Examples of activity centers with indirect costs include receiving, testing and
packaging.
Process-costing systems apply costs to like products that are usually mass-produced in
continuous fashion through a series of production processes.
A transaction is any event that affects the financial position of an organization and
requires recording.
When using the direct method of preparing the statement of cash flows, depreciation
expense is added to net income.
Backflush costing has only two categories of costs that include materials and
conversion costs.
Research and development costs are expensed when incurred for financial statement
purposes.
The number of cubic feet is a logical cost driver for allocating depreciation expense of
heating equipment to cost objects.
When performing an engineering analysis, one must consider that the observed time
period may be abnormal.
The balance sheet is not linked to the income statement.
The materiality concept is not subjective.
The most forward-looking and least detailed budget is the strategic plan.
When comparing productivity measures over time, changes in the rate of inflation may
cause the comparisons to be misleading.
Absorption-costing income is not affected by differences in expected volume and actual
volume.
The flexible budget variance for direct labor can be broken down into a price variance
and an effectiveness variance.
Managers need to know program costs to make ongoing decisions such as which
programs to emphasize or deemphasize and the pricing of programs.
Specialization by individuals in organizations is being replaced by decision-making by
cross-functional teams.
An example of a financing activity on the statement of cash flows is the conversion of
debt to common stock.
Nearly all companies sell more than one product, and thus, they must be concerned with
sales mix.
During a period of inflation, the LIFO method reports a lower ending inventory amount
than FIFO.
EVA uses after-tax numbers for operating income.
Heating and air conditioning costs are examples of common costs to the different
departments in a retail store.
Stockholders’ equity is composed of paid-in capital and retained earnings.
Return on sales equals gross profit divided by sales.
In a manufacturing firm, the Finished Goods Inventory account is only found on the
balance sheet.
Management by exception is the practice of ignoring areas that deviate from the plan.
The cost-benefit balance is the primary consideration in choosing among accounting
systems.
Managerial effort does not necessarily have to accompany goal congruence.
A code of conduct is a document specifying the ethical standards of an organization.
A responsibility center for controlling revenues and costs is called a revenue center.
In a make-or-buy decision, if plant facilities will remain idle when the decision is made
to outsource a part used in a product, then the opportunity cost of the plant facilities is
zero. Assume there are no alternative uses of the plant facilities available.
Classifying costs as controllable or uncontrollable by a segment manager is ________
and ________.
A) objective; easily undertaken
B) objective; subject to controversy
C) subjective; easily undertaken
D) subjective; subject to controversy
Salerno Company has two service departments, Maintenance and Cafeteria, as well as
two production departments, Mixing and Bottling. Maintenance Department costs are
allocated based on square footage and Cafeteria Department costs are allocated based
on number of employees. The following data was available:
Maintenance Cafeteria Mixing Bottling
Direct costs $200,000 $120,000 $76,000 $85,000
Square footage 1,000 2,000 4,000 6,000
Number of employees 30 20 60 100
Direct labor hours 8,000 6,000
Assume the direct method is used to allocate service department costs to producing
departments.
Required:
A) Determine the total costs of the Mixing Department after allocating the service
departments’ costs.
B) Determine the total costs of the Bottling Department after allocating the service
departments’ costs.
When adjusting for inflation in a capital budgeting problem, which of the following
items should be adjusted for inflation?
A) required rate of return only
B) operating cash flows only
C) required rate of return and operating cash flows
D) depreciation expense
Sahara Industries has three product lines: A, B and C. The following annual information
is available:
Product A Product B Product C
Sales $100,000 $90,000 $88,000
Variable costs 76,000 48,000 79,000
Contribution margin 24,000 42,000 9,000
Avoidable fixed costs 9,000 18,000 3,000
Unavoidable fixed costs 6,000 9,000 9,400
Operating income(loss) $9,000 $15,000 $(3,400)
Sahara Industries is thinking about dropping Product C because it is reporting a loss.
Assume Sahara Industries drops Product C and the space formerly used to produce
Product C is rented out for $15,000 per year. What will happen to operating income?
A) increase by $6,600
B) increase by $9,000
C) increase by $14,400
D) increase by $15,000
Variances should be investigated if they ________.
A) are favorable
B) are unfavorable
C) are smaller than the variances in the prior period
D) exceed certain dollar amounts or percentage deviations from the budget
Old equipment having a book value of $12,000 was sold for $20,000 cash. New
equipment was purchased for $25,000 cash. Additional equipment was acquired in
exchange for a $17,000 long-term note payable. The net cash flow from investing
activities was ________.
A) $5,000 cash outflow
B) $22,000 cash outflow
C) $25,000 cash outflow
D) $42,000 cash outflow
The Hermanski Company held a Christmas party. The company expected attendance of
100 people and prepared the following budget:
Hotel room rental $600
Food 500
Entertainment 800
Decorations 300
Total Costs $2,200
One hundred people attended the party. The costs incurred were:
Hotel room rental $575
Food 640
Entertainment 750
Decorations 350
Total Costs $2,315
What is the primary reason for the variance in total costs?
A) Hotel room rent cost more than expected.
B) Food cost more than expected.
C) Entertainment cost more than expected.
D) Decorations cost less than expected.
________ involves an analysis of alternative courses of action and the identification of
the best course of action to follow.
A) Scorekeeping
B) Attention directing
C) Problem-solving
D) Internal auditing
Jorgensen Company reported the following information about the production and sale
of its only product during the first month of operations:
Selling price per unit $300
Sales $480,000
Direct materials used $220,000
Direct labor $200,000
Variable factory overhead $60,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 400 units
Under variable costing, the contribution margin is ________.
A) $20,000
B) $40,000
C) $76,000
D) $104,000
The following information for Zippy Company is:
Sales $1,000,000
Variable Selling Expenses 23,000
Fixed Selling Expenses 33,000
Variable Administrative Expenses 39,000
Fixed Administrative Expenses 10,000
Variable Cost of Goods Sold 300,000
Fixed Cost of Goods Sold 100,000
What is the gross margin for this company?
A) $500,000
B) $548,000
C) $578,000
D) $600,000
Madison Company produces a part that is used in the manufacture of one of its
products. The costs associated with the production of 5,000 units of this part are as
follows:
Direct materials $108,000
Direct labor 156,000
Variable factory overhead 72,000
Fixed factory overhead 168,000
Total costs $504,000
Of the fixed factory overhead costs, $72,000 are avoidable. Middleton Company has
offered to sell 5,000 units of the same part to Madison for $87.00 per unit. Assuming
there is no other use for the facilities, Madison Company should ________.
A) make the part to save $24,000
B) make the part to save $27,000
C) buy the part to save $24,000
D) buy the part to save $27,000
Maroon Company is considering the purchase of equipment for $600,000. The
equipment will have a ten year life with no terminal salvage value. Straight-line
depreciation will be used for tax purposes. It is expected that the equipment will
generate annual sales of $400,000 for ten years and annual production costs, exclusive
of depreciation, of $300,000 for ten years. The tax rate is 20%. The required rate of
return is 12%. The present value of one for ten periods at 12% is 0.322. The present
value of an ordinary annuity of one for ten periods at 12% is 5.6502. What is the net
present value of the equipment?
A) $(80,182)
B) $32,822
C) $123,226
D) $191,028
Historical or past information has no ________ bearing on a decision made by
management. Historical or past information can have a(n) ________ bearing on a
decision made by management.
A) indirect; direct
B) direct; indirect
C) measurable; material
D) material; significant
In backflush costing, any remaining balance in the Conversion Costs account at the end
of the accounting period is charged to ________.
A) Cost of Goods Sold
B) Work-in-Process Inventory
C) Finished Goods Inventory
D) Direct Materials Inventory
The vertical axis on the cost-volume-profit graph is the ________.
A) dollars of net profit
B) sales volume in units
C) margin of safety
D) dollars of cost and revenue
Which of the following statements is FALSE?
A) The higher the minimum desired rate of return, the lower the present value of each
future cash flow.
B) Higher required rates of return lead to lower net present values for capital
investments.
C) Higher required rates of return lead to higher net present values for capital
investments.
D) The net present value for a project can be negative or positive depending on the
minimum desired rate of return used.
Presented below is the balance sheet of Holmes Company at January 1, 2015:
Cash $100
Net Fixed Assets 400
Total Assets $500
Accounts Payable $20
Long-term Bonds Payable 220
Stockholders’ Equity 260
Total Liabilities and Stockholders’ Equity $500
The balance sheet of Montvale Company at January 1, 2015 is below:
Cash $400
Net Fixed Assets 380
Total Assets $780
Accounts Payable $120
Long-term Bonds Payable 280
Stockholders’ Equity 380
Total Liabilities and Stockholders’ Equity $780
On January 1, 2015, Montvale Company acquired 100 percent of the outstanding
common stock of Holmes Company for $260 cash. The book value and fair value of
Holmes’ assets and liabilities were equal. What is the balance in the Investment in
Holmes Company account on the consolidated balance sheet immediately after the
acquisition of Holmes Company’s stock? (Assume elimination entries are completed.)
A) $0
B) $260
C) $380
D) $500
Consider a firm that provides services to customers. To record revenue, which of the
following conditions must be met?
A) the firm must render the services only
B) the firm must render the services and receive cash or a promise of payment in the
future
C) the firm must render the services and receive cash
D) the firm must promise to render the services in the future and receive cash
Margaret Duffy Company has the following information available:
Budgeted cost of direct materials at 900,000 units $900,000
Budgeted cost of direct materials at 820,000 units $820,000
Actual cost of direct materials at 820,000 units $840,000
Actual level of output(units) 820,000
Planned level of output(units) 900,000
The cost driver of product costs is units of output. What is the flexible budget variance
for direct material costs?
A) $20,000 Unfavorable
B) $20,000 Favorable
C) $60,000 Favorable
D) $60,000 Unfavorable
In a manufacturing firm, which inventory account is NOT used?
A) Raw Materials Inventory
B) Work-In-Process Inventory
C) Finished Goods Inventory
D) Merchandise Inventory
In job-order costing, a debit to Finished Goods Inventory is used to record the
________.
A) requisition of direct materials
B) cost of goods completed
C) sale of merchandise
D) purchase of direct materials
If the IRR on a project is greater than the required rate of return, then the net present
value of the project is ________.
A) equal to zero
B) less than zero
C) greater than zero
D) none of the above
Decentralization may increase a firm’s costs because ________.
A) lower level managers duplicate services that may be less expensive if centralized
B) information costs rise as top management needs additional reports to learn about
decentralized units
C) lower level managers may make decisions that are not in the best interests of the
firm as a whole
D) all of the above
The detailed design and engineering of products, services or processes is called the
________ function in the value chain.
A) research and development
B) design
C) engineering
D) production
Seavers Company paid $2,700 for 6 months’ insurance, covering the period of April 1 to
September 30. At the time of the payment, the entire amount was used to increase the
balance in the Prepaid Insurance account. The balance in the Prepaid Insurance account
on May 31 is ________.
A) $0
B) $900
C) $1,800
D) $2,250
To estimate the monthly maintenance cost for the maintenance department in a hospital,
the following monthly costs are available:
Monthly Expense Costs
Supervisor Salary Expense $3,000
Depreciation Expense—Maintenance Equipment $5,000
Repairs Expense—Maintenance Equipment $5,000
Supplies Expense $7,000
Wages Expense—Maintenance Workers $10,000
The Supervisor Salary Expense and the Depreciation Expense are fixed costs. The
remaining expenses are variable costs. There are 1,000 patient days in a month, which
is the cost driver for maintenance costs. Estimate the cost function where Y is the
monthly maintenance cost and X is the variable cost per patient day.
A) Y = $8 + $22X
B) Y = $8,000 + $22,000X
C) Y = $8,000 + $22X
D) Y = $30,000 + $22,000X
For internal decision-making purposes, many companies use the income statement
using the ________ approach. For external reporting, most companies use the income
statement using the ________ approach.
A) absorption; absorption
B) absorption; contribution
C) contribution; absorption
D) full costing; variable costing
The following information is available for Stonefield Inc. and its two divisions,
Crushed Stone and Fieldstone.
Whole Crushed
Company Stone Fieldstone
Net sales $100,000 $50,000 $50,000
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 Fieldstone Division?
A) $29,600
B) $32,600
C) $36,000
D) $36,600
As cost-driver level increases in the relevant range, a fixed cost does not change
________, but the fixed cost ________ becomes progressively smaller.
A) per unit of cost driver; total
B) in total; per unit of cost driver
C) per-unit; per unit of cost driver
D) in total; per year
Under the traditional approach to cost allocation, which of the following steps is NOT
used in allocating costs to products?
A) Divide the costs in each producing department, including allocated costs, into direct
costs and indirect costs.
B) Trace the direct costs to the appropriate products.
C) Select cost pools and cost-allocation bases in each producing department and assign
all indirect costs to the appropriate cost pool.
D) Collect relevant data concerning costs and the physical flow of cost-allocation base
units among resources and activities.