Financial statements prepared for investors and creditors often include forward-looking
information because they make decisions based on a company’s future prospects.
The Accounting Rate of Return method evaluates the lifetime return of an investment,
whereas Return on Investment evaluates the annual return of an investment.
Under process costing, depreciation on plant machinery is debited to the respective
department’s Work-in-Process Inventory.
Examples of source documents in an accounting information system include the
statement of cash flows and sales journal.
A merchandiser does not need to calculate cost per unit because it resells goods that are
already manufactured.
Activity-based costing uses a common allocation base for all activities.
Variable costing can also be used in service companies, especially in making short-term
decisions.
The budgeted income statements of both manufacturing and merchandising companies
include the calculation of gross profit.
A direct labor cost variance is unfavorable if the employer pays workers more per hour
than budgeted.
Manufacturing overhead includes indirect manufacturing costs, such as insurance and
depreciation on the factory building.
Clement Marine Stores Company manufactures special metallic materials and
decorative fittings for luxury yachts that require highly skilled labor. Clement uses
standard costs to prepare its flexible budget. For the first quarter of the year, direct
materials and direct labor standards for one of their popular products were as follows:
Direct materials: 4 pounds per unit; $4 per pound
Direct labor: 4 hours per unit; $17 per hour
Clement produced 5,000 units during the quarter. At the end of the quarter, an
examination of the labor costs records showed that the company used 23,000 direct
labor hours and actual total direct labor costs were $390,000. The direct labor efficiency
variance was $51,000 U. Which of the following is a logical explanation for this
variance?
A) The company used more labor hours than allowed by the standards.
B) The company paid a higher cost per hour for labor than allowed by the standards.
C) The company used a higher quantity of direct materials than allowed by the
standards.
D) The company paid a higher cost for the direct materials than allowed by the
standards.
Which of the following best describes the term equivalent units?
A) partially completed units expressed in terms of fully completed units
B) partially completed units of output that will be sold as is
C) substitute of units that are partially completed
D) different types of units that have same selling price
Which of the following is the correct formula for measuring a cost variance?
A) Cost Variance = (Actual Cost + Standard Cost) / Actual Quantity
B) Cost Variance = (Actual Cost – Standard Cost) × Actual Quantity
C) Cost Variance = (Actual Cost + Standard Cost) + Actual Quantity
D) Cost Variance = (Actual Cost – Standard Cost) – Actual Quantity
Peterson Enterprises manufactures picture frames. Its production operations are divided
into two departments – Assembly and Finishing. The company uses a process costing
system. Peterson incurred the following costs during the year to produce 6,000 picture
frames:
If Peterson can only sell 5,100 picture frames during the year, what will be the cost per
unit of the picture frames produced? (Round your answer to the nearest cent.)
A) $2.34
B) $1.99
C) $1.62
D) $1.90
Which of the following is true of product costs?
A) They are expensed in the period they are paid.
B) For external reporting, GAAP requires that they be expensed before the products are
sold.
C) They are first recorded in an inventory account.
D) For merchandising companies, product costs do not include freight costs.
The difference between cost variances and efficiency variances pertains to ________.
A) the difference between the static budget and actual results
B) the difference between the flexible budget and actual results
C) the difference between the flexible budget and the static budget
D) the difference between the static budget and the previous year’s actual results
Petro Fertilizers Company sells two products, Quo-Eco and Quo-Pre, with a sales mix
of 65% and 35%, respectively. Quo-Eco has a contribution margin per unit of $10, and
Quo-Pre has a contribution margin per unit of $15. The company sold 1,000 total units
in March.
Requirements:
a) Calculate the total contribution margin for the company.
b) Assume the sales mix shifted to 50% for each product, and calculate the total
contribution margin for the company.
Long-term investments are made by the investment center manager for the purpose of
________.
A) increasing profits
B) decreasing profits
C) increasing interest expense
D) decreasing plant assets
Malmo Avionics makes aircraft instrumentation. Its basic navigation radio requires $70
in variable costs and $2,000 per month in fixed costs. Further processing the radio, to
enhance its functionality, will require an additional $25 per unit of variable costs, plus
an increase in fixed costs of $800 per month. The marketing manager believes that they
would be able to increase the sales price of the radio from $260 to $300. Malmo sells
30 radios per month. If Malmo decides to further process the radio, monthly operating
income would ________.
A) increase by $1,200
B) increase by $3,650
C) decrease by $350
D) decrease by $3,650
Regarding relevant nonfinancial information, which of the following statements is
incorrect?
A) Nonfinancial, or qualitative, factors play a role in managers’ decisions and, as a
result, can be relevant.
B) Relevant qualitative information has the same characteristics as relevant financial
information.
C) Managers must always consider the potential quantitative and qualitative effects of
their decisions.
D) Qualitative factors can be ignored because these factors are difficult to measure.
Cedar Designs Company, a custom cabinet manufacturing company, is setting standard
costs for one of its products. The main material is cedar wood, sold by the square foot.
The current cost of cedar wood is $4.00 per square foot from the supplier. Delivery
costs are $0.20 per square foot. Carpenters’ wages are $20.00 per hour. Payroll costs are
$3.00 per hour, and benefits are $6.00 per hour. How much is the direct labor standard
cost per hour?
A) $20.00
B) $9.00
C) $23.00
D) $29.00
MultiMet Corporation sold merchandise for $4,450 to Simpsons, Inc. on account. The
cost of goods sold was $1,185. MultiMet uses a perpetual inventory system and special
journals. The $4,450 is recorded as ________.
A) an entry in the general journal
B) Accounts Receivable DR, Sales Revenue CR column of the sales journal
C) Merchandise Inventory DR column of the purchases journal
D) Accounts Receivable CR column of cash receipts journal
Mickey Tire Company makes a special kind of racing tire. Variable costs are $225 per
unit, and fixed costs are $30,000 per month. Mickey sells 500 units per month at a sales
price of $310. If the quality of the tire is upgraded, the company believes it can increase
the sales price to $349. If so, the variable cost will increase to $234 per unit, and the
fixed costs will rise by 50%. If Mickey decides to upgrade, how will operating income
be affected?
A) Operating income will decrease by $15,000.
B) Operating income will decrease by $4,500.
C) Operating income will increase by $4,500.
D) Operating income will remain the same.
During August, the Filtering Department of Olive, Inc. had beginning Work-in-Process
inventory of 120 units with costs of $50,000. 525 units were transferred in during the
month. It had 60 units in ending Work-in-Process Inventory. Under the first-in, first-out
(FIFO) method, current period equivalent units of production for transferred in units in
beginning Work-in-Process Inventory of the Filtering Department is ________.
A) 0 units
B) 525 units
C) 120 units
D) 60 units
Which of the following is a responsibility that is common to the managers of cost,
profit, and investment centers?
A) generating revenues
B) generating profits
C) managing the invested capital
D) controlling costs
During September, the Filtering Department of Davis, Inc. had a beginning
Work-in-Process Inventory of 600 units with costs of $140,000. During the month, it
started and completed 800 units. It had 220 units in the ending Work-in-Process
Inventory. What is the number of equivalent units of production for transferred in units
in the Filtering Department in September under the first-in, first-out (FIFO) method?
A) 600 units
B) 1,020 units
C) 1,620 units
D) 380 units
Cortes Cargo, Inc. is considering three investment opportunities with the following
payback periods:
Use the decision rule for payback to rank the projects from most desirable to least
desirable, all else being equal.
A) Y, Z, X
B) X, Y, Z
C) Z, Y, X
D) Y, X, Z
Describe the transactions recorded in the cash payments journal.
Ten Hills Manufacturing has two processing departments, Department I and
Department II. During the year, direct materials were assigned to the two production
departments: $280,000 to Department I and $300,000 to Department II. During the
period, $8,000 of indirect materials were used in production. Provide the journal entry
to record this transaction.
Define target cost. How is target cost determined?
Zot-Ice Corp. has provided the following data for the current year.
Calculate the unit product cost using absorption costing and variable costing.
List and briefly discuss the two limitations of financial performance measures.
From the following details provided by Barry, Inc., prepare the cost of goods sold
budget for the year.
Direct materials per unit $65
Direct labor hours per unit 2 hours
Direct labor rate per hour $50
Manufacturing overhead cost per direct labor hour $20
Beginning inventory units 1,000
Sales price per unit $250
First Second Third Fourth
Quarter Quarter Quarter Quarter
Units expected to be sold: 15,000 18,000 21,000 24,000
Barry, Inc. expects no inventory units at the end of the second, third and fourth quarters.
Musings, Inc. completed the production of 500 units with standard costs of $520 for
direct materials and $75 for conversion costs. During the current year, it incurred
$260,000 for direct materials and $31,000 for conversion costs. Record the adjusting
entry for the amount of underallocated or overallocated conversion costs.
List the four steps, in the order of occurrence, that are used in preparing a production
cost report.
What causes manufacturing overhead to be underallocated? When manufacturing
overhead is underallocated, will the Manufacturing Overhead account have a debit or a
credit balance?
List the three sections of the cash budget.