Direct material costs and direct labor costs cannot be easily traced to products.
Therefore, they are allocated to products.
Under process costing, the unit cost of the completed units is less than the unit cost of
the incomplete units.
Residual income is used as a key performance indicator for evaluating an investment
center’s financial performance.
Only unfavorable variances should be investigated, if substantial, to determine their
causes.
Because contribution margin is based on sales price and variable costs, the ratio can be
calculated using either the total amounts or the unit amounts.
What is Total Quality Management (TQM)?
A) a philosophy of supplying customers with superior products and services
B) an exchange of information with suppliers and customers to create efficient and
effective processes
C) a software system that integrates a company’s functions, departments, and data into a
single system
D) a system that speeds the transformation of raw materials into finished products
Which of the following statements is true of the capital expenditures budget?
A) It is a part of the financial budget.
B) It must be completed after the budgeted income statement is prepared.
C) It includes the sales budget.
D) It must be completed before the cash budget is prepared.
Hisham 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 $900, and the fixed
monthly operating costs are as follows:
Hisham’s accountant told him about contribution margin ratios, and Hisham understood
clearly that for every dollar of sales, $0.65 went to cover his fixed costs, and anything
above that point was profit.
Hisham wishes to earn $4,000 of operating profit each month. Calculate the number of
guitars Hisham will need to sell to achieve the target profit. (Round your answer up to
the nearest whole guitar.)
A) 3 guitars
B) 12 guitars
C) 4 guitars
D) 13 guitars
The entire sequence of activities that add value to a company’s products and services is
called ________.
A) the value chain
B) the planning process
C) TQM production chain
D) Enterprise Resource Planning
Which of the following is true about ERP systems?
A) Because ERP systems are software based, they have given way to a more
service-based economy.
B) Because ERP systems track costs more efficiently, the benefit from the cost
information outweighs the cost of obtaining the information.
C) Because ERP systems track costs more efficiently, process costing systems are
becoming more prevalent.
D) Because ERP systems have the ability to trace all production costs to individual
units, all product costs can now be classified as either direct materials or direct labor.
Contribution margin ratio is equal to ________.
A) fixed costs divided by contribution margin per unit
B) net sales revenue per unit minus variable costs per unit
C) net sales revenue minus variable costs
D) contribution margin divided by net sales revenue
The predetermined overhead allocation rate is calculated by dividing ________.
A) the total estimated overhead costs by total number of days in a year
B) the estimated amount of cost driver by actual total overhead costs
C) the actual overhead costs by actual amount of the cost driver or allocation base
D) the estimated overhead costs by total estimated quantity of the overhead allocation
base
Fasetech, Inc. has collected the following data. (There are no beginning inventories.)
What is the operating income using absorption costing if 500 units are sold? (Round
any intermediate calculations to the nearest cent, and your final answer to the nearest
dollar.)
A) $27,500
B) $26,315
C) $31,641
D) $38,315
Which of the following businesses is most likely to use a process costing system?
A) a baker producing cakes to order
B) a legal service provider
C) an audit service provider
D) a candy manufacturer
Leyden Company, a manufacturer of small appliances, had the following activities,
allocated costs, and allocation bases:
The above activities are carried out at two of its regional offices.
How much of the correspondence cost will be assigned to the Northeast Office? (Round
any intermediate calculations to the nearest cent and your final answer to the nearest
dollar.)
A) $429
B) $12,000
C) $1,200
D) $5,143
The Carolina Rubber Products Company completed the flexible budget analysis for the
second quarter, which is given below.
Which of the following would be a correct analysis of the sales volume variance for
sales revenue?
A) increase in sales price per unit
B) increase in sales volume
C) increase in variable cost per unit
D) increase in fixed costs
Crystal, Inc. is a merchandiser of stone ornaments. The company sold 8,000 units
during the year. The company has provided the following information:
What is the operating income for the year? (Round your answer to the nearest cent.)
A) $203,000
B) $322,000
C) $271,000
D) $525,000
Which of the following is true of outputs in an accounting information system?
A) In a manual system, reports and financial statements must be created using Word
documents, Excel spreadsheets, or PowerPoint.
B) In a computerized system, the software can generate reports instantaneously that can
never be manipulated.
C) Examples of outputs in an accounting information system include purchase invoices,
bank checks, and sales invoices.
D) Since the output in an accounting information system is audited and error-free, it
provides the evidence and data for accounting transactions.
When preparing the report to analyze a proposed quality improvement program, which
of the following costs are included in the total costs of undertaking the quality
improvement program?
A) warranty costs
B) sales returns
C) inspection of raw materials
D) cost of rework
Speedy Bikes Couriers Company prepared the following static budget for the year:
If a flexible budget is prepared at a volume of 8,400, calculate the amount of operating
income. The production level is within the relevant range.
A) $23,500
B) $12,600
C) $42,200
D) $4,000
Tortilla Corp. has provided a part of its budget for the second quarter:
The cash balance on April 1 is $14,000. Assume that there will be no financing
transactions or costs during the quarter. Calculate the projected cash balance at the end
of May.
A) $62,400
B) $83,000
C) $56,000
D) $20,600
Fred Condiments Company manufactures jam and ketchup. Sales price and cost data for
both products follow:
Jam Ketchup
Sales price $20.00 $42.00
Variable manufacturing costs 12.00 20.00
Sales commission (10%) 2.00 4.20
The company has three sales representatives:
Units Sold
Jam Ketchup
John Carter 2,000 750
Gina Robb 2,520 650
Robin Gould 2,300 900
Calculate the total contribution margin and the contribution margin ratio for each sales
representative. Round dollar amounts to nearest dollar and ratio to two decimal places.
How is the use of a balanced scorecard as a performance evaluation system helpful to
companies?
What does the variable overhead cost variance measure?
Gregory Cable Company is considering investing $450,000 in telecommunications
equipment that has an estimated life of five years with no residual value. The cash flows
are as shown below:
Present value of an ordinary annuity of $1:
Present value of $1:
Calculate the IRR of the project. Show your computations.
Amber Corporation has provided the following information of its operating activities
for the year:
Required: Prepare Amber’s income statement for the year ended December 31. Use the
format provided below:
Joywell, Inc. has four processing departments and follows a process costing system. It
incurred $150,000 in machinery depreciation and $60,000 in indirect costs that were
paid in cash. Provide the journal entries to record these transactions.
List the four special journals that are often used in a manual accounting information
system. State what types of transactions are recorded in each of these special journals.
For each of the following responsibility centers, state the typical focus of the
responsibility report and briefly discuss the focus.
Define indirect labor and give two examples of indirect labor for a manufacturing
company.
For decisions that affect analyzing profitability, consider the following decision focus.
State the appropriate costing method and the reason for your answer.
