A company’s operating cycle can be longer than one year.
The effectiveness of any budgeting system depends directly on the attitudes of top
management toward the budgeting system.
Gross profit is the excess of sales over all expenses.
Opportunity costs and outlay costs are widely used synonyms.
A favorable materials price variance may lead to an unfavorable materials usage
variance.
Customers, departments and territories are examples of cost objects.
Elimination entries avoid double-counting assets, liabilities and stockholders’ equity on
the consolidated financial statements.
In some countries outside the United States, independent auditors are called chartered
accountants.
The Allowance for Bad Debts account is added to the Accounts Receivable account on
the balance sheet.
Variable expenses are divided into avoidable and unavoidable costs.
Cost accounting is that part of the cost management system that measures costs for the
sole purpose of financial reporting.
A multiple-step income statement includes a subtotal for gross profit.
Indirect production costs can be ignored because they do not affect the cost of a
product.
“Cooking the books” refers to recording fictitious sales or omitting costs.
The centerpiece of a job-order costing system is the balanced scorecard.
Line items on common-size financial statements are expressed in percentages of some
base such as total assets.
A company uses the going concern convention when it is in a near-bankrupt situation.
The variable-costing income statement separates costs into fixed costs and variable
costs.
Return on sales equals revenue divided by income.
Investments acquired with the intent to resell them in the near future are called trading
securities.
The time and effort spent negotiating a transfer price between a company’s divisions
adds nothing directly to the profits of a company.
Overcapacity in some countries often causes aggressive pricing policies, particularly for
a company’s imported goods.
Property taxes on a building used by a segment are not considered when evaluating the
performance of the segment manager.
In the short run, the sales price of a good or service must be high enough to cover all
costs.
The account Unearned Revenue is a revenue account.
The lower in the organization that authority is delegated, the greater the
decentralization.
When an investing company owns less than 50 percent of another company, the
companies must prepare consolidated financial statements.
Freight and installation costs are added to the cost of equipment.
In job-order costing, actual factory overhead rates are used to apply factory overhead
costs to jobs.
The materiality concept is not subjective.
In recent years, companies in the United States have discovered it is more cost effective
to prevent defects than to detect and correct them.
A cost pool is a group of individual costs that is allocated to cost objects.
With perfect competition, marginal revenue is the additional revenue resulting from the
sale of an additional unit.
The relevant range is the limit of cost-driver level within which a specific relationship
between costs and the cost driver is valid.
The sales mix is the relative proportions or combinations of quantities of different
products that constitute total sales.
Cash dividends declared are an addition to Retained Earnings on the Retained Earnings
Statement.
According to agency theory, employment contracts will balance three factors that
include risk, incentive and the cost of measuring performance.
On the income statement, the contribution margin is computed using variable
manufacturing costs and variable selling and administrative costs.
On January 1, 2014, Jonathon Company purchased common stock in Garcia Company
for $1,000,000. Jonathon Company treats the investment as trading securities. During
2014, Garcia Company earned $4,000,000 and paid dividends of $1,000,000. Assume
that Jonathon Company owns 10% of the outstanding shares of Garcia Company. The
market value of the investment at December 31, 2014 is $1,100,000. What is the
balance in the Investment account at December 31, 2014?
A) $1,000,000
B) $1,100,000
C) $1,400,000
D) $1,500,000
Hope Company has the following data available:
Retained Earnings, January 1, 2011 $12,000
Net income for the year ending December 31, 2011 $3,000
Dividends declared in 2011 $2,000
Paid-in Capital, January 1, 2011 $50,000
Total liabilities, January 1, 2011 $40,000
What is the retained earnings balance on December 31, 2011?
A) $12,000
B) $13,000
C) $14,000
D) $63,000
On January 1, 2012, Remkus Company acquired all of the stock of a subsidiary. The
following data is available:
Remkus Company Subsidiary
Total assets $650 $400
Total liabilities $200 $190
Total stockholders’ equity $450 $210
The acquisition by Remkus Company represents a 100 percent interest in the subsidiary.
On January 1, 2012, the fair value of the subsidiary’s assets and liabilities are equal to
the book value. Remkus Company paid $250 for the 100 percent interest in the
subsidiary. On January 1, 2012, what is the total stockholders’ equity on the
consolidated balance sheet? (Assume elimination entries are completed.)
A) $390
B) $450
C) $800
D) $840
A gain on the sale of a fixed asset is reported on the statement of cash flows ________.
A) as a deduction to net income under operating activities for the indirect method
B) as a deduction to the cash proceeds received from the sale of fixed assets under
investing activities
C) as a noncash transaction
D) as a cash inflow under financing activities
Which of the following is used to develop flexible budgets?
A) fixed overhead variances
B) static budget variances
C) flexible budget variances
D) cost functions
Increases in revenues will ________. Increases in expenses will ________ .
A) increase Retained Earnings; increase Retained Earnings
B) increase Retained Earnings; decrease Retained Earnings
C) decrease Paid in Capital; decrease Paid in Capital
D) increase assets; increase liabilities
The net present value of a project is zero. The minimum desired rate of return used to
obtain the net present value of zero is 8%. Which of the following statements is TRUE?
A) The project is desirable if the minimum desired rate of return is 10%.
B) The project is desirable if the minimum desired rate of return is 6%.
C) The project is desirable if the minimum desired rate of return is 6% or 10%.
D) The project is undesirable if the minimum desired rate of return is 6%.
Assume the following information for Rodney Company:
Selling price per unit $100
Variable cost per unit $80
Total fixed costs $80,000
After-tax net income $24,000
Tax rate 40%
To achieve the targeted after-tax net income, what amount of sales in dollars is
necessary?
A) $400,000
B) $520,000
C) $600,000
D) $660,000
The relevant range applies to ________.
A) variable costs only
B) fixed costs only
C) fixed costs and variable costs
D) none of the above
Discriminatory pricing occurs when a firm sets ________.
A) prices below their competitors’ prices
B) different prices for a product in different regions of the United States due to a cost
differential in providing the product
C) different prices for different customers for the same product or service
D) discounts for all customers if they pay within a certain number of days after
purchase
A sale of inventory results in a(n) ________ in stockholders’ equity equal to the selling
price of the inventory. A sale of inventory also results in a(n) ________ in stockholders’
equity equal to the cost of the inventory sold.
A) decrease; increase
B) increase; increase
C) increase; decrease
D) decrease; decrease
Selected data for two divisions of the Royal Company are given below:
South North
Division Division
Net sales for year $4,000,000 $7,000,000
Average total assets for year $2,000,000 $2,000,000
Operating income before taxes for year $360,000 $420,000
Tax rate 20% 20%
Average after-tax cost of capital 10% 12%
Required:
A) Compute the ROI for each division. Income is defined as operating income after
taxes.
B) Based on the ROI, which division manager should receive a bonus? Bonuses are
awarded if ROI equals or exceeds 15 percent.
C) Compute the residual income for each division. Invested capital is defined as total
assets.
D) Based on the residual income, which division manager should receive a bonus?
Bonuses are awarded if residual income is greater than $100,000.
________ are characteristics or attributes that managers must achieve to drive the
organization toward its goals.
A) Nonfinancial performance measures
B) Targets
C) Key success factors
D) Objectives
Frequently, companies do not use a contribution approach to pricing because ________.
A) it promotes price stability
B) it provides the best defense for legal challenges
C) of a fear of underpricing products by using variable costs to price products
D) it is not sensitive to cost-volume-profit relationships
Lindsey Company has two service departments, Maintenance and Human Resources.
Lindsey Company also has two production departments, Mixing and Finishing.
Maintenance costs are allocated based on square footage while Human Resources costs
are allocated based on number of employees. The following information has been
gathered for the current year:
Human
Maintenance Resources Mixing Finishing
Direct costs $50,400 $35,000 $42,000 $70,000
Square footage 1,600 800 3,200 2,400
Number of employees 16 24 40 60
If the direct method is used to allocate service department costs, then the cost allocated
from the Human Resources Department to the Finishing Department is ________.
A) $14,000
B) $16,800
C) $21,000
D) $33,600
Costs that change abruptly at different levels of activity because the resources are
available only in indivisible chunks are called ________.
A) mixed costs
B) variable costs
C) fixed costs
D) step costs
What is the final step in the four-step process to allocate indirect costs to cost objects?
A) Accumulate indirect costs for a period of time in a cost pool.
B) Select an allocation base for each cost pool.
C) Multiply the percentage of total cost-allocation units used for each cost object by the
total costs in the cost pool to determine the cost allocated to each cost object.
D) Measure the units of the cost-allocation base used for each cost object and compute
the total units used for all cost objects.
In a typical manufacturing factory, staff functions do NOT include ________.
A) inspection
B) storeroom
C) maintenance
D) welding
You can receive $10,000 today or $3,000 per year at the end of each year for the next
five years. If the required rate of return is 10%, what option should be selected? (The
present value of an ordinary annuity of one at 10% for five periods is 3.7908. The
present value of one at 10% for five periods is 0.6209.)
A) Receive $10,000 today.
B) Receive $3,000 per year for the next five years.
C) The results are the same for both options.
D) Neither option is desirable.
Brady Division has operating income of $200,000 for the year ending December 31,
2011. Average invested capital is $1,000,000 and the weighted-average cost of capital is
10%. The division is considering a new investment that would cost $500,000 and earn
15% annually. If return on investment is the performance metric, should the manager of
the Brady Division accept the new investment?
A) No, because the return on investment of the division decreases with the new
investment.
B) No, because the return on investment of the division increases with the new
investment.
C) Yes, because the return on investment of the division decreases with the new
investment.
D) Yes, because the return on investment of the division increases with the new
investment.
Karen Company manufactures three products from a joint process. Joint costs for the
year amounted to $300,000. The following data was available:
Product Units Produced Sales Value at Split-off
X 5,000 $70,000
Y 3,000 $30,000
Z 2,000 $100,000
Assume the physical-units method of allocating joint costs is used. What amount of
joint costs is allocated to Product X?
A) $70,000
B) $87,500
C) $150,000
D) $300,000
To compare companies that differ in size, analysts use ________.
A) MD&A
B) 10-K filings with the Securities and Exchange Commission
C) common size financial statements
D) consolidated financial statements
When assigning indirect costs to a cost object, an ideal cost-allocation base measures
________.
A) the proportion of indirect costs to direct costs
B) the extent a particular cost is caused by a cost object
C) multiple cost drivers
D) the proportion of direct costs to indirect costs
What happens when the cost-driver activity level decreases within the relevant range?
A) Total fixed costs increase.
B) Fixed costs per unit of cost driver decrease.
C) Total variable costs decrease.
D) Variable costs per unit of cost driver decrease.
Seidner Industries reported the following information about the production and sale of
its only product during the first month of operations:
Selling price per unit $65
Sales $78,000
Direct materials used $25,000
Direct labor $35,000
Variable factory overhead $15,000
Fixed factory overhead $10,000
Variable selling and administrative expenses $3,000
Fixed selling and administrative expenses $5,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 1,200 units
Under variable costing, the contribution margin is ________.
A) $32,000
B) $36,000
C) $37,500
D) $39,500
To assign indirect costs to cost objects, which of the following methods is used?
A) cost pooling
B) cost accumulation
C) cost allocation
D) cost tracing
Excalibur Company produces calendars in a one-department process. The following
data is available for the past month:
Work-in-process inventory, beginning 0
Units started 15,000
Units completed and transferred 12,000
Work-in-process inventory, ending 3,000
Direct materials added $30,000
Direct labor $20,700
Factory overhead costs $10,350
The units in process at the end of the month are 100 percent complete with respect to
direct materials and 50 percent complete with respect to conversion costs. What are the
equivalent units for materials for the month?
A) 3,000
B) 12,000
C) 13,500
D) 15,000
________ is (are) the accounting system’s effect on the behavior and the decisions of
managers.
A) Simplicity
B) Behavioral implications
C) The cost-benefit balance
D) The code of ethics
Potter Company has the following information:
Actual operating loss at 5,000 units $(11,000)
Budgeted operating income at 5,000 units $5,000
Budgeted operating income at 10,000 units $12,000
Planned level of operations 10,000 units
Actual level of operations 5,000 units
Assume the cost driver of product costs is units of production. What is the flexible
budget variance for operating income?
A) $5,000 Unfavorable
B) $11,000 Unfavorable
C) $16,000 Unfavorable
D) $16,000 Favorable
If a department in a department store is under consideration to be eliminated,
unavoidable fixed expenses are ________ to the decision.
A) incremental
B) marginal
C) relevant
D) irrelevant
Patrick Company makes three types of products. The company has two types of
customers. The cost to serve all customers is $12,000 and is allocated to customer types
based on the number of manager visits to customer locations. The following data are
available:
Product 1 Product 2 Product 3
Sales $5,000 $6,000 $30,000
Cost of goods sold 4,000 4,800 15,000
Gross margin $1,000 $1,200 $15,000
Customer Type 1 Customer Type 2
Product 1 Sales $500 $4,500
Product 2 Sales $1,000 $5,000
Product 3 Sales $16,000 $14,000
Manager visits 4 16
What is the gross profit margin for all three products for Customer Type 2?
A) $450
B) $1,000
C) $7,000
D) $8,900
Rate variances are the same as ________ variances. Efficiency variances are the same
as ________ variances.
A) spending; effective
B) activity; static
C) usage; quantity
D) price; quantity
Jorgensen Company manufactures generic notebooks. Material is introduced at the
beginning of the process in the Printing Department. Conversion costs are applied
uniformly throughout the process. The weighted-average method of process costing is
used. Data for the Printing Department for the month of June follow:
Work-In-Process Inventory, June 1:
Units 15,000
Direct materials (100% complete) $34,000
Conversion costs (30% complete) $14,000
Units started in June 65,000
Units completed in June 62,000
Work-In-Process Inventory, June 30 18,000
Direct materials added in June $285,000
Conversion costs added in June $210,000
With regard to the Work-In-Process Inventory on June 30, materials are 100 percent
complete and conversion costs are 60 percent complete. What are the equivalent units
for materials for June?
A) 62,000
B) 77,000
C) 80,000
D) 83,000
Simeranio Company manufactures generic notebooks. Material is introduced at the
beginning of the process in the Printing Department. Conversion costs are applied
uniformly throughout the process. The weighted-average method of process costing is
used. Data for the Printing Department for the month of June follow:
Work-In-Process Inventory, June 1:
Units 15,000
Direct materials (100% complete) $35,000
Conversion costs (30% complete) $14,000
Units started in June 65,000
Units completed in June 62,000
Work-In-Process Inventory, June 30 18,000
Direct materials added in June $285,000
Conversion costs added in June $210,000
With regard to the Work-In-Process Inventory on June 30, materials are 100 percent
complete and conversion costs are 50 percent complete. The unit cost for conversion
costs is ________.
A) $2.62
B) $2.80
C) $2.88
D) $3.15