In perfect competition, the profit-maximizing volume is the quantity at which
________.
A) marginal cost equals price
B) contribution margin equals fixed cost
C) marginal revenue equals price
D) price exceeds marginal cost
When allocating service department costs to producing departments, which of the
following guidelines is NOT followed?
A) Allocate variable- and fixed-cost pools separately.
B) Establish the cost-allocation procedure before rendering the service.
C) Evaluate performance using flexible budgets for each service department.
D) Establish the cost-allocation procedure after rendering the service.
Michigan Company has the following data available:
December December
31, 2011 31, 2012
Fixed Assets $125 $125
Accumulated Depreciation $110 $117
Long-term debt $125 $5
Common stock $300 $400
Retained earnings $100 $120
Dividends of $20 were declared on December 1, 2012. What is the net income for the
year ended December 31, 2012?
A) $10
B) $20
C) $30
D) $40
On July 1, Singh Company paid 6 months’ insurance in advance. The policy covers the
period of July 1 through December 31. The total payment was $5,400. At the time of
the payment, the company set up the Prepaid Insurance account for $5,400. What is the
balance in the Prepaid Insurance account on August 31?
A) 0
B) $1,800
C) $2,700
D) $3,600
Central Industries has three product lines: A, B and C. The following information is
available:
Product A Product B Product C
Sales $100,000 $90,000 $44,000
Variable costs 76,000 48,000 35,000
Contribution margin 24,000 42,000 9,000
Avoidable fixed costs 9,000 18,000 3,000
Unavoidable fixed costs 6,000 9,000 7,700
Operating income(loss) $9,000 $15,000 $(1,700)
Central Industries is thinking about dropping Product C because it is reporting a loss.
Assume Central Industries drops Product C and does not replace it. What will happen to
operating income?
A) increase by $600
B) increase by $2,400
C) decrease by $6,000
D) decrease by $9,000
Costs for a department store in Austin, Texas are listed below. The headquarters of the
company are located in Dallas, Texas. From the view of the store manager in Austin,
identify each cost as one of the following:
A. Variable cost
B. Fixed cost controllable by store manager
C. Fixed cost controllable by others (not store manager)
D. Unallocated cost
_____ 1. Insurance on Austin store
_____ 2. Sales supervisor’s salary in Austin store
_____ 3. Depreciation expense on Austin store
_____ 4. Corporate-level advertising costs
_____ 5. Temporary sales staff wages in Austin store
_____ 6. Cost of merchandise sold in Austin store
_____ 7. Local advertising costs for Austin store
_____ 8. CEO salary
_____ 9. Salary of store manager in Austin store
_____ 10. Public relations department at corporate headquarters
_____ 11. Supplies for break room in Austin store
_____ 12. Salaries of attorneys at corporate headquarters
_____ 13. Salaries of accountants at corporate headquarters
_____ 14. Wages of janitors at Austin store
_____ 15. Wages of janitors at corporate headquarters
The stockholders’ equity section of a corporation’s balance sheet can be divided into
________.
A) net income and retained earnings
B) retained earnings and paid-in capital
C) net income and paid-in capital
D) liabilities and retained earnings
Gokey Company has a contribution-margin ratio of 0.30. Targeted net income is
$76,800 and targeted sales volume in dollars is $480,000. What are total fixed costs?
A) $23,000
B) $44,160
C) $67,200
D) $144,000
Johnsen Company reported a flexible budget variance for direct labor of $8,000
Favorable for the current year. If the direct labor price variance was $2,000
Unfavorable, what was the direct labor efficiency variance?
A) $6,000 Unfavorable
B) $6,000 Favorable
C) $10,000 Favorable
D) $10,000 Unfavorable
Seidner Industries reported the following information about the production and sale of
its only product during the first month of operations:
Selling price per unit $65
Sales $78,000
Direct materials used $25,000
Direct labor $35,000
Variable factory overhead $15,000
Fixed factory overhead $10,000
Variable selling and administrative expenses $3,000
Fixed selling and administrative expenses $5,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 1,200 units
Under variable costing, the contribution margin is ________.
A) $32,000
B) $36,000
C) $37,500
D) $39,500
The organizational goal of a hotel chain is to increase customer satisfaction. Which of
the following is NOT a valid performance measure to meet the organizational goal?
A) number of repeat customers
B) number of complaints by customers
C) occupancy rate
D) average room rate
In a corporate setting, a mortgage payment would be identified as a ________.
A) purely variable cost
B) discretionary fixed cost
C) committed fixed cost
D) mixed cost
Systematically varying budget data input to determine the effects of each change on the
budget is called ________ analysis.
A) operating budget
B) financial budget
C) sensitivity
D) master budget
Orlando Company manufactures phones in a two-department process that includes
Assembly and Finishing. Information about the Assembly Department follows:
Direct materials added $310,000
Direct labor 460,000
Factory overhead 230,000
Total costs to account for $1,000,000
There was no beginning inventory and 80,000 units were started in the Assembly
Department. By the end of the month, 67,200 units were completed and transferred to
the Finishing Department and 12,800 units were still in process. The partially complete
units were 100 percent complete with regard to direct materials but 75 percent complete
with regard to conversion costs. The equivalent units for materials for the month for the
Assembly Department are ________.
A) 12,800
B) 67,200
C) 76,800
D) 80,000
Winter Company has no beginning and ending inventories, and reports the following
data about its only product:
Direct materials used $200,000
Direct labor $80,000
Fixed indirect manufacturing $100,000
Fixed selling and administrative $300,000
Variable indirect manufacturing $20,000
Variable selling and administrative $60,000
Selling price(per unit) $150
Units produced and sold 10,000
Winter Company uses the absorption approach to prepare the income statement. What is
the gross margin?
A) $740,000
B) $1,040,000
C) $1,100,000
D) $1,160,000
Keller Company manufactures plastic cups in one department. The following
information is available:
Work-In-Process Inventory, beginning 0
Units started 60,000
Units completed and transferred 48,000
Work-In-Process Inventory, end 12,000
Direct materials added $240,000
Direct labor $164,780
Factory overhead $82,000
The units in the ending Work-In-Process Inventory are 50 percent complete with respect
to direct materials and 50 percent complete with respect to conversion costs. The unit
cost of conversion costs is ________.
A) $0.88
B) $4.14
C) $4.57
D) $5.18
The West and East Divisions are divisions in the same company. Currently the East
Division buys a part from West Division for $384 per unit. The West Division wants to
increase the price of the part it sells to East Division by $96 to $480. The manager of
the East Division has stated that he cannot pay that much insofar as the division’s profit
goes below zero. The manager of the East Division can buy the part from an outside
supplier for $440 per unit. The cost data pertaining to the part is supplied by the West
Division:
Direct materials $136
Direct labor 200
Variable overhead 40
Fixed overhead 42
If West Division does not produce the parts for the East Division, it will be able to
avoid one-third of the fixed manufacturing overhead costs. The West Division has
excess capacity but no alternative uses for the facilities. From the standpoint of the
company as a whole, should the East Division buy the part from the West Division or
the outside supplier?
A) East Division should buy the part from the West Division because the company’s
profit will be $14.00 per unit larger.
B) East Division should buy the part from the West Division because the company’s
profit will be $40.00 per unit larger.
C) East Division should buy the part from the West Division because the company’s
profit will be $50.00 per unit larger.
D) East Division should buy from an outside supplier at $440 per unit.
The first step in using the differential approach to investment analysis is to ________.
A) calculate the present value of the differential cash flows
B) sum the individual present values of each investment
C) estimate the difference in cash flows between two projects for each year
D) estimate the relevant cash inflows and cash outflows for each project
The following is a useful rule of thumb when making operational decisions. Managers
should NOT use ________.
A) variable cost per unit
B) total variable costs
C) fixed cost per unit
D) total fixed costs
On July 1, 2012, Slowinski Company borrows $100,000 on a 10% note due to a bank in
one year. The accounts of Slowinski Company are affected by the adjusting entry at
December 31, 2012 in which of the following ways?
A) increase assets and decrease expenses
B) increase assets and increase liabilities
C) increase expenses and increase liabilities
D) increase expenses and increase stockholders’ equity
Assume you are preparing a balance sheet dated December 31, 2014. Which of the
following is NOT a long-term liability?
A) bonds payable due June 30, 2016
B) bonds payable due June 30, 2015
C) bonds payable due December 31, 2016
D) bonds payable due December 31, 2020
Parrish Company had the following information available for its specialty product:
Standards for one unit of product:
Direct Materials: 5 pounds at $2 per pound
Direct Labor: 0.50 hour at $16 per hour
Materials and Labor Used to produce 8,500 units:
Direct Materials: ? pounds at $2.10 per pound
Direct Labor: 4,000 hours at $16.80 per hour
If the Direct Materials Quantity Variance is $7,000 Unfavorable, what is the actual
quantity of direct materials used?
A) 7,000
B) 42,500
C) 46,000
D) 47,000
Financial performance of a manager is measured by ________. Financial performance
of a segment is measured by ________.
A) contribution by segment; contribution margin
B) contribution margin; net income of segment
C) contribution controllable by segment manager; contribution by segment
D) contribution margin; contribution controllable by segment manager
A manager at a local home improvement store is considering the following costs. Which
of the following is a cost controllable by the manager?
A) Salaries of public relations staff at corporate headquarters
B) Salaries of attorneys at corporate headquarters
C) Salary of treasurer of company
D) Salary of head cashier
Nancy Company has an idle machine that originally cost $200,000. The book value of
the machine is $100,000. The company is considering three alternative uses of the idle
machine:
Alternative 1: Disposal of machine. Disposal value of machine is $50,000.
Alternative 2: Use the idle machine to increase production of Product A. Contribution
margin from additional sales of Product A is estimated to be $60,000.
Alternative 3: Use the idle machine to increase production of Product B. Contribution
margin from additional sales of Product B is estimated to be $70,000.
When considering the opportunity cost of the idle machine, what is the net financial
benefit from Alternative 3?
A) $10,000
B) $20,000
C) $50,000
D) $70,000
A company can sell any mix of Product A and Product B at full capacity. The company
has 100,000 hours of capacity. The demand for each product exceeds the capacity. It
takes one hour to make one unit of Product A and two hours to make one unit of
Product B. The following information is available:
Product A Product B
Units produced from capacity available 100,000 50,000
Contribution margin per unit $20 $30
If capacity is the limiting factor, which product should be produced?
A) 0 units of Product A and 50,000 units of Product B
B) 20,000 units of Product A and 30,000 units of Product B
C) 30,000 units of Product A and 20,000 units of Product B
D) 100,000 units of Product A and 0 units of Product B
Johnston Company wants to double production of Product X from 1,000 units to 2,000
units. The variable manufacturing cost per unit is $10. The variable nonmanufacturing
cost per unit is $20. There are no fixed costs. The selling price per unit is $50. What is
the incremental cost of the proposed change?
A) $10,000
B) $20,000
C) $30,000
D) $60,000
In the immediate write-off of overhead variances, underapplied overhead is regarded as
a(n) ________.
A) addition to the cost of inventory
B) deduction from the cost of inventory
C) decrease in cost of goods sold
D) increase in cost of goods sold
Audits of the financial statements of publicly held companies are conducted in
accordance with standards approved by the ________.
A) Financial Accounting Standards Board
B) Securities and Exchange Commission
C) Institute of Certified Public Accountants
D) Public Company Accounting Oversight Board
According to the Financial Executives Institute, a function of the controller is
________.
A) investments
B) short-term financing
C) provision of capital
D) reporting and interpreting
A home builder just completed the construction of a new home. The home builder uses
job-order costing. Costs of $200,000 were incurred to construct the home. The home is
ready for sale and is listed with a real estate broker. Which of the following journal
entries is necessary when the home is completed?
A) Work-In-Process Inventory $200,000
Direct Materials Inventory $200,000
B) Finished Goods Inventory $200,000
Direct Materials Inventory $200,000
C) Finished Goods Inventory $200,000
Work-In-Process Inventory $200,000
D) Cost of Goods Sold $200,000
Finished Goods Inventory $200,000
Assume Mussa Company has the following information available:
Selling price per unit $100
Variable cost per unit $45
Fixed costs per year $420,000
Expected sales per year (units) 20,000
If fixed costs increase by $200,000, what is the expected operating income?
A) $280,000
B) $480,000
C) $680,000
D) $1,380,000
The allocation of fixed costs in service departments to user departments is based on
________.
A) actual capacity used in last period
B) budgeted capacity available to user
C) actual usage by user department
D) actual usage by service department
Department B is the second department in a series of production processes. Department
B receives units from Department A. Department B adds materials, labor and overhead
to the units received. The company uses process costing. What costs are assigned to
each completed unit in Department B?
A) material cost per equivalent unit, conversion cost per equivalent unit
B) transferred-in cost per equivalent unit, conversion cost per equivalent unit
C) transferred-in cost per equivalent unit, material cost per equivalent unit
D) transferred-in cost per equivalent unit, material cost per equivalent unit, conversion
cost per equivalent unit