1) Managers whose bonuses are based on operating income have more incentive to
increase inventory levels when variable costing is used than when absorption costing is
used.
2) In process costing, units that are partially completed are accounted for the same as
units in finished goods inventory.
3) If a unit sells for $12.50 and has a variable cost of $3.25, its contribution margin per
unit is $9.25.
4) Efficiency variances for direct labor show how changes in the usage of labor affect a
company’s profits.
5) Management by exception directs management’s attention to important differences
between actual and budgeted amounts.
6) When a company uses the direct method to present the statement of cash flows, cash
received from the sale of treasury stock increases the amount of net cash provided by
investing activities.
7) If all direct materials are added at the end of the production process, and the units
have made it 50% of the way through the production process, then the percentage
completion for direct materials is 100%.
8) Cash equivalents include investments that cannot be readily converted into cash.
9) Companies with low operating leverage have relatively higher variable costs and
lower fixed costs.
10) The interest rate that makes the net present value of the investment equal to zero is
the internal rate of return.
11) Assigning costs to units completed and to units in ending WIP inventory in a second
department is a three-step process.
12) Neither the payback period nor the IRR capital budgeting method recognizes the
time value of money.
13) A series of equal payments or deposits made at equal time intervals are called
compound interest.
14) When units are transferred from Processing Department #1 to Processing
Department #2, a credit is made to WIP-Processing Department #2 to reflect the
transferred-in costs.
15) If conversion costs are added evenly throughout the production process, and the
units have made it 50% of the way through the production process, then the percentage
completion for conversion costs is 50%.
16) Under absorption costing, fixed manufacturing costs are treated as period costs.
17) Non-value added activities are activities that neither enhance the customer’s image
of the product or service nor provide a competitive advantage.
18) The production volume variance is favorable whenever expected output is greater
than actual output.
19) XBRL will be required of both public and private companies.
20) If the actual amount of the manufacturing overhead allocation base is greater than
the estimated amount of the allocation base used to calculate the predetermined rate,
then manufacturing overhead must have been underallocated.
21) Sneider Family Orange Groves processes a variety of fresh juices. The company has
the following expenses for July:
What is the total cost for the marketing category of the value chain?
A) $272,000
B) $34,000
C) $152,000
D) $197,000
22) What type of costs are incurred to avoid poor quality goods or services in the first
place?
A) Appraisal costs
B) External costs
C) Prevention costs
D) Internal failure costs
23) What will happen to the contribution margin if fixed costs related to a product
increase while variable costs and sales price remain constant?
A) Will increase
B) Will not change
C) Will decrease
D) Will stay the same
24) Which of the following groups are external users of financial information?
A) Customers of the company
B) Potential investors of the company
C) Vendors of the company
D) All of the above
25) Apex Company produces artificial Christmas trees. A local shopping mall recently
made a special order offer; the shopping mall would like to purchase 200 extra large
white trees. Apex Company is currently producing and selling 20,000 trees; the
company has the excess capacity to handle this special order. The shopping mall has
offered to pay $120 for each tree. An accountant at Apex Company provides an estimate
of the unit product cost as follows:
This special order would require an investment of $10,000 for the molds required for
the extra large trees. These molds would have no other purpose and would have no
salvage value. The special order trees would also have an additional variable cost of
$5.00 per unit associated with having a white tree. This special order would not have
any effect on the company’s other sales. If the special order is accepted, the company’s
operating income would increase (decrease) by
A) $2,300 decrease
B) $13,100 decrease
C) $2,100 increase
D) $13,100 increase
26) Given breakeven sales in units of 34,000 and a unit contribution margin of $5, how
many units must be sold to reach a target operating income of $8,000?
A) 32,400
B) 40,000
C) 35,600
D) 1,600
27) Federer Company is debating the use of direct labor cost or direct labor hours as the
cost allocation base for allocating manufacturing overhead. The following information
is available for the most recent year:
If Federer Company uses direct labor hours as the allocation base, what would the
allocated manufacturing overhead be for the year?
A) $425,000
B) $350,000
C) $394,400
D) $324,800
28) An organization faces many challenges when implementing an environmental
accounting (EMA) system. Which of the following inherent challenges must an
organization overcome when it finds that its traditional accounting system does not
track information regarding lost sales due to environmental regulation?
A) Hidden Cost
B) Communication issue
C) Newness of EMA
D) Historical orientation of accounting
29) Black Productions has three models: D, E, and F. The following information is
available:
Black Productions is thinking of discontinuing model F because it is reporting an
operating loss. All fixed costs are unavoidable. Black Productions discontinues model F
and rents the space formerly used to produce product F for $15,000 per year, what
effect will this have on operating income?
A) Increase $21,000
B) Increase $5,000
C) Decrease $21,000
D) Decrease $5,000
30) Moon Appliance manufactures a variety of appliances which all use Part B89 .
Currently, Moon Appliance manufactures Part B89 itself. It has been producing 9,000
units of Part B89 annually. The annual costs of producing Part B89 at the level of 9,000
units include:
All of the fixed manufacturing overhead costs would continue whether Part B89 is
made internally or purchased from an outside supplier. Assuming Moon Appliance can
purchase 9,000 units of the part from the Nadal Parts Company for $20.00 each, and the
facilities currently used to make the part could be rented out to another manufacturer
for $18,000 a year, what should Moon Appliance do?
A) Make the part and save $7.00 per unit
B) Make the part and save $3.00 per unit
C) Buy the part and save $7.00 per unit
D) Buy the part and save $3.00 per unit
31) Meers Corporation had beginning inventory of 21,000 units and expects sales of
76,500 units during the year. Desired ending inventory is 19,500 units. How many units
should Meers Corporation produce?
A) 78,000 units
B) 36,000 units
C) 75,000 units
D) 117,000 units
32) The benefit foregone by choosing a particular alternative course of action is referred
to as a(n)
A) sunk cost
B) opportunity cost
C) variable cost
D) incremental cost
33) When management reviews hourly sales reports to determine the level of staffing
needed to service customers, which of management’s three primary responsibilities is
fulfilled?
A) Controlling and planning
B) Directing and planning
C) Directing, controlling, and planning
D) Analyzing, directing, and planning
34) Hilltop Manufacturing uses a predetermined manufacturing overhead rate based on
direct labor hours to allocate manufacturing overhead to jobs. Selected data about the
company’s operations follows:
By how much was manufacturing overhead overallocated or underallocated for the
year?
A) $50,000 underallocated
B) $160,000 overallocated
C) $100,000 underallocated
D) $50,000 overallocated
35) Which of the following is the primary source of cash over the life of a business?
A) Financing activities
B) Operating activities
C) Investing activities
D) None of the above
36) Which of the following would not appear on a statement of cash flows prepared
using the direct method?
A) Cash receipts from customers
B) Cash payments for insurance
C) Depreciation expense
D) Cash payments for salaries and wages
37) Krepes Manufacturing has two departments that produce small appliances. The
Drilling Department allocates manufacturing overhead using machine hours as the
allocation base while the Cutting Department allocates manufacturing overhead using
direct labor cost as the allocation base. Data for April are shown below:
a) Determine the predetermined manufacturing overhead rate for the Drilling
Department.
b) Determine the predetermined manufacturing overhead rate for the Cutting
Department.
c) Determine the balances of the manufacturing overhead accounts for each department
as of April 30 . Indicate whether the amounts represent overallocated or underallocated
manufacturing overhead.
38) Companies listed on the New York Stock Exchange (NYSE) are required to have an
internal audit function by
A) The NYSE
B) The Internal Revenue Service (IRS)
C) The stockholders
D) The Board of Directors
39) On a regression analysis output generated with Excel, a regression equation’s
variable cost per unit is represented by the ________.
A) x variable 1 coefficient
B) intercept coefficient
C) R-square
D) residual
40) Which type of company typically produces its own inventory?
A) Manufacturer
B) Service company
C) Retailer
D) Wholesaler
41) The Akron Slugger Company produces various types of wooden baseball bats. It
has calculated the average cost per unit of a production level of 7,500 bats to be $10.00.
Given this information, what would be the total cost of producing 7,500 baseball bats?
A) $7,510
B) $75,000
C) $10
D) $750
42) Which of the following financial performance measures can be used to compare
potential projects of different sizes?
A) ROI
B) Residual income
C) Sales revenue
D) Operating income
43) Which part of the value chain would a technical support hotline for customers be
considered?
A) Design
B) Customer service
C) Distribution
D) Marketing
44) The area to the right of the breakeven point and between the total revenue line and
the total expense line represents
A) expected profits
B) expected losses
C) variable expenses
D) fixed expenses
45) Peddlin’ Pete’s Cycles sells its entry-level bicycles for $400 each. Its variable cost is
$250 per bicycle. Fixed costs are $35,000 per month for volumes up to 1,200 bicycles.
Above 1,200 bicycles, monthly fixed costs are $55,000. What is the budgeted operating
income at a level of 1,300 bicycles per month?
A) $195,000
B) $465,000
C) $140,000
D) $160,000
46) The most significant cost for a service company is
A) labor
B) manufacturing overhead
C) supplies
D) indirect costs
47) The HF Corporation manufactures and sells toy gyroscopes. The following data is
related to sales and production of the toy gyroscopes for last year.
Using variable costing, what is the operating income for last year?
A) $1,200,000
B) $103,000
C) $413,000
D) $258,000
48) Summer Nights sells bottles of bug spray for $6.50 each. Variable costs are $3.00
per bottle, while fixed costs are $44,000 per month for volumes up to 30,000 bottles of
spray and $54,000 per month for volumes above 30,000 bottles of spray. The flexible
budget would reflect monthly operating income for 19,000 bottles of lotion and 24,000
bottles of lotion of what dollar amounts?
A) $79,500 and $40,000, respectively
B) $22,500 and $40,000, respectively
C) $123,500 and $156,000, respectively
D) $12,500 and $102,000, respectively
49) Which of the following would be a consideration for ‘sell as is or process further”
decisions?
A) Revenue generated if sold “as is”
B) Revenue generated if “further processed”
C) Costs involved in further processing
D) All of the above