Which of the following items will not appear on a cash budget?
A. Expected cash collections
B. Expected cash payments
C. Expected credit sales
D. Financing activities
Purchasing production supplies for cash is a(n):
A. asset source transaction.
B. asset exchange transaction.
C. asset use transaction.
D. claims exchange transaction.
Which of the following costs should be recorded as an expense?
A. Administrative employee salaries
B. Depreciation of manufacturing equipment
C. Insurance for the factory building
D. All of these are expenses.
The benefits sacrificed when one alternative is chosen over another are referred to as:
A. Avoidable costs.
B. Opportunity costs.
C. Sacrificial costs.
D. Beneficial costs.
Wham Company sells electronic squirrel repellants for $60. Variable costs are 60% of
sales and total fixed costs are $40,000. What is the firm’s magnitude of operating
leverage if 2,000 units are sold?
A. 0.17
B. 6.0
C. 2.25
D. None of these
Assume that a factory seeks to allocate rent to several departments that occupy the
factory. The factory is occupied by all the departments. Which of the following is the
most logical cost driver for allocating the factory rent?
A. Number of employees
B. Square footage occupied by each department
C. Machine hours
D. Number of labor hours in each department
Which of the following costs is not considered to be a period cost?
A. Warehousing costs
B. Depreciation of delivery vehicles
C. Salaries paid to company executives
D. Freight paid on a purchase of raw materials
Which of the following is an appraisal cost?
A. Depreciation of testing equipment
B. Customer service costs
C. Engineering and design costs
D. Costs to repair defective units
Select the incorrect statement regarding service companies.
A. Because service companies do not carry inventory, it is impossible to determine
product costs.
B. Because the products of service companies are consumed immediately, there is no
finished goods inventory on their balance sheets.
C. Managers of service companies are expected to control costs, improve quality, and
increase productivity just like managers of manufacturing companies.
D. Material, labor, and overhead costs of service companies are treated as period costs.
Select the correct statement regarding the contribution margin ratio.
A. The contribution margin ratio can be calculated using either total amounts or per unit
amounts.
B. The contribution margin ratio equals contribution margin per unit divided by variable
cost per unit.
C. Total fixed costs divided by the contribution margin ratio equals the break-even point
in units.
D. An increase in variable cost per unit will cause the contribution margin ratio to
increase.
The management practice that increases profitability through the management of
bottlenecks is known as:
A. the theory of constraints.
B. the theory of restraints.
C. the materiality principle.
D. total quality management.
Assume that you are considering purchasing some of a company’s long-term bonds as
an investment. Which of the company’s financial statement ratios would you probably
be most interested in?
A. Debt to assets ratio
B. Debt to equity
C. Plant assets to long-term liabilities
D. All of these answers are correct.
All of the following are considered to be measures of a company’s short-term
debt-paying ability except:
A. Current ratio.
B. Earnings per share.
C. Inventory turnover.
D. Average collection period.
For 2014, Kelly Company’s manufacturing overhead costs totaled $2,871,400. At the
end of the period, manufacturing overhead had been underapplied by $5,310. As a
result:
A. cost of goods sold increases.
B. manufacturing overhead increases.
C. cost of goods sold decreases.
D. none of these.
Warren Company applies overhead based on direct labor cost. During 2014, Warren
Company estimated that it would incur $180,000 in manufacturing overhead costs and
$120,000 of direct labor costs. In 2014, actual manufacturing overhead cost totaled
$150,000 and actual direct labor costs totaled $110,000. If total manufacturing costs
were $320,000, what amount of direct materials was used during the period?
A. $60,000
B. $30,000
C. $45,000
D. None of these.
Pilot Motors Corporation is an automobile manufacturer. The company produces its
own motors, tires, and other automobile parts. Pilot has the opportunity to purchase
tires from another manufacturer instead of producing them in their own facility. This
type of decision is typically known as a(n):
A. outsourcing decision.
B. special order decision.
C. segment elimination decision.
D. asset replacement decision.
If manufacturing overhead is underapplied, the entry to close the overhead account at
the end of the accounting period will:
A. decrease net income.
B. not effect total assets.
C. increase net income.
D. decrease cash flow from operating activities.
Oakland Company paid $200 cash for various manufacturing overhead costs, not before
recorded. How does this transaction affect the financial statements?
A.
B.
C.
D.
Frazier Company sells women’s ski jackets. The average sales price is $275 and the
variable cost per jacket is $175. Fixed Costs are $1,350,000. If Frazier sells 15,000
jackets, the contribution margin will be:
A. $2,775,000
B. $1,500,000
C. $2,250,000
D. $150,000
George Company has the opportunity to purchase an asset that costs $40,000. The asset
is expected to increase net income by $10,000 per year. Depreciation expense will be
$5,000 per year. Based on this information the payback period is:
A. 4 years.
B. 2.5 years.
C. 2.67 years.
D. 8 years.
For a manufacturing business, cost of indirect materials is first recorded in:
A. raw materials inventory.
B. supplies inventory.
C. work in process inventory.
D. manufacturing overhead.
Which of the following statements is incorrect?
A. An outsourcing decision typically affects only product-level costs.
B. Accepting a special order will involve incurring unit-level costs.
C. Eliminating a business segment often allows a company to avoid some facility-level
costs.
D. Facility-level costs generally are not relevant in special order decisions.
Which of the following statements concerning manufacturing costs is incorrect?
A. All salaries incurred by the sales department are expensed as incurred.
B. Direct labor costs are recorded initially in an inventory account.
C. Depreciation on manufacturing equipment is a period cost.
D. The cost of direct materials can be readily traced to products.
Franklin Manufacturing manufactures two models of windows, bay windows and
casement windows. Franklin uses an activity based costing system. The following
information about the activities used to product the company’s products has been
provided.
The amount of product-level cost that should be allocated to the casement windows
equals:
A. $13,125.
B. $21,875.
C. $30,000.
D. $45,000.
During 2014, the Abbot Company had the following changes in account balances:
1) The accumulated depreciation account had a beginning balance of $25,000 and an
ending balance of $35,000. The increase was due to depreciation expense.
2) The long-term notes payable account had a beginning balance of $40,000 and an
ending balance of $15,000. The decrease was due to repayment of debt.
3) The accounts receivable account had a beginning balance of $60,000 and an ending
balance of $50,000.
4) The equipment account had a beginning balance of $25,000 and an ending balance of
$92,500. The increase was due to the purchase of equipment for cash.
5) The long term investments account (marketable securities) had a beginning balance
of $18,000 and an ending balance of $12,500. The decrease was due to the sale of
investments at cost.
6) The amount of cash dividends declared and paid during the year was $22,000.
7) The interest payable account had a beginning balance of $2,250 and an ending
balance of $1,250.
Assume that a statement of cash flows has been prepared. The combination of the three
major components (operating activities, investing activities, financing activities) equals
the:
A. Net income for the period.
B. Change in the cash account balance between the beginning and end of the period.
C. Ending cash balance.
D. Amount of cash inflow for the period.
Anchor Calendar Company manufactures wall and desktop calendars for business use.
The company expects production of 20,000 units this year. Various costs and items
associated with calendar production are described below:
Required:
Assume that management is interested in determining the average cost per calendar. For
each item in the table, place a check mark or X in every column that applies. When
labeling costs as fixed or variable, select your response on the basis of whether the total
cost of that item will change when changes occur in volume of calendars produced.
Stuart’s Electronics is a relatively small company that provides computer-assisted
technology to manufacturing companies. During the last few years, the company has
begun to take budgeting seriously. Each year, the budget is developed during a two-day
retreat of the company’s top management. Lower-level employees say that the budget
reflects unrealistic targets that they cannot meet even with their best efforts. What
problems are there with Stevenson’s budgeting process, and what can be done about
them?
What are hybrid cost systems? Under what circumstances might a company use a
hybrid system?
Selected T-accounts from the books of Street Manufacturing Company are provided
below:
Required:
1) Assuming overhead was allocated on the basis of direct labor cost, compute the
predetermined overhead rate.
2) Compute the amount by which overhead was over- or underapplied. (Be sure to
indicate whether over- or underapplied.)
3) Compute the cost of goods sold assuming that the company writes off any over- or
underapplied overhead directly against cost of goods sold.
4) Compute net income for the period.
5) Compute the total amount of inventory that will be reported on the end-of-year
balance sheet, including the balances from all of the company’s inventory accounts.
Indicate whether each of the following statements is true or false.
If two capital investments both have positive net present values, both offer an actual
rate of return that is higher than the required rate of return.
Company M has two potential capital investments, each of which has a positive net
present value. M can only accept one of the investments. In this situation, it should
always accept the project that has the higher net present value.
Net present value is calculated by dividing the present value of cash inflows by the
present value of cash outflows associated with a capital investment.
The present value index can be used to compare different capital investment projects.
The higher the present value index, the lower the rate of return per dollar invested in the
project.
Indicate whether each of the following statements about financial statement analysis is
true or false.
The value of a corporation’s price-earnings ratio indicates how optimistic investors are
about a company’s growth potential.
The dividend yield ratio indicates the percentage of a company’s net income that it paid
out in dividends.
Conservatism produces a positive bias in a company’s financial statements and thus in
the ratios calculated from the financial statements.
Changes in general economic conditions (such as rate of inflation) can cause the values
for a company’s financial statement ratios to change from one year to the next.
Comparing financial statement ratios of companies in different industries can give
misleading results.
Why is cash management important to a business?