Past costs are irrelevant in equipment replacement decisions.
The controller is primarily concerned with a company’s financial matters and the
treasurer is concerned with a company’s operating matters.
There should be a strong cause-and-effect relationship between factory overhead costs
incurred and the cost-allocation base chosen for its application.
Due to the decline in indirect costs in most companies, allocating indirect costs is no
longer necessary to determine accurate product costs.
If the limiting factor is demand, the most profitable product is the one with the highest
contribution margin per unit.
Determining the opportunity cost of a project depends on the alternatives available.
In general, more costs are direct when a department is the cost object than when a
product or service is the cost object.
Favorable variances do not require investigation.
The direct method sequence of allocations begins with the service department that
renders the greatest service to the greatest number of other service departments.
In some countries outside the United States, independent auditors are called chartered
accountants.
If a company allocated fixed costs from service departments to user departments based
on long-range plans, there is a tendency on the part of managers to underestimate their
planned usage.
The last line item on an income statement is earnings per share.
Under weighted-average process costing, the unit costs used for applying costs to
products are based on the total costs incurred to date, regardless of whether those costs
were incurred during or before the current period.
With perfect competition, marginal revenue is the additional revenue resulting from the
sale of an additional unit.
Return on investment equals operating income divided by investment.
A flexible budget adjusts for changes in sales volume and other cost-drivers.
When using an NPV model, we assume predicted cash flows are certain to occur at the
times specified.
In companies with high operating leverage, small changes in sales volume result in
large changes in net income.
Discounted-cash-flow models do not focus on net income.
An unallocated cost in one company may be an allocated cost in another company.
Good performance measures should be reasonably subjective.
Companies must assign all production costs and only production costs to products for
external financial reporting purposes.
Increasing capital turnover is one of the advantages of implementing the JIT
philosophy.
When determining a transfer price, outlay cost is often the variable cost for producing
the item transferred.
Companies must assign all production-related costs to cost objects for external financial
reporting purposes.
When analyzing alternatives, it is not advisable to use fixed costs per unit because a
new fixed cost per unit must be calculated for every different volume of production.
Imprecise but relevant information can be useful.
When using the step-down method, once a service department’s costs are allocated to
other departments, nothing is ever allocated back to it.
As the terms are used in the budgeting process, it is possible for a company to be
efficient at the same time it is ineffective.
A major drawback of using historical results for judging current performance is that
inefficiencies may be concealed in past performance.
Scarce resources include labor hours.
Collecting cost and operational data is the first step in the design of an Activity-Based
Costing system.
An example of a noncash transaction on the statement of cash flows is the purchase of
equipment with a long-term note payable.
Accountants initially collect costs by some natural classification such as activities
performed.
Capital-budgeting decisions have significant financial effects beyond the current year.
The direct method of allocating service department costs ignores other service
departments when allocating service departments’ costs to user departments.
An effective budget process communicates from the top down, but not from the bottom
up.
Key performance indicators for a balanced scorecard are usually grouped into two
categories.
A sales budget is a prediction of sales under a given set of conditions.
A capital investment has a net present value of $1,000.00 at a required rate of return of
10%. At a 12% required rate of return, the net present value of the investment is
$100.00. At a 14% required rate of return, the net present value of the investment is $0.
The capital investment should be rejected if ________.
A) the required rate of return exceeds 14%
B) the required rate of return exceeds 12%
C) the required rate of return is less than 14%
D) the required rate of return is less than 12%
Capricorn Company’s records reveal the following:
Division X
Market price of finished component to outsiders $32 per unit
Variable costs per component $24 per unit
Division Y
Sale price of finished product $42 per unit
Variable costs:
Division X (1 component) ?
Division Y Assembly 9 per unit
Division Y Packaging 4 per unit
Division Y wants to buy the component from Division X. The variable costs of Division
Y will be incurred whether it buys the component from Division X or from an outside
supplier. Division Y can buy the component for $30 per unit from an outside supplier.
Division X has no excess capacity. What is the highest price per unit that Division Y
should pay to Division X for the components?
A) $22 per unit
B) $29 per unit
C) $30 per unit
D) $32 per unit
Laskowski Company manufactures a part for its production cycle. The annual costs per
unit for 5,000 units of the part are as follows:
Per Unit
Direct materials $3.00
Direct labor 5.00
Variable factory overhead 4.00
Fixed factory overhead 2.00
Total costs $14.00
The fixed factory overhead costs are unavoidable. Hendricks Company has offered to
sell 5,000 units of the same part to Laskowski Company for $14 per unit. The facilities
currently used for the part could be used to make 5,000 units annually of a new product
that would contribute $5 a unit to fixed expenses. No additional fixed costs would be
incurred with the new product. Laskowski Company should ________.
A) make the part to save $5,000
B) make the part to save $15,000
C) make the new product and buy the part to save $5,000
D) make the new product and buy the part to save $15,000
When using process costing with transferred-in costs, the production report for
Department B has ________ columns for ________ different types of costs. Assume
Department B adds materials and conversion costs to units received from Department
A.
A) two; two
B) three; three
C) four; four
D) indeterminate; indeterminate
In an economic recession, a company could NOT eliminate ________.
A) employee training program
B) research and development projects
C) public relations department
D) depreciation expense on factory machines
Which of the following items does NOT affect the present value of the tax deduction for
depreciation expense used in the net present value calculation of an investment?
A) recovery period
B) tax rates
C) discount rate
D) gain on disposal of investment
Sole Company manufactures running shoes. The selling price is $80 per pair (unit) and
variable costs are $60 per pair (unit). The sales volume of $776,000 generates $100,750
of net income before taxes.
Required:
A) Compute total fixed costs.
B) Compute total variable costs.
C) Compute the break-even point in units.
D) Compute the quantity of units above the break-even point to reach targeted net
income before taxes.
In a master budget, a capital budget is used to prepare the ________.
A) sales budget
B) budgeted income statement
C) purchases and cost of goods sold budget
D) cash budget
A popular approach to performance measurement that integrates financial and
nonfinancial measures and links them to the organization’s goals and objectives is
called the ________.
A) balanced scorecard
B) contribution approach
C) quality control approach
D) TQM approach
What happens when the cost-driver activity level increases 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.
In a manufacturing area of a firm, poor product design and problems with the quality of
materials will, more than likely, result in a(n) ________ variance or ________ variance.
A) unfavorable material efficiency; unfavorable labor usage
B) favorable material efficiency; unfavorable labor price
C) unfavorable material price; unfavorable labor rate
D) unfavorable material price; unfavorable labor usage
Process maps are used ________.
A) to make investment decisions regarding capital assets
B) as a guide for strategic decisions
C) as a tool for managers to understand operations
D) for operational control
The computation for Cost of Goods Manufactured on the income statement is
________. (Assume there are no Work-In-Process Inventories.)
A) direct materials used plus direct production costs
B) direct materials used plus direct labor plus indirect production costs
C) direct materials used plus direct labor
D) direct materials used plus direct labor minus indirect production costs
The term opportunity cost applies to a resource that a company ________.
A) is thinking about purchasing
B) already owns only
C) has committed to purchase only
D) already owns or has committed to purchase
Which of the following cost is relevant to an equipment replacement decision?
A) cost of old equipment
B) cost of new equipment
C) book value of old equipment
D) depreciation expense on old equipment
Levine Company will purchase a van for $40,000. It will have a depreciable life of 5
years and a terminal salvage value of $10,000. Assume a tax rate of 30% and a required
rate of return of 12%. The company uses the straight-line method of depreciation for tax
purposes. The annual cash operating savings at the end of each year, exclusive of
depreciation, are $10,000 for five years. The present value of an ordinary annuity factor
of one for 5 periods at 12% is 3.6048. The present value of one for 5 periods at 12% is
0.5674. What is the net present value of the van?
A) $(441)
B) $(2,604)
C) $1,722
D) $5,420
The two main components of the master budget are the ________.
A) cash budget and the capital budget
B) purchases budget and the budgeted income statement
C) budgeted income statement and the budgeted balance sheet
D) operating budget and the financial budget
Marjorie Company has an idle machine that originally cost $200,000. The book value
of the machine is $100,000. The company is considering three alternative uses of the
idle machine:
Alternative 1: Disposal of machine. Disposal value of machine is $50,000.
Alternative 2: Use the idle machine to increase production of Product A. Contribution
margin from additional sales of Product A is estimated to be $60,000.
Alternative 3: Use the idle machine to increase production of Product B. Contribution
margin from additional sales of Product B is estimated to be $70,000.
When considering Alternative 3, what is the opportunity cost of the idle machine?
A) $50,000
B) $60,000
C) $70,000
D) $110,000
In net present value analysis, a reduction in a future cash outflow is treated as
________.
A) an irrelevant cash flow
B) a cash inflow
C) a disposal value of a long-term asset
D) an expense
The two key items in determining the budgeted factory overhead rate are total budgeted
factory overhead costs and ________.
A) actual amount of the cost driver
B) total actual factory overhead costs
C) budgeted cost-allocation base level
D) total estimated factory overhead costs
Berea Company expects to sell 19,000 units. Total fixed costs are $84,000 and the
contribution margin per unit is $6.00. Berea’s tax rate is 40%. What is the margin of
safety in units?
A) 3,000 units
B) 5,000 units
C) 7,500 units
D) 14,000 units
In process costing, goods are moved from the Assembly Department to the Packaging
Department. Costs incurred in the Assembly Department for the goods received by the
Packaging Department are called ________ by the Packaging Department.
A) equivalent units
B) finished goods
C) transferred-in costs
D) factory overhead applied
What type of information is used in making nonroutine decisions, such as the decision
to replace a traditional assembly line with fully automated robots?
A) scorekeeping information
B) attention directing information
C) problem solving information
D) auditing information
Assume the sales price is $100 per unit and the total fixed costs are $75,000. The
break-even volume in dollar sales is $250,000. What is the variable cost per unit?
A) $30
B) $70
C) $100
D) $125
A plant asset with a book value of $320,000 is sold for $560,000. The tax rate is 20%.
What is the net after-tax cash inflow resulting from this sale?
A) $144,000
B) $512,000
C) $560,000
D) $656,000
Benjamin Company has the following data:
Month Budgeted Sales
January $108,000
February 132,000
March 144,000
April 120,000
Cost of goods sold average 60% of sales. The inventory at December 31 was $19,440.
Desired ending inventory levels are 20% of next month’s sales at cost. What is the
desired ending inventory value at February 28?
A) $15,840
B) $17,280
C) $26,400
D) $28,800
Which of the following item is irrelevant to the decision whether to process joint
products beyond the split-off point?
A) separable costs
B) additional costs from further processing beyond the split-off point
C) additional revenue from further processing beyond the split-off point
D) joint costs
An investor in trading securities has the following information available at December
31, 2012:
Market value of trading securities $8,000
Acquisition cost of trading securities $9,000
How does the investor report the change in market value on the trading securities at
December 31, 2012?
A) unrealized loss of $1,000 on income statement
B) unrealized gain of $1,000 on income statement
C) $1,000 is added to other comprehensive income account on the balance sheet
D) $1,000 is subtracted from the other comprehensive income account on the balance
sheet
The components of a successful organization are organizational learning, business
process improvement, ________ and ________.
A) profitability; organizational culture
B) profitability; customer satisfaction
C) customer satisfaction; financial strength
D) goal congruence; managerial effort
On January 1, 2014, a parent company purchased 100 percent of the stock in a
subsidiary. On January 1, 2014, no goodwill was recorded and the book value of the
subsidiary’s assets equals the market value of the subsidiary’s assets. On December 31,
2014, the two companies report the following data:
Parent Company Net Income for Past Year $100 million
Subsidiary Company Net Income for Past Year $50 million
What is the consolidated net income for the year ended December 31, 2014?
A) $0
B) $50 million
C) $100 million
D) $150 million
Bart Company acquired 10 percent of the voting stock of Ernie Company for $10
million. Bart Company plans to keep the investment for several years. At the end of
Year 1, Ernie Company reports net income of $15 million and pays cash dividends of
$5 million. At the end of Year 1, the market value of Bart Company’s investment in
Ernie Company is $11 million. What entry is necessary at the end of Year 1 to account
for the change in market value of Bart Company’s investment in Ernie Company?
A) No entry is needed.
B) Cash increases $11 million and Stockholders’ equity increases $11 million.
C) Investments increase $11 million and Stockholders’ equity increases $11 million.
D) Investments increase $1 million and Stockholders’ equity increases $1 million.
Managers may ________ their budgeted costs or ________ their budgeted revenue to
create a budget target that is easier to achieve.
A) understate; overstate
B) overstate; understate
C) understate; understate
D) overstate; overstate
Cornell Company is preparing a cash budget for the month of June. The following
information is available:
Cash Balance, May 31, 2014 $11,000
Cash collections from customers in June 43,000
Cash paid for land in June 10,000
Patent amortization expense in June 5,000
Cash paid for merchandise in June 20,000
Cash paid for operating expenses in June 20,000
Cash dividend paid in June 5,000
The minimum cash balance desired is $5,000. What is the deficiency of cash before
financing at June 30, 2014?
A) $(5,000)
B) $(6,000)
C) $(11,000)
D) $(12,000)
Which of the following statements report the amount of net income earned by a
company for a period of time?
A) balance sheet and income statement only
B) income statement and statement of cash flows only
C) income statement, statement of retained earnings and statement of stockholders’
equity
D) balance sheet and statement of cash flows only
Each month Newton Company produces 30,000 units of a product that has variable
costs of $70 per unit. Total fixed costs for the month are $99,000. A special order is
received for 1,000 units at a price of $80 per unit. Newton Company has adequate
capacity for the special order. If Newton Company accepts the special order, what is the
profit to Newton Company from the special order?
A) $0
B) $6,700
C) $7,000
D) $10,000