The Raw Materials Inventory account is debited when direct materials are issued for
production.
The payback method provides management with valuable information about the time
period in which the cash invested will be recouped.
Unlike merchandising companies, income statements of service companies include cost
of goods sold as a line item.
Management accountability is the manager’s responsibility to the various stakeholders
of the company to maximize profits.
All else being equal, investments with longer payback periods are preferable.
Budgeted financial statements are financial statements based on budgeted amounts
rather than actual amounts.
To calculate budgeted direct labor costs, multiply the number of units to be produced by
the number of projected direct labor hours. Next, multiply that total by the actual direct
labor cost per hour.
Target cost is calculated by deducting desired gross profit from target sales price.
When using a computerized accounting information system, transactions do not need to
be recorded in a debit and credit format.
ERP systems can integrate all of a company’s functions, departments, and data into a
single system.
Prenumbered source documents provide necessary control in a system by automatically
assigning a sequential number to each new transaction.
The accountant for Myra Lido deliberately recorded operating expenses as operating
assets in order to record a higher net income for the company. As long as the amount of
the misstatement was not material, this would not be considered unethical behavior.
Contribution margin is the amount that contributes to covering variable costs.
Which of the following is used to calculate the number of units to account for under the
first-in, first-out (FIFO) method of inventory valuation of process costing?
A) To account for = Beginning balance + Started and completed + In process
B) To account for = Beginning balance + Amount transferred in
C) To account for = Beginning balance + In process
D) To account for = Beginning balance + Started and completed
South State, Inc. used $153,000 of direct materials and incurred $63,000 of direct labor
costs during the year. Indirect labor amounted to $270,000, while indirect materials
used totaled $53,000. Other operating costs pertaining to the factory included utilities of
$135,500; maintenance of $70,260; repairs of $53,400; depreciation of $133,000; and
property taxes of $74,640. There was no beginning or ending finished goods inventory,
but Work-in-Process inventory began the year with a $5,000 balance and ended the year
with a $7,400 balance.
How much is the cost of goods manufactured?
A) $12,400
B) $1,003,400
C) $1,010,800
D) $1,005,800
Which of the following would not appear on a multiple-step budgeted income
statement?
A) gross profit
B) income tax expense
C) operating income
D) salaries payable
Venlite, Inc. produces and sells cosmetic products. Currently, the company is operating
at 70% of its capacity. The sales price of its product is $30 per unit, and it incurs a full
cost of $25 to produce each unit. Its yearly fixed manufacturing overhead amounts to
$20,000. The company has received a one-time order for supplying 5,000 units at $26
per unit. This order can be executed within the excess production capacity and will not
involve any additional costs. To make this decision, the management of Venlite should
use ________.
A) absorption costing as the decision is long-term in nature
B) variable costing as the decision is short-term in nature
C) absorption costing as the decision is short-term in nature
D) variable costing as the decision is long-term in nature
SES Manufacturing has finished production activities for the year. The company
allocates manufacturing overhead based on a percentage of direct labor costs. The
company has provided the following information:
Based on the above data, calculate the unadjusted ending balance in the Manufacturing
Overhead account.
A) $5,040 credit balance
B) $5,040 debit balance
C) $7,360 credit balance
D) $7,360 debit balance
Edge, Inc. has two products’”Le Chaud and Le Frais. Financial data for both the
products follows:
Edge has two sales representatives’”Mary Baker and Jocelyn Rice. Each representative
sold a total of 1,400 units during the month of March. Mary had a sales mix of 60% Le
Chaud and 40% Le Frais. Jocelyn had a sales mix of 70% Le Chaud and 30% Le Frais.
Based on the above information, calculate Mary’s total contribution to company profits.
A) $543,200
B) $283,920
C) $477,120
D) $193,200
On July 10, a hardware retailer purchased merchandise inventory on account for
$1,700. The company plans to pay $900 the following week and the remaining amount
the week after. Which of the following is the correct entry to record this transaction in a
purchases journal? Assume a perpetual inventory system is used.
A) $850 will be recorded in the Accounts Payable CR and Merchandise Inventory CR
column.
B) $2,600 will be recorded in the Accounts Payable DR and Merchandise Inventory DR
column.
C) $1,700 will be recorded in the Merchandise Inventory CR and Accounts Payable DR
column.
D) $1,700 will be recorded in the Accounts Payable CR and Merchandise Inventory DR
column.
When there is no beginning Finished Goods Inventory and all the goods that are
produced are sold, the operating income ________.
A) will be higher under absorption costing than variable costing
B) will be lower under absorption costing than variable costing
C) will be higher than the gross profit under variable costing
D) will be the same for both absorption costing and variable costing
If there is no cash involved in a business transaction, the transaction should be recorded
in ________.
A) either the cash receipts journal or general journal
B) either the sales journal or purchases journal
C) the general journal only
D) sales journal, purchases journal, or general journal
Capital budgeting is the ________.
A) process of planning for investments in long-term assets
B) preparation of the budget for operating expenses
C) process of evaluating the profitability of a business
D) process of making pricing decisions for products
Which of the following serves as the “journal of last resort?”
A) purchases journal
B) sales journal
C) general journal
D) cash payments journal
Which of the following is irrelevant when deciding to upgrade a company’s heating and
air conditioning system?
A) the energy efficiency of the old equipment versus the energy efficiency of the new
equipment
B) the safety of the new equipment compared to the old equipment
C) the purchase price of the old equipment compared to the purchase price of the new
equipment
D) the productivity of the old equipment compared to that of the new equipment
Lake Country Promotional Services uses a job order system for costing and billing
promotional services for dance and ballet performances. Lake Country has four public
relations specialists plus an office staff. At the beginning of the year, Lake Country
estimated the total cost of salaries and benefits for the public relations specialists at
$672,000 and a total of 7,000 billable hours for the year. The office and administrative
costs were estimated at $406,000. The allocation base for office and administrative
costs is billable hours. In June, Lake Country signed a contract for a Russian ballet
performance. It negotiated a price of $6,500 for its services. When the job was
complete, Lake Country’s records showed that it had logged 38.0 billable hours. What
was the amount of gross profit that Lake Country made on the job?
A) $6,500
B) $3,648
C) $648
D) $2,204
Which one of the following companies is most likely to use job order costing?
A) a gold refinery
B) a law firm
C) a surfboard manufacturer
D) a soft drink company
Which of the following should be considered when analyzing manufacturing overhead
variances?
A) whether costs incurred are product costs or period costs
B) whether direct materials costs are higher than standard costs
C) whether certain manufacturing overhead costs are controllable
D) whether direct labor costs can be reduced
Sparks Stationery Company is a price-taker and uses target pricing. The company has
just done an analysis of its revenues, costs, and desired profits and has calculated its
target full product cost. Assume all products produced are sold. Refer to the following
information:
Actual costs are currently higher than target full product cost. Assuming that fixed costs
cannot be reduced, what is the target variable cost per unit? (Round your answer to the
nearest cent.)
A) $3.42
B) $1.58
C) $1.84
D) $2.00
Which of the following is useful to combine the data of different segments using
different software for the purpose of creating companywide budgets?
A) accounting development manual
B) budgeting software
C) financial analysis software
D) budget creation manual
Both job order and process costing systems use a four-step method to track product
costs. List each of the four steps.
Alfeo Corporations has adopted a JIT management system and has the following
transactions in February:
Feb 2 Incurred labor and overhead costs, $89,000
Feb 18 Completed 750 units with standard costs of $93 for direct materials and $146 for
conversion costs
Open a T-account for Conversion Costs. Post appropriate entries to determine the
amount of underallocated or overallocated overhead. Record the adjusting entry.
Brevard Manufacturer produces flooring material. The monthly fixed costs are $10,000
per month. The unit sales price is $75, and variable cost per unit is $35. How many
units should Brevard sell in order to earn $10,000 as operating income?
Iowa, Inc. purchased raw materials for $6,000 and $25,000 for cash and on account,
respectively. Provide the journal entry to record the purchase of raw materials.
Why is using a single plantwide predetermined overhead allocation rate not always
accurate?
Why are extra journal entries required in a process costing system?
The following information is provided by Westwind Systems:
Calculate the profitability index for Project C. Show your calculations and round to two
decimal places.
Define sensitivity analysis. Why do managers conduct sensitivity analysis during the
budget process?