Juan Company’s after-tax operating income was $882 million. Average total assets were
$5,900 million and average total stockholders’ equity was $4,050 million. Juan
Company’s cost of capital was 10%. Juan Company uses total assets as the measure of
invested capital. What is Juan Company’s residual income?
A) $187 million
B) $292 million
C) $477 million
D) $667 million
Assume the sales price is $100 per unit and the variable cost is $75 per unit. Total fixed
costs are $150,000. Then the break-even volume in dollar sales is ________.
A) $1,500
B) $150,000
C) $200,000
D) $600,000
Managers who are evaluated based on the accounting rate of return model are reluctant
to use ________ for capital budgeting decisions.
A) payback period model
B) real options model
C) discounted cash flow models
D) return on investment model
Consider the following activity: The manufacturer in a commercial airplane. What is an
appropriate cost driver for the cost of the seats?
A) number of seats installed
B) number of labor hours used to install seats
C) number of mechanic hours
D) number of engineering hours
The schedule of cash disbursements for purchases uses the ________.
A) sales budget
B) operating expense budget
C) schedule of cash disbursements for operating expenses
D) purchases and cost of goods sold budget
The activity-based budgeting system emphasizes ________.
A) the resources needed by a company
B) the preparation of budgets by function
C) the attainment of long-range goals
D) activities and their consumption of resources
To support managers’ decisions, accountants develop cost management systems that are
________.
A) also used by external users such as investors and lenders
B) computer programs with specialized accounting language
C) a collection of tools and techniques that identify how decisions affect costs
D) composed of at least 400 cost pools
Conoco Company has an actual factory overhead cost of Depreciation Expense—
Equipment of $5,000. Job-order costing is used. The journal entry to record this actual
cost would include ________.
A) Debit to Factory Department Overhead Control $5,000 and Credit to Accumulated
Depreciation—Equipment $5,000
B) Debit to Depreciation Expense—Equipment $5,000 and Credit to Accumulated
Depreciation—Equipment $5,000
C) Debit Work-In-Process Inventory $5,000 and Credit to Factory Department
Overhead Control $5,000
D) Debit to Work-In-Process Inventory $5,000 and Credit to Factory Department
Overhead Applied $5,000
Cornwell Company, a producer of electronic components, has the following
information:
Income tax rate 30%
Selling price per unit $8.00
Variable cost per unit $3.00
Total fixed costs $120,000.00
The break-even point in dollars is ________.
A) $150,000
B) $180,000
C) $192,000
D) $320,000
Managers can influence the amount of fixed and variable costs in a firm through
decisions about ________.
A) product attributes
B) capacity level
C) amount of high technology equipment used for manufacturing products
D) all of the above
Healthy Connection Company uses a backflush-costing system to account for bicycles.
Bicycles are scheduled for production only after orders are received and products are
shipped to customers immediately upon completion. No Finished Goods Inventory is
maintained and product costs are applied directly to Cost of Goods Sold. The standard
cost for materials is $150 per bicycle. The standard cost for conversion costs is $75 per
bicycle.
During the current month, Healthy Connection Company purchased $6,000 of direct
materials and incurred $3,000 in conversion costs to produce 40 bicycles. When
production is complete, the journal entry has a Debit to ________.
A) Finished Goods Inventory for $9,000
B) Conversion Costs for $9,000
C) Cost of Goods Sold for $9,000
D) No entry is needed
Under accrual basis accounting, we record revenue when ________.
A) cash is received from customers
B) cash is received for any reason
C) it meets the criteria for revenue recognition
D) a company receives cash from a customer on account
Ernie Company is considering replacing a machine that is currently used in the
production process. The ________ is irrelevant to the replacement decision.
A) cost of the new machine
B) disposal value of old machine
C) book value of old machine
D) annual operating cost of old machine (2 years left)
In the linear cost function derived from regression analysis, the cost driver is the
________ variable and the cost to be explained is the ________ variable.
A) dependent; independent
B) independent; dependent
C) intercept; dependent
D) constant; independent
Managers may be tempted to make decisions that are not in the best interests of the
company because ________.
A) performance measures in use reward them for decisions that are in the best interests
of the company
B) performance measures in use reward them for decisions that are not in the best
interests of the company
C) the managers do not understand the use of decision-making tools
D) the managers are evaluated several times each year
Goy Company has a break-even point of 88,000 units. The contribution margin per unit
is $9.60. The desired target profit is $18,096. How many units must be sold to achieve
the desired profit?
A) 1,885 units
B) 88,000 units
C) 89,885 units
D) 106,096 units
Donnie Company has the following information:
Month Budgeted Sales
January $80,000
February 85,000
March 92,000
April 79,000
Budgeted Operating Expenses Per Month
Wages $15,000
Advertising 12,000
Depreciation 3,000
Other expenses 4% of sales
All cash expenses are paid as incurred. What are the total operating expenses budgeted
for the month of January?
A) $30,000
B) $30,040
C) $31,200
D) $33,200
Mary Company had the following data available:
Paid-in capital, December 31, 2014 $43,000
Retained earnings, December 31, 2014 $27,000
Net income for the year ended December 31, 2015 $35,400
Dividends declared in 2015 $20,000
What is the balance in Retained Earnings on December 31, 2015?
A) $23,400
B) $42,400
C) $52,400
D) $66,400
For fixed overhead costs, the spending variance is ________ equal to the
flexible-budget variance.
A) always
B) sometimes
C) never
D) indeterminate
Double Company has the following data available:
Dividends declared in 2015 $8,000
Retained Earnings, December 31, 2014 $30,000
Net income for the year ended December 31, 2015 $14,000
Paid-in Capital, December 31, 2014 $29,000
Paid-in Capital, December 31, 2015 $26,000
What is the balance in Retained Earnings on December 31, 2015?
A) $2,000
B) $24,000
C) $36,000
D) $44,000
Ropal Company manufactures tape dispensers. The Assembly Department reported the
follow data for the past month:
Units started and completed 70,000
Units started and not complete 10,000
Units in beginning inventory 0
Direct materials costs $480,000
Conversion costs $240,000
The partially complete units at the end of the month were 100 percent complete with
respect to materials and 50 percent complete with respect to conversion costs. The total
cost of ending work-in-process inventory is ________.
A) $60,000
B) $76,000
C) $90,000
D) $91,600
Management control systems in nonprofit organizations will probably never be as
highly developed as those in profit-seeking firms. Which of the following is NOT a
reason for this to occur?
A) Organizational goals are less clear in nonprofit organizations.
B) Employees in nonprofit organizations have different motivation drivers and
incentive drivers than their counterparts in profit-seeking firms.
C) There is less competitive pressure to improve management control systems in
nonprofit organizations.
D) There are low levels of discretionary fixed costs in nonprofit organizations.
For the current year, LeBombard Company’s static budget sales were $225,000. Actual
sales for the current year were $220,000. Actual sales last year were $219,000.
Expected sales last year were $225,000. What is the static budget variance for sales in
the current year?
A) $5,000 Favorable
B) $5,000 Unfavorable
C) $6,000 Favorable
D) $6,000 Unfavorable
The Eastman Family Restaurant is open 24 hours per day. Fixed costs are $24,000 per
month. Variable costs are estimated at $9.60 per meal. The average revenue is $12 per
meal. The restaurant wished to earn a profit before taxes of $6,000 per month.
Required:
A) Compute the number of meals that must be served to earn a profit before taxes of
$6,000 per month.
B) Assume that fixed costs increase to $30,000 per month. How many additional meals
must be served to earn a profit before taxes of $6,000 per month?
On a cost-volume-profit graph, when the Total Cost line is higher than the Total
Revenue line, the difference represents ________.
A) net income
B) a positive return on the investment
C) a net loss
D) not enough information is presented
Sunrise Motel’s cost function is given as:
Y = $75,000 + $9.50X
Where:
Y = annual custodial cost
X = number of guest-days of occupancy
In the current year, Sunrise Motel has 8,000 guest days. In the next year, Sunrise Motel
expects an occupancy level of 10,000 guest days. (All costs next year will remain in the
same relevant range as the current year.) What is the expected fixed custodial cost for
next year?
A) $7.50
B) $50,000
C) $62,500
D) $75,000
Unallocated costs ________.
A) are not recorded in the cost accounting system
B) do not have cost drivers that can be used to relate the costs to cost objects
C) have a direct relationship to a cost object
D) have an identifiable relationship with a cost object
Dolphin Company currently produces 10,000 units of a key part at a total cost of
$512,000 annually. Variable costs are $300,000 annually. Of the annual fixed costs,
$140,000 relate specifically to this part. The remaining fixed costs are unavoidable.
Another manufacturer has offered to supply the part for $48 per unit. The facilities
currently used to manufacture the part could be used to manufacture a new product with
an expected contribution margin of $30,000 per year. Alternatively, the facilities could
be rented out at $60,000 per year. Given all of these alternatives, what is Dolphin
Company’s lowest net relevant cost for the parts?
A) $420,000
B) $440,000
C) $450,000
D) $480,000
Assume the following information for Rodney Company:
Selling price per unit $100
Variable cost per unit $80
Total fixed costs $80,000
After-tax net income $24,000
Tax rate 40%
To achieve the targeted after-tax net income, what amount of sales in dollars is
necessary?
A) $400,000
B) $520,000
C) $600,000
D) $660,000
On January 1, 2014, a parent company purchased 90 percent of the stock in a
subsidiary. On January 1, 2010, 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) $100 million
B) $135 million
C) $145 million
D) $150 million
When reconciling net income to net cash provided by operating activities, a(n)
________ is a deduction from net income.
A) decrease in inventories
B) increase in unearned revenues
C) decrease in prepaid rent
D) decrease in accounts payable