The Other Accounts DR columns of a purchases journal are used for recording
merchandise inventory and office supplies.
The inventory costing method affects the process of preparing the cost of goods sold
budget.
Tosh Company fabricates automobiles. Each auto includes one wiring harness, which is
currently made in-house. Details of the harness fabrication are as follows:
A factory in Indonesia has offered to supply Tosh with ready-made units for a cost of
$10 each. Assume that Tosh’s fixed costs are unavoidable, but the company could use
the vacated production facilities to earn an additional $5,500 of profit per month. In
order to maximize operating income, Tosh should outsource.
Pluto Travel Services provided the following information:
Direct labor rate: $40 per hour
Predetermined overhead allocation rate for indirect costs: $21 per direct labor hour
Pluto is negotiating a job with a new client. The job will require 10 hours of direct
labor. If Pluto wishes to have at least a 15% gross profit on the revenues, it needs to
earn $713 of revenues.
A profit center performance report includes both revenues and expenses.
When operating at capacity, a market-based transfer price should be used.
Quality costs are easy to measure.
When investigating overhead variances, management needs to determine whether cost
increases were controllable or if the cost standard needs to be updated.
Blake Sodas, Inc. has budgeted direct materials inventory purchases as follows:
October: $300,000
November: $360,000
December: $460,000
Blake Sodas, Inc. pays for 20% of their purchases during the month of purchase, 70%
during the month following the purchase, and the remaining 10% two months after the
month of purchase. What is the budgeted accounts payable balance on December 31?
A) $368,000
B) $404,000
C) $460,000
D) $440,000
When using financial performance measures, which of the following statements is
incorrect?
A) Most companies use a weighted-average to determine the amount of average
inventory.
B) Average total assets are used for both ROI and RI computations.
C) The limitations of financial performance measures reinforce the importance of the
balanced scorecard.
D) In general, calculating ROI based on the net book value of assets gives managers an
incentive to continue using old, outdated equipment because its low net book value
results in a higher ROI.
Which of the following is a column in a purchases journal?
A) Cost of Goods Sold CR
B) Accounts Payable CR
C) Sales Revenue DR
D) Interest Revenue CR
Which of the following transactions is recorded by selecting the “Receive payment”
action of QuickBooks?
A) making electricity bill payments
B) selling merchandise inventory on account
C) selling products for cash
D) paying interest to bondholders
Willow Golf Course is planning for the coming golfing season. Investors would like to
earn a 10% return on the company’s $60,000,000 of assets. The company primarily
incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be
$32,000,000 for the season. About 600,000 rounds of golf are expected to be played
each year. Variable costs are about $15 per round of golf. Willow golf course is a
price-taker and will not be able to charge more than its competitors, who charge $78 per
round of golf. Compute the operating profit that will be earned.
A) $5,800,000
B) $6,000,000
C) $87,800,000
D) $46,800,000
Software Hub is deciding whether to purchase new accounting software. The cost of the
software package is $59,000, and its expected life is ten years. The payback for this
investment is four years. Assuming equal yearly cash flows, what are the expected
annual net cash savings from the new software? (Assume the investment has no residual
value.)
A) $5,900
B) $44,250
C) $14,750
D) $236,000
An unfavorable sales volume variance in operating income suggests a(n) ________.
A) increase in number of actual units sold when compared to the expected number of
units sold
B) decrease in number of actual units sold when compared to the expected number of
units sold
C) increase in variable cost per unit
D) decrease in fixed costs
Which of the following is always irrelevant to short-term operating decisions?
A) relevant cost
B) differential cost
C) opportunity cost
D) sunk cost
Which of the following four perspectives of the balanced scorecard enables
management to answer the question, “How can we continue to improve and create
value?”
A) financial
B) customer
C) internal business
D) learning and growth
The management of Alpha Lawnmowers has calculated the following variances:
What is the total variable overhead variance of the company?
A) $2,500 F
B) $12,500 F
C) $8,500 F
D) $4,000 F
Groovelex, Inc. has collected the following data for the current year:
What is the unit product cost using absorption costing? (Round your answer to the
nearest cent.)
A) $130.14
B) $67.00
C) $101.82
D) $61.82
Ethan was a professional classical guitar player until a motorcycle accident left him
disabled. After long months of therapy, he hired an experienced luthier and started a
small shop to make and sell Spanish guitars. The guitars sell for $600, and the fixed
monthly operating costs are as follows:
Ethan’s accountant told him about contribution margin ratios, and Ethan understood
clearly that for every dollar of sales, $0.60 went to cover his fixed costs, and anything
above that point was profit.
Ethan wishes to earn $5,000 of operating profit each month. Calculate the amount of
sales revenue required to achieve the target profit. (Round your answer to the nearest
dollar.)
A) $5,450
B) $8,175
C) $13,784
D) $20,675
Bloomington, Inc. is a merchandiser of stone ornaments. The company sold 7,000 units
during the year. The company has provided the following information:
What is the cost of goods sold for the year?
A) $362,000
B) $320,000
C) $318,000
D) $305,000
Which of the following statements is true if total fixed costs decrease while the sales
price per unit and variable cost per unit remain constant?
A) The contribution margin increases.
B) The breakeven point increases.
C) The contribution margin decreases.
D) The breakeven point decreases.
Which of the following statements is true of absorption costing?
A) It considers variable selling and administrative costs as product costs.
B) It considers fixed selling and administrative costs as product costs.
C) It considers fixed manufacturing overhead cost as product costs.
D) It considers variable manufacturing overhead cost as period costs.