Robert Company acquired 40% of the voting stock of Boulder Company for $40
million. At the end of Year 1, Boulder Company reports net income of $15 million and
pays cash dividends of $5 million. At the end of Year 1, the market value of Robert
Company’s investment in Boulder Company is $44 million. What accounts on Robert
Company’s books would be affected by the net income of Boulder Company?
A) none
B) Investments increase $15 million and Investment Revenue increases $15 million
C) Cash increases $15 million and Investment Revenue increases $15 million
D) Investments increase $6 million and Investment Revenue increases $6 million
Decreases in ownership claims arising from the delivery of goods are called ________.
A) revenues
B) profits
C) liabilities
D) expenses
A fraternity held a party. The fraternity prepared the following budget for 25 expected
attendees:
Room rental $150
Food 250
Entertainment 150
Decorations 75
Total Costs $625
Twenty-five people attended the party. The following costs were incurred:
Room rental $240
Food 320
Entertainment 125
Decorations 75
Total Costs $760
What is the variance for total costs?
A) $90 Unfavorable
B) $135 Unfavorable
C) $135 Favorable
D) $70 Unfavorable
A new weight loss product is sold by a mail-order system. The mail-order system is an
example of the ________ function in the value chain.
A) marketing
B) production
C) customer service
D) distribution
The ________ account is supported by a file of job-cost records for partially completed
jobs.
A) Direct Materials Inventory
B) Finished Goods Inventory
C) Cost of Goods Sold
D) Work-In-Process Inventory
Rambo Company acquired 40% of the voting stock of Boulder Company for $40
million. At the end of Year 1, Boulder Company reports net income of $15 million and
pays cash dividends of $5 million. At the end of Year 1, the market value of Rambo
Company’s investment in Boulder Company is $44 million. At the time of the
acquisition, what accounts would be affected on the books of Rambo Company?
A) Cash decreases $40 million and Investments increase $40 million
B) Cash decreases $40 million and Stockholders’ Equity increase $40 million
C) Investments increase $40 million and Accounts Payable increase $40 million
D) No entry
When an automobile made in a Toyota factory is the cost object, the wages of the
security guard in the factory would probably be classified as a(n) ________.
A) direct production cost
B) indirect production cost
C) direct nonproduction cost
D) indirect nonproduction cost
When the actual volume is less than the expected volume, the production volume
variance is ________ because the usage of the facilities is ________.
A) favorable; higher than expected
B) unfavorable; lower than expected
C) favorable; lower than expected
D) unfavorable; higher than expected
When absorption costing is used for the income statement, the difference between sales
and ________ is gross margin.
A) manufacturing cost of goods sold
B) selling expenses
C) selling and administrative expenses
D) variable expenses
Which of the following costs is NOT an appraisal cost for quality control?
A) inspection of purchased materials
B) testing of purchased materials
C) warranty
D) product quality audit
Roberts Company manufactures phones in a two-department process that involves
Assembly and Finishing. The Assembly Department reported the follow data for the
past month:
Direct materials added $336,000
Direct labor 460,800
Factory overhead 230,400
Total costs to account for $1,027,200
Units started 80,000
Units completed and transferred 67,200
Units not complete 12,800
Units in beginning inventory 0
The partially complete units at the end of the month were 100 percent complete with
respect to materials and 75 percent complete with respect to conversion costs. The
ending balance in Work-In-Process Inventory–Assembly is ________.
A) $140,160
B) $168,960
C) $862,848
D) $887,040
Costs arising from the possession of facilities, equipment and a basic organizational
structure are ________.
A) capacity costs
B) discretionary costs
C) committed fixed costs
D) engineered costs
Product costs for variable costing include direct materials, direct labor and ________.
A) variable selling costs
B) fixed manufacturing overhead costs
C) variable manufacturing overhead costs
D) variable manufacturing overhead costs plus variable selling costs
The net present value of a project is zero. The minimum desired rate of return used to
obtain the net present value of zero is 8%. Which of the following statements is TRUE?
A) The project is desirable if the minimum desired rate of return is 10%.
B) The project is desirable if the minimum desired rate of return is 6%.
C) The project is desirable if the minimum desired rate of return is 6% or 10%.
D) The project is undesirable if the minimum desired rate of return is 6%.
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.
The following information is available for Ohlson Consulting Company and its two
offices:
Greenfield Greendale
Office Office
Net sales $100,000 $200,000
Fixed costs:
Controllable by division manager 78,000 48,000
Controllable by others 4,000 8,000
Variable costs:
Cost of merchandise sold 30,000 120,000
Operating expenses 15,000 60,000
Unallocated costs were $152,000.
Required:
A) Compute the contribution margin for the Greenfield office.
B) Compute the contribution (or loss) controllable by the manager of the Greendale
Office.
C) Compute the contribution (or loss) by segment for the Greenfield office.
D) Compute the income (or loss) before taxes for the company as a whole.
Patrick Company makes three types of products. The company has two types of
customers. The cost to serve all customers is $12,000 and is allocated to customer types
based on the number of manager visits to customer locations. The following data are
available:
Product 1 Product 2 Product 3
Sales $5,000 $6,000 $30,000
Cost of goods sold 4,000 4,800 15,000
Gross margin $1,000 $1,200 $15,000
Customer Type 1 Customer Type 2
Product 1 Sales $500 $4,500
Product 2 Sales $1,000 $5,000
Product 3 Sales $16,000 $14,000
Manager visits 4 16
What is the gross profit margin for all three products for Customer Type 2?
A) $450
B) $1,000
C) $7,000
D) $8,900
Which of the following is NOT an example of indirect production costs?
A) factory supplies
B) depreciation expense on factory building
C) depreciation expense on office equipment in corporate headquarters
D) wages of material handlers in factory
Sharpie Company will purchase a van for $75,000. The van’s depreciable life is 5 years.
The van has no terminal salvage value. Assume a tax rate of 30% and a required
after-tax rate of return of 12%. The company uses the straight-line method of
depreciation for tax purposes. What is the annual after-tax cash flow from depreciation
expense?
A) $4,500 cash outflow
B) $4,500 cash inflow
C) $10,500 cash outflow
D) $10,500 cash inflow
The cash received from the sale of common stock is included in the ________ section
of the statement of cash flows.
A) operating
B) investing
C) financing
D) noncash
Segment contribution margin less ________ describes the segment contribution that is
controllable by segment managers.
A) fixed costs controllable by segment managers
B) fixed costs controlled by others(not segment managers)
C) unallocated costs
D) uncontrollable costs
When public accounting firms apply indirect costs to audit engagements, they use
________ or ________ as the cost driver.
A) direct labor cost; equipment usage
B) direct labor cost; direct labor hours
C) hours of equipment use; hours of computer use
D) traveling costs; hours of clerical assistance
The following information is for Brankov Corporation:
Direct Materials (measured in pounds)
Standard price per unit of input $20
Actual price per unit of input $18
Standard inputs per unit of output 3 pounds
Actual units of input 8,300 pounds
Actual units of output 2,770 units
What is the flexible budget variance for direct materials?
A) $16,400 Favorable
B) $16,400 Unfavorable
C) $16,800 Favorable
D) $16,800 Unfavorable
Durante Company produces plastic cups in a one-department process. The following
data is available for the past month:
Work-in-process inventory, beginning 0
Units started 60,000
Units completed and transferred 48,000
Work-in-process inventory, ending 12,000
The units in process at the end of the month are 100 percent complete with respect to
materials and 50 percent complete with respect to conversion costs. What are the
equivalent units for conversion costs for the month?
A) 12,000
B) 30,000
C) 54,000
D) 60,000
Account analysis ________.
A) is less expensive than engineering analysis
B) is more expensive than engineering analysis
C) cannot be used for mixed costs
D) does not require accounts from the accounting system
Under the ABC approach to cost allocation, which of the following steps is NOT used
in allocating costs to products?
A) Determine the key components of the system and the relationship among them.
B) Calculate and interpret the new ABC information.
C) Collect relevant data concerning costs and the physical flow of cost-allocation base
units among resources and activities.
D) Select cost pools and cost-allocation bases in each producing department and assign
all indirect costs to the appropriate cost pool.
Perez Company uses activity-based costing. The company is trying to estimate the costs
of the processing activity in the factory. The company has developed the following
flexible budget formula:
Y = $10.50X + $13,000
Where: Y = Total processing cost per quarter and X = Number of machine hours
If 10,000 machine hours are used next quarter, total variable costs are ________ and
total fixed costs are ________.
A) $105,000; $13,000
B) $105,000; $130,000,000
C) $113,000; $130,000,000
D) $10.50; $13,000
The financial budget includes ________.
A) the capital budget and the sales budget only
B) the capital budget and the budgeted income statement only
C) the capital budget, the cash budget and the budgeted balance sheet
D) the cash budget and the purchases budget only
The following information is available for Halquist Stone Company and its two
divisions, Crushed Stone and Fieldstone.
Whole Crushed
Company Stone Fieldstone
Net sales $100,000 $60,000 $40,000
Fixed costs controllable by
Division Manager 16,500 12,500 4,000
Fixed costs controlled by others 8,000 5,000 3,000
Variable costs:
Cost of merchandise sold 24,500 17,500 7,000
Operating expenses 16,400 10,000 6,400
Unallocated costs 1,000
What is the contribution controllable by the manager of the Crushed Stone Division?
A) $20,000
B) $32,500
C) $35,000
D) $42,500
Marvel Company is considering the acquisition of two machines.
Machine A Machine B
Initial investment $200,000 $200,000
Annual operating revenues (end of year) $100,000 $160,000
Annual expenses (end of year) $25,000 $85,000
Terminal salvage value $10,000 $20,000
Estimated useful life 5 years 5 years
Minimum desired rate of return 14% 14%
Assume straight-line depreciation. Ignore income taxes. The present value of an
ordinary annuity of one at 14% and 5 periods is 3.4331. The present value of one at
14% and 5 periods is 0.5194.
Required:
A) Calculate the net present value for both machines.
B) Assume there are enough funds to purchase both machines. Should both machines be
purchased?
C) Assume there are funds to purchase only one machine. Which machine should be
purchased?
A chemical plant has changed the production process for several chemicals. Computers
now run the new equipment and robots have replaced most of the workers. What new
activities should the accounting system undertake now?
A) Develop new product costs using new equipment and robots.
B) Develop fringe benefit packages for remaining workers.
C) Develop schedules for production setups and runs.
D) Develop uses for idle plant capacity.
Union Company reported the following information about the production and sale of its
only product during the first month of operations:
Selling price per unit $225.00
Sales $315,000
Direct materials used $160,000
Direct labor $100,000
Variable factory overhead $60,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $30,000
Production volume variance 0
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 600 units
Under absorption costing, what is the product cost per unit?
A) $130.00
B) $160.00
C) $200.00
D) $225.00