1) Your Uncle Otto has struck it rich by investing in racehorses and desires to share
some of his newfound wealth with you. Assume that you must choose from among the
following three options:
Receive a lump sum of $400,000 in 20 years.
Receive $20,000 at the end of each year for the next 10 years.
Receive $90,000 now.
Required:
A. Why is it inappropriate to compare $400,000 (no. 1) vs. $200,000 (no. 2) vs. $90,000
(no. 3) and conclude that no. 1 is the best option? Explain.
B. What should you do to determine which option is the best? What does this process
do?
C. If Uncle Otto agreed to revise option no. 1 so that you could receive $200,000 in 10
years and the remaining $200,000 in another 10 years, would you likely prefer the
revision or the option as originally stated? Why?
D. What is an annuity? Do any of the options involve an annuity?
2) A mixed cost is also known as a:
A.semivariable cost
B.step-fixed cost
C.variable cost
D.curvilinear cost
E.discretionary cost
3) Smythe Manufacturing has 27,000 labor hours available for producing X and Y.
Consider the following information:
If Smythe follows proper managerial accounting practices, how many units of Product
Y should it produce?
A.8,000
B.4,500
C.6,000
D.5,000
E.1,500
4) The joint-cost allocation method that recognizes the revenues at split-off but does not
consider any further processing costs is the:
A.relative-sales-value method
B.net-realizable-value method
C.physical-units method
D.reciprocal-accounting method
E.grossmargin at split-off method
5) The accounting records of Reynolds Corporation revealed the following selected
costs: Sales commissions, $65,000; plant supervision, $190,000; and administrative
expenses, $185,000. Reynolds’s period costs total:
A.$250,000
B.$440,000
C.$375,000
D.$255,000
E.$185,000
6) Consider the following statements about absorption costing and variable costing:
I. Variable costing is consistent with contribution reporting and cost-volume-profit
analysis.
II. Absorption costing must be used for external financial reporting.
III. A number of companies use both absorption costing and variable costing.
Which of the above statements is (are) true?
A.I only
B.II only
C.III only
D.I and II
E.I, II, and III
7) The Gingham Company’s budgeted income statement reflects the following amounts:
Sales are collected 50% in the month of sale, 30% in the month following sale, and
19% in the second month following sale. One percent of sales is uncollectible and
expensed at the end of the year.
Gingham pays for all purchases in the month following purchase and takes advantage of
a 3% discount. The following balances are as of January 1:
*Of this balance, $35,000 will be collected in January and the remaining amount will be
collected in February.
The monthly expense figures include $5,000 of depreciation. The expenses are paid in
the month incurred.
Gingham’s expected cash balance at the end of January is:
A.$87,000
B.$89,160
C.$92,000
D.$94,160
E.$113,160
8) Variable costs are costs that:
A.vary inversely with changes in activity
B.vary directly with changes in activity
C.remain constant as activity changes
D.decrease on a per-unit basis as activity increases
E.increase on a per-unit basis as activity increases
9) Martin Company, which applies overhead to production on the basis of machine
hours, reported the following data for the period just ended:
Actual units produced: 9,000
Actual variable overhead incurred: $54,400
Actual machine hours worked: 16,000
Standard variable overhead cost per machine hour: $3.50
If Martin estimates two hours to manufacture a completed unit, the company’s
variable-overhead efficiency variance is:
A.$1,600 favorable
B.$1,600 unfavorable
C.$7,000 favorable
D.$7,000 unfavorable
E.None of the other answers are correct
10) Hreck, Inc. has two service departments (Human Resources and Building
Maintenance) and two production departments (Machining and Assembly). The
company allocates Building Maintenance cost on the basis of square footage and
believes that Building Maintenance provides more service than Human Resources. The
square footage occupied by each department follows.
Assuming use of the direct method, over how many square feet would the Building
Maintenance cost be allocated (i.e., spread)?
A.18,000
B.48,000
C.55,000
D.66,000
E.More information is needed to judge
11) Cohlsen Corporation has a favorable materials quantity variance. Which department
would likely be asked to explain the cause of this variance?
A.Engineering
B.Purchasing
C.Production
D.Marketing
E.None, because the variance is favorable
12) When graphed, a typical variable cost appears as:
A.a horizontal line
B.a vertical line
C.a u-shaped line
D.a diagonal line that slopes downward to the right
E.a diagonal line that slopes upward to the right
13) A direct-material quantity variance can be caused by all of the following except:
A.improper employee training
B.changes in sales volume
C.acquisition of materials that are below standard quality
D.adjustment problems with machines
E.disgruntled workers
14) The Little Rock Division of Classics Companies currently reports a profit of $3.6
million. Divisional invested capital totals $9.5 million; the imputed interest rate is 12%.
On the basis of this information, Little Rock’s residual income is:
A.$432,000
B.$708,000
C.$1,140,000
D.$2,460,000
E.None of the other answers are correct
15) Controllable costs, as used in a responsibility accounting system, consist of:
A.only fixed costs
B.only direct materials and direct labor
C.those costs that a manager can influence in the time period under review
D.those costs about which a manager has some knowledge
E.those costs that are influenced by parties external to the organization
16) Operation costing is a hybrid type of accounting system that combines features of
job-order and process-cost accounting.
Required:
A. Briefly discuss the similarities and differences of an operation-costing system and a
job-order cost system.
B. Briefly discuss the similarities and differences of an operation-costing system and a
process-cost system.
17) Nonprofit organizations begin their budgeting process with:
A.a sales budget
B.anticipated funding
C.proforma financial statements
D.services to be provided
E.a cash budget
18) The following data pertain to Nedra Company for 20×1:
Required:
A. Calculate the company’s sales margin, capital turnover, and return on investment for
20×1 .
B. If the sales and average invested capital remain the same, to what level would total
costs and expenses have to be reduced in 20×2 to achieve a 15% return on investment?
C. Assume that costs and expenses are reduced, as calculated in requirement “B.”
Calculate the firm’s new sales margin.
D. Suggest two possible actions that will improve the company’s capital turnover.
19) Sand Fly Corporation operates two stores: J and K. The following information
relates to J:
J’s segment contribution margin is:
A.$345,000
B.$425,000
C.$620,000
D.$700,000
E.$745,000
20) Garage Specialty Corporation manufactures joint products P and Q. During a recent
period, joint costs amounted to $80,000 in the production of 20,000 gallons of P and
60,000 gallons of Q. Garage can sell P and Q at split-off for $2.20 per gallon and $2.60
per gallon, respectively. Alternatively, both products can be processed beyond the
split-off point, as follows:
The joint cost allocated to Q under the relative-sales-value method would be:
A.$40,000
B.$62,400
C.$64,000
D.$65,600
E.None of the other answers are correct
21) When underapplied or overapplied manufacturing overhead is prorated, amounts
can be assigned to which of the following accounts?
A.Raw-Material Inventory, Manufacturing Overhead, and Direct Labor
B.Cost of Goods Sold, Work-in-Process Inventory, and Finished-Goods Inventory
C.Work-in-Process Inventory, Raw-Material Inventory, and Cost of Goods Sold
D.Raw-Material Inventory, Finished-Goods Inventory, and Cost of Goods Sold
E.Raw-Material Inventory, Work-in-Process Inventory, and Finished-Goods Inventory
22) Which of the following statements pertain to variable costing?
A.This method must be used for external financial reporting
B.Fixed manufacturing overhead is attached to each unit produced
C.The income statement not does disclose a company’s contribution margin
D.Variable manufacturing overhead becomes part of a unit’s cost
E.None of the other answers are correct
23) Which of the following statements concerning the budget director is false?
A.The budget director is often an organization’s controller
B.The budget director has the responsibility of specifying the process by which budget
data will be gathered
C.The budget director collects information and participates in preparing the master
budget
D.The budget director communicates budget procedures and deadlines to employees
throughout an organization
E.The budget director usually has the authority to give final approval to the master
budget
24) Which of the following choices correctly states how funds are assumed to be
reinvested under the net-present-value method and the internal-rate-of-return method?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
25)
Assume that the company computes variances at the earliest point in time.
The direct-labor efficiency variance is:
A.$8,000F
B.$8,000U
C.$8,250F
D.$8,250U
E.none of the other answers are correct
26)
Reids Company, which uses net present value to analyze investments, requires a 10%
minimum rate of return. A staff assistant recently calculated a $500,000 machine’s net
present value to be $86,400, excluding the impact of straight-line depreciation. If Reids
ignores income taxes and the machine is expected to have a five-year service life, the
correct net present value of the machine would be:
A.$(13,600)
B.$86,400
C.$186,400
D.$292,700
E.$465,500
27) The difference between the revenue or cost projection that a person provides, and a
realistic estimate of the revenue or cost, is called:
A.passing the buck
B.budgetary slack
C.false budgeting
D.participative budgeting
E.resource allocation processing
28) Which of the following would have no effect, either direct or indirect, on an
organization’s cash budget?
A.Sales revenues
B.Outlays for professional labor
C.Advertising expenditures
D.Raw material purchases
E.None of the other answers are correct, since all of these items would have some
influence
29) You received a $5,000 loan at the end of each of your four years of college. Aunt
Rose agreed to pay off your loans at the end of your fourth year of school. How much
will she have to pay? Assume a 4% interest rate compounded annually on student loans.
A.$20,000
B.$21,235
C.$39,930
D.$50,000
E.None of the other answers are correct
30) The following selected data were taken from the accounting records of Schein
Industrial Manufacturing:
Manufacturing overhead consists of three different costs; (1) machine supplies
(variable), (2) property taxes (fixed), and (3) plant maintenance (semivariable). July’s
overhead costs were $170,000 for machine supplies, $24,000 for property taxes, and
$1,080,000 for plant maintenance.
Required:
A. Determine the machine supplies and property taxes for May.
B. By using the high-low method, analyze Schein’s plant maintenance cost and
calculate the monthly fixed portion and the variable cost per machine hour.
C. Assume that present cost behavior patterns continue into future months. Estimate the
total amount of manufacturing overhead the company can expect in September if
56,000 machine hours are worked.
31) Costs that remain the same over a wide range of activity, but jump to a different
amount outside that range, are known as:
A.step-fixed costs
B.step-variable costs
C.semivariable costs
D.curvilinear costs
E.mixed costs
32) Martin and Beasley, an accounting firm, provides consulting and tax planning
services. For many years, the firm’s total administrative cost (currently $270,000) has
been allocated to services on this basis of billable hours to clients. A recent analysis
found that 55% of the firm’s billable hours to clients resulted from tax planning
services, while 45% resulted from consulting services.
The firm, contemplating a change to activity-based costing, has identified three
components of administrative cost, as follows:
A recent analysis of staff support found a strong correlation with the number of clients
served. In contrast, in-house computing and miscellaneous office cost varied directly
with the number of computer hours logged and number of client transactions,
respectively. Consulting clients served totaled 35% of the total client base, consumed
30% of the firm’s computer hours, and accounted for 20% of the total client
transactions.
If Martin and Beasley switched from its current accounting method to an activity-based
costing system, the amount of administrative cost chargeable to consulting services
would:
A.decrease by $32,500
B.increase by $32,500
C.decrease by $59,500
D.change by an amount other than those listed
E.change, but the amount cannot be determined based on the information presented
33) Barrey, Inc. is subject to a 40% income tax rate. The following data pertain to the
period just ended when the company produced and sold 45,000 units:
How many units must Barrey sell to earn an after-tax profit of $225,000?
A.67,250
B.62,250
C.61,000
D.51,000
E.None of the other answers is correct
34) Barnett, Inc., which uses a process-costing system, transfers completed production
from Department no. 1 to Department no. 2 for further work. Which of the following
best describes the account that would be credited to record this transfer?
A.Cost of Goods Transferred
B.Finished-Goods Inventory: Department no. 1
C.Finished-Goods Inventory: Department no. 2
D.Work-in-Process Inventory: Department no. 1
E.Work-in-Process Inventory: Department no. 2
35) A favorable labor rate variance is created when:
A.actual labor hours worked exceed standard hours allowed
B.actual hours worked are less than standard hours allowed
C.actual wages paid are less than amounts that should have been paid for the number of
hours worked
D.actual units produced exceed budgeted production levels
E.actual units produced exceed standard hours allowed
36) Manufacturing overhead:
A.includes direct materials, indirect materials, indirect labor, and factory depreciation
B.is easily traced to jobs
C.includes all selling costs
D.should not be assigned to individual jobs because it bears no obvious relationship to
them
E.is a pool of indirect production costs that must somehow be attached to each unit
manufactured
37) The Metropolitan Clinic has two service departments (S1 and S2) and two
“production” departments (P1 and P2). The service departments service the
“production” departments as well as each other, and studies have shown that S2
provides the greater amount of service. Which of the following choices correctly
denotes an allocation that would not occur under (1) the direct method and (2) the
step-down method of cost allocation?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
38) Alamo’s customer service department follows up on customer complaints by
telephone inquiry. During a recent period, the department initiated 7,000 calls and
incurred costs of $203,000. If 2,940 of these calls were for the company’s wholesale
operation (the remainder were for the retail division), costs allocated to the retail
division should amount to:
A.$0
B.$29
C.$85,260
D.$117,740
E.$203,000
39) Companies that use a process-cost accounting system would:
A.establish a separate Work-in-Process Inventory account for each manufacturing
department
B.establish a separate Finished-Goods Inventory account for each manufacturing
department
C.pass completed production directly to Cost of Goods Sold
D.charge goods produced with actual overhead amounts rather than applied overhead
amounts
E.eliminate the need for the Finished-Goods Inventory account
40) The net-present-value method assumes that project funds are reinvested at the:
A.hurdle rate
B.rate of return earned on the project
C.cost of debt capital
D.cost of equity capital
E.internal rate of return