1) The ARR allows managers to compare the present value of future cash generated by
a project against the cost of investing in that project.
2) A decision must be made at the point in a process where a product can either be sold
as is or processed further.
3) At a service company, the indirect costs of serving the client consists of operating
expenses.
4) When setting prices, a company need not consider whether it is a price-taker or a
price-setter for each product that it sells.
5) The plantwide overhead cost allocation rate is computed by dividing the estimated
total manufacturing overhead costs of the department by the estimated total quantity of
the department’s cost allocation base.
6) The A/R turnover ratio is the ratio of net credit sales to average net accounts
receivable.
7) Capital budgeting predictions must consider factors such as changing consumer
preferences, competition, and government regulations.
8) One dollar to be received in the future is worth more than one dollar today.
9) Choosing among alternative capital investments is called a post-audit.
10) Receipt of materials is part of the firm’s value chain.
11) The first step of the 5-step process costing procedure is to summarize the flow of
physical units.
12) Decentralization allows top management to hire workers with expert knowledge for
each business unit.
13) When evaluating the cash flows from an investment, a reduction in cash outflows is
treated as the same as an increase in cash inflows.
14) In a vertical analysis of a balance sheet, total liabilities is assigned a percentage of
100 .
15) All companies have the same types of inventories.
16) Management accountants gather and analyze relevant information to compare
alternatives.
17) Jasper Carts manufactures custom carts for a variety of uses. The following data
have been recorded for Job 651, which was recently completed. Direct materials used
cost $7,200. There were 175 direct labor hours worked on this job at a direct labor wage
rate of $22 per hour. There were 82 machine hours used on this job. The predetermined
overhead rate is $30 per machine hour used.
What is the total manufacturing cost of Job 651?
A) $3,850
B) $2,460
C) $13,510
D) $7,457
18) At Onyx Incorporated, direct materials are added at the beginning of the process
and conversions costs are uniformly applied. Other details include:
What are the total equivalent units for direct materials?
A) 165,200
B) 135,200
C) 195,200
D) 142,600
19) Jason Company manufactures custom engines for use in the lawn and garden
equipment industry. The company allocates manufacturing overhead based on machine
hours. Selected data for costs incurred for Job 890 are as follows:
What amount of manufacturing overhead would be allocated to Job 612?
A) $5,500
B) $6,300
C) $6,600
D) $5,250
20) Potter & Weasley Company had the following activities, estimated indirect activity
costs, and allocation bases:
Potter & Weasley uses activity based costing.
The above activities are used by Departments P and Q as follows:
What is the cost per driver unit for the account billing activity?
A) $8.00
B) $1.50
C) $14.00
D) $1.75
21) A favorable direct materials price variance indicates which of the following?
A) The actual cost of materials purchased was greater than the standard cost of
materials purchased
B) The standard cost of materials purchased was less than the actual cost of materials
purchased
C) The actual quantity of materials used was less than the standard quantity of materials
used for actual production
D) The standard cost of materials purchased was greater than the actual cost of
materials purchased
22) Jackson Industries has collected the following data for one of its products:
What is the total actual cost of the direct materials used?
A) $19,250
B) $73,800
C) $97,800
D) $85,800
23) Stanley’s Bicycles store buys bicycles on average for $600 and sells them on
average for $750. He pays a sales commission of 15% of sales revenue to his sales staff.
Stanley pays $1,400 a month rent for his store, and also pays $3,000 a month to his staff
in addition to the commissions. Stanley sold 120 bicycles in June. If Stanley prepares a
traditional income statement for the month of June, what would be his gross profit?
A) $162,000
B) $18,000
C) $72,000
D) $90,000
24) Sander Enterprises prepared the following sales budget:
The expected gross profit rate is 40% and the inventory at the end of February was
$10,000. Desired inventory levels at the end of the month are 20% of the next month’s
cost of goods sold.
What is the desired beginning inventory on June 1?
A) $1,440
B) $1,680
C) $1,120
D) $8,400
25) Which of the following items is one of the three sections on the statement of cash
flows?
A) Retained earnings
B) Total liabilities
C) Total stockholder’s equity
D) Cash from investing activities
26) The Laramie Corporation manufactures Product X that consumes a large amount of
overhead. For the month of October Laramie produced 15,250 units of Product X and
incurred actual overhead costs of $375,000. The standard costs developed for Product X
by Laramie follow:
What was the total variable overhead variance for Product X in October?
A) $128,250 favorable
B) $128,250 unfavorable
C) $291,125 favorable
D) $291,125 unfavorable
27) Selected financial information for Greek Food Producers is presented in the
following table (000s omitted).
What was direct materials used?
A) $650
B) $470
C) $230
D) $350
28) The Chilton Corporation specializes in manufacturing one type of desk lamp.
Chilton allocates variable manufacturing overhead costs on the basis of machine hours.
Chilton budgeted .5 machine hours per lamp and allocates overhead at a rate of $1.80
per machine hour. Last year Chilton manufactured 23,000 lamps, used 13,800 machine
hours and incurred actual overhead costs of $15,180.
What was Chilton’s variable manufacturing overhead efficiency variance last year?
A) $4,140 favorable
B) $4,140 unfavorable
C) $9,660 favorable
D) $9,660 unfavorable
29) A company’s budget information is most likely to be used by which of the following
groups?
A) Suppliers
B) Creditors
C) Customers
D) Managers
30) Fast as Lightning is an oil change service drive-through that charges each customer
$24.00 for an oil and filter change service. Fast as Lightning has found that it costs its
business $16.00 per oil and filter change. Monthly fixed costs are $44,000; current sales
are 8,000 services.
a. Compute the breakeven sales in units.
b.Compute Fast as Lightning’s margin of safety in units and sales dollars.
c.Compute Fast as Lightning’s margin of safety as a percentage.
d.Compute Fast as Lightning’s operating leverage factor.
e.Compute Fast as Lightning’s % of operating income decline if sales fall by 18%.
31) The cost of installing improved production equipment and production processes is
a(n) ________ cost.
A) external failure
B) internal failure
C) appraisal
D) prevention
32) The following information is provided by Zander Corporation:
The units in ending WIP inventory were 80% complete for materials and 45% complete
for conversion costs.
At the end of the year, what are the equivalent units for conversion costs?
A) 11,250
B) 6,300
C) 2,250
D) 9,000
33) The Perry Corporation recorded the following budgeted and actual information
relating to fixed overhead costs for its Z-Line of products:
What is Perry’s fixed manufacturing overhead budget variance?
A) $756.25 unfavorable
B) $168.75 unfavorable
C) $756.25 favorable
D) $168.75 favorable
34) The HF Corporation manufactures and sells toy gyroscopes. The following data is
related to sales and production of the toy gyroscopes for last year.
Using absorption costing, what is operating income for last year?
A) $ 749,500
B) $ 155,500
C) $1,200,000
D) $1,650,500
35) The Pasta Division of Whole Grain Corporation had sales of $5,500,000 and
operating income of $1,375,000 last year. The total assets of the Pasta Division were
$2,750,000, while current liabilities were $330,000. Whole Grain Corporation’s target
rate of return is 12%, while its weighted average cost of capital is 8%. The effective tax
rate for the company is 30%.
What is the Pasta Division’s capital turnover?
A) 4.0
B) 5.0
C) 16.7
D) 2.0
36) The ________ is a plan that shows the units to be sold and the projected selling
price and is also the starting point in the budgeting process.
A) cash budget
B) budgeted statement of cash flows
C) budgeted income statement
D) sales budget
37) The income statement for Germain Appliances is divided by its two product lines,
Toasters and Microwaves, as follows:
If Germain Appliances can eliminate fixed costs of $32,000 and increase the sale of
Toasters by 6,000 units at a selling price of $30 per unit and a contribution margin of $8
per unit, then discontinuing the Microwaves should result in which of the following?
A) Increase in total operating income of $35,000
B) Increase in total operating income of $3,000
C) Decrease in total operating income of $35,000
D) Decrease in total operating income of $3,000
38) Russell Company expects cash sales for July of $15,000, and a 22% monthly
increase during August and September. Credit sales of $6,000 in July should be
followed by 15% decreases during August and September. What are budgeted cash
sales and budgeted credit sales for September?
A) $18,300 and $5,100
B) $22,326 and $4,335
C) $12,750 and $7,320
D) $10,838 and $8,930
39) Which of the following is most important in making a short-term special decision?
A) Focus on total costs
B) Separate variable from fixed costs
C) Use a conventional absorption costing approach
D) Calculating the fixed cost per unit
40) Tommy’s Toys produces two types of toys: trains and dolls. Tommy’s uses stainless
steel to manufacture the trains and plastic to manufacture the dolls. Information
regarding the usage of steel and plastic for the past year follows:
What is the standard direct material price per pound for the plastic in the dolls?
A) $2.75/lb
B) $4.18/lb
C) $5.27/lb
D) $2.44/lb
41) If fixed expenses are $45,000, the breakeven in sales dollars is $60,000 and the
selling price per unit is $100, then the variable expense per unit is
A) approximately $75
B) approximately $175
C) approximately $33.33
D) approximately $25
42) Augustine Associates is a CPA firm that offers assurance and consulting services.
The firm uses an activity-based costing system and has developed the following activity
pool cost rates:
Cost and activity data related to two clients is as follows:
How much overhead cost would be allocated to Client 867 using the activity-based
costing system?
A) $370
B) $18,290
C) $5,700
D) $16,650
43) Here are selected data for Bailey Company:
Manufacturing overhead is allocated at 50% of direct labor cost.
What was the amount of direct labor costs?
A) $78,000
B) $161,333
C) $168,000
D) $242,000
44) Which of the following is a sunk cost?
A) Operating costs for a new vehicle
B) Trade in value of old vehicle
C) Purchase price of vehicle to be traded in
D) Purchase price of new vehicle
45) 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 Cruise Company can purchase 6,000 units of the part from Suri Company for
$14 each, and the facilities currently used to make the part could be rented out to
another manufacturer for $24,000 a year, what should Cruise Company do?
A) Make the part and save $6.00 per unit
B) Make the part and save $2.00 per unit
C) Buy the part and save $2.00 per unit
D) Buy the part and save $1.00 per unit
46) In performing a vertical analysis of an income statement, which of the following is
generally used as the base amount?
A) Net sales
B) Total expenses
C) Gross sales
D) Gross profit
47) Use the following information about The Conley Company to do a vertical analysis
of the income statement for the current year. Fill in the missing components in the table.
48) Describe the four types of responsibility centers. Give a specific example of each of
the four types of responsibility centers.
49) Abdul Corporation bought a new machine, which cost $90,000, has a useful life of
10 years, and will generate annual cash inflows of $25,000. The residual value of the
machine is $5,500. What is the payback period?
50) Eschenbach Company sells office supplies. The following information summarizes
Swirzoff’s operating activities for the past year:
Required: Prepare an income statement for Swirzoff Company, a merchandiser, for the
year ended December 31 .
51) The following direct materials variance computations are incomplete. Fill in the
missing values, and identify the direct materials flexible budget variance as favorable or
unfavorable.
Direct materials price variance = ($? – $12.50) 7,000 pounds = $3,500 U
Direct materials quantity variance = (? – 6,700 pounds) $12.50 = ? U
Direct materials flexible budget variance = $?
52) Place the value chain elements in the correct order by numbering them from 1 to 6 .
___Design
___Customer Service
___Marketing
___Research and Development
___Distribution
___Production or Purchases
53) List the operating budgets. Describe the purpose of each of the budgets listed and
the order in which they are prepared. Describe how the budgets are interrelated.