Sales volume variances are attributable to differences between planned and actual
activity volumes, as well as differences in selling price.
Each indirect cost should be allocated to products individually to provide the most
useful cost information.
The work in process inventory account is debited when raw materials are placed into
production.
Process cost systems do not distinguish the cost of one unit of product from another.
An advantage of using the scattergraph method over the high-low method is that all
points of data are used in determining the cost line.
A company uses sandpaper to prepare its product for finishing. Most manufacturers
would classify the sandpaper as direct material because it is physically consumed in the
production process.
An increase in total fixed costs increases the break-even point.
The cost of goods completed during a period is transferred from finished goods to cost
of goods sold.
A company that provides services (not goods) to its customers may incur costs that are
appropriately classified as product-level costs.
Under the direct method, there is no adjustment for non-cash items – this includes gains
and losses.
In a job-order cost system, the inventory accounts generally are maintained on a
perpetual basis.
For financial reporting, joint costs are assigned to the product with the highest sales
value.
Service companies do not incur overhead costs.
Sensitivity analysis acknowledges that profitability is often affected by
multidimensional forces.
Most internal users of accounting information need primarily global information that
reflects the performance of the company as a whole.
Cash outflows generated by capital investments include all of the following except:
A. depreciation expense
B. transportation costs
C. increased operating expenses
D. increase in the required amount of working capital
Sanford Tools produces a variety of scissors and other cutting instruments at its
Birmingham manufacturing plant. The plant is highly automated and uses an
activity-based costing system to allocate overhead costs to its various product lines. The
company expects to produce 24,000 total units during the current period. The costs and
cost drivers associated with four activity cost pools are given below:
Production of 1,000 units of a pipe-cutting tool required 400 labor hours, 10 setups, and
consumed 30% of the product sustaining activities and resulted in an overhead
allocation of $15,400. What amount of batch-level overhead costs was expected during
the period?
A. $24,000
B. $2,400
C. $12,500
D. None of these answers is correct.
You are considering an investment in Apple stock and wish to assess the firm’s
short-term debt-paying ability. All of the following ratios are used to assess liquidity
except:
A. Debt to equity ratio.
B. Inventory turnover.
C. Quick ratio.
D. Accounts receivable turnover.
Working capital is defined as:
A. Current assets divided by current liabilities.
B. Total assets minus total liabilities.
C. Current assets less current liabilities.
D. Current liabilities divided by total liabilities.
In the below graph which shows the relationship among components of quality cost,
Line “B” depicts:
A. total quality costs.
B. external failure quality cost.
C. voluntary quality costs.
D. internal failure quality costs.
Custom Quilters makes decorative comforters, quilted garments, and other products in a
small sewing factory. In 2012, the company expects to make 2,000 comforters. With
respect to the comforters how would the fabric used to make the comforters be
classified?
A. Direct and variable
B. Direct and fixed
C. Indirect and variable
D. Indirect and fixed
Java Joe operates a chain of coffee shops. The company pays rent of $20,000 per year
for each shop. Supplies (napkins, bags and condiments) are purchased as needed. The
manager of each shop is paid a salary of $3,000 per month, and all other employees are
paid on an hourly basis. Relative to the number of customers for a shop, the cost of
supplies is which kind of cost?
A. Fixed cost
B. Variable cost
C. Mixed cost
D. Relevant cost
Which of the following statements is incorrect?
A. The further into the future a cash receipt is expected to occur, the lower is its present
value.
B. The return on investment measures the compensation a company expects to receive
from investing in capital assets.
C. Most companies use their cost of capital to estimate the minimum return on
investment required from capital investments.
D. When a company invests in capital assets, it sacrifices future dollars for the
opportunity to receive present dollars.
Timberlake Company planned for a production and sales volume of 12,000 units.
However, the company actually makes and sells 13,000 units.
What was the sales volume variance?
A. $65,000 favorable
B. $65,000 unfavorable
C. $29,800 unfavorable
D. $29,800 favorable
Mitchell Company sells its product for $100 per unit. The company’s accountant
provided the following cost information:
What is the company’s break-even point in units?
A. 1,000
B. 750
C. 2,600
D. 4,000
The budgeting process that involves adding a month to the end of the budget period at
the end of each month, thus maintaining a twelve-month planning horizon, is referred to
as:
A. participative budgeting.
B. capital budgeting.
C. continuous budgeting.
D. zero-based budgeting.
Which statement characterizes the time value of money concept?
A. The future value of a present dollar is greater than one dollar.
B. The present value of a future dollar is greater than one dollar.
C. The timing of cash flows is not relevant to decision making.
D. None of these answers is correct.
Which of the following would not be reported as a financing activity on the statement
of cash flows?
A. Cash receipts from issuing common stock
B. Cash payments for interest
C. Cash payments to purchase treasury stock
D. Cash payments for dividends
On December 31, 2013, Allen Company’s total current assets were $600,000 and its
total current liabilities were $380,000. On January 1, 2014, Allen paid $20,000 on
accounts payable.
Required:
(a) Compute Allen’s working capital before and after paying the account payable.
(b) Compute Allen’s current ratio before and after paying the account payable. Round
your answer to two decimal places.
The master budget details:
A. Long-term objectives.
B. Intermediate objectives.
C. Short-term objectives.
D. All of these answers are correct.
When preparing a statement of cash flows, in which section is it permitted to use either
the direct method or the indirect method?
A. Operating activities
B. Investing activities
C. Financing activities
D. All of these answers are correct.
Arch Associates reports the following comparative balance sheets and income statement
information.
The amount of cash revenue received from customers during 2014 was:
A. $66,000.
B. $62,000.
C. $74,000.
D. $70,000.
Custom Quilters makes decorative comforters, quilted garments, and other products in a
small sewing factory. In 2014, the company expects to make 2,000 comforters. With
respect to the comforters, how would the wages of sewing machine operators be
classified?
A. Direct and variable
B. Direct and fixed
C. Indirect and variable
D. Indirect and fixed
Which of the following statements about financial statement analysis is incorrect?
A. In horizontal percentage analysis, an item from the financial statements is expressed
as a percentage of the same item from a previous year’s financial statements.
B. Vertical analysis compares two or more financial statement items within the same
time period.
C. Horizontal analysis for several years can be done by choosing one year as a base
year and calculating increases or decreases in relation to that year.
D. The reason behind a financial statement ratio or percentage analysis result is usually
self evident and does not require further study or analysis.
Which of the following is generally included in a sales budget?
A. Schedule of cash receipts for the projected sales
B. Desired ending inventory
C. Budgeted cost of goods sold
D. Schedule of cash payments for inventory purchases
What is the effect on the balance sheet of making cash sales of inventory to customers
on profit?
A. Assets and equity increase.
B. Assets and equity decrease.
C. Assets decrease and equity increases.
D. Assets increase and equity decreases.
Benchmarking involves the identification of the best practices used by world-class
competitors. Discuss the following widely recognized best practices: activity-based
management and just in time inventory.
Describe the basic differences between absorption and variable costing. Why are
managers sometimes motivated to produce too much inventory when income is
computed under an absorption costing system?
Indicate whether each of the following statements is true or false.
Service and product cost information is used for both financial reporting and
managerial accounting.
Under generally accepted accounting principles, companies must report service costs,
but not product costs in their financial statements.
Service companies are required to match the costs of providing services with the
revenues generated from the services.
Information about the cost of providing services or products is essential in a company’s
budgeting process.
For a hospital or electric utility, service and product costing information is useful in
contract negotiations and in setting rates.
Chico Company is considering the purchase of a new high-speed machine for its
factory. The machine will cost $160,000 and will save the company $45,000 per year in
cash operating costs. The machine has an estimated useful life of five years and no
expected salvage value. The company’s cost of capital is 12%.
Required:
1) Compute the net present value of this investment.
2) What is the maximum amount that Chico should be willing to pay for the machine?
3) What are the minimum annual cash savings that will make the machine acceptable on
a net present value basis if the purchase price is $160,000?
Assume that wages expense is a variable cost and that the relevant range is 10,000 to
15,000 labor hours. Within that range, the cost is $15 per hour. What can you assume
about wages expense outside this range?