Even if an organization relies solely on one performance measurement, it cannot easily
be misled into thinking all is well, when in reality, all is not well.
Unavoidable costs are incurred under all alternatives, thus they are always relevant.
The first step in preparing a horizontal analysis of a firm’s financial statements is to
break down the balance sheet to indicate which assets are expected to sold in within the
next two years.
The relevant range is the normal level of operating activity.
While the current and acid-test ratios provide information about liquidity, they do not
indicate the underlying quality of current assets.
Practical standards represent a level of performance that can be attained with reasonable
effort.
The only difference between variable and absorption costing is the treatment of fixed
overhead costs.
The operating activities shown on the statement of cash flows reflect items on the
income statement, and thus the amounts will be identical to those on the accrual basis
income statement.
Organizational-level activities provide identifiable benefits to specific products or
services.
In determining whether benchmarking is worth the effort, a company must assess the
potential return from a benchmarking project.
According to the Theory of Constraints, all production should be subordinated to the
bottleneck operation.
Calculating the direct materials and direct labor cost that have been incurred to produce
a product or deliver a service is a relatively complex process.
When a company creates a balanced scorecard, managers are stating a hypothesis about
the results that will occur if certain performance measures are stressed.
With activity-based costing, the goal is to develop a product cost that captures the
amount of each resource consumed by the activities performed to produce a specific
product.
The gross margin percentage shows how much of each sales dollar is available to cover
operating expenses and provide a profit after the cost of goods sold has been covered.
Compounding interest more frequently than annually changes the
a. Number of periods
b. The discount rate
c. Both the number of periods and the discount rate.
d. Neither the number of periods nor the discount rate
In setting the direct labor quantity standard, allowances are made for
a. Rest time.
b. Defective units.
c. Both rest time and defective units.
d. Neither rest time nor defective units.
In the manufacturing of swim suits, in addition to the price of fabric, the standard
materials price also includes
a. Cost of shipping.
b. Volume discounts.
c. Taxes.
d. All of these answer choices are correct.
The customer profit margin divides
a. Customer net profit by customer revenue
b. Customer net profit by customer profit margin
c. Customer revenue by customer net profit
d. Customer profit margin by customer revenue
In a process costing system, when raw materials are moved into the mixing department,
in which of the following balance sheet accounts is it recorded?
a. Raw materials inventory – mixing
b. Work in process inventory – mixing
c. Finished goods inventory – mixing
d. Cost of goods sold
Patricia is 66 years old and is planning to retire this year. She is covered under her
company’s retirement policy which gives her two payment options. The first option is to
receive annuity payments of $20,000 each year for the next 20 years. The second option
is to receive $250,000 immediately upon retirement. The interest rate is 4%.
Required:
a. What is the present value of Patricia’s first option?
b. What is the present value of Patricia’s second option?
c. Which option should Patricia choose?
Investing activities involve
a. Borrowing and repaying of debt
b. Sale of inventory
c. Receipt of interest
d. Investments in assets other than current operating assets
Mauldin Welding Shop is considering the purchase of new high-tech welding
equipment. If the equipment is purchased, Mauldin will have to incur $2,000 to install
the equipment and pay a technician to adjust the computer settings. In determining the
cash flows associated with the new equipment, the $2,000 payment will be
a. A cash outflow
b. A cash inflow
c. An opportunity cost
d. Not relevant
A form of horizontal analysis in which each year’s account balance is expressed as a
percentage of the base year’ is called
a. Trend analysis.
b. Percentage analysis.
c. Common size analysis.
d. Quick analysis.
In implementing an activity-based costing system, once the activity pools have been
determined, manufacturing overhead costs can be assigned to them. This is referred to
as
a. Predetermined overhead allocation
b. Overhead application
c. First-stage allocation
d. None of these answer choices are correct.
Because people talk about wage rates rather than wage prices, we refer to standard
direct labor prices as direct labor rates, expressed as
a. Per direct labor hour
b. Per unit
c. A percentage
d. All of these answer choices are correct.
A firm produces and sells two products, Standard and Deluxe. The following
information relates to setup costs (a part of factory overhead) of $180,000.
Activity-based costing would allocate which of the following amounts of setup cost to
each unit (rounded to the nearest dollar)? Standard Deluxe
a. $ 56 $ 56
b. $ 50 $ 63
c. $126 $101
d. $356 $444
If the actual price of direct materials is $10 per unit while the standard price of the
direct material is $11,
a. The direct materials quantity variance will be favorable
b. The direct materials quantity variance will be unfavorable
c. The direct materials price variance will be favorable
d. The direct materials price variance will be unfavorable
Braque’s Pantry is a chain of arts and crafts stores. Results for the most recent year are
as follows:
Required:
a. What is Braque’s Pantry’s degree of operating leverage?
b. If sales increase by 7%, what will the new operating income be?
c. Managers are considering changing Braque’s cost structure by offering employees a
commission on sales rather than a fixed salary. What effect would such a change have
on the firm’s operating leverage?
Assume total fixed costs of $160,000, variable costs per unit of $6, and contribution
margin per unit of $4. How many units must be sold to meet a target operating income
of $50,000?
a. 5,000 units
b. 25,000 units
c. 40,000 units
d. 52,500 units
In which of the following decisions is a proposed project compared to a performance
benchmark to determine whether the project should be considered further?
a. Hurdle
b. Screening
c. Performance
d. Benchmark
A breakeven graph illustrates the relationship between
a. Volume and sales price.
b. Volume and total costs.
c. Breakeven and operating income.
d. Sales and costs.
Earnings per share represents
a. How much of a company’s current net income has been distributed for each share of
stock held by an investor.
b. How much of a company’s current net income could be distributed for each share of
stock held by an investor.
c. How much of a company’s contribution margin is available to be distributed to each
stockholder.
d. How much gross profit of a company could be distributed for each share of stock
held by an investor.
The supply chain ‘s goal is to
a.Avoid carrying too much inventory.
b.To reduce or eliminate defective goods.
c.To measure performance based on financial and non-financial components.
d.To get the right product to the right location, in the right quantities at the right time,
and at the right cost.
On March 31, Morgan Company recorded the following information in the Assembly
Department’s Work in Process account:
Assume that the unfinished units in ending inventory are 80% complete for both
materials and conversion. What is the total cost assigned to ending work in process?
a. $9,856
b. $9,952
c. $12,880
d. $14,480
If a product has a positive segment margin but is not as profitable as other products,
what should managers do? What if the segment margin is negative?
Return on investment is a financial measure that is
To adhere to the sales mix ratio, a company should split fixed costs between the
multiple products and come up with individual product breakeven points or target
income points.
Classify activities as unit-level, batch-level, product-level, customer-level, or
organization level.
The following information was gathered from Burton Company’s financial records:
Required:
Using the indirect method, prepare a statement of cash flows for Burton Company.
List three similarities between process costing and job-order costing.
Describe the components of the cash budget and discuss why the cash budget is
important to managers.
What is meant by the term ‘sales mix”? What is the profit formula for a company with
multiple products?
Three measures of liquidity are working capital, current ratio, and acid-test ratio. What
do each of these measure, and how are they each calculated?