling price per unit $100
Variable cost per unit $40
Fixed costs per year $400,000
Expected sales per year (units) 20,000
If fixed costs increase by $200,000, what is the break-even point in units?
A) 6,667
B) 10,000
C) 12,000
D) 13,000
When allocating fixed costs from service departments to production departments,
managers should use ________ instead of ________.
A) capacity used; capacity available
B) capacity available; budgeted capacity
C) capacity used; budgeted capacity
D) capacity available; capacity used
The following information is available for Applegate Company:
Current assets $100,000 Current liabilities $175,000
Property, plant and Long-term liabilities 100,000
equipment 150,000 Stockholders’ equity 25,000
Other assets 50,000 Total liabilities and
Total assets $300,000 stockholders’ equity $300,000
Invested capital is defined as total assets less current liabilities. The after-tax operating
income is $150,000. The after-tax cost of capital is 20%. The before-tax operating
income is $200,000. What is the residual income?
A) $90,000
B) $120,000
C) $125,000
D) $175,000
In activity-based costing systems, the system first accumulates indirect costs for
________, and then assigns these costs to ________.
A) products; departments
B) products; territories
C) cost objects; types of customers
D) activities; cost objects
Job-order costing is used. When direct materials are requisitioned for production, which
of the following accounts is credited?
A) Work-In-Process Inventory
B) Accounts Payable
C) Finished Goods Inventory
D) Direct Materials Inventory
The fixed overhead spending variance is also called the ________ variance.
A) production volume
B) fixed overhead efficiency
C) fixed overhead flexible budget
D) fixed overhead usage
Johnson Company has the following information available at the end of the fiscal year:
Finished goods inventory, January 1, 2015 12,000 units
Finished goods inventory, December 31, 2015 14,000 units
Work in process inventory, January 1, 2015 10,000 units
Work in process inventory, December 31, 2015 11,000 units
Raw materials inventory, January 1, 2015 1,000 units
Raw materials inventory, December 31, 2015 5,000 units
Actual fixed overhead cost rate $2.05 per unit
Actual variable overhead cost rate $3.10 per unit
Budgeted fixed overhead cost rate $2.00 per unit
Budgeted variable overhead cost rate $3.00 per unit
Assume operating income under absorption costing is $100,000. What is the difference
in operating income between absorption costing and variable costing?
A) $2,000
B) $4,000
C) $6,000
D) $10,000
North Division sells a part internally to South Division. South Division uses the part to
produce inexpensive products sold at discount stores. North Division incurs costs of
$1.50 per part, while South Division incurs additional costs of $4.80 per product. North
Division sells the part to South Division for $2.00 per part. The final product is sold to
external customers for $8.00 each. Which of the following formulas correctly reflects
the company’s operating income?
A) $8.00 – $1.50 – $4.80 – $2.00 = $(0.30)
B) $8.00 – $1.50 – $4.80 = $1.70
C) $8.00 – $4.80 -$2.00 = $1.20
D) $8.00 – $1.50 = $6.50
You are a management accountant in a large company. You have observed unethical
behavior by your immediate supervisor. In accordance with the guidelines offered by
the IMA, which of the following courses of action should NOT be taken?
A) Follow the organization’s established policies on the resolution of ethical conflict.
B) Discuss the issue with your immediate supervisor.
C) Consult your own attorney.
D) Initiate a confidential discussion with an IMA Ethics Counselor.
During the month of May, Sonny Company transferred 140,000 gadgets to Finished
Goods Inventory. There was no beginning work-in-process inventory. The company had
40,000 gadgets in process at May 31 and the gadgets were 75 percent complete with
respect to conversion costs. All direct materials are added at the end of the production
process. The equivalent units for conversion costs for May are ________.
A) 140,000
B) 150,000
C) 170,000
D) 180,000
Which of the following formulas should be used to allocate variable costs from service
departments to user departments?
A) budgeted unit rate × total budgeted units planned to be used
B) actual unit rate × total budgeted units planned to be used
C) budgeted unit rate × actual units used
D) actual unit rate × actual units used
Nicholson Company sold inventory costing $1,000 for $3,000 on account. Nicholson
Company operates under the accrual basis. What effect will the transaction have on the
liabilities and owners’ equity of the company?
A) liabilities will decrease by $2,000
B) liabilities will increase by $2,000
C) owners’ equity will increase by $2,000
D) owners’ equity will increase by $3,000
Deferred tax liabilities are ________.
A) expected increases in future income taxes due to past transactions
B) expected decreases in future income taxes due to past transactions
C) expected increases in future income taxes due to future transactions
D) expected decreases in future income taxes due to future transactions
Kaiman Company currently produces a key part at a total cost of $210,000. Annual
variable costs are $170,000. Of the annual fixed costs, $10,000 relate specifically to this
part. The remaining fixed costs are unavoidable.
Another manufacturer has offered to supply the part annually for $200,000. The
facilities currently used to manufacture the part could be used to manufacture a new
product with an expected contribution margin of $30,000 per year. Alternatively, the
facilities could be rented out at $60,000 per year. Given all of these alternatives, what is
Kaiman Company’s lowest net relevant cost for the parts?
A) $130,000
B) $140,000
C) $170,000
D) $180,000
________ is the system that applies costs to similar products that are mass-produced in
continuous fashion through a series of production processes.
A) Job-order costing
B) JIT costing
C) Activity-based costing
D) Process costing
Joint products should be processed beyond the split-off point if ________.
A) sale of the products are guaranteed
B) additional revenue from further processing exceeds additional expenses from further
processing
C) additional revenue from further processing exceeds the joint costs
D) the marginal revenue of the joint products before the split-off point exceeds the
marginal cost of the joint products
The quantity variance for direct materials can be computed by multiplying the standard
price by the difference between the ________.
A) standard inputs allowed and expected inputs allowed at actual output
B) quantity of inputs actually used and the quantity of inputs that should have been used
for the expected output
C) standard inputs allowed and expected inputs allowed for expected output
D) quantity of inputs actually used and the quantity of inputs that should have been
used for actual output
Valesano Company is considering a project with the following information:
Project 1
Cost $4,000
Annual cash operating savings(end of year) $2,000
Terminal salvage $0
Useful life in years 3
Required rate of return 10%
Present value of one for 3 periods at 10% 0.7513
Present value of ordinary annuity of one for
3 periods at 10% 2.4869
Ignoring taxes, what is the lowest level of annual cash operating savings that will result
in a positive net present value?
A) $1,550
B) $1,600
C) $1,608
D) $2,000
The immediate write-off of overhead variances is used because ________.
A) it is simpler
B) the company has probably sold most of the goods produced during the period so
prorating the variance to inventory accounts would not produce materially different
results
C) the extra overhead costs result from inefficiencies in the current period and therefore
do not represent assets
D) all of the above
Evaluation of capital investments based on economic profit motivates managers to
invest in projects that ________ because those investments increase the division’s
economic profit.
A) earn a return in excess of the project’s return on investment
B) earn a return in excess of the segment’s return on investment
C) earn a return in excess of the cost of capital
D) earn a return in excess of the segment’s net income
The cash received from the sale of bonds payable is included in the ________ section of
the statement of cash flows.
A) operating
B) investing
C) financing
D) noncash
Jesse Company has obtained the following data about a possible planned investment:
Cost $300,000
Terminal salvage value in 10 years 0
Annual cash operating savings excluding depreciation
for 10 years (end of year) $50,000
Estimated useful life in years 10
Minimum desired rate of return 10%
Present value of ordinary annuity, 10%, 10 periods 6.1446
Present value of one, 10%, 10 periods 0.3855
Income tax rate 40%
The company uses the straight-line depreciation method for taxes.
Required:
A) Compute the net present value of the investment.
B) Compute the net present value of the investment if the terminal salvage value is
estimated to be $50,000 in 10 years.
Division West does not have excess capacity to produce Product XX. The division can
sell Product XX for $10 per unit outside the company. Variable costs are $6 per unit.
Division East wants to purchase Product XX from Division West 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 XX for $11 per
unit. What is the maximum price Division East will pay for Product XX?
A) $11 per unit
B) $12 per unit
C) $13 per unit
D) none of the above
Underapplied fixed factory overhead can be explained by ________ variance and
________ variance.
A) production volume; fixed overhead efficiency
B) fixed overhead spending; fixed overhead efficiency
C) fixed overhead spending; fixed overhead flexible budget
D) fixed overhead spending; production volume
A plant asset with a book value of $320,000 is sold for $400,000. The tax rate is 20%.
What is the tax effect of the gain on sale?
A) $16,000 cash outflow
B) $16,000 cash inflow
C) $64,000 cash inflow
D) $80,000 cash inflow
Gonzalez Company has no beginning and ending inventories, and reports the following
data about its only product:
Direct materials used $300,000
Direct labor $80,000
Fixed indirect manufacturing $100,000
Fixed selling and administrative $190,000
Variable indirect manufacturing $20,000
Variable selling and administrative $90,000
Selling price(per unit) $50
Units produced and sold 10,000
Gonzalez Company uses the absorption approach to prepare the income statement.
What is the gross margin?
A) $0
B) $20,000
C) $100,000
D) $120,000