Vector Company seeks input from salespeople regarding the number of units they
believe they can sell during the upcoming budget period. This is an example of
participative budgeting.
Under the indirect method, the increase or decrease in stockholder’s equity is handled in
the investing section of a cash flow statement.
Dividends received from investments in marketable securities reported as investing
activities in the statement of cash flows.
Adams Company sells a product whose contribution margin is $10 and selling price is
$25. If the company’s break-even point is 100 units, its total fixed costs must be $500.
In preparing the statement of cash flows by the indirect method, a decrease in a
long-term investment account would be added to net income.
Senior executives focus on financial data when comparing the performance of their
companies to that of competitors.
Contribution margin represents the amount available to cover fixed expenses and then
provide company profits.
If managers of a company do not understand the behavior of its costs, they are likely to
make poor decisions about the company’s operations.
The four Standards of Ethical Conduct for Management Accountants relate to
competence, confidentiality, integrity, and objectivity.
Jennings Company issued a $250,000 note to purchase a building. Jennings would
report the event as a noncash investing and financing activity.
Job-order and process cost systems are two different costing systems that a company
chooses between based on the preference of management.
Financial analysis typically involves some form of comparison such as changes in the
same item over a number of years.
Under the direct method, depreciation expense is added back to net income when
computing net cash flow from operating activities.
Capital investments differ from stock and bond investments in that stock and bond
investments can be sold in organized markets.
For a company using a process cost system, as units are transferred from one
department to the next, their costs are transferred along as well.
Hancock Company manufactures and sells two lines of furniture, case goods and
upholstery. During the most recent accounting period, the Case Goods and Upholstery
Divisions sold 15,000 and 2,000 units, respectively. The company’s most recent
financial statements are shown below (Do not round intermediate calculations.):
If unit sales for both divisions increased 10%, the company would report which of the
following?
A. A $52,000 increase in net income for the Upholstery Division
B. A 10% increase in total net income of the company
C. A decline in profit for the Upholstery Division.
D. A net income for the Upholstery Division of $9,000
Orlando Company paid $700 cash for production workers’ wages. How does this
transaction affect the financial statements?
A.
B.
C.
D.
Phan Company has not reported a profit in five years. This year the company would like
to narrow its loss to $7,500. Assuming its selling price is $36.50 per unit and its
variable costs per unit are $24, how many units must be sold to achieve its target given
that total fixed costs are $60,000?
A. 2,188
B. 1,439
C. 4,200
D. 1,600
Select the incorrect statement regarding costs and expenses.
A. Some costs are initially recorded as expenses while others are initially recorded as
assets.
B. Expenses are incurred when assets are used to generate revenue.
C. Manufacturing-related costs are initially recorded as expenses.
D. Non-manufacturing costs should be expensed in the period in which they are
incurred.
Safety Products currently outsources an electrical switch that is a component in its
sprinkler systems. The switches are purchased for $20 each. The company is
considering making the switches internally and has conducted a study to determine the
costs involved. The costs below are projected annual production costs:
Assume that the company needs 15,000 of the switches, which would be produced in
three batches. Assume also that the company will still be operating within the relevant
range. If Safety decides to make the parts under these conditions, the total relevant costs
will be:
A. $132,500.
B. $162,500.
C. $105,000.
D. $142,500.
What is the principal reason that direct labor hours is no longer an effective base for
allocating indirect costs in many modern manufacturing companies?
A. Automation
B. Workers are not as productive as they were in the past
C. Movement from full-time to part-time workers
D. Changes in generally accepted accounting principles
Bertram, Inc. had beginning and ending accounts payable balances of $400 and $450,
respectively. Inventory had beginning and ending balances of $450 and $425,
respectively. If cost of goods sold was $350, how much cash was spent to obtain
inventory?
A. $275
B. $250
C. $400
D. $350
Ringgold Company had beginning finished goods inventory of $36,000. During the
period, the company produced goods that cost $150,000. If the ending balance in
finished goods was $24,000, the amount of cost of goods sold was:
A. $162,000.
B. $150,000.
C. $138,000.
D. none of these.
The following information is given regarding driving lessons provided by Arrive Alive
Company over several spans of time:
Select the incorrect statement from the following.
A. The average cost per lesson over the five-year period was $9.24.
B. Based on the most current information, the cost per lesson was $12.00.
C. The average cost based on the total five-year period is probably the most appropriate
cost for pricing purposes.
D. The selection of the most appropriate time span for calculating the average cost often
requires considerable judgment.
The Page Turner Publishing Company is trying to decide whether or not to accept a
special order for its latest blockbuster. In making this decision, which level of costs will
most likely be relevant to the decision?
A. Batch-level costs
B. Facility-level costs
C. Unit-level costs
D. None of these.
Rachel is deciding whether to remain in the home she has lived in for the past ten years,
which is located very near her work, or to move into a newer home that is located in the
suburbs further from her job. The old house was purchased for $160,000 and has a
market value of $220,000. The new home can be purchased for $285,000. Which of the
following is not relevant to Rachel’s decision?
A. Driving distance to work
B. Cost of the old house
C. Market value of the old house
D. Cost of the new house
The following data is supplied from the comparative balance sheets and income
statement information from Webber, Inc. Webber uses the indirect method to prepare its
statement of cash flows.
Required:
a) Calculate the cash flow from operating activities.
b) Calculate the cash flow from investing activities.
c) Calculate the cash flow from financing activities.
Which of the following statements regarding cost-volume-profit analysis is incorrect?
A. Cost-volume-profit analysis assumes that fixed cost per unit is constant.
B. Cost-volume-profit analysis assumes that the selling price cost per unit is constant.
C. An increase in inventory during a period will affect cost-volume-profit relationships.
D. Although cost-volume-profit analysis is based on assumptions that seldom will be
perfectly achieved, the technique is still useful to managers.
Max bought a ticket to the championship baseball game for $75. Someone approaches
him outside the stadium and offers him $175 for his ticket. If Max decides to go to the
game, instead of selling his ticket, how much does it cost Max to go to the game?
A. $75
B. $100
C. $175
D. None of these.
Cost of goods sold is equal to:
A. cost of goods manufactured – ending finished goods.
B. cost of goods available for sale – beginning finished goods.
C. cost of goods available for sale – ending finished goods.
D. cost of goods manufactured – beginning finished.
The benefits of a just-in-time system would include all of the following except:
A. increased warehousing costs.
B. reduced inventory holding costs.
C. improved customer satisfaction.
D. decrease in the number of suppliers.
Select from the list provided the term that best matches each of the following
descriptions.
Smith Company makes three different products, each of which must pass through one
very expensive machine. Assuming that availability of machine time is limited to 4,000
hours per year, which is less than the 5,000 hours demanded, how should the company
decide which product to make?
Playtime Electronics produces two kinds of electronic toys, Wizards and Gizmos.
During the current period, 8,000 Wizards and 16,000 Gizmos were produced and sold,
generating revenues of $500,000 and $2,000,000, respectively. Unit production costs
for the two toys are $50 for Wizards and $70 for Gizmos. In calculating the cost of
goods sold, Playtime uses activity based costing to allocate its overhead costs.
However, upstream costs of $240,000 are allocated equally to the two
products.Required:
1) Compute the total net profit for each product and for the firm as a whole.
2) Would you advise eliminating either toy? Why or why not?
Diaz Company had the following comparative balance sheet information for 2014 and
2013:
Diaz reported net income for 2014 of $40,000. No property, plant, & equipment was
disposed of during the year. Diaz uses the indirect method to prepare the statement of
cash flows.
Using the indirect method, calculate Diaz’s cash flow from operating activities for 2014.
Discuss how automation has affected the selection of cost drivers employed in product
costing systems.
Indicate whether each of the following statements about financial statement analysis is
true or false.
The asset turnover ratio is calculated by dividing net income by average total assets.
The asset turnover ratio is likely to be high in an industry in which operations require
only a minimal investment in assets.
Return on equity measures the wealth generated by the amount of assets invested in a
business.
A higher value for the return on investment ratio would generally indicate more
effective company management.
The use of financial leverage often causes a business’s return on equity to be lower than
its return on investment.