1) The sales budget is the starting point for preparation of the direct labor cost budget.
2) If sales total $2,000,000, fixed costs total $600,000, and variable costs are 60% of
the sales, the contribution margin ratio is 40%.
3) Of the three widely used inventory costing methods (FIFO, LIFO, and average), the
FIFO method of costing inventory is based on the assumption that costs are charged
against revenues in the order in which they were incurred.
4) If payment is due by the end of the month in which the sale is made, the invoice
terms are expressed as n/eom.
5) A manufacturing business reports three types of inventory on its balance sheet: direct
materials, products in the process of being manufactured, and finished products.
6) A liability is a legal obligation to repay the amount borrowed according to the terms
of the borrowing agreement.
7) A transaction can affect at most two elements of the accounting equation.
8) Only a single line, which represents the difference between total sales revenues and
total costs, is plotted on the profit-volume chart.
9) The estimate of uncollectible accounts receivable based on the sales method violates
the matching principle.
10) During the first year of operations, a company granted warranties on its products.
The estimated cost of the product warranty liability at the end of the year is $12,750.
The product warranty expense of $12,750 should be recorded in the year the related
product sale is made.
11) Purchase discounts reduce sales.