1) From a purely financial standpoint, if a product line has a negative contribution
margin, the product line should be discontinued.
2) When creating the sales budget, management simply takes the sales from the year
before and divides that total by 12 months. Thus, each month will always predict the
same amount of budgeted sales.
3) Under absorption costing, variable manufacturing costs are treated as period costs.
4) Companies often consider outsourcing so they can focus on their core competencies.
5) The total direct labor variance is the sum of the direct labor rate variance and the
direct labor efficiency variance.
6) All other things being equal, if the incremental costs of outsourcing a product exceed
the incremental costs of making a product, it should be outsourced.
7) Inspection is considered a non-value-added activity.
8) An example of an expansion constraint would be the size of the available labor pool.
9) Each manufacturing process will have a WIP inventory account.
10) It is possible to encounter a situation where the direct labor rate variance is
favorable and the direct labor efficiency variance is unfavorable.
11) If a company uses the indirect method to prepare the statement of cash flows, how
will the adjustment to reflect the amount of cash paid for interest be presented on the
statement?
A) The adjustment will be for the increase or decrease in accounts receivable for the
period and will adjust net income in the operating activities section
B) The adjustment will be for the increase or decrease in inventory for the period and
will adjust net income in the operating activities section
C) The adjustment will be for the increase or decrease in accounts payable for the
period and will adjust net income in the operating activities section
D) The adjustment will be for the increase or decrease in interest payable for the period
and will adjust net income in the operating activities section
12) Advertising expenses would be considered which part of the value chain?
A) Customer service
B) Marketing
C) Production
D) Research and development
13) Rubber City Cycles manufactures carbon fiber bicycle frames for professional
racing and avid amateur cyclists. Rubber City has found a CNC (computer numerical
control) machine that will significantly reduce manufacturing waste while improving
the quality of the frames. The new CNC machine will increase annual fixed costs by
$13,750, but will decrease variable cost per unit by $150. Rubber City expects to sell
750 frames next year.
Annual data for the current system are as follows:
By what amount will Rubber City’s operating income increase (decrease) if they
purchase the new CNC machine?
A) $98,750
B) ($98,750)
C) $312,500
D) ($312,500)
14) The ________ perspective from the balanced scorecard helps managers answer the
question, “How do we look to shareholders?”
A) financial
B) internal business
C) customer
D) learning and growth
15) The cost to install equipment to reduce the emissions of a coal-fired power plant
would be categorized as what type of cost by an environmental management accounting
system (EMA)?
A) Waste and emission control cost
B) Prevention cost
C) Intangible cost
D) Research and development cost
16) Martin Enterprises has a predicted operating income of $140,000. Its total variable
expenses are $50,000 and its total fixed expenses are $20,000. The unit contribution
margin for the company’s sole product is $10. The number of units that Martin
Enterprises needs to sell to achieve the predicted operating income would be
A) 12,000
B) 21,000
C) 11,000
D) 16,000
17) The use of which of the following costing systems is most likely to reduce cost
distortion to a minimum?
A) Plantwide overhead rate
B) Departmental overhead allocation rates
C) Traditional costing system
D) Activity-based costing
18) A favorable direct labor efficiency variance and an unfavorable direct labor rate
variance might indicate which of the following?
A) Unskilled workers using more actual hours than standard, paid at a higher rate per
hour than the standard rate
B) Unskilled workers using less actual hours than standard, paid a lesser rate per hour
than the standard rate
C) Skilled workers using less actual hours than standard, paid at a higher rate per hour
than the standard rate
D) Skilled workers using more actual hours than standard, paid at a higher rate per hour
than the standard rate
19) Job 140 requires $12,000 of direct materials, $6,700 of direct labor, 550 direct labor
hours, and 270 machine hours. It also requires 9 hours of inspection at $40 per hour.
Manufacturing overhead is computed at $28 per direct labor hour used and $42 per
machine hour used.
The total dollars of conversion costs are
A) $15,400
B) $26,740
C) $33,440
D) $45,440
20) London Plastics has monthly fixed costs of $84,000, while its variable costs are
$4.00 per unit. If the sales price of a unit is $15.00 and London Plastics sell 14,000
units, the company’s total variable costs will be
A) $154,000
B) $56,000
C) $210,000
D) $84,000
21) Which of the following is one of the four cost categories typically found on a cost
of quality report?
A) Development costs
B) Inventory failure costs
C) Prevention costs
D) Marketing costs
22) To record depreciation on the factory equipment, the journal entry would include a
A) debit to work in process inventory
B) debit to manufacturing overhead
C) debit to depreciation expense
D) debit to accumulated depreciation
23) The cost of training quality control supervisors who are responsible for overseeing
the inspection of units would be classified as a(n) ________ cost.
A) appraisal
B) prevention
C) internal failure
D) external failure
24) Sugartown Corporation has total sales revenues of $930,000. If its total fixed costs
are $182,000 and its total variable costs are $267,000, then the total contribution margin
is
A) total revenue minus total fixed costs
B) total revenue minus total variable costs
C) total variable costs minus total fixed costs
D) equal to operating income
25) Brockman Company is preparing its cash budget for the upcoming month. The
budgeted beginning cash balance is expected to be $35,000. Budgeted cash
disbursements are $123,000, while budgeted cash receipts are $130,000. Brockman
Company wants to have an ending cash balance of $48,000. How much would
Brockman Company need to borrow to achieve its desired ending cash balance?
A) $6,000
B) $90,000
C) $42,000
D) $55,000
26) A company uses the indirect method to prepare the statement of cash flows. The
board of directors
declared dividends on common stock of $165,000 during the year. Dividends payable
were $48,000 at the
beginning of the year and $44,000 at the end of the year.
A. What was the amount of cash paid for dividends during the year?
B. Where will this amount appear on the statement of cash flows?
C. How would the amount appear if the company uses the direct method to prepare the
statement?
27) Regarding the statement of cash flows, which of the following is TRUE?
A) The statement of cash flows reports why cash increased or decreased during the
period
B) The statement of cash flows covers a span of time and is dated “Year Ended Month
Day, Year”
C) The statement of cash flows shows where cash came from and how cash was spent
D) All of the above are TRUE of the statement of cash flows
28) Stanley’s Candies is considering building a new plant in Europe. It predicts sales at
the new plant to be 40,000 units at $4.00/unit. Below is a listing of estimated expenses.
A European firm was contracted to sell the product and will receive a commission of
10% of the sales price. No U.S. home office expenses will be allocated to the new
facility.
The contribution margin ratio for Stanley’s Candies is:
A) 157.50%
B) 57.50%
C) 42.50%
D) 52.50%
29) (Present value tables are required.) Westin Manufacturing is considering the
purchase of a new machine to use in its packing department. The new machine will
have an initial cost of $170,000, a useful life of 12 years and a $10,000 residual value.
Westin will realize $15,750 in annual savings for each of the machine’s 12-year useful
life. Given Westin’s 4% required rate of return, the new machine will have a net present
value (NPV) of
A) ($28,436)
B) ($15,936)
C) ($154,064)
D) ($22,186)
30) The ________ capital budgeting methods are based on cash flows, profitability, and
the time value of money.
A) payback and accounting rate of return
B) payback and net present value
C) net present value and internal rate of return
D) accounting rate of return and internal rate of return
31) Lucky Cow Dairy provided the following expense information for May:
What is the total cost for the production category of the value chain?
A) $496,000
B) $202,000
C) $180,000
D) $330,000
32) Net income reported under absorption costing will exceed net income reported
under variable costing for a given period if
A) production equals sales for that period
B) sales exceed production for that period
C) production exceeds sales for that period
D) variable overhead exceeds fixed overhead for that period
33) (Present value tables are needed.) The Janus Vending Machine Company is looking
to expand its business by adding a new line of vending machines. The management
team is considering expanding into either soda machines or snack machines. Following
is the relevant financial data relating to the decision:
What is the present value of all future cash inflows from the snack machines?
A) $101,700
B) $104,920
C) $75,094
D) $54,920
34) A company pays cash dividends on preferred stock. If the company prepares the
statement of cash flows using the indirect method or the direct method, where would
this transaction appear?
A) The payment of cash dividends would be presented in the financing activities section
as a cash payment under both methods
B) The payment of cash dividends would be presented in the investing activities section
as a cash payment under both methods
C) The payment of cash dividends would be presented in the operating activities section
as a reduction in net income under the indirect method and as a cash payment under the
direct method
D) The payment of cash dividends would be presented in the non-cash investing and
financing activities section under both methods
35) Which statement describes direct materials in a manufacturing setting?
A) Direct materials are used to determine total manufacturing overhead
B) Direct materials are used to determine total inventoriable product costs
C) Direct materials cannot be separately and conveniently traced
D) Direct materials do not become part of the finished product
36) In process costing, ________ is/are found by taking the number of partially
completed physical units and multiplying it by the percentage of the process completed.
A) cost of goods sold
B) equivalent units
C) fixed manufacturing overhead costs
D) conversion costs
37) Franklin Producers sells its core product for $8 per unit and has variable costs of $6
per unit. Total fixed costs are $28,000. Suppose variable costs increase by 20% due to
an increase in the cost of direct materials. What will be the effect on the breakeven
point in units?
A) Decrease from 2,000 units to 1,842 units
B) Decrease from 14,000 units to 4,118 units
C) Increase from 14,000 units to 35,000 units
D) Decrease from 4,667 units to 3,889 units
38) Cruise Company produces a part that is used in the manufacture of one of its
products. The unit manufacturing costs of this part, assuming a production level of
6,000 units, are as follows:
Assuming no other use for its facilities, what is the highest price per unit that Cruise
Company should be willing to pay for the part?
A) $12
B) $11
C) $8
D) $5
39) Which of the following is a potential disadvantage of participative budgeting?
A) Managers are more likely to be motivated by budgets they helped to create
B) Managers may build slack into the budget
C) Managers should have more detailed knowledge for creating realistic budgets
D) None of the above are TRUE
40) Martin Company currently sells its products for $220 per unit. Management is
contemplating a 20% increase in the selling price for the next year. Variable costs are
currently 40% of sales revenue and are not expected to change next year. Fixed
expenses are $120,000 per year.
If fixed costs increase 10% next year, and the new selling price per unit goes into effect,
how many units will need to be sold to breakeven?
A) 750 units
B) 1,000 units
C) 132,000 units
D) 375 units
41) Silvio Enterprises produces three products, with costs and selling prices as follows:
Each product requires a certain number of minutes on the drill press. There is only one
drill press available so it is the constraint for this product. Model D7 requires 2 minutes
of drill press time, Model B3 requires 1 minute of drill press time, and Model F5
requires 7 minutes of drill press time. In what order should Silvio Enterprises
emphasize its products to maximize its contribution margin? (Rank the products in
order from most profitable to least profitable.)
A) Model B3, Model D7, Model F5
B) Model B3, Model F5, Model D7
C) Model D7, Model B3, Model F5
D) Model F5, Model D7, Model B3
42) Brambles Corporation has two sequential processing departments: Assembly then
Shaping. The Shaping Department reports the following information. Conversion costs
are applied evenly throughout the process.
What is the total number of equivalent units for direct materials?
A) 52,000
B) 55,200
C) 62,200
D) 57,200
43) Assume the Air Conditioning division of the General Appliance Corporation had the
following results last year (in thousands). Management’s target rate of return is 15% and
the weighted average cost of capital is 10%. Its effective tax rate is 35%.
What is the division’s Return on Investment (ROI)?
A) 400.00%
B) 20.00%
C) 80.00%
D) 32.80%
44) (Present value tables are required.) Lenardi Corporation is evaluating the purchase
of a new machine that would have an initial cost of $125,000. This new machine would
have a profitability index of 1.25 . The company’s discount rate is 12%. What is the
present value of the net cash inflows of the new machine project?
A) $15,000
B) $156,250
C) $100,000
D) $1,041,667
45) A favorable direct materials quantity variance indicates which of the following?
A) The actual cost of direct materials was less than the standard cost of direct materials
B) The standard quantity of direct materials for actual output was less than the actual
quantity of direct materials used
C) The actual quantity of direct materials used was less than the standard quantity for
actual output
D) The actual quantity of direct materials used was greater than the standard quantity
for budgeted output