Both direct and indirect costs can be relevant to a particular decision.
Frost Company reported a $4,000 increase in dividends payable, a $60,000 increase in
retained earnings, and $64,000 in net income for 2014. Based on this information, the
company must have paid dividends equal to $4,000 during 2014.
Cash paid to production workers should be recorded as Wages Expense in the income
statement for the period incurred.
The capital budget does not affect any of a company’s operating budgets.
Because of the expense of applying multiple techniques, managers should use a single
capital budgeting technique to analyze potential capital investments.
Use of the direct method to allocate service department costs may cause distortions in
the measurement of cost objects.
On a cost-volume-profit graph, the total revenue line lies below the total cost line to the
left of the break-even point.
In process cost systems, product costs flow through the same accounts as in a job-order
cost system.
A job’s budgeted costs for materials, labor, and overhead are inserted on the job cost
sheet when production is completed.
If revenues are expected to decline, management should attempt to convert its variable
costs into fixed costs.
In preparing the statement of cash flows by the indirect method, an increase in
inventory would be added to net income.
Under the indirect method, the increase or decrease in current liabilities is handled in
the operating section of a cash flow statement.
Variable costs are always relevant in decision making.
Lewes Company produced 8,000 units of inventory and sold 6,000. The company
incurred the following production costs:
Variable manufacturing cost: $12.00 per unit
Fixed manufacturing overhead cost: $60,000
Assuming the company sells its product at a price of $25 per unit, and incurred $10,000
in selling and administrative cost, what is the amount of net income under variable
costing?
A. $107,000
B. $68,000
C. $23,000
D. $8,000
As of December 31, 2013, Gant Corporation had a current ratio of 1.29, quick ratio of
1.05, and working capital of $18,000. The company uses a perpetual inventory system
and sells merchandise for more than it cost. On January 1, 2014, Gant recorded cost of
goods sold of $4,100. As a result of this transaction, Gant’s quick ratio will:
A. Decrease.
B. Increase.
C. Remain the same.
D. Cannot be determined.
Lindsay purchased a raffle ticket for $5. Just before the grand prize drawing two people
tried to buy her ticket. The first person offered $30, and another offered $65. What is
Lindsay’s opportunity cost of keeping the raffle ticket?
A. $60
B. $65
C. $90
D. $95
Sales for January are budgeted at 50,000 units, and the company expects sales to
increase 4% each month. How many units will need to be purchased in February if the
company’s policy is to keep ending inventory each month at 10,000 units?
A. 52,000 units
B. 54,000 units
C. 62,000 units
D. None of these answers is correct.
All of the following statements describe qualities of relevance except:
A. Relevant information requires a high degree of precision.
B. Relevant information differs between the alternatives.
C. Relevant information is future oriented.
D. Relevant information includes qualitative as well as quantitative data.
Sometimes employees will deliberately overstate the amount of materials and/or labor
that should be required to complete a job. The difference between inflated and realistic
standards is known as:
A. Budget slack.
B. Making the numbers.
C. Lowballing.
D. Cooking the books.
On December 31, 2013, Zeus Manufacturing reported the following balances in its
inventory accounts:
The following events occurred during 2014:
a) purchased raw materials for cash, $375,000
b) raw materials used to make products, $359,500
c) direct labor costs of $204,000 were paid in cash
d) estimated overhead applied to work in process, $183,600
e) paid cash for actual overhead costs, $180,500
f) completed products that cost $704,500
g) sold goods that had cost $696,000 for $985,000 cash
h) paid cash for selling and administrative expenses, $206,000Required:
1) Prepare Zeus’ schedule of cost of goods manufactured and sold for 2014.
2) Prepare the 2014 income statement.
3) Calculate the balances in raw materials, work in process, and finished goods
inventories as of December 31, 2014.
Kingston Company sells its product for $200 per unit. The company’s accountant
provided the following cost information:
What is Kingston Company’s contribution margin ratio?
A. 30%
B. 15%
C. 35%
D. 20%
In the graph below, which depicts the relationship between units produced and unit cost,
the dotted line depicts which type of cost per unit?
A. Variable cost
B. Fixed cost
C. Mixed cost
D. None of these
Which of the following is the most appropriate cost driver for maintaining parts
inventory?
A. Number of parts for a product
B. Direct labor hours
C. Sales dollars
D. Number of setups
Which of the following is not included in the computation of the quick ratio?
A. Cash
B. Prepaid expenses
C. Accounts receivable
D. Marketable securities
The following information is for Gable, Inc. and Harlowe, Inc. for the recent year.
What total amount of net income will Harlowe, Inc. earn if it experiences a 10 percent
increase in revenue?
A. $180, 000
B. $80,000
C. $260,000
D. $20,000
Which of the following statements is incorrect regarding the use of the indirect method
when preparing the operating activities of the statement of cash flows?
A. A decrease in accounts payable is deducted from net income
B. A decrease in prepaid insurance is added to net income
C. Gain on the retirement of bonds is deducted from net income
D. Depreciation expense is subtracted from net income
Arizona Company provided the following information regarding its most recent year of
operations:
Required:
Determine the following amounts:
(a) Total product costs
(b) Total upstream costs
(c) Total downstream costs
(d) Product cost per unit
(e) Total cost per unit, including product costs and upstream and downstream costs
(f) The selling price per unit that would be required if the company wishes to earn a
profit margin equal to 25% of total cost
(g) Comment on the company’s profitability at its current selling price
Alpha Company provided the following balance sheet for 2014:
What is the company’s plant assets to long-term liabilities ratio?
A. 2.5
B. 4.5
C. 1.7
D. None of these answers is correct.
Choose the answer that is not a distinguishing characteristic of financial accounting
information.
A. It is global information that reflects the performance of the whole company.
B. It is focused primarily on the future.
C. It is more concerned with financial data than physical or economic data.
D. It is more highly regulated than managerial accounting information.
Which type of cost drivers is most appropriate for most automated processes?
A. Volume-based drivers
B. Activity-based drivers
C. Direct labor-based drivers
D. All of these answers are correct.
In order to prepare a contribution format income statement:
A. costs must be separated into manufacturing and selling, general, and administrative
costs.
B. costs must be separated into cost of goods sold and operating expenses.
C. costs must be separated into variable and fixed costs.
D. costs must be separated into mixed, variable and fixed costs.
Direct labor hours is an appropriate cost driver when:
A. production is labor intensive.
B. overhead costs increase.
C. production is automated.
D. all of these answers are correct.
Painter Corporation had the following beginning and ending balances for 2014:
During the year Painter sold equipment for $60,000 that had originally been purchased
for $160,000. The old equipment had accumulated depreciation of $120,000 at the time
of sale. To replace the equipment Painter purchased new equipment by making a
$20,000 down payment and signing a 2-year note for the balance.Required:
1) Calculate the cost of the new equipment.
2) What was the amount of the gain or loss on the sale of the old equipment? If Painter
uses the indirect approach to calculate cash flow from operating activities, how will the
gain or loss be reported on the statement of cash flows?
3) What was the amount of depreciation expense for the year? How will the
depreciation expense affect the statement of cash flows prepared by the indirect
method?
Which of the following statements is incorrect?
A. Capital budgeting affects the master budget because it considers what assets a
company should have and use when achieving its budgets.
B. Capital budgeting involves decisions as whether to buy or lease equipment.
C. Capital budgeting focuses on short-term planning.
D. Cash outflows for capital budgeting will appear on the cash budget.
As a Certified Management Accountant, Suzanne is bound by the standards of ethical
conduct issued by the Institute of Management Accountants. During the course of
business, Suzanne learned that her company has decided to discontinue a major product
line. If she mentions this fact to her brother, who is a stockbroker, Suzanne could be in
violation of the:
A. competence standard.
B. confidentiality standard.
C. integrity standard.
D. objectivity standard.
The following information applies to Acorn Construction Company (ACC):
Information on the number of shares outstanding is provided below:
Required:
Compute the following ratios for ACC for 2014 and 2013:
(a) Number of times interest is earned
(b) Earnings per share
(c) Price-earnings ratio (Market prices: 2014 $17.50 per share, 2013 $15.00 per share)
(d) Return on equity
(e) Net margin.
The return on investment measure is also referred to as:
A. Net margin.
B. Return on equity.
C. Return on debt.
D. Return on assets.
O’Hare Company, is a manufacturing firm that uses a job-order cost system to
determine the costs of its products. O’Hare Company sold job #132, that cost $5,900 to
manufacture, for $8,200 cash. The recognition of this event on the financial statements
would include a(n):
A. Decrease to Total assets and total equity.
B. Decrease to Total Liabilities.
C. Increase to Total assets, total equity and net income.
D. Decrease to net income.
Anton Company produces and sells bicycles for $500. The variable costs per unit are
$300 plus a sales commission of 15% of the selling price. Total fixed costs consist of
$16,000 in fixed overhead and $9,000 in fixed selling and administrative costs.
Required:
1) Compute the contribution margin per unit.
2) Compute the break-even point in units and dollars.
3) How many units must be sold to earn a profit of $20,000?
4) What would be the break-even point in units if the sales commission is reduced to
$20 per unit sold?
A variety of organizations, products, and services are described in the following table:
Required:
In the second column of the above table, enter “Process” if a process cost system would
be appropriate for the situation described or “Job order” if a job order cost system
would be more appropriate.
Select the term from the list provided that best matches the description provided.
Indicate whether each of the following statements is true or false.
In a period when finished goods inventory decreases, use of absorption costing results
in higher net income than variable costing.
Direct materials and direct labor usually behave as variable costs.
Generally accepted accounting principles allow a company to use either variable or
absorption costing for external financial reporting.
Under absorption costing, fixed manufacturing costs are expensed in the period
incurred.
Increasing the number of units produced during a period increases net income under
absorption costing because the cost of goods sold decreases.
Indicate whether each of the following statements is true or false.
The amount of a sales volume variance is the difference between the static budget and a
flexible budget based on actual volume.
The sales volume variance measures managers’ effectiveness in achieving the planned
sales price for the company’s products.
Marketing managers are usually held responsible for the sales volume variance.
If the planned sales volume was 25,000 units and the actual sales volume was 25,500
units, the sales volume variance was favorable.
For marketing managers, “making the numbers” refers to reaching the budgeted sales
volume.
Use the reconciliation approach to determine cash paid for inventory for the Ji
Company for 2014. Assume all inventory is bought on account and the accounts
payable account is used only for inventory. Beginning and ending balances of
merchandise inventory were $12,400 and $18,800 respectively. Beginning and ending
balances of accounts payable were $4,000 and $2,800 respectively. Sales revenue
amounted to $137,024 and cost of goods sold was $83,808.
Use the reconciliation approach to determine cash received from customers for the
Boyd Company for 2014. Beginning and ending balances of accounts receivable were
$6,500 and 5,900 respectively. Sales (all on account) amounted to $127,000.
Select the response from the list provided that best matches each of the following
descriptions:
