Stephenson Company is trying to decide which one of two contracts it will accept. The
costs and revenues associated with each are listed below:
The equipment was purchased last year and has no resale value. Which of these
amounts is relevant for the selection of one contract over another?
A. Contract revenue and labor costs
B. Materials, consulting advice and allocated overhead
C. Cost of consulting advice and allocated overhead
D. Contract revenue, labor costs and depreciation on equipment
Under the indirect method, which of the following is not an item that is added back to
net income in determining net cash flow from operating activities?
A. Decrease in accounts receivable
B. Decrease in inventory
C. Depreciation expense
D. Gain on sale of store fixtures
Steuben Company produces dog houses. During 2013, Steuben Company incurred the
following costs:
Based on the above information, the amount of period costs shown on Steuben’s
12/31/2013 income statement is:
A. $430,000
B. $150,000
C. $30,000
D. $180,000
Which of the following statements is incorrect?
A. When faced with multiple demands on a constrained resources, managers should
choose the product that provides the highest unit contribution margin.
B. Constraints are limitations on a company’s ability to satisfy demands for its products.
C. Constraints are also referred to as bottlenecks.
D. Managers seek to minimize the impact of bottlenecks on the operations of a
business.
Select from the following the incorrect statement regarding contribution margin.
A. Sales – fixed costs = contribution margin
B. Net income + total fixed costs = contribution margin
C. At the breakeven point (where the company has neither profit nor loss), total fixed
costs = total contribution margin
D. Total sales revenue times the contribution margin percentage = total contribution
margin
When performing sensitivity analysis, which of the following is an example of a
variable that management may consider changing to answer “what if” questions?
A. Variable cost per unit
B. Sales price per unit
C. Fixed cost per unit
D. Both Variable cost per unit and Sales price per unit are correct.
At its $60 selling price, Atlantic Company has sales of $15,000, variable manufacturing
costs of $4,000, fixed manufacturing costs of $1,000, variable selling and
administrative costs of $2,000 and fixed selling and administrative costs of $1,000.
What is the company’s contribution margin per unit?
A. $26
B. $28
C. $44
D. $36
The Fortune Company reported the following income for 2014:
What is the company’s number of times interest is earned ratio?
A. 7 times
B. 6 times
C. 4 times
D. None of these answers is correct.
The Bernard Company provided the following information from its financial records:
What is the company’s book value per share?
A. $0.50
B. $5.50
C. $6.67
D. $1.67
Select the incorrect statement regarding cost-volume-profit relationships for multiple
products.
A. For a company that sells many different products, the level of the break-even point is
affected by the company’s sales mix.
B. An increase in sales volume accompanied by a change in sales mix could cause a
company’s profits to decrease.
C. For a multi-product company, cost-volume-profit analysis can be done using the
contribution margin ratio of the most profitable product.
D. None of these answers is correct.
Which of the following costs would not increase the work in process inventory
account?
A. Cost of direct labor
B. Cost of allocated overhead
C. Cost of direct materials
D. Cost of selling supplies
The entry to record cost of selling a particular job in a job-order costing system would
include a:
A. Debit to finished goods inventory and a credit to cost of goods sold.
B. Debit to cost of goods sold and a credit to finished goods inventory.
C. Debit to cost of goods sold and a credit to work in process Inventory.
D. Credit to work in process and a debit to finished goods Inventory.
Select the response that best illustrates the point that product cost flows are cyclical and
occur in a specific sequence.
A. Acquire raw materials, convert raw materials, sell finished goods, collect cash
B. Acquire finished goods, acquire raw materials, convert raw materials, collect cash
C. Sell finished goods, collect cash, acquire raw materials
D. Collect cash, acquire raw materials, sell finished goods
Which of the following would be shown as a deduction from net income when
calculating net cash flow from operating activities using the indirect method?
A. Decrease in accounts payable for inventory purchases
B. Loss on the sale of equipment
C. Decrease in accounts receivable
D. Increase in salaries payable
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 issued common
stock for $10,000 cash. Which of the following statement is true?
A. Gant’s current ratio will decrease.
B. Gant’s current ratio will increase.
C. Gant’s quick ratio will decrease.
D. Gant’s working capital will decrease.
Selected financial information for Martin Company for 2014 follows:
Required:How many times did Martin’s merchandise inventory turnover during 2014?
Round your answer to one decimal place.
Tableware Unlimited Company plans to sell china and other dining-related items over
the internet. The company plans to begin business on January 1, 2014. The company’s
accountant has prepared the following sales budget for the first quarter of 2014:
In anticipation of preparing a cash budget, the accountant needs to compute the
expected monthly cash collections. Because the company is new and has no collection
experience of its own, the accountant contacted an industry trade group and obtained
the following industry collection data:
Collections on account
70% in the month of sale
20% in the month following sale
6% in the second month following sale
Uncollectible accounts have averaged 4% of receivables. The company gives a 2%
discount for payments made by customers during the month of sale.Required:
Prepare a schedule of cash collections from sales by month and in total for the first
quarter.
What does the margin of safety measure?
Harris Company currently produces a component that it uses in making some of its
products. Harris has calculated the following costs for making the part:
Harris is considering outsourcing the component. A supplier has offered to sell the
component to Harris for $52 each. Harris needs 8,000 units each year.Required:Should
Harris outsource the component? Support your answer with appropriate computations.
Management accountants have a responsibility to demonstrate integrity. What does this
ethical standard require of management accountants?
In 2013, Goldblum Co. sold 160,000 units of its product at a selling price of $40. The
variable cost per unit was $30, and Goldblum reported net income for the year of
$220,000. What was the amount of Goldblum’s fixed costs for the year?
Select the term that best fits the definition or description; enter the number of the term
in the column for Your Answer.
Contribution margin income statements for two competing companies are provided
below:
Required:
1) Show each company’s cost structure by inserting the percentage of the company’s
revenue represented by each item on the contribution income statement.
2) Compute each company’s magnitude of operating leverage.
3) Using the operating leverage measures computed in requirement 2, determine the
increase in each company’s net income (percentage and amount) if each company
experiences a 10 percent increase in sales.
4) Assume that sales are expected to continue to increase for the foreseeable future,
which company probably has more desirable cost structure? Why?
Ballantine Company manufactures two products. Currently, the company uses a
traditional costing system assigning overhead on the basis of direct labor hours. The
Industrial product is more complex to produce requiring two hours of direct labor time
per unit compared to one hour of direct labor time for the Consumer product. Given the
company’s total overhead costs of $720,000 and production of 1,000 Industrials and
8,000 Consumers, this results in an overhead allocation rate of $72 per direct labor
hour. The following unit data are provided:
Because the Industrial product is twice as profitable as the Consumer model, the sales
manager wants to reduce or eliminate production of the Consumer product and devote
as much capacity as possible to the Industrial product.
You are worried that the current cost accounting system may be providing inaccurate
results and would like to implement an ABC system. Assume that the company’s
overhead costs were traced to four major activities. The amount of overhead costs
traceable to each activity for the current year is provided below:
Required:
1) In the following table, compute the four activity rates that will be used to assign
overhead to the products under activity-based costing:
2) In the following table, compute the amount of overhead cost which should be
assigned to Industrials and Consumers under activity-based costing. Also compute the
overhead cost per unit for each product.
3) Compute the total cost to manufacture one unit of each product if activity-based
costing is used.
4) Respond to the sales manager’s recommendation that capacity be diverted from
Consumers to Industrials.
