The income statement of a manufacturing company separates the product costs from the
period costs.
The level of inventory on hand at the end of the year does not affect the amount of
operating income calculated under variable costing and absorption costing.
The fixed overhead cost variance measures the difference between actual fixed
overhead and budgeted fixed overhead to determine the controllable portion of total
fixed overhead variance.
The fixed manufacturing overhead is considered a product cost in variable costing and a
period cost in absorption costing.
For every unit that is produced but not sold, absorption costing “hides” some of the
fixed manufacturing overhead in ending Finished Goods Inventory.
A direct labor efficiency variance is favorable if laborers actually work more hours than
the flexible budget calls for to produce the actual quantity of output .
Differential analysis is a common approach to making short-term business decisions.
The return on investment of a company is a measure of profitability and efficiency.
Which of the following is a not a decision that management must make before
calculating ROI and RI?
A) Should nonproductive assets be included in the average total asset calculation?
B) Should gross book value or net book value of assets be used?
C) Should a simple average of the beginning and ending total liabilities be used?
D) Should a short term focus be used?
Bag Ladies, Inc. manufactures two kinds of bags-totes and satchels. The company
allocates manufacturing overhead using a single plantwide rate with direct labor cost as
the allocation base. Estimated overhead costs for the year are $25,500. Additional
estimated information is given below.
Calculate the amount of overhead to be allocated to Totes. (Round any percentages to
two decimal places and your final answer to the nearest dollar.)
A) $472
B) $347
C) $11,878
D) $13,620
Kaycom, Inc. reports the following information:
What is the amount of unit product cost that will be considered for external reporting
purposes? (Round any intermediate calculations and your final answer to the nearest
cent.)
A) $40.00
B) $80.00
C) $125.00
D) $100.00
Which of the following correctly describes the accounting for advertising costs?
A) Advertising costs are product costs and are expensed as incurred.
B) Advertising costs are period costs and are expensed as incurred.
C) Advertising costs are product costs and are expensed when the manufactured product
is sold.
D) Advertising costs are period costs and are expensed when the manufactured product
is sold.
When preparing the cost of goods sold budget, ________.
A) ignore balances in Finished Goods Inventory
B) start by calculating the projected cost to produce each unit
C) ignore the inventory costing method
D) multiply units produced by the total projected cost per unit
An accounting information system is said to be relevant, if it ________.
A) works smoothly with the business’s employees and organizational structure
B) safeguards a business’s assets and reduces the likelihood of fraud and errors
C) provides information that will improve decision making and reduce uncertainty
D) accommodates changes in the business over time
Cheapo Sales Company uses a standard cost system. Overhead costs are allocated based
on direct labor hours. In the first quarter, Cheapo Sales had a favorable efficiency
variance for variable overhead costs. Which of the following scenarios is a reasonable
explanation for this variance?
A) The actual number of direct labor hours was lower than the budgeted hours.
B) The actual variable overhead costs were higher than the budgeted costs.
C) The actual variable overhead costs were lower than the budgeted costs.
D) The actual number of direct labor hours was higher than the budgeted hours.
Cassa Company is a price-taker and uses target pricing. Refer to the following
information:
With the current cost structure, Cassa cannot achieve its profit goals. It will have to
reduce either the fixed costs or the variable costs. Assuming that fixed costs cannot be
reduced, what are the target variable costs per year? Assume all units produced are sold.
A) $11,608,000
B) $12,020,000
C) $5,400,000
D) $17,008,000
Baptiste Accounting Services expects its accountants to work a total of 30,000 direct
labor hours per year. The company’s estimated total indirect costs are $152,000. The
direct labor rate is $104 per hour. The company uses direct labor hours as the allocation
base for indirect costs. If Baptiste performs a job requiring 52 hours of direct labor and
bills the client using a standard markup of 40% of costs, calculate the amount of the
client’s bill. (Round any intermediate calculations to the nearest cent, and your final
answer to the nearest dollar.)
A) $5,408
B) $216,320
C) $2,269
D) $7,940
Altec Designs makes fashion clothing and reports the following data for the month of
September:
What is the journal entry to record the total labor charges incurred during September?
A)
B)
C)
D)
A chemical company spent $532,000 to produce150,000 gallons of a chemical that can
be sold for $4.80 per gallon. This chemical can be further processed into a weed killer
that can be sold for $9.20 per gallon. It will cost $270,000 to process the chemical into
the weed killer. Which of the following is true?
A) To maximize operating income, the company should continue to sell the chemical as
is.
B) If the company decides to process further, it will increase operating income by
$578,000.
C) If the company decides to process further, it will increase operating income by
$390,000.
D) If the company decides to process further, it will decrease operating income by
$1,380,000.
Cash flows used in net present value and internal rate of return analyses ignore
________.
A) future increased sales
B) future cost savings
C) depreciation expense
D) residual value
An opportunity cost is ________.
A) the cost incurred to gain the opportunity to make a sale
B) the benefit gained by choosing a certain course of action
C) the benefit given up by choosing an alternative course of action
D) costs that have been incurred in the past
Fire Cat, Inc. selected cost data for the year are shown below:
What is the total of manufacturing costs incurred by Fire Cat, Inc. during the year?
A) $148,000
B) $143,000
C) $22,900
D) $38,100
In a process costing system, production costs are ________.
A) adjusted and allocated by jobs
B) not inventoried
C) directly shown on the income statement
D) accumulated by process
A company produces 400 microwave ovens per month, each of which includes one
electrical circuit. The company currently manufactures the circuits in-house but is
considering outsourcing the circuits at a contract cost of $28 each. Currently, the cost of
producing circuits in-house includes variable costs of $26 per circuit and fixed costs of
$5,000 per month. Assume the fixed costs are unavoidable but that company could
employ the vacated premises to earn rental income of $2,400 per month. If the company
outsources, monthly operating income will ________.
A) increase by $1,600
B) decrease by $11,200
C) decrease by $800
D) increase by $21,600
The following information is provided by Doppler Systems:
Calculate the profitability index for Project A. (Round your answer to two decimal
places.)
A) 1.01
B) 1.08
C) 1.37
D) 1.67