Absorption costing provides incentives for a company to hold excess inventory, which
may increase the company’s costs.
Jenkins Company’s current ratio is higher than the average for its industry, while its
quick ratio is below the industry average. One possible interpretation for these results is
that Jenkins carries less inventory than most companies in its industry.
A disadvantage of the high-low method is that the high point and low point may not be
representative of the total data set available.
Bennett Company pays its salespeople a sales commission on each sale they make. This
commission is an example of an upstream cost.
Under the indirect method, an increase in wages payable would be added back to net
income when calculating net cash flow from operating activities.
Most companies allocate facility-level activity costs directly to products for
decision-making purposes.
The split-off point is the point at which individual products resulting from a joint
process can be identified.
A decrease in retained earnings may indicate a cash outflow occurred to pay a dividend.
An increase in appraisal costs will probably lead to a decrease in internal failure costs
and an increase in external failure costs.
According to the Sarbanes-Oxley Act, a company’s audit committee is responsible for
its system of internal controls.
Potential problems associated with cost averaging can be reduced by averaging the cost
over a shorter span of time.
Product costs include materials, labor, and selling and administrative costs.
Ick Manufacturing Company established the following standard price and cost
information:
Ick expected to produce and sell 20,000 units. Actual production and sales amounted to
21,500 units.
Required:
(a) Prepare the pro forma income statement in contribution format that would appear in
Ick’s master budget for the year.
(b) Prepare the income statement in contribution format that would appear in Ick’s
flexible budget.
Pierce Corporation reported a $3,600 balance in accounts receivable on January 1,
2014. During the year, $24,800 of sales on account were made. During the year, Price
wrote off accounts receivable of $1,700 as uncollectible. If the ending balance of
accounts receivable is $2,000, what is the amount of cash received from customers?
A. $21,200
B. $21,500
C. $28,400
D. $24,700
Production in 2013 for California Manufacturing, a producer of high security bank
vaults, was at its highest point in the month of June when 80 units were produced at a
total cost of $800,000. The lowest point in production was in January when only 20
units were produced at a cost of $440,000. The company is preparing a budget for 2013
and needs to project expected fixed cost for the budget year. Using the high/low
method, the projected amount of fixed cost per month is
A. $120,000
B. $320,000
C. $480,000
D. $360,000
Maynard Company’s balance sheet and income statement are provided below:
The company paid cash dividends of $2.00 per share during 2014. On December 31,
2014, the stock was listed on the stock exchange at a price of $78.25 per share.
Required:Compute the following ratios for 2014:
(a) Accounts receivable turnover
(b) Average days to collect receivables
(c) Inventory turnover
(d) Average days to sell inventory
(e) Debt to assets ratio
(f) Debt to equity ratio
(g) Net margin
(h) Asset turnover
(i) Return on investment
(j) Dividend yield
Round your answers to one decimal place.
Franklin Manufacturing manufactures two models of windows, bay windows and
casement windows. Franklin uses an activity based costing system. The following
information about the activities used to product the company’s products has been
provided.
If bay windows and casement windows require the same amount of direct labor, using
labor hours as the allocation base for facility-level costs would:
A. undercost the casement windows.
B. overcost the bay windows.
C. undercost both the bay windows and casement windows.
D. None of these answers is correct.
An example of a product/service that would most likely be accounted for using a
process cost system would be:
A. Vitamin manufacturer.
B. Printing services.
C. Manufacturer of motor homes.
D. Auto repair services.
Paul Company is considering purchasing a capital investment that is expected to
provide annual cash inflows of $12,000 per year for 3 years. Assuming that the required
rate of return is 10%, what is the present value of these cash inflows? (Do not round PV
factors and intermediate calculations. Round your final answer to the nearest dollar.)
A. $9,016
B. $28,822
C. $29,842
D. $27,047
Select the correct statement regarding opportunity costs.
A. Opportunity costs need not be considered in decision making.
B. Opportunity costs are not recorded in a firm’s financial accounting records.
C. Opportunity costs represent sunk costs.
D. All of these.
As a Certified Management Accountant, Derek is bound by the standards of ethical
conduct issued by the Institute of Management Accountants. According to the
standards, Derek has a responsibility to:
A. inform subordinates that they should protect confidential information.
B. ensure that financial accounting records are maintained as per the governing
guidelines.
C. monitor the activities of subordinates to assure that confidentiality is maintained.
D. inform subordinates that they should protect confidential information and monitor
the activities of subordinates to assure that confidentiality is maintained.
At the beginning of 2013, Barcroft Co. estimated that its total annual fixed overhead
costs would amount to $25,000. Further, Barcroft estimated that its volume of
production would be 2,000 units of product. Based on these estimates, Barcroft
computed a predetermined overhead rate that was used to allocate overhead costs to the
products made in 2013. As predicted, actual fixed overhead costs did amount to
$25,000. However, actual volume of production amounted to 2,200 units of product.
Based on this information alone:
A. Products were costed accurately in 2013.
B. Products were overcosted in 2013.
C. Products were undercosted in 2013.
D. The answer cannot be determined from the information provided.
Marion Company uses process costing. The following information was available for
April:
During April, 1,000 units were started, and costs incurred during the month were
$37,000. Ending inventory was 50% complete. Based on the information given, (A)
above would equal what amount?
A. $8,000
B. $3,000
C. $4,000
D. $3,300
Which of the following statements is true regarding the salary of the manager of a fast
food hamburger restaurant?
A. The salary is a fixed cost that is directly traceable to the cost of making hamburgers.
B. The salary is a variable cost that is directly traceable to the cost of operating a
specific restaurant.
C. The salary is a variable cost that cannot be traced to the cost of operating a specific
restaurant.
D. None of these answers is correct.
Langdon Company is considering purchasing a capital investment that is expected to
provide annual cash inflows of $10,000 per year for 3 years. Assuming that Langdon’s
required rate of return is 8%, what is the present value of these cash inflows? (Do not
round PV factors and intermediate calculations. Round your final answer to the nearest
dollar.)
A. $24,018
B. $24,869
C. $33,121
D. $25,771
Costs such as transportation-out, sales commissions, uncollectible accounts receivable,
and advertising costs are sometimes called:
A. upstream costs.
B. downstream costs.
C. direct costs.
D. indirect costs.
Which of the following is/are objective(s) of ratio analysis?
A. Assessing past performance.
B. Assessing the prospects for future performance.
C. Analyzing how a company finances its operations.
D. All of these answers are correct.
What is the result when the quantity of materials used is less than the standard quantity?
A. A favorable materials usage variance
B. A favorable materials price variance
C. An unfavorable materials usage variance
D. An unfavorable materials price variance
In 2014, O’Hare paid $2,300 for selling and administrative expenses. Payment of cash
for selling and administrative expenses is:
A. An asset exchange transaction.
B. An asset source transaction.
C. An asset use transaction.
D. A claims exchange transaction.
Identify the obstacle(s) in implementing a successful activity-based costing system.
A. Gaining the cooperation and support of employees.
B. Obtaining accurate cost driver data.
C. Condensing a large number of activities down into a manageable number of activity
cost pools.
D. All of these answers are correct.
Acme Company has variable costs equal to 30% of sales. The company is considering a
proposal that will increase sales by $10,000 and total fixed costs by $7,000. By what
amount will net income increase?
A. $0
B. $3,000
C. $7,000
D. $4,000
Nature’s Soap manufactures Bar soap and Liquid soap. Of the following costs, which
would be an indirect cost to the Liquid Department?
A. Liquid manager’s salary
B. Manufacturing plant insurance
C. Depreciation of the liquefying equipment
D. Liquid Fragrance
The cost of direct materials purchased on account is expensed at the time:
A. the goods made in the manufacturing process are sold.
B. the cash is paid to settle the associated accounts payable.
C. the manufacturing process is complete.
D. the materials are purchased.
In the short run, asset replacement decisions often result in lower reported profits in the
period of replacement. Which of the following does not contribute to this?
A. The new asset must be paid for in the period of replacement.
B. The cost savings or increase in revenues generated by the new asset may not start
immediately and/or often, a loss on disposal of the existing asset must be reported in the
period of replacement.
C. Often, a loss on disposal of the existing asset must be reported in the period of
replacement.
D. The cost savings or increase in revenues generated by the new asset may not start
immediately.
At the beginning of the year, Rangle Company expected to incur $54,000 of overhead
costs in producing 6,000 units of product. The direct material cost is $20 per unit of
product. Direct labor cost is $30 per unit. During January, 600 units were produced. The
total cost of the units made in January was:
A. $30,000
B. $5,400
C. $35,400
D. None of these answers is correct.
Explain how the use of direct labor hours as a cost driver can distort costs of products in
a highly automated manufacturing environment.
Redmond Company is considering investing in one of the following two projects:
Required:
1) Which project is more desirable strictly in terms of cash inflows? Why?
2) Compute the present value of each project’s cash inflows assuming the company’s
required rate of return is 12%.
3) What is the maximum amount Redmond should be willing to pay for each project?
4) Suppose each project costs $7,000. Which project(s) should be accepted? Note that
only one project can be accepted.
How do you account for costs incurred before the split-off point? How do you account
for costs incurred after the split-off point?
Managerial accounting is not bound by generally accepted accounting principles
(GAAP) but clearly is influenced by GAAP. Budgets and the budgeting process
demonstrate connections to GAAP. Discuss.
How are managers likely to respond if variances are used to punish managers?
Indicate whether each of the following statements is true or false.
A company’s standard costs may need to be re-evaluated when there is a change in the
training and experience level of the work force.
Standard costs are the basis for preparing flexible budgets but not static budgets.
Standard costing focuses managerial attention on operations that are not functioning
normally.
Standard costing does not fit with the practice of management by exception.
Standard costs should not serve as benchmarks for evaluating performance.