Sets the price according to demand
Match the definitions that follow with the term (a’“e) it defines.
a. Demand-based concept
b. Competition-based concept
c. Product cost concept
d. Target costing
e. Production bottleneck
requires a restatement of prior-period financial statements
Match each definition that follows with the term (a’“h) it defines.
a. discontinued operations
b. extraordinary items
c. change from one generally accepted accounting principle to another
d. horizontal analysis
e. vertical analysis
f. common-sized financial statements
g. current position analysis
h. profitability analysis
Which of the following statements is true regarding fixed and variable costs?
a. Both costs are constant when considered on a per-unit basis.
b. Both costs are constant when considered on a total basis.
c. Fixed costs are constant in total, and variable costs are constant per unit.
d. Variable costs are constant in total, and fixed costs vary in total.
Product costs include direct labor and advertising expense.
a. True
b. False
Use of a plantwide factory overhead rate does not distort product costs when products
require different ratios of allocation-base usage in each production department.
a. True
b. False
For a supervisor of a manufacturing department, which of the following costs is
controllable?
a. direct materials
b. insurance on factory building
c. depreciation of factory building
d. sales salaries
A company records its inventory purchases at standard cost but also records purchase
price variances. The company purchased 5,000 widgets at $8.00 each, and the standard
cost for the widgets is $7.60. Which of the following would be included in the journal
entry?
a. debit Accounts Payable, $38,000
b. credit Direct Materials Price Variance, $2,000
c. debit Accounts Payable, $2,000
d. debit Direct Materials Price Variance, $2,000
A business operated at 100% of capacity during its first month and incurred the
following costs:
If 1,000 units remain unsold at the end of the month and sales total $150,000 for the
month, what is the amount of the manufacturing margin that would be reported on the
absorption costing income statement?
a. $50,000
b. $54,000
c. not reported
d. $70,000
price-earnings (P/E) ratio
Match each ratio that follows to its use (items a’“h). Items may be used more than
once.
a. assess the profitability of the assets
b. assess the effectiveness in the use of assets
c. indicate the ability to meet currently maturing obligations
d. indicate the margin of safety to creditors
e. indicate instant debt-paying ability
f. assess the profitability of the investment by common stockholders
g. indicate future earnings prospects
h. indicate the extent to which earnings are being distributed to common stockholders
occurs when employee self-interests are different from company goals
Match each phrase that follows with the term (a-e) it describes.
a. planning
b. directing
c. controlling
d. budget slack
e. goal conflict
If fixed costs are $500,000 and variable costs are 60% of break-even sales, profit is zero
when sales revenue is $930,000.
a. True
b. False
A staff department has no direct authority over a line department.
a. True
b. False
The following information has been condensed from the December 31 balance sheets of
Gabriel Co.:
(a) Determine the ratio of fixed assets to long-term liabilities for each year.
(b) Determine the ratio of liabilities to stockholders’ equity for each year.
(c) Comment on the year-to-year changes for both ratios. Round your answers to two
decimal places.
A company is contemplating investing in a new piece of manufacturing machinery. The
amount to be invested is $100,000. The present value of the future cash flows at the
company’s desired rate of return is $100,000. The IRR on the project is 12%. Which of
the following statements is true?
a. The project should not be accepted because the net present value is negative.
b. The desired rate of return used to calculate the present value of the future cash flows
is less than 12%.
c. The desired rate of return used to calculate the present value of the future cash flows
is more than 12%.
d. The desired rate of return used to calculate the present value of the future cash flows
is equal to 12%.
Given the following cost data, what type of cost is shown?
a. mixed cost
b. variable cost
c. fixed cost
d. period cost
The number of days’ sales in inventory is one means of expressing the relationship
between the cost of goods sold and inventory.
a. True
b. False
Employee involvement does not include performing any indirect manufacturing
functions.
a. True
b. False
The Winston Company estimates that the factory overhead for the following year will
be $1,250,000. The company has decided that the basis for applying factory overhead
should be machine hours, which is estimated to be 50,000 hours. The total machine
hours for the year was 54,300. The actual factory overhead for the year was $1,375,000.
Determine the over- or under applied amount for the year.
a. $17,500 over applied b. $17,500 under applied
c. $118,250 over applied d. $118,250 under applied
In an absorption costing income statement, the manufacturing margin is the excess of
sales over the variable cost of goods sold.
a. True
b. False
If the wage rate paid per hour differs from the standard wage rate per hour for direct
labor, the variance is a
a. variable variance
b. rate variance
c. quantity variance
d. volume variance
Finished goods inspection
Identify the following quality control activities as either value-added or
non-value-added.
a. Value-added
b. Non-value-added
The standard costs and actual costs for direct materials for the manufacture of 2,500
actual units of product are
The amount of the direct materials quantity variance is
a. $875 favorable variance
b. $850 unfavorable variance
c. $850 favorable variance
d. $875 unfavorable variance
The Cardinal Company had a finished goods inventory of 55,000 units on January 1. Its
projected sales for the next four months were: January – 200,000 units; February –
180,000 units; March – 210,000 units; and April – 230,000 units. The Cardinal Company
wishes to maintain a desired ending finished goods inventory of 20% of the following
month’s sales.
What is the budgeted unit of production for February?
a. 186,000
b. 181,000
c. 222,000
d. 174,000