1) All other things the same, when a company increases its inventories in anticipation of
later higher sales, the accounts receivable turnover ratio for the current period increases.
2) The step-down method allocates less total cost to operating departments than does
the direct method.
3) When making preference decisions about competing investment proposals, the
internal rate of return is superior to the project profitability index.
4) The higher the denominator activity level used to compute the predetermined
overhead rate, the lower the predetermined overhead rate.
5) The manufacturing overhead budget is typically prepared before the production
budget.
6) A capital budgeting project’s incremental net income computation for purposes of
determining incremental tax expense does not include immediate cash outflows for
initial investments in equipment.
7) The formula for total asset turnover is: Total asset turnover = Total assets Total
stockholders’ equity.
8) A spending variance is the difference between the cost in the static planning budget
and the actual amount of the cost for the period.
9) If a product is price inelastic, then only a very large change in selling price will result
in a substantial change in the volume of units sold.
10) The collection of a loan made to a supplier would be treated as an investing activity
on a statement of cash flows.
11) The margin of safety in dollars equals the excess of actual sales over budgeted sales.
12) If the formula for the markup percentage on absorption cost is used for setting
prices, then the company’s desired return on investment (ROI) will not usually be
attained unless the assumed number of units sold is actually sold.
13) An increase in the number of shares of common stock outstanding will increase a
company’s price-earnings ratio if the market price per share remains unchanged.
14) Liquidity refers to how quickly an asset can be converted into cash.
15) Opportunity cost should be ignored in setting the transfer price.
16) Ordway Kennel uses tenant-days as its measure of activity; an animal housed in the
kennel for one day is counted as one tenant-day. During June, the kennel budgeted for
2,100 tenant-days, but its actual level of activity was 2,070 tenant-days. The kennel has
provided the following data concerning the formulas used in its budgeting and its actual
results for June:
Data used in budgeting:
Actual results for June:
The net operating income in the flexible budget for June would be closest to:
A.$8,713
B.$9,159
C.$8,466
D.$9,570
17) Brletich Corporation keeps careful track of the time required to fill orders. Data
concerning a particular order appear below:
The delivery cycle time was:
A.9.1 hours
B.21.1 hours
C.22.5 hours
D.3.7 hours
18) The income tax expense in year 3 is:
A.$3,500
B.$14,000
C.$7,000
D.$10,500
19) Papenfuss Family Inn is a bed and breakfast establishment in a converted
100-year-old mansion. The Inn’s guests appreciate its gourmet breakfasts and
individually decorated rooms. The Inn’s overhead budget for the most recent month
appears below:
The Inn’s variable overhead costs are driven by the number of guests.
What would be the total budgeted overhead cost for a month if the activity level is 76
guests?
A.$52,848.40
B.$8,343.40
C.$8,274.40
D.$7,373.24
20) The costs of the Accounting Department at Central Hospital would be considered
by the Surgery Department to be:
A) direct costs.
B) indirect costs.
C) incremental costs.
D) opportunity costs.
21) Laguna Corporation has provided the following data concerning its overhead costs
for the coming year:
The company has an activity-based costing system with the following three activity cost
pools and estimated activity for the coming year:
The Other activity cost pool does not have a measure of activity; it is used to
accumulate costs of idle capacity and organization-sustaining costs.
The distribution of resource consumption across activity cost pools is given below:
The activity rate for the Order Processing activity cost pool is closest to:
A.$415 per order
B.$405 per order
C.$495 per order
D.$270 per order
22) Pearse Kennel uses tenant-days as its measure of activity; an animal housed in the
kennel for one day is counted as one tenant-day. During December, the kennel budgeted
for 3,000 tenant-days, but its actual level of activity was 2,980 tenant-days. The kennel
has provided the following data concerning the formulas used in its budgeting and its
actual results for December:
Data used in budgeting:
Actual results for December:
The activity variance for net operating income in December would be closest to:
A.$640 F
B.$640 U
C.$200 U
D.$200 F
23) What would be the total external failure cost appearing on the quality cost report?
A.$90,000
B.$551,000
C.$121,000
D.$282,000
24) Nguyen Corporation’s marketing manager believes that every 8% increase in the
selling price of one of the company’s products would lead to a 15% decrease in the
product’s total unit sales. The product’s absorption costing unit product cost is $19.40.
The variable production cost is $5.40 per unit and the variable selling and
administrative cost is $2.20.
Required:
a. Compute the product’s price elasticity of demand as defined in the text to two
decimal places.
b. Compute the product’s profit-maximizing price according to the formula in the text.
25) Data concerning Marchman Corporation’s single product appear below:
The company is currently selling 4,000 units per month. Fixed expenses are $166,000
per month. Consider each of the following questions independently.
The marketing manager would like to cut the selling price by $7 and increase the
advertising budget by $11,000 per month. The marketing manager predicts that these
two changes would increase monthly sales by 800 units. What should be the overall
effect on the company’s monthly net operating income of this change?
A.increase of $21,800
B.decrease of $21,800
C.increase of $79,400
D.decrease of $6,200
26) Dideda Corporation uses an activity-based costing system with three activity cost
pools. The company has provided the following data concerning its costs and its activity
based costing system:
The “Other” activity cost pool consists of the costs of idle capacity and
organization-sustaining costs.
You have been asked to complete the first-stage allocation of costs to the activity cost
pools.
How much cost, in total, would be allocated in the first-stage allocation to the Customer
Support activity cost pool?
A.$255,000
B.$282,000
C.$120,000
D.$390,000
27) The following transactions occurred last year at Jolly Corporation:
Based solely on the above information, the net cash provided by financing activities for
the year on the statement of cash flows would be:
A.$179,000
B.$59,000
C.$(109,000)
D.$46,000
28) The income tax expense in year 3 is:
A.$7,000
B.$17,500
C.$3,500
D.$10,500
29) What journal entry is made in a job-order costing system when $8,000 of materials
are requisitioned for general factory use instead of for use in a particular job?
A.Option A
B.Option B
C.Option C
D.Option D
30) Data from Ben Corporation’s most recent balance sheet and income statement
appear below:
31) M. K. Berry is the managing director of CE Ltd. a small, family-owned company
which manufactures cutlery. His company belongs to a trade association which
publishes a monthly magazine. The latest issue of the magazine contains a very brief
article based on the analysis of the accounting statements published by the 40
companies which manufacture this type of product. The article contains the following
table:
CE Ltd’s latest financial statements are as follows:
The country in which the company operates has no corporate income tax. No dividends
were paid during the year. All sales are on account.
32) Gaskey Inc. expects its sales in February to be $173,000. The company’s
contribution margin ratio is 58% and its fixed monthly expenses are $94,000.
Required:
Estimate the company’s net operating income for February, assuming that the fixed
monthly expenses do not change. Show your work!
33) Wragg Urban Diner is a charity supported by donations that provides free meals to
the homeless. The diner’s budget for July was based on 2,500 meals, but the diner
actually served 2,400 meals. The diner’s director has provided the following cost data to
use in the budget: groceries, $3.10 per meal; kitchen operations, $5,800 per month plus
$1.50 per meal; administrative expenses, $3,600 per month plus $0.60 per meal; and
fundraising expenses, $1,600 per month. The director has also provided the diner’s
statement of actual expenses for the month:
Required:
Prepare a report showing the activity variances for each of the expenses and for total
expenses for July.
