The differential approach to investments can be used to compare any number of
projects.
Period costs include selling and administrative expenses.
Capital turnover can be increased by decreasing investment.
U.S. multinational companies must follow the Internal Revenue Code when setting
transfer prices.
A cost management system provides information for strategic management decisions
and financial reporting.
Full cost means the total of all variable manufacturing costs and all fixed manufacturing
costs.
The transfer price is revenue to the acquiring segment, and it is a cost to the segment
producing the product.
An example of an investing activity on the statement of cash flows is the purchase of
equipment for cash.
A quantity variance for direct materials measures the deviation between the quantity of
inputs that should have been used to achieve the actual output and the actual quantity of
inputs used to achieve the actual output.
One cause of a flexible budget variance for direct labor may be a difference between
standard and actual hourly wage rates for factory workers.
For a corporation, assets must equal liabilities plus paid-in capital.
The first step in preparing the master budget is the preparation of the budgeted income
statement.
The direct materials price variance is based on the standard quantity of inputs allowed
for the actual output.
For both merchandising and manufacturing firms, selling and administrative costs are
period costs.
Under absorption-costing, fixed factory overhead costs appear only in cost of goods
sold.
An example of a noncash transaction on the statement of cash flows is the purchase of
equipment with a long-term note payable.
A manager using information to decide whether to add or drop a product is an example
of problem solving.
When adding or dropping a product line, variable costs are the only relevant costs.
Financial planning models enable managers to get answers to “what-if” questions.
Segments are responsibility centers for which a separate measure of revenues and costs
is obtained.
When making a decision to replace some old equipment with new equipment, the book
value of the old equipment is irrelevant information.
The static budget variance is the difference between actual results and the static budget
for the original planned level of output.
The relevant information for a sell or process further decision for joint products
includes the costs incurred before the split-off point.
When a company purchases inventory for cash, the net effect on the amount of total
assets is zero.
Variable costing is more important for external reports than internal reports.
The use of net book value for plant assets promotes a more conservative approach to
asset replacement when compared to gross book value.
Analysts focus on free cash flow from the statement of cash flows.
Step costs change abruptly at different levels of cost-driver activity.
Total fixed costs increase when the cost-driver level increases in the relevant range.
The differential approach to investments can be used to compare any number of
projects.
The break-even point may be reduced by reducing total fixed costs and holding
everything else constant.
Performance-based rewards can be monetary or nonmonetary.
Companies can reduce or eliminate committed fixed costs when demand falls during an
economic downturn.
A sole proprietorship has ________ owner’s equity account(s). A partnership with three
partners has ________ owners’ equity account(s).
A) one; one
B) two; one
C) one; three
D) one; four
Matthew Company manufactures two models of pens, a standard model and a deluxe
model. Three activities have been identified in the production of the pens. The
following information is available:
Number of Number of Number of Direct
Product Setups Components Labor Hours
Standard 22 8 375
Deluxe 28 12 225
Cost Pool Total Costs Cost Driver
Setup Costs $15,000 Number of setups
Assembly Costs $36,000 Number of components
Labor Costs $9,000 Number of direct labor hours
If activity-based costing is used, the total costs assigned to the standard model are
________.
A) $22,500
B) $26,625
C) $33,375
D) $37,500
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
The following information is available for Pohler Company:
Current assets $100,000 Current liabilities $75,000
Property, plant and Long-term liabilities 100,000
equipment 50,000 Stockholders’ equity 125,000
Other assets 150,000 Total liabilities and
Total assets $300,000 stockholders’ equity $300,000
Invested capital is defined as total assets. Before-tax operating profit is $175,000.
After-tax operating profit is $125,000. The after-tax cost of capital is 10%. What is
economic profit?
A) $95,000
B) $125,000
C) $145,000
D) $175,000
When a firm meets a sales goal, it is said to be ________. When a firm incurs more
direct material costs to manufacture products than expected, the firm is said to be
________.
A) effective; ineffective
B) efficient; inefficient
C) effective; inefficient
D) efficient; ineffective
The following sales budget has been prepared:
Month Cash Sales Credit Sales
September $167,000 $123,000
October 225,000 180,000
November 330,000 210,000
December 135,000 190,000
Collections of credit sales are 50% in the month of sale, 40% in the month following
sale, and 10% two months following sale. No uncollectible accounts are expected. What
are the estimated cash collections in December?
A) $135,000
B) $197,000
C) $325,000
D) $332,000
The following information pertains to the Midwest Division of Clearly Natural
Company:
Net Sales $25,000
Variable Costs:
Cost of merchandise sold 7,200
Operating expenses 2,700
Fixed costs:
Controllable by segment manager 2,400
Controllable by others 1,000
Unallocated costs 600
The contribution controllable by a segment manager is ________.
A) $7,100
B) $7,700
C) $11,100
D) $12,700
In absorption costing, production volume does NOT affect the ________.
A) amount of fixed overhead costs applied to products
B) amount of variable overhead costs applied to products
C) budgeted amount of fixed overhead costs
D) amount of direct materials costs applied to products
Knowledge about the behavior of different costs in a service department such as
maintenance can be used to ________.
A) plan costs
B) provide feedback to managers
C) make decisions about the most efficient use of resources
D) all of the above
Potter Company’s expected sales for April are $29,000. Other information follows:
Budgeted Operating Expenses Amount
Wages $4,000
Advertising 1,680
Depreciation 1,440
Rent 2,560
Promotion 5% of sales
All cash expenses are paid as incurred. What are the expected total cash disbursements
for operating expenses for April?
A) $6,240
B) $9,680
C) $9,690
D) $11,130
Under accrual basis accounting, unexpired costs are considered to be ________.
A) expenses if cash has been paid
B) expenses if cash has not been paid
C) assets
D) accrued liabilities
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.
Bally Company has three product lines: A, B and C. The following annual information
is available:
Product A Product B Product C
Sales $60,000 $90,000 $24,000
Variable costs 36,000 48,000 20,000
Contribution margin 24,000 42,000 4,000
Avoidable fixed costs 9,000 18,000 3,000
Unavoidable fixed costs 6,000 9,000 2,400
Operating income(loss) $9,000 $15,000 $(1,400)
Assume Bally Company drops Product C. What will happen to operating income?
A) increase by $1,400
B) increase by $3,800
C) decrease by $1,000
D) decrease $1,400
Some service department activities support customers rather than the production
process. These costs are traced directly to ________ instead of ________.
A) products; producing departments
B) producing departments; service departments
C) customers; producing departments
D) service departments; producing departments
As cost-driver level decreases in the relevant range, fixed costs per unit of cost driver
________, but total fixed costs ________.
A) increase; do not change
B) decrease: do not change
C) do not change; increase
D) do not change; decrease
In deciding whether to add or delete a product or service, common costs are probably
________.
A) relevant and avoidable
B) relevant and unavoidable
C) irrelevant and avoidable
D) irrelevant and unavoidable
Chicago Corporation has a joint process that produces three products: X, Y and Z. Each
product may be sold at split-off or processed further and then sold. Joint-processing
costs for a year amount to $100,000. Other data follows:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs after Split-Off at Completion
X $128,000 $16,000 $152,000
Y 50,000 26,000 76,000
Z 25,600 20,000 40,000
Processing Product X beyond the split-off point will cause profits to ________.
A) be unchanged
B) increase by $8,000
C) increase by $24,000
D) decrease by $24,000
Elements of the planning and control process for a management control system do NOT
include ________.
A) measure, monitor and report
B) plan and execute
C) evaluate and reward
D) feedback and control
Organizational learning can NOT be monitored by ________.
A) employee training time
B) employee turnover
C) employee satisfaction scores on internal surveys
D) percentage of employees with children
Under absorption costing, fixed overhead costs applied to products will be included in
________.
A) Cost of Goods Sold on the income statement when the products are sold
B) Ending Inventory on the balance sheet before the products are sold
C) Extraordinary Item on the income statement when the products are sold
D) A and B
The limited liability of stockholders in a corporation means that ________.
A) the company’s creditors cannot seek payment from the stockholders as individuals if
the corporation cannot pay its debt
B) the company’s creditors cannot receive more than the face value of their debt
C) the short-term creditors have to be paid before the long-term creditors
D) the long-term creditors have to be paid before the short-term creditors
Use of ________ in evaluating capital investment projects will promote goal
congruence and lead to better decisions than using ________.
A) return on investment; economic profit
B) economic profit; contribution by segment
C) contribution controllable by division manager; contribution by segment
D) economic profit, return on investment
Which of the following items is NOT a relevant cash inflow or cash outflow when
using the net present value method? (Ignore income taxes.)
A) acquisition cost of new equipment at time zero
B) future disposal value of a long-term plant asset
C) future operating cash inflows from a long-term plant
D) depreciation expense in future periods
Campbell Company gathered the following information for the year ended December
31, 2015:
Units produced 45,000
Units expected to be produced 45,000
Units sold 43,200
Direct labor $137,200
Direct materials used $126,400
Fixed selling and administrative expenses $51,000
Variable selling and administrative expenses $58,000
Fixed manufacturing overhead $83,250
Variable manufacturing overhead $73,900
Direct materials inventory, December 31, 2015 0
Direct materials inventory, December 31, 2014 0
Work-in-process inventory, December 31, 2015 0
Work-in-process inventory, December 31, 2014 0
Finished goods inventory, December 31, 2014 0
Required:
A) Under absorption costing, what is the cost of the finished goods inventory on
December 31, 2015?
B) Under variable costing, what is the cost of the finished goods inventory on
December 31, 2015?
Allocating fixed costs based on long-range plans may inadvertently result in a tendency
of mangers to ________.
A) underutilize available capacity
B) overestimate planned usage
C) underestimate planned usage
D) overestimate planned costs
Most employees perform better when performance reports lead to ________.
A) goal congruence
B) managerial effort
C) managerial control
D) personal rewards
Central 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 $360,000
Direct materials used $176,000
Direct labor $100,000
Variable factory overhead $44,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $10,000
Production volume variance 0
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 400 units
Under absorption costing, what is the operating income or loss?
A) $(6,000)
B) $(70,000)
C) $10,000
D) $20,000
Effective performance measures have all the following characteristics EXCEPT
________.
A) used consistently and regularly in evaluating and rewarding employees
B) readily understood by employees
C) balance long-term and short-term concerns
D) unaffected by the actions of managers
Which of the following statements is FALSE about performance metrics?
A) The cost benefit criterion leads companies to rely on imperfect, low-cost
performance metrics.
B) The more a manager’s reward depends on a performance metric, the more incentive
the manager has to take actions to maximize that measure.
C) Top management should define the performance metric to promote goal congruence
and base enough reward on it to achieve managerial effort.
D) The more uncontrollable factors affect a manager’s reward, the less risk the manager
bears.
On January 1, 2012, Parrot Company acquired all of the stock of a subsidiary. The
following data is available:
Parrot Company Subsidiary
Total assets $650 $400
Total liabilities $200 $190
Total stockholders’ equity $450 $210
The acquisition by the Parrot Company represents a 100 percent interest in the
subsidiary. On January 1, 2012, the fair value of the subsidiary’s assets and liabilities
are equal to their book value. Parrot Company paid $450 for the 100 percent interest in
the subsidiary. What amount of goodwill is implied in the purchase?
A) $0
B) $10
C) $200
D) $240