1) The margin of safety can be expressed in units, in sales dollars, or as a percentage.
2) Traditional cost systems with a single-allocation base tend to overcost high-volume
products and undercost low-volume products as compared to activity-based costing
systems.
3) In a mass-production environment, direct labor is usually a relatively small
component of the total manufacturing costs.
4) Working capital is current assets minus current liabilities.
5) Residual Income (RI) equals operating income less minimum acceptable income.
6) Fixed costs of $15,750 divided by the contribution margin ratio of 50% would yield
the dollar amount of breakeven sales as $31,500.
7) Mixed costs are purely fixed.
8) One condition that favors using a departmental overhead rate, rather than plantwide
overhead rates, is that different departments incur different amounts and types of
manufacturing overhead.
9) Appraisal costs are incurred to detect poor-quality goods or services.
10) Capital turnover is calculated as operating income divided by total assets.
11) A special order occurs when a customer requests a one-time order at an increased
sales price.
12) Watson’s Computer Company uses ABC to account for its manufacturing process.
Watson’s Computer Company expects to produce 2,250 computers. Watson’s Computer
Company also expects to use 13,000 parts and have 20 setups.
The allocation rate for materials handling will be
A) $4.00
B) $6.80
C) $23.11
D) $7.01
13) Pendant Publishing reported the following results for its Textbook Division:
Pendant’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 Textbook Division’s Residual Income (RI)?
A) $275,000
B) $276,000
C) $330,000
D) $110,000
14) On the line in front of each variance, put the letter of the department that is most
likely responsible for that variance. A letter may be used more than once or not at all.
A.Production department
B.Marketing department
C.Purchasing department
D.Personnel department
____Direct labor rate variance
____Direct material price variance
____Sales volume variance
____Direct labor efficiency variance
____Direct material quantity variance
15) On the statement of cash flows, which of the following items would be reported as
an operating activity?
A) A purchase of treasury stock
B) A payment of dividends
C) A payment of interest
D) An issuance of stock
16) Which of the following causes the difference between amounts in the master budget
and the flexible budget for a revenue center?
A) The cost of sales
B) The number of units sold differs from planned sales levels
C) The selling price per unit
D) Both the selling price and the number of units sold
17) CVP analysis assumes all of the following except
A) the mix of products will not change
B) revenues are linear throughout the relevant range
C) inventory levels will increase
D) a change in volume is the only factor that affect costs
18) All of the following budgets are prepared by service companies except
A) cost of goods sold, inventory and purchases
B) cash
C) operating expense
D) sales
19) Which is not reported as an operating activity on a cash flow statement prepared
using the indirect method?
A) Decreases in inventories
B) Proceeds from the sales of investments
C) Interest expense
D) Increases in Accounts Payable
20) The Hummel Corporation reported the following income statement and balance
sheet amounts and additional information for the end of the current year.
Inventory and prepaid expenses account for $28,000 of the current year’s current assets.
Average inventory for the current year is $12,000.
Average net accounts receivable for the current year is $32,000.
There are 40,000 shares of common stock outstanding.
Total dividends paid during the current year were $60,000.
The market price per share of common stock is $25.
What is the company’s times-interest-earned ratio for the current year?
A) 0.77 times
B) 2.50 times
C) 3.50 times
D) 1.00 times
21) The sales price of a particular unit is $19.00. The company plans to sell 7,500 units.
The variable costs are $6.00 per unit and monthly fixed costs are $112,500. Given this
information what is the company’s total sales revenue?
A) $(15,000)
B) $142,500
C) $112,500
D) $97,500
22) The use of either absorption or variable costing will make little difference in
companies
A) using just-in-time inventory methods
B) with large inventories
C) with high fixed costs
D) with high variable costs
23) ________ should be subtracted from the sales price per unit to compute the unit
contribution margin.
A) All variable costs
B) Only variable inventoriable product costs
C) Only variable period costs
D) All fixed costs
24) The following selected data relates to Ivory Corporation:
Assuming 8,500 units are sold, what is the contribution margin?
A) $314,500
B) $84,500
C) $59,500
D) $34,500
25) To follow is selected financial data from Turtle Bay Manufacturing for the most
recent year.
What is the beginning work in process inventory?
A) $10,400
B) $65,500
C) $32,200
D) $60,400
26) Fave Motion Pictures sells movie tickets for $10 per movie patron. Variable costs
are $7.50 per movie patron and fixed costs are $50,000 per month. The company’s
relevant range extends to 35,000 movie patrons per month. What is Fave Motion
Pictures’ projected operating income if 25,000 movie patrons see movies during a
month?
A) $62,500
B) $12,500
C) $250,000
D) $200,000
27) XBRL stands for
A) eXtensive Business Registering Location
B) eXtractable Business Reporting Location
C) eXtensible Business Reporting Language
D) eXisting Business Responsibility Language
28) A manager can increase return on investment (ROI) by doing which of the
following?
A) Increase operating expenses
B) Increase operating assets
C) Decrease sales
D) Decrease operating expenses
29) Fabian Fabrication machines heavy-duty brake rotors that are used on commercial
airliners. Fabian’s management developed the following standard costs:
Actual activity for October:
What is the total variable manufacturing overhead variance for October?
A) $26,100 unfavorable
B) $90,675 unfavorable
C) $26,100 favorable
D) $90,675 favorable
30) Chicago Steel’s operating activities for the year are listed below.
What is the cost of goods sold for the year?
A) $1,400,000
B) $750,000
C) $50,000
D) $1,750,000
31) Under the direct method of cash flow, which is not included in the cash flow
statement?
A) Changes in accounts receivable
B) Changes in accounts payable
C) Changes in inventories
D) Changes in amortization
32) A company acquires its own stock to hold as treasury 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 acquisition of treasury stock 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
B) The acquisition of treasury stock would be presented in the non-cash investing and
financing activities section under both methods
C) The acquisition of treasury stock would be presented in the financing activities
section as a cash payment under both methods
D) The acquisition of treasury stock would be presented in the investing activities
section as a cash payment under both methods
33) On a regression analysis output generated with Excel, the slope of a mixed cost line
is represented by the ________.
A) x variable 1 coefficient
B) intercept coefficient
C) R-square
D) residual
34) The controller for Andy’s Bicycles has gathered the following cost and activity level
information:
a.What is the total cost of producing 1,000 racing bicycles?
b.What is the variable cost of producing each racing bicycle?
c.Suppose the controller uses the average cost to predict total costs. What total cost
would the controller calculate for 2,500 racing bicycles?
d.If the controller uses the cost equation to predict total costs, what total cost would the
controller calculate for 2,500 racing bicycles?
e.Is there a difference between the forecasted total cost using average cost versus the
cost equation? If there is a difference, what creates the difference? If there is no
difference, when would there be a difference?
35) Corbin Company had the following financial results for last month. What type of
responsibility center do these financial results reflect?
A) Revenue center
B) Investment center
C) Profit center
D) Cost
36) Desired ending inventory is 25% more than beginning inventory. If purchases total
$160,000, which of the following statements is TRUE regarding cost of goods sold
(COGS)?
A) COGS will exceed cost of goods available for sale
B) COGS will be less than purchases
C) COGS will exceed purchases
D) COGS will equal $55,000
37) The Engine Division of The Cleveland Automotive Corporation had sales of
$7,200,000 and operating income of $864,000 last year. The total assets of the Engine
Division were $3,200,000 while current liabilities were $800,000. The Cleveland
Automotive Corporation’s target rate of return is 13% while its weighted average cost of
capital is 9%. The effective tax rate for the company is 45%.
Required:
a.Calculate the sales margin.
b.Calculate the capital turnover.
c.Calculate the return on investment (ROI).
d.Calculate the residual income.
38) 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 the breakeven point in dollars increase (decrease) if Rubber City
purchases the new CNC machine?
A) ($62,500)
B) $62,500
C) ($312,500)
D) $312,500
39) The Top Hat Division of Blandon’s Fine Menswear had the following results last
year (in thousands).
Management’s target rate of return is 12% and the weighted average cost of capital is
9%.
What is the Top Hat Division’s sales margin?
A) 150.00%
B) 22.50%
C) 15.00%
D) 5.56%
40) The Bedford Corporation reported the following income statement and balance
sheet amounts and additional information for the end of the current year.
Inventory and prepaid expenses account for $30,000 of the current year’s current assets.
Average inventory for the current year is $36,250.
Average net accounts receivable for the current year is $45,000.
There are 35,000 shares of common stock outstanding.
Total dividends paid during the current year were $17,000.
The market price per share of common stock is $20.
What is the inventory turnover for the current year?
A) 27.11 times
B) 13.66 times
C) 20 times
D) 16 times
41) At the beginning of the year, Lakeview Corporation has 660 life vests in inventory.
The company wants to have 2,100 vests in inventory at the end of the year and plans to
sell 6,400 life vests during the year. How many life vests must Lakeview Corporation
produce during the year?
A) 8,500
B) 3,640
C) 7,840
D) 9,160
42) Fun Stuff Manufacturing produces frisbees using a three-step sequential process
that includes molding, coloring and finishing. When the frisbees and associated costs
are transferred out of the coloring process and into the finishing process, the journal
entry would include a
A) debit to WIP inventory-coloring and a credit to WIP-finishing
B) debit to Finished Goods inventory and a credit to WIP-coloring
C) debit to WIP inventory-finishing and a credit to WIP-coloring
D) debit to WIP inventory-coloring and a credit to Finished Goods inventory
43) Ryan’s Paints allocates overhead based on machine hours. Selected data for the
most recent year follow.
The estimates were made as of the beginning of the year, while the actual results were
for the entire year.
The amount of manufacturing overhead allocated for the year based on machine hours
would have been
A) $239,500
B) $264,375
C) $235,000
D) $244,000