A responsibility accounting system evaluates the performance of each responsibility
center and its manager.
Entries in the cash payments journal are posted daily to the accounts payable subsidiary
ledger and monthly to the general ledger.
The cash payments journal is a special journal used to record cash payments by
currency but not by check.
Some costs are not controllable in the long run. However, in the short run, all costs are
controllable.
Capital rationing is a process adopted when a company has limited resources, and it
must find ways to reduce operating expenses in all of its divisions and units.
A CVP graph shows how changes in the level of sales will affect profits.
If an investment’s internal rate of return is higher than the required rate of return, the
company should reject the investment.
Managerial accountants can design performance evaluation systems that encourage goal
congruence.
The accounting rate of return also is known as the average rate of return or annual rate
of return.
Purchases equals cost of goods sold plus beginning merchandise inventory minus
ending merchandise inventory.
The static budget, at the beginning of the month, for Assembly Furniture Company
follows:
Static budget:
Sales volume: 1,100 units; Sales price: $71.00 per unit
Variable costs: $33.00 per unit; Fixed costs: $36,400 per month
Operating income: $5,400
Actual results, at the end of the month, follows:
Actual results:
Sales volume: 980 units; Sales price: $75.00 per unit
Variable costs: $36.00 per unit; Fixed costs: $33,500 per month
Operating income: $4,720
Calculate the sales volume variance for fixed costs.
A) $2,940 U
B) $2,900 F
C) $4,560 U
D) $0
The following information relates to Webster, Inc.:
How much were Webster’s period costs?
A) $87,700
B) $21,700
C) $534,700
D) $7,200
Which of the following is a part of manufacturing overhead?
A) cost of raw materials
B) wages of assembly line workers
C) factory insurance
D) depreciation on office furniture
A company sells two products with information as follows:
The products are machine made. Four units of product A can be made with one machine
hour and two units of product B can be made with one machine hour. The company has
a maximum of 6,000 machine hours available per month. The company can sell up to
18,000 units of product A per month, and up to 3,000 units of product B for the month.
What is the optimum product mix to maximize company’s operating income?
A) 1,500 units of A and 72,000 units of B
B) 18,000 units of A and 3,000 units of B
C) zero units of A and 3,000 units of B
D) 36,000 units of A and zero units of B
Which of the following perspectives of the balanced scorecard focuses on the increase
of company profits through increasing revenue growth and productivity?
A) financial
B) customer
C) internal business
D) learning and growth
Which of the following statements is true of the operating budget?
A) It is a part of the financial budget.
B) It includes the capital expenditures budget.
C) It includes the sales budget.
D) Its final component is the cash budget.
Battista Stationery Company is a price-taker and uses target pricing. The company has
completed an analysis of its revenues, costs, and desired profits and has calculated its
target full product cost. Refer to the following information:
Actual costs are currently higher than target full product cost. Assume all products
produced are sold. Assuming that variable costs are dependent on commodity prices and
cannot be reduced, what is the target fixed cost?
A) $320,000
B) $450,000
C) $150,000
D) $600,000
Entry-level accounting software ________.
A) can handle advanced processes and transactions
B) is an affordable system that is difficult to use
C) allows businesses to enter sales of services and merchandise inventory, record
expenses, and produce financial statements
D) integrates all of a company’s functions, departments, and data into a single system
Which of the following is a disadvantage of decentralization?
A) It results in increased customer response time.
B) It allows only the top management to make decisions.
C) It does not motivate employees because the decision-making powers are not
delegated.
D) It results in problems with achieving goal congruence.
Conversion costs include ________.
A) direct labor and manufacturing overhead costs
B) direct material and direct labor costs
C) product and period costs
D) direct material, direct labor, and manufacturing overhead costs
Penny’s Pies, Inc. has provided the following financial information for the year:
What is the unit product cost for the year using variable costing?
A) $76
B) $15
C) $60
D) $62
Which of the following would most likely be treated as an activity in an activity-based
costing system?
A) direct labor cost
B) machine processing
C) direct materials cost
D) sales revenues
A manufacturing company’s budgeted income statement includes the following data:
The budget assumes that 60% of commission expenses are paid in the month they were
incurred, and the remaining 40% are paid one month later. In addition, 50% of salaries
expenses are paid in the month incurred and the remaining 50% are paid one month
later. Miscellaneous expenses, rent expense, and utilities expenses are assumed to be
paid in the same month in which they are incurred. Insurance was prepaid for the year
on January 1. How much is the total of the budgeted cash payments for selling and
administrative expenses for the month of May?
A) $50,900
B) $56,600
C) $54,600
D) $45,200
Which of the following describes a system in which suppliers deliver materials at the
time they are needed and finished units are completed when customer orders need to be
filled?
A) Supply Chain Management (SCM)
B) Just-in-Time (JIT) Management
C) Enterprise Resource Planning (ERP)
D) Total Quality Management (TQM)
Paradiso Company manufactures dolls that are sold to various distributors. The
company produces at full capacity for six months each year to meet peak demand; the
manufacturing facility operates at 80% of capacity for the other six months of the year.
The company has provided the following data for the year:
Paradiso receives an offer to produce 6,000 dolls for a special event. This is a one-time
opportunity during a period when the company has excess capacity. What is the
minimum sales price the company should accept for the order?
A) $15
B) $40
C) $20
D) $25
Moylan Roofing Company has provided the following information:
Which of the following statements is true, if the sales volume increases by 10%?
A) Operating income will increase by $50,600.
B) Operating income will increase by $27,300.
C) Fixed expenses will increase by $21,600.
D) Contribution margin will increase by $77,900.
Which of the following is a key performance indicator of the internal business
perspective in a balanced scorecard?
A) hours of employee training
B) number of warranty claims received
C) percentage of market share
D) return on investment
Holiday Foods is famous for its frosted fruit cake. The main ingredient of the cake is
dried fruit, which Holiday purchases by the pound. In addition, the production requires
a certain amount of direct labor. Holiday uses a standard cost system, and at the end of
the first quarter, there was a favorable direct labor efficiency variance. Which of the
following is a logical explanation for that variance?
A) The cost of workers’ medical insurance plans jumped up dramatically during the
quarter.
B) The factory lost two experienced workers at the beginning of the quarter, and their
replacements wasted a large amount of direct materials during their training period.
C) The purchasing manager was able to secure a volume discount on dried fruit,
purchasing the fruit for less than the amount set by standard.
D) The production staff changed the work flow process so that production required
fewer direct labor hours.
When posting entries from a purchases journal to the general ledger, ________.
A) posting references are not shown in the subsidiary ledger
B) the Accounts Payable balance in the general ledger will be less than the sum of the
individual vendor balances in the subsidiary ledger
C) the amounts in the Other Accounts DR column are posted individually to the specific
accounts
D) entries are posted on a daily basis for all the accounts
Which of the following is the correct formula for calculating residual income?
A) Weighted average cost of capital – Net operating profit after tax
B) Operating income – Minimum acceptable operating income
C) Historical cost of assets – Accumulated depreciation
D) Operating income / Average assets
List and briefly discuss the two basic components of a computerized accounting
information system.
Shanti, Inc. has two products’”waffles and nachos. Financial data for both the products
follows:
Shanti has two sales representatives’”Angela and Rose. Each sales representative sold a
total of 1,500 units during the month of March. Angela had a sales mix of 70% waffles
and 30% nachos. Rose had a sales mix of 60% waffles and 40% nachos. Which sales
representative has the highest contribution ratio? Explain the reason for your answer.
(Round your percent answers to two decimal places.)
Dreams Manufacturing, Inc. provided the following information for the year:
Required: Prepare a statement of the cost of goods manufactured using the following
format:
Schedule of Cost of Goods Manufactured
The following is divisional information for EVQ Enterprises:
The target rate of return is 12% for the East Division and is 10% for the West Division.
Compute the return on investment for each division. (Round to one decimal place.)
List two types of service companies that would benefit from using activity-based
management. For each company listed, state the type of cost information management
needs to know.
Ferrell, Inc. used $213,000 of direct materials and incurred $111,000 of direct labor
costs during the year. Indirect labor amounted to $8,100, while indirect materials used
totaled $4,800. Other operating costs pertaining to the factory included utilities of
$9,300; maintenance of $13,500; repairs of $5,400; depreciation of $23,700; and
property taxes of $7,800. There was no beginning or ending finished goods inventory.
The Work-in-Process Inventory account reflected a balance of $16,500 at the beginning
of the period and $22,500 at the end of the period.
Required: Prepare a schedule of cost of goods manufactured for Ferrell, Inc. using the
format below.
Cost of Goods Manufactured
The following information relates to Welty Manufacturing’s overhead costs for the
month:
Welty allocates manufacturing overhead to production based on standard direct labor
hours.
Welty reported the following actual results for last month: actual variable overhead, $
14,500; actual fixed overhead, $ $5,400; actual production of 4,700 units at 0.22 direct
labor hours per unit. The standard direct labor time is 0.20 direct labor hours per unit.
Compute the fixed overhead volume variance.
For each of the following types of business, indicate why the manager needs to know
the unit cost information.
