Buddy Company manufactures a part for its production cycle. The costs per unit for
5,000 units of the part are as follows:
Per Unit
Direct materials $3.00
Direct labor 5.00
Variable factory overhead 4.00
Fixed factory overhead 4.00
Total costs $16.00
The fixed factory overhead costs are avoidable. Spalding Company has offered to sell
5,000 units of the same part to Buddy Company for $15 per unit. Assuming no other
use for the facilities, Buddy Company should ________.
A) make the part to save $5,000
B) make the part to save $15,000
C) buy the part from Spalding Company to save $5,000
D) buy the part from Spalding Company to save $15,000
Donna Company makes three types of products. The company has two types of
customers. The cost to serve all customers is $12,000 and is allocated to customer types
based on the number of manager visits to customer locations. The following data are
available:
Product 1 Product 2 Product 3
Sales $5,000 $6,000 $30,000
Cost of goods sold 4,000 4,800 15,000
Gross margin $1,000 $1,200 $15,000
Customer Type 1 Customer Type 2
Product 1 Sales $500 $4,500
Product 2 Sales $1,000 $5,000
Product 3 Sales $16,000 $14,000
Manager visits 4 16
What is the operating income for all three products for Customer Type 1?
A) $2,400
B) $5,850
C) $5,900
D) $9,600
Randy Company has obtained the following data for the first year of operations:
Sales $2,868,750
Direct materials and labor $1,125,000
Variable manufacturing overhead $431,250
Fixed manufacturing overhead $656,250
Variable selling expenses $337,500
Fixed selling expenses $131,250
Units produced 125,000
Units sold 112,500
Units expected to be produced 125,000
Required:
A) Using variable costing, prepare an income statement for the first year of operations.
Assume budgeted fixed costs were equal to actual fixed costs.
B) Using absorption costing, prepare an income statement for the first year of
operations. Assume budgeted fixed costs were equal to actual fixed costs.
In a master budget, the schedule of cash disbursements for purchases of inventory is
used to prepare the ________.
A) operating expense budget
B) purchases budget
C) capital budget
D) cash budget
The static budget variance is equal to the sum of ________ and ________.
A) direct materials variance; direct labor variance
B) fixed overhead variance; variable overhead variance
C) flexible budget variance; activity-level variance
D) direct materials price variance; direct materials quantity variance
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
Most companies that follow accrual basis accounting recognize revenue after they
________.
A) receive cash from the customer
B) deliver goods or perform services
C) pay cash for operating expenses
D) provide warranty service on a product
The main qualities of accounting information that make accounting information useful
for decision making are ________ and ________.
A) relevance; reliability
B) relevance; comparability
C) consistency; comparability
D) relevance; faithful representation
Santana Company has no beginning and ending inventories, and reports the following
information for its only product:
Direct materials used $250,000
Direct labor $120,000
Fixed indirect manufacturing $60,000
Variable indirect manufacturing $20,000
Variable selling and administrative $50,000
Fixed selling and administrative $10,000
Units produced and sold 40,000
Santana Company uses the absorption approach to prepare the income statement. What
is the product cost per unit?
A) $11.00
B) $11.25
C) $12.00
D) $12.75
The use of accelerated depreciation for tax purposes will generally produce a present
value of tax savings from depreciation expense that is ________.
A) less than the present value of tax savings provided by straight-line depreciation
B) greater than the present value of tax savings provided by straight-line depreciation
C) the same as the present value of tax savings provided by straight-line depreciation
D) less than the present value of tax savings provided by other depreciation methods
Increases in ownership claims arising from the delivery of goods are called ________.
A) expenses
B) profits
C) assets
D) revenues
When comparing management accounting and financial accounting, which of the
following statements is FALSE?
A) Management accounting has a future orientation whereas financial accounting has a
past orientation.
B) Management accounting prepares detailed reports whereas financial accounting
prepares summary reports.
C) Management accountants are constrained by the principles of reporting promulgated
by the Institute of Management Accountants whereas financial accountants are
constrained by Generally Accepted Accounting Principles.
D) Behavioral considerations are of primary importance in management accounting, but
not in financial accounting.
A company is considering the acquisition of new equipment to replace old equipment.
When using the net present value method, which of the following items is NOT
relevant? Ignore taxes.
A) cash outflow for the purchase of new equipment
B) cash installation costs associated with the new equipment
C) disposal value of old equipment replaced with new equipment
D) fixed overhead costs that are the same under both alternatives
Utah Company makes three types of products. The company has two types of
customers. The cost to serve all customers is $12,000 and is allocated to customer types
based on the number of manager visits to customer locations. The following data are
available:
Product 1 Product 2 Product 3
Sales $5,000 $6,000 $30,000
Cost of goods sold 4,000 4,800 15,000
Gross margin $1,000 $1,200 $15,000
Customer Type 1 Customer Type 2
Product 1 Sales $500 $4,500
Product 2 Sales $1,000 $5,000
Product 3 Sales $16,000 $14,000
Manager visits 4 12
What is the cost to serve for Customer Type 2?
A) $2,400
B) $6,000
C) $9,000
D) $12,000
Wisconsin Company has a current production capacity level of 200,000 units per
month. At this level of production, variable costs are $1.00 per unit and fixed costs are
$0.50 per unit. Current monthly sales are 164,500 units. Gates Company has contacted
Wisconsin Company about purchasing 20,000 units at $2.00 each. Current sales would
not be affected by the special order and no additional fixed costs would be incurred on
the special order. Variable costs would increase $0.10 per unit with the special order. If
the order is accepted, what is Wisconsin Company’s increase in operating income?
A) $8,000
B) $18,000
C) $20,000
D) $24,000
When using the visual-fit method to estimate a cost function, we can estimate the fixed
cost by ________.
A) the point where the sketched line (through all or most of the data points) intersects
the x-axis
B) the point where the sketched line (through all or most of the data points) intersects
the y-axis
C) calculating the variable cost per unit of the cost driver
D) subtracting the variable cost at any cost driver level from the total cost
Which of the following statements about perfection standards is TRUE?
A) It is generally believed that they have a negative influence on employee morale.
B) They are expressions of the most efficient performance possible.
C) They usually result in unfavorable variances.
D) All of the above
Joint costs of producing multiple products are allocated to ________.
A) main products only
B) by-products only
C) main products and by-products
D) service departments
A variable-costing transfer pricing system is appropriate when there is ________.
A) constrained capacity for the selling segment
B) constrained capacity for the buying segment
C) excess capacity for the selling segment
D) excess capacity for the buying segment
Leno 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 14,885
Standard error of Y estimate 9,960
R-Squared 0.7832
No. of observations 22
Degrees of freedom 20
X Coefficient 11.75
Standard error of coefficient 2.1876
The linear cost function is ________ where Y = Total indirect materials cost and X =
Number of units produced.
A) Y = $2.1876 + $9,960X
B) Y = $11.75 + $14,885X
C) Y= $9,960 + $14,885X
D) Y = $14,885 + 11.75X
Corrao Company had a static budgeted operating income of $8.6 million. Actual
operating income was $6.4 million. The flexible budget operating income at the actual
level of output is $7,000,000. What is the static-budget variance of operating income?
A) $1.6 million Favorable
B) $1.6 million Unfavorable
C) $2.2 million Favorable
D) $2.2 million Unfavorable
The distinction between paid-in capital and retained earnings is not made for ________.
A) corporations
B) corporations and partnerships
C) corporations and sole proprietorships
D) partnerships and sole proprietorships
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
Which of these costs is a direct cost for a manufactured wood chair?
A) Rent Expense for factory building
B) Depreciation Expense on factory equipment
C) Wood used to manufacture chair
D) Salary Expense of factory supervisor
Retained earnings are a general claim against ________.
A) stockholders
B) creditors
C) paid in capital
D) total assets
When a company uses return on investment as a performance metric, managers have an
incentive to invest only in projects ________.
A) that increase the return on investment of the segment or division
B) that decrease the return on investment of the segment or division
C) that have a return on investment that exceeds the cost of capital of the segment or
division
D) that have a return on investment that is less than the cost of capital of the segment or
division
Assume the cost object is customers. Why should indirect costs associated with
customers be allocated to customers instead of producing departments?
A) The allocation to customers would be based on production-related output measures
that are related to the cause of customer-service costs.
B) The allocation to customers would be based on production-related output measures
that are probably not related to the cause of customer-service costs.
C) The cost-allocation base cannot be determined.
D) Actual costs would be used instead of budgeted costs.
Budgeting can result in incentives to lie and cheat that undermine ________.
A) a company’s ethical standards
B) a company’s value chain
C) standard of objectivity promulgated by the Institute of Management Accountants
D) none of the above
With the high-low method, the most accurate way to measure the intercept and slope for
a cost function is to ________.
A) plot the data points and draw a line
B) plot the data points, identify the high and low points and draw a line between the
high and low points
C) plot the data points and draw a straight line through the points as close as possible to
all the points
D) use algebra using the two data points with the highest and lowest activity levels
Wal-Mart buys Halloween candy from a candy company in Hershey, Pennsylvania. This
is an example of a(n) ________.
A) A2B transaction
B) B2B transaction
C) B2C transaction
D) C2B transaction
Healing Company has the following information:
Month Budgeted Purchases
January $56,800
February 49,000
March 30,520
April 35,480
May 27,680
Purchases are paid as follows:
10% in the month of purchase
50% one month after purchase
40% two months after purchase
What is the estimated cash disbursement in May from April purchases?
A) $11,072
B) $11,792
C) $13,840
D) $17,740
It is misleading to call a cost-volume-profit graph a break-even graph. Why?
A) The graph reveals more information than the break-even point.
B) The graph does not show the break-even point.
C) The main purpose of the graph is to show the cost drivers for different activity
levels.
D) The main purpose of the graph is to show the margin of safety.