1) A plantwide overhead rate is calculated by dividing the estimated total manufacturing
overhead costs for the year by estimated total amount of the allocation base for the year.
2) Price and quantity variances are a way to motivate employees.
3) Gray Company sells two products, X and Y. For the coming year, Gray predicts the
sale of 10,000 units of X and 20,000 units of Y. The contribution margins of the two
products are $4 and $6, respectively. The weighted-average contribution margin per unit
would be $5.00.
4) The ethical principles and standards of the IMA always give clear guidance for every
ethical situation.
5) All manufacturers use either a pure process costing system or a pure job costing
system.
6) Customer satisfaction, operational efficiency, and employee excellence are often
measured as part of the balanced scorecard approach.
7) The current ratio is the most widely used ratio to measure a company’s ability to pay
current liabilities.
8) Generally, using more than one year of data to analyze company performance is
desirable.
9) To find the weighted average contribution margin, a company adds up the individual
unit contribution margins of the different products and then divides by the number of
different products.
10) When preparing a traditional income statement, fixed costs are subtracted from
gross profit to arrive at operating income.
11) The margin of safety is the “cushion,” or drop in sales, a company can absorb
without incurring a loss.
12) June sales were $5,000 while projected sales for July and August were $6,500 and
$7,000, respectively. Sales are 35% cash and 65% credit. All credit sales are collected in
the month following the sale. What are the expected collections for July?
A) $7,975
B) $5,525
C) $6,825
D) $5,975
13) Martin Enterprises has a predicted operating income of $140,000. Its total variable
expenses are $50,000 and its total fixed expenses have doubled from $20,000 to
$40,000. The unit contribution margin for the company’s sole product is $10. The
number of units that Martin Enterprises needs to sell to achieve the predicted operating
income would be
A) 10,000
B) 13,000
C) 23,000
D) 18,000
14) Denver Company uses a job costing system. The work in process inventory on
December 31 consisted of Job No. 173 with a balance of $66,200. Job No. 173 has been
charged with manufacturing overhead costs of $20,000. Denver allocates manufacturing
overhead costs at a rate of 50% of direct labor cost.
What was the amount of direct materials charged to Job No. 173?
A) $10,000
B) $33,100
C) $6,200
D) $46,200
15) GreatCalls has a special plan offer this month. There is a $3.00 per month charge
each month and calls anywhere in the United States are $0.04 per minute. What would
the monthly cost be if you typically talk for 450 minutes per month?
A) $ 5.00
B) $ 15.00
C) $ 18.00
D) $ 21.00
16) Which type of variance causes operating income to be lower than budgeted?
A) Favorable variance
B) Neutral variance
C) Unfavorable variance
D) Reverse variance
17) Which of the following is considered a strong current ratio?
A) 0.5
B) 1.0
C) -1.0
D) 2.0
18) Schlabig & Associates, a public accounting firm, is what type of company?
A) Manufacturer
B) Retailer
C) Service
D) Wholesaler
19) The cost of indirect materials used in production is credited to
A) finished goods inventory
B) manufacturing overhead
C) work in process inventory
D) raw materials inventory
20) Goliath Company prepared the following purchases budget:
All purchases are paid for as follows: 30% in the month of purchase, 45% in the
following month, and 25% two months after purchase.
What are the total cash disbursements in October for the purchase of merchandise?
A) $45,330
B) $39,905
C) $14,820
D) $35,430
21) To find the number of units that need to be sold to breakeven, the formula used
could be
A) fixed expenses contribution margin per unit
B) contribution margin per unit fixed expenses
C) fixed expenses contribution margin ratio
D) contribution margin ratio fixed expenses
22) Which of the following types of companies use a direct materials budget?
A) Manufacturing
B) Merchandising
C) Service
D) All of the above
23) Contribution margin ratio is computed by
A) dividing contribution margin by operating income
B) dividing contribution margin by sales revenue
C) dividing sales revenue by contribution margin
D) dividing operating income by contribution margin
24) Direct materials for a company were $500,000; manufacturing overhead was
$250,000; and direct labor was $770,000. Conversion costs would total
A) $1,020,000
B) $1,270,000
C) $1,520,000
D) $750,000
25) Washington Bottling Company provides the following information about its single
product.
What is the contribution margin per unit?
A) $2.00
B) $13.10
C) $0.26
D) $5.55
26) For each of the following independent transactions, indicate the type of activity
(operating, investing or financing) and the effect on cash (amount and increase or
decrease).
Transaction Type of Activity Effect on Cash
a. Declared cash dividends of $21,000 during the current period. Dividends payable on
January 1 were $1,700 and on December 31 were $2,300.
b. Interest income on the income statement for the current period was $23,000. Interest
receivable on January 1 was $2,700 and on December 31 was $2,250.
c. Issued $1,100,000 of 10-year, 10% bonds at 102.
d. Sales on account for the current period were $165,000. Accounts receivable on
January 1 were $95,000 and on December 31 were $106,000.
e. Equipment was purchased for $225,000.
f. Sold 1,200 shares of $20 par common stock for cash at $29.
g. Salary expense for the current period was $151,500. Salary payable on January 1 was
$21,300 and on December 31 was $17,800.
27) (Present value tables are needed.) Cleveland Cove Enterprises is evaluating the
purchase of an elaborate hydraulic lift system for all of its locations to use for the boats
brought in for repair. The company has narrowed their choices down to two: the B14
Model and the F54 Model. Financial data about the two choices follows.
Using the net present value model, which alternative should the company select?
A) Neither investment should be selected
B) The F54 Model should be selected
C) Both investments should be selected
D) The B14 Model should be selected
28) If production increases by 30%, how will total variable costs likely react?
A) Increase by 15%
B) Decrease by 30%
C) Increase by 30%
D) Remain the same
29) The ________ department would most likely be responsible for a “direct labor rate
variance.”
A) finance
B) marketing
C) personnel
D) purchasing
30) Pendant Publishing reported the following results for its Textbook Division:
Pendant’s target rate of return is 15% and the weighted average cost of capital is 10%.
Its effective tax rate is 35%.
What is the Textbook Division’s sales margin?
A) 200.00%
B) 20.00%
C) 40.00%
D) 45.45%
31) Here is selected data for Lori Corporation:
The journal entry to close manufacturing overhead would include a
A) credit to manufacturing overhead for $4,000
B) debit to work in process inventory for $4,000
C) debit to manufacturing overhead for $4,000
D) debit to cost of goods sold for $4,000
32) Which of the following statements about XBRL is FALSE?
A) XBRL is only required for publicly traded companies
B) XBRL will decrease the need for manual financial information searches
C) The US is the first country to mandate use of XBRL
D) XBRL should decrease the time companies spend converting their financial
information into various government-prescribed formats
33) The ________ budget is part of the financial budgets.
A) direct labor
B) capital expenditure
C) budgeted income statement
D) manufacturing overhead
34) Manufacturing overhead has an underallocated balance of $6,200; raw materials
inventory balance is $50,000; work in process inventory is $30,000; finished goods
inventory is $20,000; and cost of goods sold is $100,000.
Using this information, which account would have an opening credit balance?
A) Raw materials inventory
B) Finished goods inventory
C) Work in process inventory
D) None of the above
35) To forecast total costs at a given level of production, management would use which
of the following calculations?
A) Average cost total units predicted
B) Total fixed cost total units predicted
C) Total fixed cost + (variable cost per unit total units predicted)
D) Total fixed cost + variable cost per unit
36) Brigg’s Breakfast Appliances manufactures two products: Waffle Makers and
Coffee Makers. The following data are available:
The company can manufacture two waffle makers per machine hour and three coffee
makers per machine hour. The company’s production capacity is 1,200 machine hours
per month.
To maximize profits, what product and how many units should the company produce in
a month?
A) 3,600 Coffee Makers and 0 Waffle Makers
B) 300 Waffle Makers and 675 Coffee Makers
C) 2,400 Waffle Makers and 3,600 Coffee Makers
D) 2,400 Waffle Makers and 0 Coffee Makers
37) Fancy Furniture has variable expenses of 40% of sales and monthly fixed expenses
of $240,000. The monthly target operating income is $60,000. What is Fancy
Furniture’s operating leverage factor at the target level of operating income?
A) 0.20
B) 5.00
C) (3.00)
D) 1.25
38) The success of a(n) ________ is measured not only by its income, but also by
relating that income to its invested capital.
A) cost center
B) investment center
C) profit center
D) revenue center
39) Under a perpetual inventory system, the journal entry needed to record the sale of a
job includes a
A) debit to finished goods inventory and credit to cost of goods sold
B) debit to cost of goods sold and credit to finished goods inventory
C) debit to sales revenue and credit to accounts receivable
D) debit to cost of goods sold and credit to sales revenue
40) Managers should consider ________ when making any sort of decision.
A) only fixed costs
B) sunk costs
C) only variable costs
D) revenues that differ among alternatives
41) Which of the following is irrelevant when making a decision?
A) Fixed overhead costs that differ among alternatives
B) The cost of an asset that the company is considering replacing
C) The cost of further processing a product that could be sold as is
D) The expected increase in contribution margin of one product line as a result of a
decision to discontinue a separate unprofitable product line
42) When calculating a departmental overhead rate, what should the numerator be?
A) Total estimated amount of the departmental allocation base
B) Total estimated departmental overhead cost pool
C) Total estimated amount of manufacturing overhead for the factory
D) Actual quantity of the departmental allocation base used by the job
43) When job costing is used as a service firm
A) indirect costs are traced to client jobs
B) direct costs are allocated to client jobs
C) indirect costs are allocated to client jobs
D) all costs are allocated to client jobs
44) Use the direct method of cash flows to answer the question.
Beginning A/R: $68,000Beginning Inventory: $42,500
Ending A/R: $79,000Ending Inventory: $47,000
Credit Sales: $745,000Beginning A/P: $29,000
Cost of Goods Sold: $412,000Ending A/P: $36,300
Calculate the cash paid for merchandise for the year.
45) What are the three primary responsibilities of managers as described in the chapter?
Give an example of each type of responsibility.
46) Name and briefly describe the activities that make up the value chain.
47) Heinz Manufacturing produces Item Q with variable manufacturing costs of
$12/unit. The selling price of Item Q is $15/unit. The fixed manufacturing overhead
cost is $72,000. A normal production run includes 100,000 units. Heinz Manufacturing
has discovered an additional process to change Item Q into Item QR. Additional costs
are estimated at $7/unit. Item QR would sell for $24/unit. Additional fixed
manufacturing overhead costs of $4,500 would be incurred if Item QR is produced.
There would be no change in the number of units produced.
What would be the operating income for Item QR?
48) How can a company that has shown net income in recent years be required to
declare bankruptcy? How can the statement of cash flows provide an advanced warning
about this possibility?
49) Frisbee Enterprises produces frisbees. Frisbee Enterprises has the following sales
projections for the upcoming year:
Inventory at the beginning of the year was 6,000 frisbees. Frisbee Enterprises wants to
have 30% of the next quarter’s sales in units on hand at the end of each quarter. How
many frisbees should Frisbee Enterprises produce during the first quarter? Show your
calculations.
50) Use the following information to do a horizontal analysis of Boyce Corporation’s
income statement for the current year and prior year:
51) McNabb Corporation makes shoe polish. The standard direct materials quantity is .5
pounds per container at a cost of $2.25 per pound. The actual usage for the production
of 33,000 containers was .55 pounds per cushion at an actual cost of $2.20 per pound.
Calculate the direct materials price variance and the direct materials quantity variance.
52) Briefly explain the difference between job order and process costing and give
examples of each.