TEST BANK for Fundamental Managerial Accounting Concepts, 10th Edition by Thomas Edmonds, Christophe by ACADEMIAMILL

TEST BANK for Fundamental Managerial Accounting Concepts, 10th Edition By Thomas Edmonds, Christopher Edmonds, Chapter 1 Management Accounting and Corporate Governance 1) Which of the following items are representative of managerial accounting? Note: Check all that apply. A) Financial statement in accordance with GAAP B) Monthly sales reports used internally to allocate funds to divisions C) Quarterly financial information sent to investors D) Audited financial statements submitted to bankers with credit application E) Budget projections used to make logistic decisions

2) Which of the following costs are not included in the cost of manufacturing a product? Note: Check all that apply. A) Marketing B) Production workers' wages C) Factory janitor's wages D) CEO salary E) Depreciation on manufacturing equipment

3) Which of the following is considered a downstream cost? Note: Check all that apply. A) Research and development B) Production wages C) Advertising cost D) Warranty cost E) Cost of internet in manufacturing plant

4) Which of the following are examples of inventory holding costs? Note: Check all that apply. Version 1

A) Cost of warehouse space B) Cost of shipping inventory to customers C) Research and development cost D) Cost of supervising inventory E) Inventory spoilage cost

5) Ashley Bradshaw is the manager of one department in a large store. In this capacity, which of the following kinds of information would she be interested in?

A) Economic data B) Financial data C) Nonfinancial data D) Financial, economic, and nonfinancial data

All of the following are features of managerial accountingexcept:

A) information is provided primarily to insiders such as managers. B) information includes economic and non-financial data as well as financial data. C) information is characterized by objectivity, reliability, consistency, and accuracy. D) information is reported continuously with a present or future orientation.

7) Choose the answer that isnot a distinguishing characteristic of financial accounting information.

A) It is global information that reflects the performance of the whole company. B) It is focused primarily on the future. C) It is more concerned with financial data than physical or economic data. D) It is more highly regulated than managerial accounting information.

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8) Managerial accounting information is limited or restricted by which of the following authorities or principles? A) Securities and Exchange Commission B) Generally Accepted Accounting Principles C) Managerial Accounting Standards Board D) Value-Added Principle

9) Select theincorrect statement regarding the relationship between type of user and type of information.

A) Middle managers need more nonfinancial, or operational data than do senior executives. B) Assembly line supervisors need more immediate feedback on performance than do senior executives. C) Senior executives need less aggregated information than do lower-level managers. D) Senior executives use general economic information as well as financial information.

10)

Which group would use managerial accounting data of XY Company? A) Stockholders B) Managers C) Executives D) Both managers and executives E) All of the groups would use managerial accounting data

11)

Which of the following is a feature of managerial accounting information?

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A) Information is not distributed to the public B) Information reports on the company as a whole C) Information is focused on the past D) Information is reported annually

12)

Select thecorrect statement regarding managerial and financial accounting.

A) Users of managerial accounting information desire greater aggregation than do users of financial accounting information. B) Both managerial and financial accounting use economic and physical data in addition to financial data. C) Financial accounting is more highly regulated than managerial accounting. D) Timeliness is more important in financial accounting than in managerial accounting.

13)

Which of the following most exemplifies the value-added principle?

A) An ongoing process where continuous improvement is the goal. B) A competitive management program that emphasizes quality. C) Information gathering and reporting activities should be restricted to those activities that add value in excess of their cost. D) Managerial accounting information is measured in economic, physical, and financial terms.

14) Which of the following costs would be classified as a direct cost for a company that produces motorcycles?

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A) Rent of manufacturing facility that produces motorcycles. B) Seats used in the motorcycles. C) Wages of motorcycle assembly workers. D) Both seats used in the motorcycles and wages of motorcycle assembly workers are correct.

15)

Which of the following is a product cost for a construction company?

A) Cost of transporting raw materials to the job site B) Wages paid to the company's payroll clerk C) Rent of the company's main office D) All of these.

16)

For a manufacturing company, product costs include all of the followingexcept:

A) indirect material costs. B) warehousing costs of finished goods. C) direct labor costs. D) All of these are product costs.

17) During its first year of operations, Connor Company paid $51,640 for direct materials and $19,800 in wages for production workers. Lease payments and utilities on the production facilities amounted to $8,800. General, selling, and administrative expenses were $9,800. The company produced 6,800 units and sold 5,800 units for $16.80 a unit. The average cost to produce one unit is which of the following amounts?

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A) $13.24 B) $11.80 C) $10.42 D) $13.83

18) During its first year of operations, Connor Company paid $50,000 for direct materials and $36,000 in wages for production workers. Lease payments and utilities on the production facilities amounted to $14,000. General, selling, and administrative expenses were $16,000. The company produced 5,000 units and sold 4,000 units for $30.00 a unit. The average cost to produce one unit is which of the following amounts? A) $20.00 B) $16.00 C) $18.40 D) $25.00

19) Green company incurred $58,500 in total manufacturing costs to produce 3,900 tea kettles. The company plans to sell the tea kettles for $52 per unit. Given this information, what is the average cost per unit? A) $37 B) $15 C) $67 D) $52

20) Green company incurred $20,000 in total manufacturing costs to produce 2,000 tea kettles. The company plans to sell the tea kettles for $40 per unit. Given this information, what is the average cost per unit?

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A) $30 B) $40 C) $50 D) $10

21) During Year 2, Skip Company paid $24,900 for direct materials and $10,900 for production workers' wages. Lease payments and utilities on the production facilities amounted to $15,900 while general, selling, and administrative expenses totaled $5,900. Based on this information, what is the total manufacturing cost? A) $51,700 B) $26,800 C) $35,800 D) $57,600

22) During Year 2, Skip Company paid $24,000 for direct materials and $10,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $15,000 while general, selling, and administrative expenses totaled $5,000. Based on this information, what is the total manufacturing cost? A) $49,000 B) $54,000 C) $34,000 D) $25,000

23) During its first year of operations, Forrest Company paid $30,000 for direct materials and $50,000 in wages for production workers. Lease payments, utility costs, and depreciation on factory equipment totaled $15,000. General, selling, and administrative expenses were $20,000. The average cost to produce one unit was $2.50. How many units were produced during the period?

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A) 40,000 B) 46,000 C) 38,000 D) None of these.

24) During its first year of operations, Forrest Company paid $14,040 for direct materials and $49,200 in wages for production workers. Lease payments, utility costs, and depreciation on factory equipment totaled $13,200. General, selling, and administrative expenses were $19,200. The average cost to produce one unit was $4.20. How many units were produced during the period?

A) 19,629 B) 18,200 C) 22,771 D) None of these.

25)

Why do accountants normally calculate cost per unit as an average?

A) Determining the exact cost of a product is virtually impossible. B) Some manufacturing-related costs cannot be accurately traced to specific units of product. C) Even when producing multiple units of the same product, normal variations occur in the amount of materials and labor used. D) All of these are justifications for computing average unit costs.

26)

Which of the following costs isnot considered a period cost?

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A) Warehousing costs of raw materials B) Depreciation of delivery vehicles C) Salaries paid to company executives D) Freight paid on a purchase of raw materials

27)

Select theincorrect statement regarding costs and expenses.

A) Some costs are initially recorded as expenses while others are initially recorded as assets. B) Expenses are incurred when assets are used to generate revenue. C) Manufacturing-related costs are initially recorded as expenses. D) Non-manufacturing costs should be expensed in the period in which they are incurred.

28)

Which of the following costs should be recorded as an expense?

A) Salary of administrative employee B) Depreciation of manufacturing equipment C) Insurance for the factory building D) All of these are expenses.

29)

Which of the following costs shouldnot be recorded as an expense?

A) Insurance on factory building B) Sales commissions C) Product shipping costs D) Product advertising

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30)

Which of the following transactions would cause net income for the period to decrease?

A) Paid $2,500 cash for raw material cost B) Purchased $8,000 of merchandise inventory C) Recorded $5,000 of depreciation on production equipment D) Used $2,000 of office supplies

31) Which of the following statements is true with regard to product costs versus general, selling, and administrative costs?

A) Product costs associated with unsold units appear on the income statement as general expenses. B) General, selling, and administrative costs appear on the balance sheet. C) Product costs associated with units sold appear on the income statement as cost of goods sold. D) None of these are true.

32) Which of the following statements concerning product costs versus general, selling, and administrative costs isfalse?

A) Product costs incurred during the period will initially appear as inventory on the balance sheet. B) General, selling, and administrative costs are always expensed when paid. C) Product costs may be divided between the balance sheet and income statement. D) General, selling, and administrative costs never appear as inventory on the balance sheet.

33) Buckhorn Company’s accounting records noted the following amounts for depreciation. What amount of depreciation would be categorized as a product cost? Depreciation on:

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Factory building Elevators in administrative building Furniture in CEO’s office Forklifts in factory Trucks to deliver product to customers

$65,500 $10,500 $5,500 $21,500 $9,500

A) $112,500 B) $96,500 C) $87,000 D) $65,500

34) Buckhorn Company’s accounting records noted the following amounts for depreciation. What amount of depreciation would be categorized as a product cost? Depreciation on: Factory building Elevators in administrative building Furniture in CEO’s office Forklifts in factory Trucks to deliver product to customers

$65,000 $10,000 $5,000 $21,000 $9,000

A) $65,000 B) $86,000 C) $95,000 D) $110,000

35) Buckhorn Company’s accounting records noted the following amounts for company payroll costs. What amount of payroll would be categorized as a period cost? Payroll Costs: Marketing director salary Factory manager salary Commissions paid to sales staff Administrative personnel wages Wages of production workers

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$151,000 $86,000 $61,000 $51,000 $201,000

A) $263,000 B) $288,000 C) $324,000 D) $550,000

36) Buckhorn Company’s accounting records noted the following amounts for company payroll costs. What amount of payroll would be categorized as a period cost? Payroll Costs: Marketing director salary Factory manager salary Commissions paid to sales staff Administrative personnel wages Wages of production workers

$150,000 $85,000 $60,000 $50,000 $200,000

A) $320,000 B) $285,000 C) $260,000 D) $545,000

37) During Year 2, Skyland Company had sales of $4,280,000 and total product cost of $1,480,000. Assuming the company manufactured 740,000 units and sold 400,000 units, what is cost of goods sold for Year 2? A) $740,000 B) $1,480,000 C) $1,540,000 D) $800,000

38) During Year 2, Skyland Company had sales of $4,000,000 and total product cost of $1,500,000. Assuming the company manufactured 500,000 units and sold 200,000 units, what is cost of goods sold for Year 2? Version 1

A) $500,000 B) $600,000 C) $1,500,000 D) $1,600,000

39) During Year 2, Amos Company had sales of $996,000 and total product cost of $836,000. Assuming the company manufactured 209,000 units and sold 139,000 units, what is the total cost of the ending inventory? A) $249,000 B) $857,000 C) $139,000 D) $280,000

40) During Year 2, Amos Company had sales of $600,000 and total product cost of $400,000. Assuming the company manufactured 200,000 units and sold 150,000 units, what is the total cost of the ending inventory? A) $100,000 B) $300,000 C) $150,000 D) $450,000

41)

Given the selected financial information for Storm Company, what is gross margin?

Sales Net income Ending inventory Cost of goods sold

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$1,300,000 $215,000 $315,000 $750,000

A) $985,000 B) $770,000 C) $1,085,000 D) $550,000

42)

Given the selected financial information for Storm Company, what is gross margin?

Sales Net income Ending inventory Cost of goods sold

$1,000,000 $200,000 $300,000 $600,000

A) $800,000 B) $400,000 C) $700,000 D) $500,000

43) During its first year of operations, Silverman Company paid $8,065 for direct materials and $9,600 for production workers' wages. Lease payments and utilities on the production facilities amounted to $8,600 while general, selling, and administrative expenses totaled $4,100. The company produced 5,150 units and sold 3,100 units at a price of $7.60 a unit. What is Silverman's cost of goods sold for the year? A) $26,265 B) $13,101 C) $15,810 D) $21,765

44) During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit. What is Silverman's cost of goods sold for the year? Version 1

A) $50,000 B) $24,600 C) $30,000 D) $41,000

45) During its first year of operations, Silverman Company paid $11,625 for direct materials and $11,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $10,000 while general, selling, and administrative expenses totaled $3,500. The company produced 7,250 units and sold 4,500 units at a price of $7.00 a unit. What is the amount of gross margin for the first year? A) $12,375 B) $ 11,250 C) $8,875 D) $31,500

46) During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit. What is the amount of gross margin for the first year? A) $15,000 B) $24,000 C) $20,000 D) $45,000

47) During its first year of operations, Silverman Company paid $11,860 for direct materials and $10,900 for production workers' wages. Lease payments and utilities on the production facilities amounted to $9,900 while general, selling, and administrative expenses totaled $3,600. The company produced 7,100 units and sold 4,400 units at a price of $7.10 a unit. What is the amount of finished goods inventory on the balance sheet at year-end? Version 1

A) $12,420 B) $2,700 C) $6,210 D) $11,000

48) During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit. What is the amount of finished goods inventory on the balance sheet at year-end? A) $10,000 B) $20,000 C) $4,000 D) $15,000

49) During its first year of operations, Silverman Company paid $11,440 for direct materials and $9,900 for production workers' wages. Lease payments and utilities on the production facilities amounted to $8,900 while general, selling, and administrative expenses totaled $4,400. The company produced 5,600 units and sold 3,400 units at a price of $7.90 a unit. What was Silverman's net income for the first year in operation? A) $4,100 B) $22,460 C) $5,520 D) $17,960

50) During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit. What was Silverman's net income for the first year in operation? Version 1

A) $7,000 B) $12,000 C) $28,000 D) $37,000

51) Manufacturing costs thatcannot be traced to specific units of product in a cost-effective manner include:

A) depreciation on production equipment. B) direct material. C) indirect labor. D) both depreciation on production equipment and indirect labor.

52) Celestin Manufacturing Company incurred $20,000 of depreciation on its manufacturing equipment during its first year of operation. During this year the company made 10,000 units of product and sold 3,500 units of product. Based on this information alone the company would show A) $20,000 of depreciation expense on its income statement. B) $7,000 of cost of goods sold expense on its income statement. C) $20,000 of inventory on its balance sheet. D) $7,000 of inventory on its balance sheet.

53) Brock Company makes candy. During the most recent accounting period Brock paid $6,000 for raw materials, $7,000 for labor, and $8,000 for overhead costs that were incurred to make candy. Brock started and completed 20,588 units of candy of which 14,000 were sold. Based on this information Brock would recognize which of the following amounts of expense on its income statement? Note: Do not round intermediate calculations.

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A) $7,000. B) $21,000. C) $14,280. D) None of the above.

54) Brock Company makes candy. During the most recent accounting period Brock paid $7,500 for raw materials, $8,500 for labor, and $11,000 for overhead costs that were incurred to make candy. Brock started and completed 25,000 units of candy of which 17,000 were sold. Based on this information the balance in the inventory account on Brock’s balance sheet would be Note: Do not round intermediate calculations. A) $8,640. B) $8,000. C) $27,000. D) None of the above.

55) Calgary Manufacturing company makes chairs and desks. The following costs were incurred in making its products during its first year of operation. Direct Materials Direct Labor

Chairs

Desks

Total

$ 11,500 19,500

$ 13,500 15,500

$ 25,000 35,000

Also the company incurred $29,750 of employee benefits cost. Since these overhead costs are driven by the use of labor they are allocated to the products based on the direct labor dollars. Based on this information alone the total cost of making chairs is. Note: Do not round intermediate calculations. A) $31,000. B) $60,000. C) $47,575. D) None of the answers is correct.

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56) What is the effect on the balance sheet of recording a $200 cash purchase of raw materials? A) Assets decrease by $200 and stockholders’ equity decreases by $200. B) Assets and stockholders’ equity do not change. C) Assets increase by $200 and stockholders’ equity increases by $200. D) Assets increase by $200 and stockholders’ equity does not change.

57) What is the effect on the balance sheet of making cash sales of inventory to customers for profit?

A) Assets and stockholders’ equity increase. B) Assets and stockholders’ equity decrease. C) Assets decrease and stockholders’ equity increases. D) Assets increase and stockholders’ equity decreases.

58) Which of the following types of labor costs will never flow through the inventory account? A) Plant supervision B) Sales commissions C) Material handling D) Assembly labor

59)

Which of the following isnot classified as manufacturing overhead?

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A) Product delivery costs B) Salary of factory supervisor C) Factory insurance D) Production supplies

60) Kirsten believes her company's overhead costs are driven (affected) by the number of direct labor hours because the production process is very labor intensive. During the period, the company produced 5,300 units of Product A requiring a total of 830 labor hours and 2,800 units of Product B requiring a total of 230 labor hours. What allocation rate should be used if the company incurs overhead costs of $24,380? A) $23.00 per labor hour B) $3.01 per unit C) $29.37 per labor hour for Product A and $106 per labor hour for Product B D) None of these.

61) Kirsten believes her company's overhead costs are driven (affected) by the number of direct labor hours because the production process is very labor intensive. During the period, the company produced 5,000 units of Product A requiring a total of 1,600 labor hours and 2,500 units of Product B requiring a total of 400 labor hours. What allocation rate should be used if the company incurs overhead costs of $20,000?

A) $10 per labor hour B) $2.67 per unit C) $12.50 per labor hour for Product A and $50 per labor hour for Product B D) None of these

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62) Anton believes his company's overhead costs are driven (affected) by the number of machine hours because the production process is heavily automated. During the period, the company produced 4,300 units of Product A requiring a total of 460 machine hours and 3,300 units of Product B requiring a total of 115 machine hours. What allocation rate should be used if the company incurs overhead costs of $21,275?

A) $2.80 per unit B) $2.80 per machine hour C) $37.00 per unit D) $37 per machine hour

63) Anton believes his company's overhead costs are driven (affected) by the number of machine hours because the production process is heavily automated. During the period, the company produced 3,000 units of Product A requiring a total of 100 machine hours and 2,000 units of Product B requiring a total of 25 machine hours. What allocation rate should be used if the company incurs overhead costs of $10,000?

A) $2 per unit B) $2 per machine hour C) $80 per unit D) $80 per machine hour

64) The following information relates to the operations of Cruz Manufacturing during the current year: Raw materials used Direct labor wages Sales salaries and commissions Depreciation on production equipment Rent on manufacturing facilities Packaging and shipping supplies Sales revenue Units produced and sold Selling price per unit

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$ 13,100 33,100 28,100 2,310 18,100 3,310 98,100 13,100 $ 14.00

Based on this information, what is the company's cost of goods sold? Note: Do not round intermediate calculations. A) $49,510 B) $66,610 C) $69,920 D) $98,020

65) The following information relates to the operations of Cruz Manufacturing during the current year: Raw materials used Direct labor wages Sales salaries and commissions Depreciation on production equipment Rent on manufacturing facilities Packaging and shipping supplies Sales revenue Units produced and sold Selling price per unit

$ 20,000 60,000 50,000 4,000 30,000 6,000 190,000 10,000 $ 20.00

Based on this information, what is the company's cost of goods sold? A) $86,000 B) $120,000 C) $114,000 D) $170,000

66)

The following information relates to Marshall Manufacturing's current accounting period:

Raw materials used Direct labor wages Sales salaries and commissions Depreciation on production equipment Rent on manufacturing facilities Administrative supplies and utilities Sales revenue Units produced

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$ 16,600 32,600 24,600 2,960 3,960 4,600 101,000 3,600

Units sold

3,600

Based on this information, what is the company's net income? Note: Do not round your intermediate calculations. A) $14,960 B) $18,640 C) $33,080 D) $15,680

67)

The following information relates to Marshall Manufacturing's current accounting period:

$ 34,000 66,000 50,000 6,000 4,000 10,000 210,000 10,000 10,000

Based on this information, what is the company's net income? A) $40,000 B) $70,000 C) $30,000 D) $42,000

68) 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.

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69)

All of the following are downstream costs except: A) packaging costs. B) advertising. C) research and development. D) sales commissions.

70)

Select the incorrect statement regarding upstream and downstream costs.

A) Companies normally incur significant downstream costs. B) To be profitable, companies must recover the total cost of developing, producing, and delivering products. C) Pricing decisions must consider both upstream and downstream costs in addition to manufacturing costs. D) Upstream and downstream costs are reported as product costs on the income statement.

71) Use the following information to determine net income in the financial statements under GAAP: Number of boats to be sold Upstream costs Direct materials per boat Direct labor per boat Overhead per boat Downstream costs

690 $ 5,950,000 $ 69,000 $ 49,000 $ 39,000 $ 2,950,000

Assume the company wants to sell each boat for 25% more than the cost to produce the boat. A) $5,950,000 B) $8,900,000 C) $27,082,500 D) $18,182,500

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72)

Select theincorrect statement regarding service companies.

A) Because service companies do not carry inventory, it is impossible to determine product costs. B) Because the products of service companies are consumed immediately, there is no finished goods inventory on their balance sheets. C) Managers of service companies are expected to control costs, improve quality, and increase productivity just like managers of manufacturing companies. D) Material, labor, and overhead costs of service companies are treated as period costs.

73) Identify thefalse statement regarding how product costs in a manufacturing company differ from product costs in a service or merchandising company.

A) Both manufacturing companies and service companies incur costs for supplies. B) Manufacturing companies accumulate product costs in inventory accounts, while service companies do not. C) Products of service companies such as restaurants are consumed immediately. D) Most labor costs for merchandising companies are treated as product costs.

74)

Which cost does GAAP allow to be recorded in the inventory account? A) Downstream B) Midstream C) Upstream D) All of these costs are included in the inventory account.

75)

Costs associated with holding inventory often include:

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A) theft, damage, and obsolescence. B) financing. C) warehouse space. D) supervision. E) All of these.

76)

A company that uses a just-in-time inventory system:

A) has finished goods inventory on hand at all times in order to speed up shipments of customer orders. B) may find that having less inventory leads to increased customer satisfaction. C) assesses its value chain to create new value-added activities. D) adopts a systematic, problem-solving attitude.

77) The Bake Shop (TBS) buys and sells cakes. To preserve freshness TBS donates cakes that have not been sold within 5 days to charitable organizations. To avoid waste TBS usually orders fewer cakes than it can sell. Sold out signs are frequently seen in the store. Even so, the cakes come in several flavors and occasionally some of the flavors do not sell out before the 5 day shelf life expires. Cakes cost $20 each to purchase and are sold for $26 each. During the most recent month TBS had customer orders for 32 cakes that could not be filled due to a lack of inventory. There were only 16 cakes that had to be donated to charity during the month. Based on this information the A) cost of waste amounted to $640. B) cost of waste amounted to $416. C) opportunity cost amounted to $192. D) opportunity cost amounted to $512.

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78) Howard Lumber Company mistakenly classified a product cost as an expense that totaled $21,900. The company produced 2,190 units of product and sold 1,095 of them during the year. Management is paid a bonus equal to 2% of net income. In the year in which the mistake was made:

A) product costs were overstated. B) management bonuses were underpaid. C) the company's income statement portrayed a more favorable position than actually existed. D) the company's net income was overstated.

79) Howard Lumber Company mistakenly classified a product cost as an expense that totaled $20,000. The company produced 2,000 units of product and sold 1,000 of them during the year. Management is paid a bonus equal to 2% of net income. In the year in which the mistake was made:

80) Assuming a company's inventory increased during the period, which of the following misclassifications may increase net income?

A) Recording administrative salaries as a product cost B) Recording depreciation on production equipment as an expense C) Expensing raw material costs instead of including them in inventory D) Recording depreciation on production equipment as an expense and Expensing raw material costs instead of including them in inventory

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81) During her first year with the company, Ann mistakenly accumulated some of the company's period costs in ending inventory. Which of the following indicates how this error affects the company's financial statements assuming number of units produced exceeded number of units sold during the period?

A) Cash flows from operations are understated. B) Gross margin is unaffected. C) Net income is overstated. D) Inventory is understated.

82) If a company misclassifies a general, selling and administrative cost as a product cost in a period when production exceeds sales:

A) net income will be overstated. B) total assets will be understated. C) gross margin will be understated. D) both net income will be overstated and gross margin will be understated

83) Which of the following isnot a reason management might be tempted to classify costs as product costs rather than expensing them during periods in which production exceeds sales?

A) The company's bank may be more likely to extend financing to the firm. B) Income taxes will be lower. C) Net income will be higher. D) Management bonuses may be higher.

84) Certified Management Accountants (CMA) must complete a specified number of continuing professional education credits each reporting period. Which of the four standards of ethical conduct issued by the Institute of Management Accountants likely motivated this requirement?

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A) Confidentiality B) Competence C) Integrity D) Objectivity

85) Which of the following isnot one of the four Standards of Ethical Conduct for Management Accountants?

A) Credibility B) Confidentiality C) Integrity D) Independence

86) As a Certified Management Accountant, Suzanne is bound by the standards of ethical conduct issued by the Institute of Management Accountants. During the course of business, Suzanne learned that her company has decided to discontinue a major product line. If she mentions this fact to her brother, who is a stockbroker, Suzanne could be in violation of the:

A) competence standard. B) confidentiality standard. C) integrity standard. D) objectivity standard.

87) 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:

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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.

88) As a Certified Management Accountant, Grace is bound by the standards of ethical conduct issued by the Institute of Management Accountants. If she accepts an expensive gift from a vendor trying to win a contract with her firm, which of the following standards will she violate?

A) Integrity B) Confidentiality C) Competence D) Objectivity

89)

Which of the following isnot a provision of the Sarbanes-Oxley Act of 2002?

A) The chief executive officer and the chief financial officer are jointly responsible for establishment and enforcement of internal controls. B) Companies are required to report on the effectiveness of their internal controls. C) The company's external auditor is charged with the ultimate responsibility for the accuracy of the company's financial statements and accompanying footnotes. D) The company's external auditors are required to attest to the accuracy of the internal controls report.

90) Which of the following practices isnot considered an effective means of reengineering business systems?

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A) Identifying the best practices used by world-class competitors B) Improving the accuracy of cost allocations C) Increasing non-value added activities D) All of these are effective means of reengineering business systems.

91) Levenworth Company incurs unnecessary costs each period because of the excess quantities of inventory maintained to meet unexpected customer demand. The costs of inventory financing, storage, supervision, and obsolescence could most likely be reduced by which of the following practices?

A) Activity-based costing B) Just-in-time inventory C) Total quality management D) Benchmarking

92)

Which of the following isnot an element that is typically present when fraud occurs?

A) Separating duties B) Opportunity C) Pressure D) Rationalize

93)

Which of the following best represents a characteristic of managerial accounting?

A) Information is historically based and reported annually. B) Information is based on estimates and is bounded by relevance and timeliness. C) Information is regulated by the Securities and Exchange Commission. D) Information is characterized by reliability and objectivity.

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94)

Which of the following statements concerning manufacturing costs isincorrect?

A) All salaries incurred by the sales department are expensed as incurred. B) Direct labor costs are recorded initially in an inventory account. C) Depreciation on manufacturing equipment is a period cost. D) The cost of direct materials can be readily traced to products.

95) Steuben Company produces dog houses. During the current year, Steuben Company incurred the following costs: Rent on manufacturing facility Office manager's salary Wages of factory machine operators Depreciation on manufacturing equipment Insurance and taxes on selling and administrative offices Direct materials purchased and used

$ 250,000 150,000 110,000 50,000 30,000 170,000

Wages paid to factory machine operators in producing the dog houses should be categorized as: A) a product cost and recorded in the inventory account B) a period cost and recorded on the income statement C) a product cost and recorded on the income statement D) a period cost and recorded in the inventory account

96) Steuben Company produces dog houses. During the current year, Steuben Company incurred the following costs: Rent on manufacturing facility Office manager's salary Wages of factory machine operators Depreciation on manufacturing equipment Insurance and taxes on selling and administrative offices Direct materials purchased and used

$ 119,000 68,000 48,000 18,000 8,000 78,000

Based on the above information, the amount of period costs shown on Steuben's income statement is:

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A) $195,000 B) $8,000 C) $68,000 D) $76,000

97) Steuben Company produces dog houses. During the current year, Steuben Company incurred the following costs: Rent on manufacturing facility Office manager's salary Wages of factory machine operators Depreciation on manufacturing equipment Insurance and taxes on selling and administrative offices Direct materials purchased and used

$ 250,000 150,000 110,000 50,000 30,000 170,000

Based on the above information, the amount of period costs shown on Steuben's income statement is: A) $430,000 B) $150,000 C) $30,000 D) $180,000

98) Steuben Company produces dog houses. During the current year, Steuben Company incurred the following costs: Rent on manufacturing facility Office manager's salary Wages of factory machine operators Depreciation on manufacturing equipment Insurance and taxes on selling and administrative offices Direct materials purchased and used

$ 250,000 150,000 110,000 50,000 30,000 170,000

Based on the above information, which of the following would not be treated as a product cost:

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A) Office manager's salary B) Rent expense incurred on manufacturing facility C) Depreciation on manufacturing equipment D) Wages of factory machine operators

99)

The benefits of a just-in-time system would include all of the followingexcept:

A) increased warehousing costs. B) reduced inventory holding costs. C) improved customer satisfaction. D) decrease in the number of suppliers.

100)

The Sarbanes Oxley Act of 2002:

A) prohibits CPA's from becoming managerial accountants. B) created Generally Accepted Accounting principles (GAAP). C) requires the CEO and CFO to defer responsibility for internal controls to external auditors. D) requires management to establish a whistleblower policy.

101) A systematic problem-solving philosophy that encourages front line workers to achieve zero defects is known as:

A) just-in-time (JIT). B) total quality management (TQM). C) activity based management (ABM). D) None of these

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102) Randall Company manufactures chocolate bars. The following were among Randall's manufacturing costs during the current year: Wages: Machine operators Selling and administrative personnel Materials used:

$ 210,000 $ 66,000

Lubricant for oiling machinery Cocoa, sugar, and other raw materials Packaging materials

$ 16,000 $ 160,000 $ 100,000

Randall's direct labor costs amounted to: A) $157,000 B) $292,000 C) $276,000 D) $210,000

103) Randall Company manufactures chocolate bars. The following were among Randall's manufacturing costs during the current year: Wages Machine operators Selling and administrative personnel Materials used

$ 300,000 $ 75,000

Lubricant for oiling machinery Cocoa, sugar, and other raw materials Packaging materials

$ 25,000 $ 225,000 $ 190,000

Randall's direct labor costs amounted to: A) $400,000. B) $300,000. C) $175,000. D) $375,000.

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104) Randall Company manufactures chocolate bars. The following were among Randall's manufacturing costs during the current year: Wages: Machine operators Selling and administrative personnel Materials used:

$ 310,000 $ 76,000

Lubricant for oiling machinery Cocoa, sugar, and other raw materials Packaging materials

$ 26,000 $ 260,000 $ 200,000

Randall's direct materials amounted to: A) $26,000 B) $286,000 C) $487,000 D) $260,000

105) Randall Company manufactures chocolate bars. The following were among Randall's manufacturing costs during the current year: Wages Machine operators Selling and administrative personnel Materials used

$ 300,000 $ 75,000

Lubricant for oiling machinery Cocoa, sugar, and other raw materials Packaging materials

$ 25,000 $ 225,000 $ 190,000

Randall's direct materials amounted to: A) $25,000. B) $225,000. C) $250,000. D) $475,000.

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106) Which of the following items would be reported directly on the income statement as a period cost?

A) Selling and administrative salaries B) Cost of lubricant for oiling machinery C) Wages paid to machine operators D) All of these

107)

If cash is used to purchase materials, what is the impact on the financial statements? A) Total stockholders’ equity decreases B) Net income decreases C) Inventory increases D) Cash increases

108) Managerial accounting systems consider economic and non-financial data as well as financial statement data. ⊚ ⊚

true false

109) Most internal users of accounting information need primarily global information that reflects the performance of the company as a whole. ⊚ ⊚

true false

110) Senior executives focus on financial data when comparing the performance of their companies to that of competitors.

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⊚ ⊚

true false

111) Managerial accounting is designed to satisfy needs of external users including creditors, investors, and governmental agencies. ⊚ ⊚

112)

Managerial accounting focuses primarily on the performance of the company as a whole. ⊚ ⊚

113)

true false

Product costs include materials, labor, and selling and administrative costs. ⊚ ⊚

true false

114) Average costs are used for internal decision-making, but actual costs are required for calculating cost of goods sold. ⊚ ⊚

true false

115) The biggest challenge in computing the total cost per unit of a product is determining the amount of overhead cost that should be assigned to each unit. ⊚ ⊚

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true false

116) Distinguishing between product and period costs is sometimes guided by the value-added principle. ⊚ ⊚

true false

117) Period costs are initially recorded in asset accounts and are later expensed in the period when the related units are sold. ⊚ ⊚

true false

118) Product costs are immediately recorded in expense accounts when the products are manufactured. ⊚ ⊚

true false

119) Costs that are not classified as product costs are normally expensed in the period incurred. ⊚ ⊚

true false

120) During its first year of operations, a company that incurred $1,600 in production costs reported cost of goods sold of $970 and selling costs of $270. The company’s ending finished goods inventory was $630. ⊚ ⊚

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true false

121) During its first year of operations, a company that incurred $1,000 in production costs reported cost of goods sold of $800 and selling costs of $100. The company’s ending finished goods inventory was $300. ⊚ ⊚

true false

122) A company uses sandpaper to prepare its product for finishing. Most manufacturers would classify the sandpaper as direct material because it is physically consumed in the production process. ⊚ ⊚

true false

123) Cash paid to production workers should be recorded as Wages Expense in the income statement for the period incurred. ⊚ ⊚

true false

124) For a manufacturing company, both direct labor costs and indirect labor costs are classified as product costs. ⊚ ⊚

125)

true false

Product costs flow from the balance sheet to the income statement. ⊚ ⊚

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true false

126) Unlike direct material and direct labor costs, overhead costs must be allocated to products. ⊚ ⊚

true false

127) Depreciation on manufacturing equipment is an indirect product cost, while depreciation on office equipment is a period cost. ⊚ ⊚

true false

128) Upstream costs are classified as product costs and downstream costs are classified as period costs for financial reporting purposes. ⊚ ⊚

true false

129) All costs incurred prior to delivery of the product to the customer are referred to as upstream costs. ⊚ ⊚

130)

true false

Transportation costs incurred to transfer products to customers are downstream costs. ⊚ ⊚

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true false

131)

Unlike manufacturers, service companies do not have an inventory of products. ⊚ ⊚

true false

132) The primary difference between manufacturing companies and service companies is that the products provided by service companies are consumed immediately. ⊚ ⊚

true false

133) A merchandising business paid $2,100 to purchase inventory and $500 to have the inventory delivered to its customers. Its product costs were $2,600. ⊚ true ⊚ false

134) A merchandising business paid $2,500 to purchase inventory and $50 to have the inventory delivered to its customers. Its product costs were $2,550. ⊚ ⊚

true false

135) A manufacturing business paid $3,000 to purchase inventory. As a result, assets would increase by $3,000. ⊚ ⊚

true false

136) A just-in-time system can lower inventory holding costs and increase customer satisfaction.

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⊚ ⊚

137)

The objective of a just-in-time inventory system is to totally eliminate all inventories. ⊚ ⊚

138)

true false

Just-in-time systems can be used by both manufacturing and merchandising companies. ⊚ ⊚

true false

139) A potential negative effect of using a just-in-time inventory system is the immediate impact of labor strikes on the transportation system such as railroad. ⊚ ⊚

true false

140) Costs associated with holding inventory include hidden costs, such as low employee motivation. ⊚ ⊚

true false

141) Because management accountants prepare and analyze financial information used by company decision-makers, they are considered to be at the forefront of corporate governance. ⊚ ⊚

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true false

142) Assuming that the number of units produced exceeds the number of units sold, misclassifying period costs as product costs will overstate net income relative to what net income would be without this error. ⊚ ⊚

true false

143) Misclassifying a product cost as a period cost will usually cause the income statement to be incorrect, but the balance sheet will not be affected. ⊚ ⊚

true false

144) Assuming that the inventory on hand at the end of the period is sold during the following period, misclassifying a period cost as a product cost during a period will usually correct itself in the following period. ⊚ ⊚

true false

145) If product costs are misclassified as selling costs, the average cost per unit will be understated. ⊚ ⊚

true false

146) With respect to income taxes, managers would prefer to classify costs as assets rather than expenses. ⊚ ⊚

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true false

147) The four Standards of Ethical Conduct for Management Accountants relate to competence, confidentiality, integrity, and objectivity. ⊚ true ⊚ false

148) Karen is a Certified Management Accountant and is bound by the IMA's Standards of Ethical Conduct. Her superior has asked her to try to influence the firm's outside auditors with expensive gifts and favors. If Karen complies, she will violate the competence standard. ⊚ ⊚

149)

true false

Opportunity, pressure and rationalization are the three elements of the fraud triangle. ⊚ ⊚

true false

150) Under the terms of the Sarbanes-Oxley Act, a company and its external auditor are required to report on the effectiveness of the company's system of internal controls. ⊚ ⊚

true false

151) According to the Sarbanes-Oxley Act, a company's audit committee is responsible for its system of internal controls. ⊚ ⊚

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true false

152) The Sarbanes-Oxley Act allows, but does not require, a corporation to establish a whistleblower policy. ⊚ ⊚

true false

153) The philosophy of encouraging workers to achieve zero defects and high customer satisfaction is known as total quality management. ⊚ ⊚

true false

154) The sequence of activities through which an organization provides products to its customers is called a supply chain. ⊚ ⊚

true false

155) The time spent moving a product from one processing department to the next processing department is an example of a value-added activity. ⊚ ⊚

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true false

Answer Key Test name: Chap 01_10e_Edmonds 1) [B, E] 2) [A, D] 3) [C, D] 4) [A, D, E] 5) D 6) C 7) B 8) D 9) C 10) D 11) A 12) C 13) C 14) D 15) A 16) B 17) B 18) A 19) B 20) D 21) A 22) A 23) C 24) B 25) D 26) D Version 1

27) C 28) A 29) A 30) D 31) C 32) B 33) C 34) B 35) A 36) C 37) D 38) B 39) D 40) A 41) D 42) B 43) C 44) C 45) B 46) A 47) A 48) B 49) A 50) A 51) D 52) B 53) C 54) A 55) C 56) B Version 1

57) A 58) B 59) A 60) A 61) A 62) D 63) D 64) B 65) C 66) D 67) A 68) B 69) C 70) D 71) D 72) A 73) D 74) B 75) E 76) B 77) C 78) B 79) B 80) A 81) C 82) D 83) B 84) B 85) D 86) B Version 1

87) D 88) A 89) C 90) C 91) B 92) A 93) B 94) C 95) A 96) D 97) D 98) A 99) A 100) D 101) B 102) D 103) B 104) D 105) B 106) A 107) C 108) TRUE 109) FALSE 110) TRUE 111) FALSE 112) FALSE 113) FALSE 114) FALSE 115) TRUE 116) FALSE Version 1

117) FALSE 118) FALSE 119) TRUE 120) TRUE 121) FALSE 122) FALSE 123) FALSE 124) TRUE 125) TRUE 126) TRUE 127) TRUE 128) FALSE 129) FALSE 130) TRUE 131) TRUE 132) TRUE 133) FALSE 134) FALSE 135) FALSE 136) TRUE 137) FALSE 138) TRUE 139) TRUE 140) TRUE 141) TRUE 142) TRUE 143) FALSE 144) TRUE 145) TRUE 146) FALSE Version 1

147) TRUE 148) FALSE 149) TRUE 150) TRUE 151) FALSE 152) FALSE 153) TRUE 154) FALSE 155) FALSE

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Chapter 2 Cost Behavior, Operating Leverage, and Profitability Analysis 1) Java Joe operates a chain of coffee shops. The company pays rent of $20,000 per year for each shop. Supplies (napkins, bags, and condiments) are purchased as needed. The manager of each shop is paid a salary of $3,000 per month, and all other employees are paid on an hourly basis. Relative to the number of customers for a shop, the cost of supplies is which kind of cost?

A) Fixed cost B) Variable cost C) Mixed cost D) Relevant cost

Select the correct statement regarding fixed costs.

A) Because they do not change, fixed costs should be ignored in decision making. B) The fixed cost per unit decreases when volume increases. C) The fixed cost per unit increases when volume increases. D) The fixed cost per unit does not change when volume decreases.

3) Larry's Lawn Care incurs significant gasoline costs. This cost would be classified as a variable cost if the total gasoline cost:

A) varies inversely with the number of hours the lawn equipment is operated. B) is not affected by the number of hours the lawn equipment is operated. C) increases in direct proportion to the number of hours the lawn equipment is operated. D) None of these are correct.

Select the correct statement regarding fixed costs.

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A) There is a contradiction between the term "fixed cost per unit" and the behavior pattern implied by the term. B) Fixed cost per unit is not fixed. C) Total fixed cost remains constant when volume changes. D) All of these are correct statements.

5) Rock Creek Bottling Company pays its production manager a salary of $6,000 per month. Salespersons are paid strictly on commission, at $1.50 for each case of product sold. For Rock Creek Bottling Company, the production manager's salary is an example of:

A) a variable cost. B) a mixed cost. C) a fixed cost. D) None of these

6) Rock Creek Bottling Company pays its production manager a salary of $6,000 per month. Salespersons are paid strictly on commission, at $1.50 for each case of product sold. For Rock Creek Bottling Company, the cost of the salespersons' commissions is an example of:

A) a fixed cost. B) a variable cost. C) a mixed cost. D) none of these

7) Based on the following cost data, what conclusions can you make about the costs of Product A and Product B? Production: Product A

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Total Cost Product B

10 units 100 units 1,000 units Production: 10 units 100 units 1,000 units

$ 100 $ 1,000 $ 10,000 Product A ? ? ?

? ? ? Unit Cost Product B $ 10,000 $ 1,000 $ 100

A) The cost of Product A is a fixed cost and the cost of Product B is a variable cost. B) The cost of Product A is a variable cost and the cost of Product B is a fixed cost. C) The costs of Product A and Product B are both variable costs. D) The costs of Product A and Product B are both mixed costs.

8) Based on the behavior shown in the following table, which of the following is a variable cost? Units Produced Cost Per Unit of Materials Cost Per Unit of Labor Total Utilities Cost

2 500 500 4,500

3 500 333 4,500

4 500 250 4,500

5 500 200 4,500

A) Materials Cost B) Labor Cost C) Utilities Cost D) All of the costs are variable

9) At a production and sales level of 2,375 units, Bastion Company incurred $80,000 of fixed cost and $76,000 of variable cost. When 8,000 units of product are produced and sold the company's cost per unit is: Note: Round your final answer to whole dollars.

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A) $47. B) $64. C) $80. D) $42.

10) At a production and sales level of 2,545 units, Bastion Company incurred $70,000 of fixed cost and $56,000 of variable cost. When 6,000 units of product are produced and sold the company's cost per unit is: A) $46. B) $39. C) $34. D) $44.

11) The following variable manufacturing costs apply to goods produced by Bitty Corporation. Item Materials Labor Overhead Total

Cost per unit $ 3.60 3.10 2.10 $ 8.80

Determine the total variable manufacturing cost if Bitty produces 4,600 units. A) $16,560 B) $9,660 C) $40,480 D) $14,260

12) The following variable manufacturing costs apply to goods produced by Bitty Corporation. Item

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Cost per unit

Materials Labor Overhead

$ 4.00 3.50 2.50

Total

$ 10.00

Determine the total variable manufacturing cost if Bitty produces 3,000 units. A) $12,000 B) $10,500 C) $7,500 D) $30,000

13) Wu Company incurred $38,000 of fixed cost and $30,000 of variable cost when 11,500 units of product were made and sold. If the company's volume increases to 14,000 units, the company's total fixed costs will be: A) $34,761 B) $38,000 C) $68,000 D) $72,761

14) Wu Company incurred $36,500 of fixed cost and $28,500 of variable cost when 10,000 units of product were made and sold. If the company's volume increases to 12,500 units, the company's total fixed costs will be: A) $35,625 B) $36,500 C) $65,000 D) $72,125

15) Ryan Company incurred $64,000 of fixed cost and $207,900 of variable cost when 33,000 units of product were made and sold. If the company's volume decreases to 28,000 units, the company's total variable costs will be:

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A) $63,206 B) $176,400 C) $207,900 D) $233,900

16) Ryan Company incurred $51,000 of fixed cost and $100,000 of variable cost when 20,000 units of product were made and sold. If the company's volume decreases to 15,000 units, the company's total variable costs will be: A) $50,000 B) $75,000 C) $100,000 D) $126,000

17) unit:

Two different costs incurred by Ruiz Company exhibit the following behavior pattern per

Units Sold 60 120 180 240 Cost Number 1 $ 19 per unit $ 19 per unit $ 19 per unit $ 19 per unit Cost Number 2 $ per unit $ per unit $ per unit $ per unit 828 414 276 207

Cost Number 1 and Cost Number 2 exhibit which of the following cost behavior patterns, respectively? A) Fixed and variable B) Variable and Fixed C) Variable and variable D) Fixed and variable

18) unit:

Two different costs incurred by Ruiz Company exhibit the following behavior pattern per Units Sold

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50 100 150 200 Cost Number 1 $ 14 per unit $ 14 per unit $ 14 per unit $ 14 per unit Cost Number 2 $ per unit $ per unit $ per unit $ per unit 600 300 200 150

Cost Number 1 and Cost Number 2 exhibit which of the following cost behavior patterns, respectively? A) Variable and fixed B) Fixed and variable C) Variable and variable D) Fixed and fixed

19) Based on the following cost data, items labeled (a) and (b) in the table below are which of the following amounts, respectively? Number of units: Total cost:

1,000

2,000

Variable Fixed Cost per unit:

$ 5,000 $ 3,400

$ 10,000 $ 3,400

$ 5.0 $ 3.4

(a) (b)

Variable Fixed

A) (a) = $5.00; (b) = $1.70 B) (a) = $3.53; (b) = $3.00 C) (a) = $5.00; (b) = $3.40 D) (a) = $2.50; (b) = $1.7

20) Based on the following cost data, items labeled (a) and (b) in the table below are which of the following amounts, respectively? Number of units: Total cost: Variable Fixed

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1,500

3,000

$ 7,500 $ 6,000

$ 15,000 $ 6,000

Cost per unit: Variable Fixed

$ 5 $ 4

(a) (b)

A) (a) = $3.00; (b) = $3.00 B) (a) = $5.00; (b) = $4.00 C) (a) = $2.50; (b) = $2.00 D) (a) = $5.00; (b) = $2.00

21) unit:

Two different costs incurred by Ruiz Company exhibit the following behavior pattern per Units Sold

Cost Number 1 Cost Number 2

50 $ per unit 300 $ 2 per unit

100 $ per unit 150 $ 2 per unit

150 $ per unit 100 $ 2 per unit

200 $ per unit 75 $ 2 per unit

Cost Number 1 and Cost Number 2 exhibit which of the following cost behavior patterns, respectively? A) Fixed and variable B) Variable and variable C) Fixed and fixed D) Variable and fixed

22) Wu Company incurred $48,600 of fixed cost and $59,400 of variable cost when 2,200 units of product were made and sold. If the company's volume doubles, the total cost per unit will: A) stay the same. B) decrease. C) increase but will not double. D) double as well.

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23) Wu Company incurred $40,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold. If the company's volume doubles, the total cost per unit will: A) stay the same. B) decrease. C) double as well. D) increase but will not double.

24) Wu Company incurred $44,200 of fixed cost and $54,600 of variable cost when 2,100 units of product were made and sold. If the company's volume increases to 2,600 units, the total cost per unit will be: A) $17. B) $43. C) $38. D) $21.

25) Wu Company incurred $40,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold. If the company's volume increases to 5,000 units, the total cost per unit will be: A) $18.00. B) $20.00. C) $20.50. D) $22.50.

26) Wu Company incurred $50,000 of fixed cost and $55,000 of variable cost when 5,000 units of product were made and sold. If the company's volume increases to 6,000 units, the company's total costs will be: Note: Round your intermediate calculations to 2 decimal places. Version 1

A) $91,667 B) $110,000 C) $116,000 D) $83,333

27) Wu Company incurred $40,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold. If the company's volume increases to 5,000 units, the company's total costs will be: A) $100,000 B) $90,000 C) $102,500 D) $80,000

28) Wu Company incurred $33,000 of fixed cost and $33,000 of variable cost when 3,300 units of product were made and sold. If the company's volume doubles, the company's total cost will: A) stay the same. B) double as well. C) increase but will not double. D) decrease.

29) Wu Company incurred $40,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold. If the company's volume doubles, the company'stotal cost will:

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A) stay the same. B) double as well. C) increase but will not double. D) decrease.

30) In the graph below, which depicts the relationship between units produced and total cost, the dotted line depicts which type of total cost?

A) Variable cost B) Fixed cost C) Mixed cost D) None of these

31) In the graph below, which depicts the relationship between units produced and unit cost, the dotted line depicts which type of cost per unit?

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A) Variable cost B) Fixed cost C) Mixed cost D) None of these

32) In the graph below, which depicts the relationship between units produced and total cost, the dotted line depicts which type of total cost?

A) Variable cost B) Fixed cost C) Mixed cost D) None of these

33) Pickard Company pays its sales staff a base salary of $5,500 a month plus a $2.50 commission for each product sold. If a salesperson sells 550 units of product in January, the employee would be paid: A) $6,875. B) $5,500. C) $4,125. D) $1,375.

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34) Pickard Company pays its sales staff a base salary of $4,500 a month plus a $3.00 commission for each product sold. If a salesperson sells 800 units of product in January, the employee would be paid:

A) $6,900. B) $4,500. C) $2,300. D) $2,700.

35) Quick Change and Fast Change are competing oil change businesses. Both companies have 2,600 customers. The price of an oil change at both companies is $12. Quick Change pays its employees on a salary basis, and its salary expense is $10,400. Fast Change pays its employees $4 per customer served. Suppose Quick Change lures 1,100 customers from Fast Change by lowering its price to $10 per vehicle. Thus, Quick Change will have 3,700 customers and Fast Change will have only 1,500 customers. Select the correct statement from the following. A) Quick Change's profit will remain the same while Fast Change's profit will decrease. B) Fast Change's profit will fall but it will still earn a higher profit than Quick Change. C) Quick Change's profit will increase while Fast Change's profit will fall. D) Profits will decline for both Quick Change and Fast Change.

36) Quick Change and Fast Change are competing oil change businesses. Both companies have 5,000 customers. The price of an oil change at both companies is $20. Quick Change pays its employees on a salary basis, and its salary expense is $40,000. Fast Change pays its employees $8 per customer served. Suppose Quick Change lures 1,000 customers from Fast Change by lowering its price to $18 per vehicle. Thus, Quick Change will have 6,000 customers and Fast Change will have only 4,000 customers. Select the correct statement from the following. A) Quick Change's profit will increase while Fast Change's profit will fall. B) Fast Change's profit will fall but it will still earn a higher profit than Quick Change. C) Profits will decline for both Quick Change and Fast Change. D) Quick Change's profit will remain the same while Fast Change's profit will decrease.

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37) Hard Nails and Bright Nails are competing nail salons. Both companies have the same number of customers. Both charge the same price for a manicure. The only difference is that Hard Nails pays its manicurists on a salary basis (i.e., a fixed cost structure) while Bright Nails pays its manicurists on the basis of the number of customers they serve (i.e., a variable cost structure). Both companies currently make the same amount of net income. If sales of both salons increase by an equal amount, Hard Nails:

A) will earn a higher profit than Bright Nails. B) will earn a lower profit than Bright Nails. C) will earn the same amount of profit as Bright Nails. D) The answer cannot be determined from the information provided.

38)

Fixed cost per unit:

A) decreases as production volume decreases. B) is not affected by changes in the production volume. C) decreases as production volume increases. D) increases as production volume increases.

39) Cool Runnings operates a chain of frozen yogurt shops. The company pays $5,000 of rent expense per month for each shop. The managers of each shop are paid a salary of $3,000 per month and all other employees are paid on an hourly basis. Relative to the number of shops, the cost of rent is which kind of cost?

A) Variable cost B) Fixed cost C) Mixed cost D) Opportunity cost

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40) Companies A and B are in the same industry and are identical except for cost structure. At a volume of 50,000 units, the companies have equal net incomes. At 60,000 units, Company A's net income would be substantially higher than B's. Based on this information,

A) Company A's cost structure has more variable costs than B's. B) Company A's cost structure has higher fixed costs than B's. C) Company B's cost structure has higher fixed costs than A's. D) At a volume of 50,000 units, Company A's magnitude of operating leverage was lower than B's.

41)

Operating leverage exists when:

A) a company utilizes debt to finance its assets. B) management buys enough of the company's shares of stock to take control of the corporation. C) the organization makes purchases on credit instead of paying cash. D) small percentage changes in revenue produce large percentage changes in profit.

42)

For the last two years BRC Company had net income as follows:

Net Income

Year 1

Year 2

$96,000

$116,000

What was the percentage change in income from Year 1 to Year 2? A) 17.24% increase B) 17.24% decrease C) 20.83% decrease D) 20.83% increase

43)

For the last two years BRC Company had net income as follows: Year 1

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Year 2

Net Income

$160,000

$200,000

What was the percentage change in income from Year 1 to Year 2? A) 20% increase B) 20% decrease C) 25% increase D) 25% decrease

44) Tutor, Incorporated (TI) provides instructional services to its customers. TI charges $330 per student. The company expects to serve 1,150 students during the coming year. All of the company's expenses are fixed. Total annual fixed costs are projected to be $125,000. If the estimated number of students increase by 20%, net income will increase by: Note: Round your final answer to the nearest percent. A) 30%. B) 40%. C) 60%. D) 20%.

45) Tutor, Incorporated (TI) provides instructional services to its customers. TI charges $300 per student. The company expects to serve 1,000 students during the coming year. All of the company's expenses are fixed. Total annual fixed costs are projected to be $110,000. If the estimated number of students increase by 10%, net income will increase by: A) 10%. B) 16%. C) 20%. D) 30%.

46) Tutor, Incorporated (TI) provides instructional services to its customers. TI charges $350 per student. The company expects to serve 1,250 students during the coming year. All of the company's expenses are fixed. Total annual fixed costs are projected to be $135,000. If the estimated number of students decreases by 20%, net income will Version 1

A) increase by 29%. B) decrease by 29%. C) decrease by 20%. D) increase by 20%.

47) Tutor, Incorporated (TI) provides instructional services to its customers. TI charges $300 per student. The company expects to serve 1,000 students during the coming year. All of the company's expenses are fixed. Total annual fixed costs are projected to be $110,000. If the estimated number of students decreases by 10%, net income will

A) increase by 10%. B) increase by 16%. C) decrease by 10%. D) decrease by 16%.

48) Assume a company sold 37 units in Year 1 and 220 units in Year 2. What is the percentage change in units sold from Year 1 to Year 2? A) 495% B) 134% C) 34% D) 5%

49) Assume a company sold 30 units in Year 1 and 150 units in Year 2. What is the percentage change in units sold from Year 1 to Year 2? A) 4% B) 40% C) 140% D) 400%

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50)

Shifting the cost structure from fixed to variable A) increases risk by decreasing operating leverage. B) increases risk by increasing operating leverage. C) reduces risk by decreasing operating leverage. D) reduces risk by increasing operating leverage.

51)

Assuming a firm has no operating leverage, a small change in revenue will result in A) no change in profitability B) a small change in profitability. C) a large change in profitability. D) The answer cannot be determined from this information.

52) Finley Company is currently operating profitably. The company has a fixed cost structure . Based on this information, which of the following statements is true? A) If volume increases by 40%, profitability will increase by less than 40%. B) If volume increases by 40%, profitability will increase by 40%. C) If volume increases by 40%, profitability will decrease by 40%. D) If volume increases by 40%, profitability will increase by more than 40%.

53) The activity director for City Recreation is planning an activity. She is considering alternative ways to set up the activity's cost structure. Select the incorrect statement from the following.

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A) If the director expects a low turnout, she should use a fixed cost structure. B) If the director expects a large turnout, she should attempt to convert variable costs into fixed costs. C) If the director shifts the cost structure from fixed to variable, the level of risk decreases. D) If the director shifts the cost structure from fixed to variable, the potential for profits will be reduced.

54)

Select thecorrect statement regarding the relationship between cost behavior and profits.

A) A pure variable cost structure offers higher potential rewards. B) A pure fixed cost structure offers more security if volume expectations are not achieved. C) In a pure variable cost structure, when revenue increases by $1, so do profits. D) In a pure fixed cost structure, the unit selling price and unit contribution margin are equal.

55)

Select thecorrect statement from the following.

A) A fixed cost structure offers less risk (i.e., less earnings volatility) and higher opportunity for profitability than does a variable cost structure. B) A variable cost structure offers less risk and higher opportunity for profitability than does a fixed cost structure. C) A fixed cost structure offers greater risk but higher opportunity for profitability than does a variable cost structure. D) A variable cost structure offers greater risk but higher opportunity for profitability than does a fixed cost structure.

56) The manager of Kenton Company stated that 45% of its total costs were fixed. The manager was describing the company's:

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A) operating leverage. B) contribution margin. C) cost structure. D) cost averaging.

57)

Select theincorrect statement regarding cost structures.

A) Highly leveraged companies will experience greater profits than companies less leveraged when sales increase. B) The more variable cost, the higher the fluctuation in income as sales fluctuate. C) When sales change, the amount of the corresponding change in income is affected by the company's cost structure. D) Faced with significant uncertainty about future revenues, a low leverage cost structure is preferable to a high leverage cost structure.

58) Executive management at Ballard Books is very optimistic about the chain's ability to achieve significant increases in sales in each of the next five years. The company will most benefit if management creates a:

A) low operating leverage cost structure. B) medium operating leverage cost structure. C) high operating leverage cost structure. D) no operating leverage cost structure.

59) Based on the income statements shown below, which division has the cost structure with the highest operating leverage? Soft Drinks Revenue Variable costs Contribution margin

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$ 62,000 (16,000) 46,000

Bottled Water Fruit Juices $ 62,000 (8,000) 54,000

$ 62,000 (36,000) 26,000 20

Fixed costs

(36,340)

(46,340)

(9,660)

Net income

$ 9,660

$ 7,660

$ 16,340

A) Bottled Water. B) Fruit Juices. C) Soft Drinks. D) The three divisions have identical operating leverage.

60) Based on the income statements shown below, which division has the cost structure with the highest operating leverage? Soft Drinks

Bottled Water Fruit Juices

Revenue Variable costs

$ 50,000 (10,000)

$ 50,000 (5,000)

$ 50,000 (30,000)

Contribution margin Fixed costs

40,000 (30,000)

45,000 (40,000)

20,000 (10,000)

Net income

$ 10,000

$ 5,000

$ 10,000

A) Bottled Water. B) Fruit Juices. C) Soft Drinks. D) The three divisions have identical operating leverage.

61) The following income statements are provided for two companies operating in the same industry: Revenue Variable costs Contribution margin Fixed costs Net income

Felix Company

Jinx Company

$ 208,000 (45,760) 162,240 (89,232) $ 73,008

$ 208,000 (89,232) 118,768 (45,760) $ 73,008

Assuming sales increase by $1,040, select the correct statement from the following:

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A) Felix’s net income will be more than Jinx’s. B) Only Felix will experience an increase in profit. C) Felix's net income will increase by $250. D) Jinx's net income will increase by 6%.

62) The following income statements are provided for two companies operating in the same industry: Revenue Variable costs

Felix Company

Jinx Company

$ 200,000 (25,000)

$ 200,000 (70,000)

175,000 (70,000)

130,000 (25,000)

$ 105,000

Contribution margin Fixed costs Net income

Assuming sales increase by $1,000, select the correct statement from the following: A) Felix's net income will be more than Jinx's. B) Only Felix will experience an increase in profit. C) Felix's net income will increase by $250. D) Jinx's net income will increase by 6%.

63)

The excess of revenue over variable costs is referred to as:

A) gross profit B) gross margin C) contribution margin D) manufacturing margin

64)

Select the incorrect statement regarding the contribution margin income statement.

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A) The contribution margin approach for the income statement is unacceptable for external reporting. B) Contribution margin represents the amount available to cover product costs and thereafter to provide profit. C) The contribution margin approach requires that all costs be classified as fixed or variable. D) Assuming no change in fixed costs, a $1 increase in contribution margin will result in a $1 increase in profit.

65) Which of the following items wouldnot be found on a contribution format income statement?

A) Fixed cost B) Variable cost C) Gross margin D) Net income

66)

The following income statement is provided for Ramirez Company for the current year:

Sales revenue (2,600 units × $20.10 per unit) Cost of goods sold (variable; 2,600 units × $8.10 per unit) Cost of goods sold (fixed) Gross margin Administrative salaries Depreciation Supplies (2,600 units × $2.10 per unit) Net income

$ 52,260 (21,060) (4,100) 27,100 (6,100) (4,100) (5,460) $ 11,440

What amount was the company's contribution margin? A) $25,740 B) $11,440 C) $27,100 D) $31,200

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67)

The following income statement is provided for Ramirez Company for the current year:

Sales revenue (2,500 units × $40 per unit) Cost of goods sold (variable; 2,500 units × $16 per unit) Cost of goods sold (fixed) Gross margin Administrative salaries Depreciation Supplies (2,500 units × $4 per unit) Net income

$100,000 (40,000) (8,000) 52,000 (12,000) (8,000) (10,000) $ 22,000

What amount was the company's contribution margin? A) $50,000 B) $22,000 C) $52,000 D) $60,000

68) The following information was drawn from the accounting records of Dark Night, Incorporated: Income Statement Sales Revenue (230 @ $580 per unit) Cost of Goods Sold: Variable (230 @ $280 per unit) Gross Margin

$ 133,400 (64,400) 69,000

Sales Commissions (230 @ $20) Fixed Period Expenses Net Income

(4,600) (15,000) $ 49,400

Based on this information, Dark Night’s contribution margin is: A) $118,400. B) $49,400. C) $61,400. D) $64,400.

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69) The following information was drawn from the accounting records of Dark Night, Incorporated: Income Statement Sales Revenue (350 @ $700 per unit) Cost of Goods Sold: Variable (350 @ $400 per unit) Gross Margin

$ 245,000 (140,000) 105,000

Sales Commissions (350 @ $40) Fixed Period Expenses Net Income

(14,000) (14,000) $ 77,000

Based on this information, Dark Night’s contribution margin is: A) $77,000. B) $88,000. C) $91,000. D) $231,000.

70) Omega Company has sales of $324,000 and cost of goods sold of $212,000. The cost of goods sold is a variable cost. The Company incurred $32,000 of fixed operating expenses and $46,000 of variable operating expenses. Based on this information A) net income is $34,000 under the gross margin format and $112,000 under the contribution margin format. B) net income is $112,000 under the gross margin format and $34,000 under the contribution margin format. C) the company's gross margin is $112,000, while its contribution margin is $66,000. D) the company's gross margin is $66,000, while its contribution margin is $112,000.

71) Omega Company has sales of $320,000 and cost of goods sold of $210,000. The cost of goods sold is a variable cost. The Company incurred $30,000 of fixed operating expenses and $45,000 of variable operating expenses. Based on this information

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A) the company's gross margin is $65,000, while its contribution margin is $110,000. B) net income is $110,000 under the gross margin format and $35,000 under the contribution margin format. C) net income is $35,000 under the gross margin format and $110,000 under the contribution margin format. D) the company's gross margin is $110,000, while its contribution margin is $65,000.

72) Sam Company sells dog toys. Each toy is priced at $9. The variable cost per unit is $3, and the fixed cost per unit is $1. If Sam sells 175 dog toys, what is the total contribution margin? A) $525 B) $1,050 C) $175 D) $1,400

73) Sam Company sells dog toys. Each toy is priced at $9. The variable cost per unit is $4, and the fixed cost per unit is $1. If Sam sells 100 dog toys, what is the total contribution margin? A) $100 B) $500 C) $800 D) $400

74)

The following information is provided for Sax Company:

Sales revenue Fixed costs Variable costs

$ 2,700,000 520,000 320,000

What is this company's contribution margin?

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A) $2,180,000 B) $1,860,000 C) $2,380,000 D) $3,020,000

75)

The following information is provided for Sax Company:

Sales revenue Fixed costs Variable costs

$ 2,500,000 500,000 300,000

What is this company's contribution margin? A) $2,000,000 B) $1,700,000 C) $2,200,000 D) $2,800,000

76)

In order to prepare a contribution format income statement, costs must be separated into:

A) manufacturing and selling, general, and administrative costs. B) cost of goods sold and operating expenses. C) variable and fixed costs. D) mixed, variable and fixed costs.

77)

Select from the following theincorrect statement regarding contribution margin.

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A) Sales − Fixed costs = Contribution margin B) Net income + Total fixed costs = Contribution margin C) At the breakeven point (where the company has neither profit nor loss), Total fixed costs = Total contribution margin D) Total sales revenue times the contribution margin percentage = Total contribution margin

78)

The following information is provided for Southall Company:

Sales revenue Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs Fixed selling and administrative costs

$ 292,000 99,000 61,000 44,000 39,000

What is this company's contribution margin? A) $88,000 B) $49,000 C) $132,000 D) $149,000

79)

The following information is provided for Southall Company:

Sales revenue Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs Fixed selling and administrative costs

$ 125,000 42,500 37,500 15,000 12,500

What is this company's contribution margin? A) $30,000 B) $17,500 C) $45,000 D) $67,500

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80) Which of the following equations can be used to compute a firm's magnitude of operating leverage?

A) Net income ÷ sales B) Fixed costs ÷ contribution margin C) Contribution margin ÷ net income D) Net income ÷ contribution margin

81)

The following income statement is provided for Vargas, Incorporated

Sales revenue (1,500 units × $19.00 per unit) Cost of goods sold (variable; 1,500 units × $9.00 per unit) Cost of goods sold (fixed) Gross margin Administrative salaries Depreciation Supplies (1,500 units × $1.00 per unit) Net income

$ 28,500 (13,500) (3,000) 12,000 (5,000) (4,000) (1,500) $ 1,500

What is this company's magnitude of operating leverage? Note: Round your answer to 2 decimal places. A) 0.30 B) 0.12 C) 8.00 D) 9.00

82)

The following income statement is provided for Vargas, Incorporated

Sales revenue (2,500 units × $60 per unit) Cost of goods sold (variable; 2,500 units × $20 per unit) Cost of goods sold (fixed) Gross margin Administrative salaries

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$ 150,000 (50,000) (8,000) 92,000 (42,000)

Depreciation Supplies (2,500 units × $4 per unit) Net income

(10,000) (10,000) $ 30,000

What is this company's magnitude of operating leverage? A) 3.07 B) 0.33 C) 3.00 D) 1.67

83)

The following income statement is provided for Grant, Incorporated

Sales revenue (2,900 @ $14.60 per unit) Variable costs (2,900 @ $6.60 per unit) Fixed costs Net income

$ 42,340 19,140 8,400 $ 14,800

What is this company's magnitude of operating leverage? Note: Round your answer to 2 decimal places. A) 1.29 B) 2.21 C) 2.86 D) 1.57

84)

The following income statement is provided for Grant, Incorporated

Sales revenue (1,500 @ $30 per unit) Variable costs (1,500 @ $14 per unit) Fixed costs Net income

$ 45,000 21,000 16,000 $ 8,000

What is this company's magnitude of operating leverage? A) 0.33 B) 1.31 C) 2.00 D) 3.00

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85)

The following information was drawn from the records of Calico Company:

Sales Revenue (180 @ $530 per unit) Cost of Goods Sold: Variable (180 @ $230 per unit) Fixed

$ 95,400 (41,400) (16,500)

Gross Margin Sales Commissions (180 @ $30 per unit) Depreciation Net Income

37,500 (5,400) (2,700) $ 29,400

Based on this information the magnitude of operating leverage is approximately: Note: Round your answer to 2 decimal places. A) 1.37. B) 1.65. C) 1.72. D) 1.59.

86)

The following information was drawn from the records of Calico Company:

Sales Revenue (350 @ $700 per unit) Cost of Goods Sold: Variable (350 @ $400 per unit) Fixed

$ 245,000 (140,000) (13,000)

Gross Margin Sales Commissions (350 @ $40 per unit) Depreciation Net Income

92,000 (14,000) (2,000) $ 76,000

Based on this information the magnitude of operating leverage is approximately: Note: Round your answer to 2 decimal places. A) 1.20. B) 0.92. C) 1.27. D) 1.14.

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87) At a sales level of $282,000, the magnitude of operating leverage for Donuts Unlimited is 4.0. If number of units sold increase by 15%, profits will increase by: A) 19.87% B) 15.00% C) 60.00% D) 4.00%

88) At a sales level of $280,000, the magnitude of operating leverage for Donuts Unlimited is 3.8. If number of units sold increase by 15%, profits will increase by: A) 19.67% B) 3.80% C) 57.00% D) 15.00%

89) Omega Company has sales of $490,000 and cost of goods sold of $295,000. The cost of goods sold is a variable cost. The company incurred $39,000 of fixed operating expenses and $59,000 of variable operating expenses. Based on this information, a(n) 24.25% increase in revenue will produce a Note: Round your intermediate calculations to 2 decimal places and final answer to one decimal place. A) 24.3% change in net income. B) 34.0% change in net income. C) 25.7% change in net income. D) 48.5% change in net income.

90) Omega Company has sales of $400,000 and cost of goods sold of $250,000. The cost of goods sold is a variable cost. The company incurred $30,000 of fixed operating expenses and $50,000 of variable operating expenses. Based on this information, a 17.50% increase in revenue will produce a

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A) 25.0% change in net income. B) 18.9% change in net income. C) 17.5% change in net income. D) 35.0% change in net income.

91) The magnitude of operating leverage for Forbes Corporation is 3.7 when sales are $290,000 and net income is $33,000. If sales increase by 5%, what is net income expected to be?

A) $39,105 B) $34,650 C) $37,000 D) $33,650

92) The magnitude of operating leverage for Forbes Corporation is 1.8 when sales are $200,000 and net income is $24,000. If sales increase by 5%, what is net income expected to be?

A) $25,200 B) $26,160 C) $24,667 D) $43,200

93) The magnitude of operating leverage for Blue Ridge Corporation is 4.2 when sales are $300,000 and net income is $46,000. If sales decrease by 6%, net income is expected to decrease by what amount?

A) $2,760 B) $11,592 C) $1,971 D) $4,440

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94) The magnitude of operating leverage for Blue Ridge Corporation is 3.5 when sales are $200,000 and net income is $36,000. If sales decrease by 6%, net income is expected to decrease by what amount?

A) $2,160 B) $7,560 C) $3,420 D) $1,260

95) The magnitude of operating leverage for Perkins Corporation is 3.4 when sales are $93,000. If sales increase to $101,370, profits would be expected to increase by what percent? Note: Round your answer to 1 decimal place. A) 3.4% B) 12.4% C) 30.6% D) 10.0%

96) The magnitude of operating leverage for Perkins Corporation is 4.5 when sales are $100,000. If sales increase to $110,000, profits would be expected to increase by what percent?

A) 4.5% B) 14.5% C) 45.0% D) 10.0%

97) Based on the income statements of the three following retail businesses, which company has the highest operating leverage? Alpha Company

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Beta Company

Gamma Company

Revenue Variable costs

$ 250,000 (135,000)

$ 250,000 (195,000)

$ 250,000 (165,000)

Contribution margin Fixed costs

$ 115,000 (80,000)

$ 55,000 (20,000)

$ 85,000 (50,000)

Net income

$ 35,000

A) Alpha Company B) Beta Company C) Gamma Company D) They all have same operating leverage

98) Based on the income statements of the three following retail businesses, which company has the highest operating leverage? Alpha Company Beta Company

Gamma Company

Revenue Variable costs

$ 200,000 (95,000)

$ 200,000 (155,000)

$ 200,000 (125,000)

Contribution margin Fixed costs

$ 105,000 (80,000)

$ 45,000 (20,000)

$ 75,000 (50,000)

Net income

$ 25,000

A) Alpha Company B) Beta Company C) Gamma Company D) They all have same operating leverage

99) Wham Company sells electronic squirrel repellants for $56. Variable costs are 40% of sales and total fixed costs are $46,000. What is the firm's magnitude of operating leverage if 2,600 units are sold?

A) 2.11 B) 1.41 C) 1.50 D) None of these

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100) Wham Company sells electronic squirrel repellants for $60. Variable costs are 60% of sales and total fixed costs are $40,000. What is the firm's magnitude of operating leverage if 2,000 units are sold?

A) 0.17 B) 6.00 C) 2.25 D) None of these

101)

Whether a cost behaves as a fixed cost or as a variable cost depends upon the: A) activity base used. B) cost structure of the company. C) industry. D) significance of the dollar amount of the cost.

102) Craft, Incorporated normally produces between 120,000 and 150,000 units each year. Producing more than 150,000 units alters the company's cost structure. For example, fixed costs increase because more space must be rented, and additional supervisors must be hired. The production range between 120,000 and 150,000 is called the:

A) differential range. B) median range. C) relevant range. D) leverage range.

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103) Mug Shots operates a chain of coffee shops. The company pays rent of $15,000 per year for each shop. Supplies (napkins, bags, and condiments) are purchased as needed. The managers of each shop are paid a salary of $2,500 per month and all other employees are paid on an hourly basis. The cost of rent relative to the number of customers in a particular shop and relative to the number of customers in the entire chain of shops is which kind of cost, respectively?

A) Variable cost and fixed cost B) Fixed cost and fixed cost C) Fixed cost and variable cost D) Variable cost and variable cost

104)

Select theincorrect statement regarding the relevant range of volume.

A) Total fixed costs are expected to remain constant. B) Total variable costs are expected to vary in direct proportion with changes in volume. C) Variable cost per unit is expected to remain constant. D) Total cost per unit is expected to remain constant.

105) What are the expected average quarterly costs of running a consulting practice if fixed costs are expected to be $6,000 a month and variable costs are expected to be $140 per client for each quarter? Expected number of clients for the year are Note: Do not round intermediate calculations: Jan-March 115

April-June 145

July-Sep 140

Oct-Dec 115

A) $37,625 B) $34,125 C) $36,025 D) $18,025

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106) What are the expected average quarterly costs of running a consulting practice if fixed costs are expected to be $4,000 a month and variable costs are expected to be $100 per client for each quarter? Expected number of clients for the year are: Jan-March 110

April-June 140

July-Sep 150

Oct-Dec 100

A) $12,500 B) $24,500 C) $16,500 D) $19,500

107) Owens sells computers. He purchases the computers for $665 each and incurs $138,000 in fixed operating expenses each month. If Owens makes and sells 1,200 units of product, what is the average cost per unit? A) $435 B) $115 C) $665 D) $780

108) Owens sells computers. He purchases the computers for $600 each and incurs $50,000 in fixed operating expenses each month. If Owens makes and sells 1,000 units of product, what is the average cost per unit? A) $650 B) $600 C) $50 D) $500

109) Summit Incorporated operates a concert series that has monthly fixed expense of $5,000. In addition, the company pays distributors $2.00 per ticket sold. The following chart shows the number of tickets Summit expects to sell during the year. Janua Februa Mar Apr May Jun Jul Augu Septemb Octob Novemb Decemb Total

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1,180

980

1,0 580 1,0 1,3 1,5 1,08 80 80 80 20 0

er 880

980

er 480

er 780

12,0 00

Assume Summit wants to earn $7.00 per concert attendee. How much should the company charge for a ticket in January? A) $14.00 B) $7.00 C) $12.00 D) None of the answers are correct.

110) Summit Incorporated operates a concert series that has monthly fixed expense of $6,000. In addition , the company pays distributors $2.00 per ticket sold. The following chart shows the number of tickets Summit expects to sell during the year. Janua Februa Marc Apri Ma June July Augu Septemb Octob Novemb Decemb Total ry ry h l y st er er er er 1,000 800 900 400 90 1,20 1,50 900 700 800 300 600 10,0 0 0 0 00

Assume Summit wants to earn $5.00 per concert attendee. How much should the company charge for a ticket in January? A) $14.20 B) $9.20 C) $12.20 D) None of the answers are correct.

111) Yankee Tours provide seven-day guided tours along the New England coast. The company pays its guides a total of $145,600 per year. The average cost of supplies, lodging, and food per customer is $520. The company expects a total of 700 customers during the period January through June, and a total of 2,100 customers from July through December. Yankee wants to earn $220 income per customer. For promotional reasons the company desires to charge the same price throughout the year. Based on this information, what is the correct price per customer? Note: Round your answer to the nearest dollar.

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A) $572 B) $620 C) $792 D) $844

112) Yankee Tours provide seven-day guided tours along the New England coast. The company pays its guides a total of $100,000 per year. The average cost of supplies, lodging, and food per customer is $500. The company expects a total of 500 customers during the period January through June, and a total of 1,500 customers from July through December. Yankee wants to earn $100 income per customer. For promotional reasons the company desires to charge the same price throughout the year. Based on this information, what is the correct price per customer? Note: Round your answer to the nearest dollar. A) $450 B) $500 C) $650 D) $700

113)

Select theincorrect statement regarding the use of average unit costs.

A) Average costs should be calculated for a sufficiently long time period to capture seasonal fluctuations in costs. B) Average costs are often more relevant for decision making than are actual costs. C) Average cost information can help managers evaluate performance of the company or departments in the company. D) Cost averaging should be used only for fixed costs, and not for variable costs.

114) The following information is given regarding driving lessons provided by Arrive Alive Company over several spans of time: Length of Time

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Total cost of lessons Number of lessons

TODAY $ 600 50

ONE YEAR $ 110,000 10,000

FIVE YEARS $ 508,000 55,000

Select the incorrect statement from the following. A) The average cost per lesson over the five-year period was $9.24. B) Based on the most current information, the cost per lesson was $12.00. C) The average cost based on the total five-year period is probably the most appropriate cost for pricing purposes. D) The selection of the most appropriate time span for calculating the average cost often requires considerable judgment.

115) Owens sells computers. He purchases the computers for $540 each and incurs $10,000 in fixed operating expenses each month. The average cost per unit is A) $640 if Owens makes and sells 100 units of product. B) $740 if Owens makes and sells 50 units of product. C) $940 if Owens makes and sells 25 units of product. D) All of the answers are correct.

116) Owens sells computers. He purchases the computers for $500 each and incurs $8,000 in fixed operating expenses each month. The average cost per unit is A) $580 if Owens makes and sells 100 units of product. B) $660 if Owens makes and sells 50 units of product. C) $820 if Owens makes and sells 25 units of product. D) All of the answers are correct.

117) Professional Exam Prep (PEP) uses a cost-plus model to determine the price it charges students. Specifically, the company charges cost plus 25% of cost. Fixed costs, including facility rental and instructor compensation, amount to $7,400 per month. PEP incurs variable costs for books and supplies that amount to $64 per student. Monthly, enrollment tends to fluctuate. The following data represent the company's expectations for the first three months of the current year. Version 1

Month Number of Students Total Variable Cost Total Fixed Cost

January 30 $ 1,920 $ 7,400

February 35 $ 2,240 $ 7,400

March 35 $ 2,240 $ 7,400

Total 100 $ 6,400 $ 22,200

Based on this information, which of the following amounts represents the average price PEP should charge per student for the month of January? A) $388.33 B) $310.67 C) $357.50 D) $286.00

118) Professional Exam Prep (PEP) uses a cost-plus model to determine the price it charges students. Specifically, the company charges cost plus 25% of cost. Fixed costs, including facility rental and instructor compensation, amount to $7,000 per month. PEP incurs variable costs for books and supplies that amount to $60 per student. Monthly, enrollment tends to fluctuate. The following data represent the company's expectations for the first three months of the current year. Month Number of Students Total Variable Cost Total Fixed Cost

January 15 $ 900 $ 7,000

February 25 $ 1,500 $ 7,000

March 60 $ 3,600 $ 7,000

Total 100 $ 6,000 $ 21,000

Based on this information, which of the following amounts represents the average price PEP should charge per student for the month of January? A) $658.33 B) $270.00 C) $526.67 D) $337.50

119)

A cost that contains both fixed and variable elements is referred to as a:

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A) mixed cost. B) hybrid cost. C) relevant cost. D) nonvariable cost.

120)

Which of the following costs typically include both fixed and variable components?

A) Direct materials B) Direct labor C) Factory overhead D) None of these

121) Southern Food Service operates six restaurants in the Atlanta area. The company pays rent of $20,000 per year for each shop. The managers of each shop are paid a salary of $4,200 per month and all other employees are paid on an hourly basis. Relative to the number of hours worked, total compensation cost for a particular shop is which kind of cost?

A) Mixed cost B) Fixed cost C) Variable cost D) None of these

122) Production during the current year for California Manufacturing, a producer of high security bank vaults, was at its highest point in the month of June when 36 units were produced at a total cost of $560,000. The lowest point in production was in January when only 11 units were produced at a cost of $337,000. The company is preparing a budget for the current year 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:

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A) $203,000 B) $238,880 C) $223,000 D) $228,880

123) Production during the current year 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 the current year 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

124) The following income statements are provided for Li Company's last two years of operation:

Number of units produced and sold Sales revenue Cost of goods sold Gross margin General, selling, and administrative expenses Net income

Year 1

Year 2

4,000 $ 59,200 29,000 30,200

3,200 $ 47,360 25,000 22,360

9,700

8,420

$ 20,500

$ 13,940

Assuming that cost behavior did not change over the two-year period, what is the amount of the company's variable cost of goods sold per unit?

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A) $4.00 per unit B) $5.00 per unit C) $11.00 per unit D) None of these

125) The following income statements are provided for Li Company's last two years of operation: Number of units produced and sold Sales revenue Cost of goods sold Gross margin General, selling, and administrative expenses Net income

Year 1

Year 2

3,500 $ 101,500 68,000

3,000 $ 87,000 60,000

33,500 13,000

27,000 12,000

$ 20,500

$ 15,000

Assuming that cost behavior did not change over the two-year period, what is the amount of the company's variable cost of goods sold per unit? A) $12.00 per unit B) $16.00 per unit C) $22.00 per unit D) None of these

126)

Calculate variable cost using the high-low method:

Month January February March April

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Units Sold 850 880 800 780

Total Cost $ 380 $ 670 $ 340 $ 310

A) $30.00 B) $0.28 C) $50.00 D) $3.60

127)

Calculate variable cost using the high-low method:

Month January February March April

Units Sold 700 720 650 620

Total Cost $ 220 $ 350 $ 180 $ 150

A) $0.50 B) $2 C) $20 D) $50

128) Using the high-low method, we estimated fixed costs to be $215,000 and variable costs to be $15 a unit. If 11,500 units are produced, what is the total cost? A) $215,000 B) $387,500 C) $172,500 D) $1,589,130

129) Using the high-low method, we estimated fixed costs to be $200,000 and variable costs to be $15 a unit. If 10,000 units are produced, what is the total cost?

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A) $150,000 B) $200,000 C) $350,000 D) $2,000,000

130)

Calculate fixed cost using the high-low method:

Month January February March April

Units Sold 140 240 100 95

Total Cost $ 1,040 $ 2,100 $ 1,015 $ 940

A) $180 B) $192 C) $260 D) $145

131)

Calculate fixed cost using the high-low method:

Month January February March April

Units Sold 100 200 80 75

Total Cost $ 1,000 $ 2,100 $ 975 $ 900

A) $140 B) $180 C) $125 D) $192

132) The following information was drawn from a scattergraph. Total cost at 39,000 units is $195,000. The line on the scattergraph intersects the Y axis at $39,000. What is variable cost per unit? Version 1

A) $8 B) $4 C) $5 D) None of the answers are correct.

133) The following information was drawn from a scattergraph. Total cost at 20,000 units is $100,000. The line on the scattergraph intersects the Y axis at $20,000. What is variable cost per unit? A) $8 B) $4 C) $5 D) None of the answers are correct.

134) The following income statements are provided for Li Company's last two years of operation: Year 1

Year 2

Number of units produced and sold Sales revenue Cost of goods sold Gross margin General, selling, and administrative expenses

4,200 $ 69,700 55,760 13,940 12,620

3,700 $ 62,900 49,960 12,940 11,740

Net income

$ 1,320

$ 1,200

Assuming that cost behavior did not change over the two-year period, what is the annual amount of the company's fixed manufacturing overhead? A) $7,040 B) $14,080 C) $16,080 D) None of these

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135) The following income statements are provided for Li Company's last two years of operation:

Number of units produced and sold Sales revenue Cost of goods sold Gross margin General, selling, and administrative expenses Net income

Year 1

Year 2

3,500 $ 101,500 68,000

3,000 $ 87,000 60,000

33,500 13,000

27,000 12,000

$ 20,500

$ 15,000

Assuming that cost behavior did not change over the two-year period, what is the annual amount of the company's fixed manufacturing overhead? A) $12,000 B) $24,000 C) $26,000 D) None of these

136) The following income statements are provided for Li Company's last two years of operation: Number of units produced and sold Sales revenue Cost of goods sold Gross margin General, selling, and administrative expenses Net income

Year 1

Year 2

4,400 $ 67,760 39,960

4,000 $ 61,600 36,260

27,800 16,220

25,340 15,100

$ 11,580

$ 10,240

Assuming that cost behavior did not change over the two-year period, what is the company's annual fixed general, selling, and administrative cost?

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A) $4,400 B) $3,900 C) $1,950 D) $1,450

137) The following income statements are provided for Li Company's last two years of operation: Number of units produced and sold Sales revenue Cost of goods sold Gross margin General, selling, and administrative expenses Net income

Year 1

Year 2

3,500 $ 101,500 68,000

3,000 $ 87,000 60,000

33,500 13,000

27,000 12,000

$ 20,500

$ 15,000

Assuming that cost behavior did not change over the two-year period, what is the company's annual fixed general, selling, and administrative cost? A) $6,500 B) $6,000 C) $3,000 D) $2,500

138) The following income statements are provided for Li Company's last two years of operation:

Number of units produced and sold Sales revenue Cost of goods sold Gross margin General, selling, and administrative expenses Net income

Version 1

Year 1

Year 2

4,600 $ 71,760 39,760

4,200 $ 65,520 36,460

32,000 18,820

29,060 17,540

$ 13,180

$ 11,520

Assuming that cost behavior did not change over the two-year period, what is Li Company's contribution margin in Year 2? A) $17,430 B) $16,430 C) $23,430 D) $63,430

139) The following income statements are provided for Li Company's last two years of operation: Year 1

Year 2

Number of units produced and sold Sales revenue Cost of goods sold Gross margin General, selling, and administrative expenses

3,500 $ 101,500 68,000 33,500 13,000

3,000 $ 87,000 60,000 27,000 12,000

Net income

$ 20,500

$ 15,000

Assuming that cost behavior did not change over the two-year period, what is Li Company's contribution margin in Year 2? A) $33,000 B) $32,000 C) $39,000 D) $69,000

140) Handy Hiking produces backpacks. In the previous year, its highest and lowest production levels occurred in July and January, respectively. In July, it produced 5,700 backpacks at a total cost of $197,250. In January, it produced 4,200 backpacks at a total cost of $96,000. Using the high-low method, the average variable cost per of producing a backpack was:

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A) $135.38 B) $34.61 C) $136.25 D) $67.50

141) Handy Hiking produces backpacks. In the previous year, its highest and lowest production levels occurred in July and January, respectively. In July, it produced 5,000 backpacks at a total cost of $162,250. In January, it produced 3,500 backpacks at a total cost of $92,500. Using the high-low method, the average variable cost per of producing a backpack was: A) $94.25 B) $93.38 C) $32.45 D) $46.50

142) Handy Hiking produces backpacks. In the previous year, its highest and lowest production levels occurred in July and January, respectively. In July, it produced 6,800 backpacks at a total cost of $205,000. In January, it produced 2,724 backpacks at a total cost of $97,000. Using the high-low method, the total estimated fixed cost was A) $205,000. B) $180,177. C) $24,823. D) None of the answers is correct.

143) Handy Hiking produces backpacks. In the previous year, its highest and lowest production levels occurred in July and January, respectively. In July, it produced 5,000 backpacks at a total cost of $160,000. In January, it produced 2,300 backpacks at a total cost of $92,500. Using the high-low method, the total estimated fixed cost was

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A) $160,000. B) $125,000. C) $35,000. D) None of the answers is correct.

144)

The results below represent what form of cost behavior?

Units Total Cost

Year 1

Year 2

4,500 $ 11,250

4,800 $ 12,000

A) Fixed Cost B) Variable Cost C) Mixed Cost D) Opportunity Cost

145) Based on the following operating data, the operating leverage is Note: Round your answer to 2 decimal places: Sales Variable costs

$ 1,250,000 350,000

Contribution margin Fixed costs

900,000 152,000

Income from operations

$ 748,000

A) 1.20 B) 1.39 C) 0.39 D) 1.67

146)

Based on the following operating data, the operating leverage is:

Sales Variable costs

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$ 500,000 280,000

Contribution margin Fixed costs

220,000 180,000

Income from operations

$ 40,000

A) 0.18 B) 5.50 C) 1.22 D) 12.5

147) The following information is for Gable, Incorporated and Harlowe, Incorporated for the recent year.

Sales Variable costs Contribution margin Fixed costs Income from operations

Gable, Incorporated $ 908,000 418,000

Harlowe, Incorporated $ 908,000 218,000

490,000 200,000

690,000 400,000

$ 290,000

Based on the above data, which company has a higher operating leverage? A) Gable, Incorporated B) Harlowe, Incorporated C) Operating leverage is the same for both companies D) Cannot be determined

148) The following information is for Gable, Incorporated and Harlowe, Incorporated for the recent year.

Sales Variable costs Contribution margin Fixed costs Income from operations

Gable, Incorporated $ 800,000 400,000

Harlowe, Incorporated $ 800,000 200,000

400,000 200,000

600,000 400,000

$ 200,000

Based on the above data, which company has a higher operating leverage?

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A) Gable, Incorporated B) Harlowe, Incorporated C) Operating leverage is the same for both companies D) Cannot be determined

149) The following information is for Gable, Incorporated and Harlowe, Incorporated for the recent year.

Sales Variable costs Contribution margin Fixed costs Income from operations

Gable, Incorporated $ 850,000 391,000

Harlowe, Incorporated $ 850,000 238,000

459,000 211,100

612,000 382,500

$ 247,900

$ 229,500

What total amount of net income will Harlowe, Incorporated earn if it experiences a 10 percent increase in revenue? A) $163,200 B) $85,000 C) $290,700 D) $22,950

150) The following information is for Gable, Incorporated and Harlowe, Incorporated for the recent year.

Sales Variable costs Contribution margin Fixed costs Income from operations

Gable, Incorporated $ 800,000 400,000

Harlowe, Incorporated $ 800,000 200,000

400,000 200,000

600,000 400,000

$ 200,000

200,000

What total amount of net income will Harlowe, Incorporated earn if it experiences a 10 percent increase in revenue?

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A) $180, 000 B) $80,000 C) $260,000 D) $20,000

151) Units sold Total salary cost Total cost of goods sold Depreciation cost per unit

20 $ 6,000 14,000 $ 120

40 $ 7,800 28,000 $ 60

60 $ 9,200 42,000 $ 40

Based on the above information, select the correct statement. A) Cost of goods sold is a mixed cost. B) Salary cost is a mixed cost. C) Depreciation cost is a variable cost. D) If the company sells 20 units for $540 each, it will incur a loss of $200.

152)

Select theincorrect statement regarding fixed and variable costs.

A) Fixed cost per unit remains constant as the number of units increases. B) Total variable cost is represented by a straight line sloping upward from the origin when total variable cost is graphed versus number of units. C) The concept of relevant range applies to both fixed costs and variable costs. D) The terms "fixed" and "variable" refer to the behavior of total cost.

153)

The following information is for Companies M and N for the most recent year:

Sales Variable costs Fixed costs

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Company M

Company N

$ 515,000 $ 309,000 $ 51,500

$ 515,000 $ 206,000 $ 154,500

Based on this information, which of the following statements is incorrect? A) N’s magnitude of operating leverage is lower than M’s. B) N would suffer more than M from an equal drop in sales revenue. C) N's cost structure carries greater risk and greater potential for profit. D) If N’s sales increased by 20%, its net income would increase by 40%.

154)

The following information is for Companies M and N for the most recent year:

Sales Variable costs Fixed costs

Company M

Company N

$ 500,000 $ 300,000 $ 50,000

$ 500,000 $ 200,000 $ 150,000

Based on this information, which of the following statements is incorrect? A) N’s magnitude of operating leverage is lower than M’s. B) N would suffer more than M from an equal drop in sales revenue. C) N's cost structure carries greater risk and greater potential for profit. D) If N's sales increased by 20%, its net income would increase by 40%.

155) Carson Corporation's sales increase from $460,000 to $510,600 in the current year. What is the percentage change in sales?

A) 11% B) 9.9% C) 12% D) 13%

156) Carson Corporation's sales increase from $500,000 to $600,000 in the current year. What is the percentage change in sales?

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A) 20% B) 25% C) 22% D) 16.7%

157) Frazier Company sells women's ski jackets. The average sales price is $281 and the variable cost per jacket is $131. Fixed Costs are $1,256,000. If Frazier sells 15,600 jackets, the contribution margin will be:

A) $3,127,600 B) $1,084,000 C) $2,340,000 D) $959,600

158) Frazier Company sells women's ski jackets. The average sales price is $275 and the variable cost per jacket is $175. Fixed Costs are $1,350,000. If Frazier sells 15,000 jackets, the contribution margin will be:

A) $2,775,000 B) $1,500,000 C) $2,250,000 D) $150,000

159) Mark Company, Incorporated sells electronics. The company generated sales of $53,000. Contribution margin is $24,900 and net income is $6,000. Based on this information, the magnitude of operating leverage is:

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A) 2.13 B) 8.83 C) 4.15 D) 4.68

160) Mark Company, Incorporated sells electronics. The company generated sales of $45,000. Contribution margin is $20,000 and net income is $4,000. Based on this information, the magnitude of operating leverage is:

A) 2.25 B) 11.25 C) 5.00 D) 6.25

161) Which characteristic is true of the high-low method, the scattergraph method, and regression analysis?

A) All methods will produce the same estimate of variable and fixed costs. B) All methods use historic data to estimate variable and fixed costs. C) All methods use only two data points in analyzing a mixed cost. D) None of these are correct.

162) Taste of the Town, Incorporated operates a gourmet sandwich shop. The company orders bread, cold cuts, and produce several times a week. If the cost of these items remains constant per customer served, the cost is said to be:

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A) Variable B) Fixed C) Opportunity D) Mixed

163)

The following income statement was produced when volume of sales was at 400 units.

Sales Revenue Variable Cost

$ 1,900 1,000

Contribution Margin Fixed Cost

$ 900 450

Net Income

$ 450

If volume reaches 500 units, net income will be: A) $600 B) $1,675 C) $675 D) None of these

164)

The following income statement was produced when volume of sales was at 400 units.

Sales Revenue Variable Cost Contribution Margin Fixed Cost Net Income

$ 2,000 1,200 $ 800 300 $ 500

If volume reaches 500 units, net income will be: A) $625 B) $1,800 C) $700 D) None of these

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165) All of the following would be considered a fixed cost for a bottled water company except:

A) rent on warehouse facility. B) depreciation on its manufacturing equipment. C) hourly wages for machine operators. D) property taxes on its factory building.

166) Assume that the management of Dairy Deli wants to expand operations. To help evaluate the risks involved in opening an additional store, the company president wants to know the amount of fixed cost a new store will likely incur. Management uses the regression method to analyze the company’s mixed costs. In terms of interpreting the results: A) a low R2 statistic suggests that the independent value (units sold) more strongly influences the dependent variable (total cost). B) the R2 statistic represents the percentage of change in the independent variable (units sold) that is explained by a change in the independent variable (total cost). C) the R2 statistic represents the percentage of change in the dependent variable (total cost) that is explained by a change in the independent variable (units sold). D) the R2 statistic is not a good measure of reliability.

167)

The variable cost per unit increases in direct proportion to the activity base. ⊚ ⊚

true false

168) If managers of a company do not understand the behavior of its costs, they are likely to make poor decisions about the company's operations. ⊚ ⊚

Version 1

true false

169)

For a mixed cost, total cost increases in direct proportion to volume. ⊚ ⊚

170)

true false

The total variable cost increases in direct proportion to volume. ⊚ ⊚

true false

171) If a company had a mixed cost structure, every dollar of revenue after covering the fixed costs would be pure profit. ⊚ ⊚

true false

172) As activity increases, the fixed cost per unit increases while the variable cost per unit remains constant. ⊚ ⊚

173)

true false

Risk refers to the possibility that sacrifices may exceed benefits. ⊚ ⊚

true false

174) Operating leverage enables a company to convert small changes in fixed costs into dramatic changes in profitability.

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⊚ ⊚

true false

175) If a company shifts its cost structure by decreasing fixed costs and increasing variable costs, it will lower both the level of risk and its potential for profits. ⊚ ⊚

true false

176) If revenues are expected to decline, management should attempt to convert its variable costs into fixed costs. ⊚ ⊚

true false

177) Companies with low operating leverage will experience lower profits when sales increase than will companies with higher operating leverage. ⊚ ⊚

178)

true false

A company with a completely fixed cost structure will have operating leverage of 1. ⊚ ⊚

true false

179) Contribution margin represents the amount available to cover fixed expenses and then provide company profits. ⊚ ⊚

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true false

180) No contribution margin is provided by selling one unit of a product at a price of $35 if variable production costs are $20, variable general and administrative costs are $5, and fixed costs are $10 per unit. ⊚ ⊚

true false

181) The contribution margin format income statement isnot widely used for external financial reporting, but is allowed by GAAP. ⊚ ⊚

true false

182) The contribution margin format income statement classifies costs according to their behavior patterns. ⊚ ⊚

true false

183) Contribution margin can only be determined if costs are separated into product and period costs. ⊚ ⊚

true false

184) If a profitable company has both fixed and variable costs, its operating leverage will always be greater than 1. ⊚ ⊚

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true false

185) The higher the magnitude of a company's operating leverage, the more benefit the company will receive from a given percentage increase in revenue. ⊚ ⊚

true false

186) The higher the magnitude of a company's operating leverage, the smaller the decrease in profit for a given percentage decrease in revenue. ⊚ ⊚

187)

true false

A low magnitude of operating leverage is best for most companies. ⊚ ⊚

true false

188) The BRC Company is considering the introduction of a new line of high end electronics. Because there is considerable uncertainty with regard to the demand for the products, the company would probably be served better by a variable cost structure. ⊚ ⊚

189)

true false

Descriptions of cost behavior as fixed or variable pertain to a particular range of activity. ⊚ ⊚

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true false

190)

Variable costs will become fixed outside the relevant range. ⊚ ⊚

true false

191) Within the relevant range, the fixed cost per unit can be expected to decrease with increases in volume. ⊚ ⊚

192) cost.

true false

The activity base selected determines whether a cost behaves as a variable cost or fixed

⊚ ⊚

true false

193) A cost that is considered variable for one activity base may be considered fixed for a different activity base. ⊚ ⊚

true false

194) One reason for computing the average cost for a product rather than the actual cost is that average cost is easier to compute. ⊚ ⊚

true false

195) One way that computing an average cost per unit facilitates management decision making is that managers are provided more timely and more relevant cost information.

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⊚ ⊚

true false

196) Potential problems associated with cost averaging can be reduced by averaging the cost over a shorter span of time. ⊚ ⊚

197)

true false

A cost that is part selling cost and part manufacturing cost is referred to as a mixed cost. ⊚ ⊚

true false

198) When selecting the high and low observations under the high-low method of analyzing mixed costs, the selection should be based on the dependent variable (cost). ⊚ ⊚

true false

199) When using least-squares regression to determine variable and fixed costs, the r-square refers to the degree to which the change in the dependent variable can be explained by a change in the independent variable. ⊚ ⊚

true false

200) An advantage of using the scattergraph method over the high-low method is that all points of data are used in determining the cost line. ⊚ ⊚

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true false

201) Multiple regression analysis should be performed when a single independent variable influences multiple dependent variables. ⊚ ⊚

true false

202) In regression analysis, an r-square value of one indicates that there is a perfect fit between the independent and dependent variables. ⊚ ⊚

true false

203) 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. ⊚ ⊚

Version 1

true false

Answer Key Test name: Chap 02_10e_Edmonds 1) B 2) B 3) C 4) D 5) C 6) B 7) B 8) A 9) D 10) C 11) C 12) D 13) B 14) B 15) B 16) B 17) B 18) A 19) A 20) D 21) A 22) B 23) B 24) B 25) C 26) C Version 1

27) C 28) C 29) C 30) A 31) A 32) B 33) A 34) A 35) C 36) A 37) A 38) C 39) A 40) B 41) D 42) D 43) C 44) A 45) B 46) B 47) D 48) A 49) D 50) C 51) B 52) D 53) A 54) D 55) C 56) C Version 1

57) B 58) C 59) A 60) A 61) A 62) A 63) C 64) B 65) C 66) A 67) A 68) D 69) C 70) C 71) D 72) B 73) B 74) C 75) C 76) C 77) A 78) D 79) D 80) C 81) D 82) C 83) D 84) D 85) B 86) A Version 1

87) C 88) C 89) B 90) A 91) A 92) B 93) B 94) B 95) C 96) C 97) A 98) A 99) A 100) B 101) A 102) C 103) B 104) D 105) C 106) B 107) D 108) A 109) A 110) A 111) C 112) C 113) D 114) C 115) D 116) D Version 1

117) C 118) D 119) A 120) C 121) A 122) B 123) B 124) B 125) B 126) D 127) B 128) B 129) C 130) A 131) B 132) B 133) B 134) A 135) A 136) B 137) B 138) A 139) A 140) D 141) D 142) C 143) C 144) B 145) A 146) B Version 1

147) B 148) B 149) C 150) C 151) B 152) A 153) A 154) A 155) A 156) A 157) C 158) B 159) C 160) C 161) B 162) A 163) C 164) C 165) C 166) C 167) FALSE 168) TRUE 169) FALSE 170) TRUE 171) FALSE 172) FALSE 173) TRUE 174) FALSE 175) TRUE 176) FALSE Version 1

177) TRUE 178) FALSE 179) TRUE 180) FALSE 181) FALSE 182) TRUE 183) FALSE 184) TRUE 185) TRUE 186) FALSE 187) FALSE 188) TRUE 189) TRUE 190) FALSE 191) TRUE 192) TRUE 193) TRUE 194) TRUE 195) TRUE 196) FALSE 197) FALSE 198) FALSE 199) TRUE 200) TRUE 201) FALSE 202) TRUE 203) TRUE

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Chapter 3 Analysis of Cost, Volume, and Pricing to Increase Profitability 1) Martin Company currently produces and sells 47,000 units of product at a selling price of $13. The product has variable costs of $7 per unit and fixed costs of $57,000. The company currently earns a total contribution margin of:

A) $282,000 B) $399,000 C) $342,000 D) $456,000

2) Martin Company currently produces and sells 40,000 units of product at a selling price of $12. The product has variable costs of $6 per unit and fixed costs of $150,000. The company currently earns a total contribution margin of:

A) $280,000 B) $200,000 C) $240,000 D) $90,000

3) Jarvis Company produces a product that has a selling price of $20 and a variable cost of $17 per unit. The company's fixed costs are $57,000. What is the break-even point measured in sales dollars? Note: Do not round intermediate calculations. A) $380,000 B) $76,000 C) $114,000 D) $323,000

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4) Jarvis Company produces a product that has a selling price of $20.00 and a variable cost of $15.00 per unit. The company's fixed costs are $50,000. What is the break-even point measured in sales dollars?

A) $150,000 B) $200,000 C) $62,500 D) $100,000

Select the incorrect break-even equation from the following: A) Total contribution margin = total variable costs B) Total contribution margin = total fixed costs C) Total fixed costs ÷ contribution margin ratio = break-even sales in dollars D) Total revenue = total costs

6) Pierce Company's break-even point is 25,000 units. Its product sells for $35 and has a $17 variable cost per unit. What is the company's total fixed cost amount?

A) $425,000 B) $875,000 C) $450,000 D) Fixed costs cannot be computed with the information provided.

7) Pierce Company's break-even point is 12,000 units. Its product sells for $25 and has a $10 variable cost per unit. What is the company's total fixed cost amount?

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A) $250,000 B) $180,000 C) $120,000 D) Fixed costs cannot be computed with the information provided.

8) At its $34 selling price, Atlantic Company has sales of $17,000, variable manufacturing costs of $7,000, fixed manufacturing costs of $1,000, variable selling and administrative costs of $3,000 and fixed selling and administrative costs of $1,000. What is the company's contribution margin per unit?

A) $10 B) $14 C) $12 D) $28

9) At its $60 selling price, Atlantic Company has sales of $15,000, variable manufacturing costs of $4,000, fixed manufacturing costs of $1,000, variable selling and administrative costs of $2,000, and fixed selling and administrative costs of $1,000. What is the company's contribution margin per unit?

A) $26 B) $28 C) $44 D) $36

10) Rocky Mountain Bottling Company produces a soft drink that is sold for a dollar. At production and sales of 1,000,000 units, the company pays $500,000 in production costs, half of which are fixed costs. At that volume, general, selling, and administrative costs amount to $200,000, of which $50,000 are fixed costs. What is the amount of contribution margin per unit? Note: Do not round intermediate calculations.

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A) $0.10 B) $0.60 C) $0.30 D) None of these choices are correct.

11) Rocky Mountain Bottling Company produces a soft drink that is sold for a dollar. At production and sales of 800,000 units, the company pays $600,000 in production costs, half of which are fixed costs. At that volume, general, selling, and administrative costs amount to $250,000, of which $70,000 are fixed costs. What is the amount of contribution margin per unit?

A) $0.40 B) $0.5375 C) $0.25 D) None of these choices are correct.

12) Bates Company currently produces and sells 24,000 units of a product that has a contribution margin of $7 per unit. The company sells the product for a sales price of $21 per unit. Fixed costs are $36,400. The company has recently invested in new technology and expects the variable cost per unit to fall to $11 per unit. The investment is expected to increase fixed costs by $16,100. After the new investment is made, how many units must be sold to break even? Note: Do not round intermediate calculations. A) 5,250 units B) 3,640 units C) 5,940 units D) 7,500 units

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13) Bates Company currently produces and sells 4,000 units of a product that has a contribution margin of $5 per unit. The company sells the product for a sales price of $20 per unit. Fixed costs are $20,000. The company has recently invested in new technology and expects the variable cost per unit to fall to $12 per unit. The investment is expected to increase fixed costs by $15,000.After the new investment is made, how many units must be sold to break even?

A) 2,917 units B) 4,375 units C) 7,000 units D) 4,000 units

14) M and M, Incorporated produces a product that has a variable cost of $5.40 per unit. The company's fixed costs are $50,400. The product is sold for $9 per unit and the company desires to earn a target profit of $14,400. What is the amount of sales that will be necessary to earn the desired profit? Note: Do not round intermediate calculations. A) $126,000 B) $162,000 C) $190,800 D) $388,800

15) M and M, Incorporated produces a product that has a variable cost of $3.00 per unit. The company's fixed costs are $30,000. The product is sold for $5.00 per unit and the company desires to earn a target profit of $20,000. What is the amount of sales that will be necessary to earn the desired profit?

A) $75,000 B) $50,000 C) $83,333 D) $125,000

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16)

Once sales reach the break-even point, each additional unit sold will:

A) increase fixed cost by a proportionate amount. B) reduce the margin of safety. C) increase the company's operating leverage. D) increase profit by an amount equal to the per unit contribution margin.

17) Mitchell Company sells its product for $300 per unit. The company's accountant provided the following cost information: Manufacturing costs Selling costs Administrative costs

$22,900 $18,500 $28,000

+ + +

42% of sales 21% of sales 10% of sales

What is the company's break-even point in units? Note: Round your final answer to the nearest whole number. A) 3,000 B) 570 C) 857 D) 4,140

18) Mitchell Company sells its product for $100 per unit. The company's accountant provided the following cost information: Manufacturing costs Selling costs Administrative costs

$25,000 $15,000 $25,000

+ + +

45% of sales 20% of sales 10% of sales

What is the company's break-even point in units? A) 1,000 B) 750 C) 2,600 D) 4,000

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19) Kingston Company sells its product for $200 per unit. The company's accountant provided the following cost information: Manufacturing costs Selling costs Administrative costs

$22,000 $15,500 $28,700

+ + +

38% of sales 16% of sales 10% of sales

What is Kingston Company's contribution margin ratio? A) 41% B) 21% C) 26% D) 36%

20) Kingston Company sells its product for $200 per unit. The company's accountant provided the following cost information: Manufacturing costs Selling costs Administrative costs

$25,000 $10,000 $15,000

+ + +

40% of sales 20% of sales 10% of sales

What is Kingston Company's contribution margin ratio? A) 30% B) 15% C) 35% D) 20%

21) Zeus, Incorporated produces a product that has a variable cost of $6 per unit. The company's fixed costs are $40,000. The product sells for $11 a unit and the company desires to earn a $25,000 profit. What is the volume of sales in units required to achieve the target profit? Note: Do not round intermediate calculations.

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A) 13,000 units B) 7,625 units C) 8,000 units D) 8,500 units

22) Zeus, Incorporated produces a product that has a variable cost of $9.50 per unit. The company's fixed costs are $40,000. The product sells for $12.00 a unit and the company desires to earn a $20,000 profit. What is the volume of sales in units required to achieve the target profit? Note: Do not round intermediate calculations. A) 24,000 units B) 16,000 units C) 17,000 units D) 4,000 units

23) Phan Company has not reported a profit in five years. This year the company would like to narrow its loss to $16,000. Assuming its selling price is $41.50 per unit and its variable costs per unit are $29, how many units must be sold to achieve its target given that total fixed costs are $65,000? Note: Do not round intermediate calculations. A) 3,920 B) 3,561 C) 5,200 D) 4,279

24) Phan Company has not reported a profit in five years. This year the company would like to narrow its loss to $7,500. Assuming its selling price is $36.50 per unit and its variable costs per unit are $24, how many units must be sold to achieve its target given that total fixed costs are $60,000? Note: Do not round intermediate calculations. Version 1

A) 2,188 B) 1,439 C) 4,200 D) 1,600

25) Cooper Company sells a product at $50 per unit that has unit variable costs of $20. The company's break-even sales point in sales dollars is $250,000. How much profit will the company make if it sells 6,000 units? Note: Do not round intermediate calculations. A) $24,000 B) $30,000 C) $53,000 D) $65,000

26) Cooper Company sells a product at $50 per unit that has unit variable costs of $20. The company's break-even sales point in sales dollars is $150,000. How much profit will the company make if it sells 4,000 units?

A) $210,000 B) $120,000 C) $60,000 D) $30,000

27) The records of Gemini Company show a contribution margin ratio of 35%. The company desires to earn a profit of $35,000 and has fixed costs of $70,000. What sales revenue would have to be generated in order to earn the desired profit?

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A) $300,000 B) $100,000 C) $110,000 D) $200,000

28) The records of Gemini Company show a contribution margin ratio of 40%. The company desires to earn a profit of $35,000 and has fixed costs of $70,000. What sales revenue would have to be generated in order to earn the desired profit?

A) $87,500 B) $262,500 C) $175,000 D) $42,000

29) During the current year, Winchester Company sold 105,000 units at a selling price of $25 per unit. Variable cost per unit was $19, and Winchester's net income for the year was $65,000. What was the amount of Winchester's fixed costs? A) $630,000 B) $565,000 C) $2,560,000 D) $1,625,000

30) During the current year, Winchester Company sold 80,000 units at a selling price of $20 per unit. Variable cost per unit was $15, and Winchester's net income for the year was $40,000. What was the amount of Winchester's fixed costs?

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A) $360,000 B) $440,000 C) $1,160,000 D) $400,000

31) Green Manufacturing Company produces a product that has a variable cost of $60 per unit. Fixed costs amount to $315,000. The selling price of the product is $68. The contribution margin per unit is: A) $128. B) $68. C) $60. D) None of these choices are correct.

32) Green Manufacturing Company produces a product that has a variable cost of $60 per unit. Fixed costs amount to $315,000. The selling price of the product is $68. How many units of product must Green produce and sell to break even? A) 39,375 units B) 44,625 units C) 44,007 units D) None of these choices are correct.

33) Green Manufacturing Company produces a product that has a variable cost of $62 per unit. Fixed costs amount to $320,000. The selling price of the product is $70. How many units of product would Green be required to sell in order to earn a desired profit of $260,000? A) 70,786 units B) 76,500 units C) 72,500 units D) None of these choices are correct.

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34) Boland Company sells a product that is priced at $20 per unit. The per unit contribution margin is equal to 15 percent of the sales price. If fixed cost amount to $86,500 and the company has a desired profit of $51,500, the number of units that must be sold to earn the desired profit is Note: Do not round intermediate calculations. A) 6,900 units. B) 7,725 units. C) 46,000 units. D) None of these choices are correct.

35) Newton Company currently produces and sells 10,000 units of a product that has a contribution margin of $8 per unit. The company sells the product for a sales price of $22 per unit. Fixed costs are $20,000. The company is considering investing in new technology that would decrease the variable cost per unit to $12 per unit and double total fixed costs. The company expects the new technology to increase production and sales to 15,000 units of product. What sales price would have to be charged to earn a $95,000 target profit assuming the investment in technology is made?

A) $12 B) $21 C) $22 D) $19

36) Newton Company currently produces and sells 4,000 units of a product that has a contribution margin of $6 per unit. The company sells the product for a sales price of $20 per unit. Fixed costs are $18,000. The company is considering investing in new technology that would decrease the variable cost per unit to $8 per unit and double total fixed costs. The company expects the new technology to increase production and sales to 9,000 units of product. What sales price would have to be charged to earn a $99,000 target profit assuming the investment in technology is made?

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A) $22 B) $23 C) $15 D) $13

37) Harris Company produces a product whose cost is $70. Assuming the company uses a cost-plus pricing system, what selling price would the company set to earn a profit margin of 20% of cost? A) $14 B) $84 C) $72.50 D) $350

38) Harris Company produces a product whose cost is $10. Assuming the company uses a cost-plus pricing system, what selling price would the company set to earn a profit margin of 20% of cost?

A) $2.00 B) $12.50 C) $50.00 D) $12.00

39) Camden Company sets the selling price for its product by adding a markup to the product's variable manufacturing costs. This approach to pricing is referred to as: A) cost-plus pricing B) target pricing C) target costing D) contribution margin-based pricing

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40) The pricing strategy that begins with the determination of a price at which a product will sell and then focuses on developing a cost structure for the product that will yield a profit is known as:

A) cost-plus pricing. B) prestige pricing. C) developmental pricing. D) target costing.

41) A pricing strategy that sets the price at a premium under the assumption that people will pay more for the product because of the product's brand name, media attention, or some other reason that has piqued the interest of the public is known as:

A) cost-plus pricing. B) contribution margin-based pricing. C) target pricing. D) prestige pricing.

42) Chester Company plans to introduce a new product. A market research specialist claims that 44,000 units can be sold at a $110 selling price. Assuming the company desires a profit margin of 20% of sales, what is the target cost per unit?

A) $110 B) $88 C) $130 D) $20

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43) Chester Company plans to introduce a new product. A market research specialist claims that 20,000 units can be sold at a $100 selling price. Assuming the company desires a profit margin of 22% of sales, what is the target cost per unit?

A) $128.21 B) $78 C) $80 D) $20

44) A market research specialist told Peachtree Company that it could expect to sell 560,000 units of its new high-capacity computer disk at a price of $15. Assuming the company desires a profit margin equal to 30% of sales, what target cost per unit is necessary?

A) $4.50 B) $15 C) $10.50 D) None of these choices are correct.

45) A market research specialist told Peachtree Company that it could expect to sell 500,000 units of its new high-capacity computer disk at a price of $5. Assuming the company desires a profit margin equal to 20% of sales, what target cost per unit is necessary?

A) $1.00 B) $4.00 C) $3.00 D) None of these choices are correct.

46) Calpo Company buys and sells a product that has a variable cost per unit of $50. Calpo’s fixed costs amount to $67,000. The product sells for $54 each. As a result of competition Calpo has been forced to establish a target sales price of $52 per unit. If Calpo implements the pricing strategy, the break-even point will Version 1

A) increase by $33,500. B) decrease by $837,500. C) decrease from 33,500 units to 16,750. D) increase from 16,750 units to 33,500.

47) Bradley Company sells a product that has variable costs of $65 each and a sales price of $90 each. Bradley has fixed costs of $137,500 and a desired profit of $62,500. If the Company is able to reduce its variable cost per unit to $50 while holding all other items constant, the number of units that must be sold to earn the desired profit will A) increase by 3,000 units. B) decrease by 3,000 units. C) increase by 5,000 units. D) decrease by 5,000 units.

48) Kitts Company buys and sells a product that has a variable cost per unit of $38. Kitts’ fixed costs amount to $60,000 and a desired profit of $18,000. The product sells for $42 each. If Kitts is able to reduce fixed costs by $22,000, the number of units that must be sold to earn the desired profit will A) increase by 19,500. B) decrease by 14,000. C) decrease by 5,500. D) increase by 14,000.

49) Kitts Company buys and sells a product that has a variable cost per unit of $33. Kitts fixed costs amount to $78,000. The product sells for $37 each. The Company is currently making and selling 31,000 units of product. If Kitts is able to increase sales by 9,500 units, the breakeven point will

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A) increase by $38,000. B) decrease by $38,000. C) not change. D) The answer cannot be determined with the information provided.

50) Acme Company has variable costs equal to 30% of sales. The company is considering a proposal that will increase sales by $13,000 and total fixed costs by $9,100. By what amount will net income increase?

A) $9,100 B) $5,200 C) $3,900 D) $0

51) 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

52) Which of the following is not an assumption made when performing cost-volume-profit analysis?

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A) Number of units produced is greater than the number of units sold. B) Worker efficiency is held constant. C) The company produces within the relevant range of activity. D) There is a linear relationship between cost and volume for both fixed and variable cost.

53)

How does the cost-volume-profit model accommodate non-linear costs and revenues?

A) Non-linear costs and revenues are ignored by the model. B) Inventory levels are segregated into distinct ranges within which a linear relationship is expected to approximate the actual cost or revenue behavior. C) It is not a problem since non-linear costs and revenues do not exist in practice. D) None of these choices are correct.

54) Which of the following isnot one of the assumptions underlying cost-volume-profit analysis?

A) Costs are linear. B) Production equals sales. C) All costs can be segregated into fixed and variable components. D) The selling price increases or decreases with changes in sales volume.

55) Markham Company has a contribution margin ratio of 21%. The company is considering a proposal that will increase sales by $178,000. What increase in profit can be expected assuming total fixed costs increase by $27,000? Note: Do not round your intermediate calculations.

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A) $5,190 B) $32,190 C) $37,380 D) $10,380

56) Markham Company has a contribution margin ratio of 25%. The company is considering a proposal that will increase sales by $150,000. What increase in profit can be expected assuming total fixed costs increase by $25,000? Note: Do not round intermediate calculations. A) $6,250 B) $31,250 C) $37,500 D) $12,500

57) Tobin Company manufactures a product that has a variable cost of $44 per unit and a sales price of $100 per unit. The company’s annual fixed costs total $632,000. It had net income of $232,000 in the previous year. In an effort to increase the company’s market share, management is considering lowering the selling price to $76 per unit. If Tobin desires to maintain net income of $232,000, how many additional units must it sell to justify the price decline? A) 5,350 units B) 11,571 units C) 3,260 units D) 5,100 units

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58) Tobin Company manufactures a product that has a variable cost of $28 per unit and a sales price of $68 per unit. The company’s annual fixed costs total $600,000. It had net income of $200,000 in the previous year. In an effort to increase the company’s market share, management is considering lowering the selling price to $60 per unit. If Tobin desires to maintain net income of $200,000, how many additional units must it sell to justify the price decline? A) 1,660 units B) 3,500 units C) 3,750 units D) 5,000 units

59) Manning Company produces a product that has a variable cost of $51 per unit and a sales price of $77 per unit. The company’s annual fixed costs total $652,000. It had net income of $212,000 in the previous year. In an effort to increase the company’s market share, management is considering lowering the selling price to $71 per unit. If Manning desires to increase net income by $50,000 even with a lower price of $71, how many units must the company sell? A) 35,100 B) 45,700 C) 36,500 D) 13,100

60) Manning Company produces a product that has a variable cost of $50 per unit and a sales price of $75 per unit. The company’s annual fixed costs total $650,000. It had net income of $210,000 in the previous year. In an effort to increase the company’s market share, management is considering lowering the selling price to $70 per unit. If Manning desires to increase net income by $50,000 even with a lower price of $70, how many units must the company sell? A) 13,000 B) 35,000 C) 36,400 D) 45,500

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61) Alexis Company currently produces and sells 12,000 units of calculator per year that has a variable cost of $45 and a fixed cost of $290,000. The company currently earns a $140,000 annual profit. Assume that Alexis has the opportunity to invest in a new machine that will enable the company to reduce variable costs to $23 per unit. The investment would cause fixed costs to increase by $27,000. Based on this information, what is the sales price per unit under existing conditions? A) $71 per unit B) $83 per unit C) $81 per unit D) $86 per unit

62) Alexis Company currently produces and sells 10,000 units of calculator per year that has a variable cost of $5 and a fixed cost of $250,000. The company currently earns a $100,000 annual profit. Assume that Alexis has the opportunity to invest in a new machine that will enable the company to reduce variable costs to $3 per unit. The investment would cause fixed costs to increase by $25,000. Based on this information, what is the sales price per unit under existing conditions? A) $42 per units B) $30 per unit C) $45 per unit D) $40 per unit E) $42 per unit

63) Alexis Company currently produces and sells 10,000 units of calculator per year that has a variable cost of $5 and a fixed cost of $250,000. The company currently earns a $100,000 annual profit. Assume that Alexis has the opportunity to invest in a new machine that will enable the company to reduce variable costs to $3 per unit. The investment would cause fixed costs to increase by $25,000. Should Alexis invest in the new technology?

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A) No, because profits would decrease by $5,000. B) No, because profits would decrease by $95,000. C) Yes, because profits would increase by $5,000. D) Yes, because profits would increase by $95,000.

64)

Billings Company has developed the following budgeted income statement:

Sales Revenue (2,900 units × $11 sales price) Total Variable Expenses (2,900 × $5 per unit) Contribution Margin Fixed Expenses Net Income

$31,900 (14,500) 17,400 (8,700) $8,700

The Company is experimenting with new engineering techniques and believes it can reduce variable cost to $4.00 per unit and significantly improve the product. The innovations would double fixed costs, but the company expects to be able to increase sales to 3,900 units. If this strategy is pursued the company's budgeted net income will: A) decrease by $600. B) increase by $1,200. C) increase by $9,900. D) decrease by $500.

65)

Billings Company has developed the following budgeted income statement:

Sales Revenue (2,300 units × $14 sales price) Total Variable Expenses (2,300 × $6 per unit) Contribution Margin Fixed Expenses Net Income

$32,200 (13,800) 18,400 (10,000) $8,400

The Company is experimenting with new engineering techniques and believes it can reduce variable cost to $4.50 per unit and significantly improve the product. The innovations would double fixed costs, but the company expects to be able to increase sales to 3,500 units. If this strategy is pursued the company's budgeted net income will:

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A) decrease by $4,250. B) increase by $4,850. C) increase by $13,250. D) decrease by $4,150.

66) A product has a contribution margin of $9 per unit and a selling price of $55 per unit. Fixed costs are $27,000. Assuming new technology increases the unit contribution margin by 50 percent but increases total fixed costs by $16,200, what is the new break-even point in units?

A) 3,000 units B) 7,875 units C) 7,425 units D) 3,200 units

67) A product has a contribution margin of $2.50 per unit and a selling price of $25 per unit. Fixed costs are $20,000. Assuming new technology increases the unit contribution margin by 50 percent but increases total fixed costs by $13,750, what is the new break-even point in units?

A) 3,667 units B) 3,333 units C) 13,500 units D) 9,000 units

68) If a company experiences an increase in rent expense, the total cost line on the costvolume-profit graph will:

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A) shift upward, and the break-even point will shift downward. B) shift upward, and the break-even point will also shift upward. C) shift upward and have a steeper slope, and the break-even point will also shift upward. D) shift upward and have a flatter slope, and the break-even point will be unchanged.

69)

Consider the following cost-volume-profit graph:

The line designated by the letter (B) represents which of the following? A) Variable cost B) Break-even C) Total revenue D) Total cost

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25)

Consider the following cost-volume-profit graph:

The line designated by the letter (A) represents which of the following? A) Total revenue B) Total cost C) Total fixed cost D) None of these choices are correct.

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26)

Consider the following cost-volume-profit graph:

The area designated by the letter (C) represents which of the following? A) Profit area B) Loss area C) Break-even area D) Fixed cost area

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27)

Consider the following cost-volume-profit graph:

What is the approximate amount of fixed costs in this organization? A) $0 B) $25,000 C) $60,000 D) $30,000

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28)

Consider the following cost-volume-profit graph:

Based on the information in the graph, the break-even point in sales dollars is approximately equal to: A) $50,000. B) $30,000. C) $60,000. D) $20,000.

74) Columbus Industries makes a product that sells for $31 a unit. The product has a $23 per unit variable cost and total fixed costs of $7,600. At budgeted sales of 2,150 units, the margin of safety ratio is:

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A) 38.8% B) 37.1%. C) 55.8%. D) None of these choices are correct.

75) Columbus Industries makes a product that sells for $25 a unit. The product has a $5 per unit variable cost and total fixed costs of $9,000. At budgeted sales of 2,000 units, the margin of safety ratio is:

A) 22.5%. B) 10%. C) 77.5%. D) None of these choices are correct.

76)

A company that has a margin of safety of 55% can incur a: A) 55% increase In variable costs and still break even. B) 55% decrease in budgeted sales and still report a profit. C) 55% increase in variable costs and still report a profit. D) 55% decrease in budgeted sales and still break even.

77)

A company that has a margin of safety of 60% can incur a: A) 60% decrease in budgeted sales and still break even. B) 60% decrease in budgeted sales and still report a profit. C) 60% increase in variable costs and still break even. D) 60% increase in variable costs and still report a profit.

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78)

The margin of safety ratio can be defined as the:

A) Excess of budgeted sales over break-even sales divided by break-even sales. B) Excess of budgeted sales over break-even sales divided by budgeted sales. C) Excess of budgeted sales over fixed costs divided by budgeted sales. D) Excess of budgeted sales over variable costs divided by budgeted sales.

79) During the current year, Fairview Corporation sold 120,000 units of its product for $30 each. The variable cost per unit was $25, and Fairview's margin of safety was 50,000 units. What was the amount of Fairview's total fixed costs? A) $1,250,000 B) $350,000 C) $600,000 D) $3,000,000

80) During the current year, Fairview Corporation sold 100,000 units of its product for $20 each. The variable cost per unit was $14, and Fairview's margin of safety was 40,000 units. What was the amount of Fairview's total fixed costs?

A) $240,000 B) $560,000 C) $840,000 D) $360,000

81) Bruce Company recently reduced its advertising budget. All other costs and revenues were unchanged. Select the response that indicates the impact of the advertising cuts on the company's break-even point and margin of safety.

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Break-even Point

Margin of Safety

Increase

Decrease

Increase

Decrease

Increase

A) A. B) B. C) C. D) D.

82) Burke Company has a break-even of $800,000 in total sales. Assuming the company sells its product for $40 per unit, what is its margin of safety in units if sales total $1,000,000?

A) 20,000 units B) 1,000 units C) 25,000 units D) 5,000 units

83) Burke Company has a break-even of $600,000 in total sales. Assuming the company sells its product for $50 per unit, what is its margin of safety in units if sales total $850,000?

A) 5,000 units B) 250,000 units C) 12,000 units D) 17,000 units

84) Unistar Computers makes and sells a unique computer that is designed for a specific market. Cost information relating to that product is shown below: Sales price Variable costs Fixed costs

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$2,800 $2,300 $185,000

per unit per unit total

Unistar expects to make and sell 560 computers. Based on this information, the margin of safety expressed in units is: A) 190 units. B) 560 units. C) 370 units. D) 185 units.

85) Derek's Drum Depot (DDD) wants to add a new line of drumsticks to its product line. The following data apply to the new drumsticks line. Budgeted sales Sales price Variable costs Fixed costs

45,000 $20 $18 $40,000

sets per year per set per set per year

The margin of safety for DDD is: Note: Round your answer to the nearest whole value. A) 56% B) 60,000 sets C) 46% D) 2,250 sets

86)

Information concerning a product produced by Kremer Company appears here:

Sales price per unit Variable cost per unit Total annual fixed costs

$130 $50 $230,000

Assuming Kremer Company expects to sell 42,000 units of product, what is the company’s margin of safety? A) 2,000 units B) 7,500 units C) 39,125 units D) 10,000 units E) None of these choices are correct.

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87)

Information concerning a product produced by Kremer Company appears here:

Sales price per unit Variable cost per unit Total annual fixed costs

$100 $20 $200,000

Assuming Kremer Company expects to sell 12,000 units of product, what is the company’s margin of safety? A) 2,000 units B) 7,500 units C) 9,500 units D) 10,000 units E) None of these choices are correct.

88)

Information concerning a product produced by Dishmon Company appears here:

Sales price per unit Variable cost per unit Total annual fixed costs

$522 $322 $1,202,200

Assuming Dishmon Company expects to sell 8,100 units of product, what is the company’s margin of safety expressed in dollars? A) $1,090,458 B) $1,511,000 C) $3,011,000 D) $3,511,000 E) None of these choices are correct.

89)

Information concerning a product produced by Dishmon Company appears here:

Sales price per unit Variable cost per unit Total annual fixed costs

$500 $300 $1,200,000

Assuming Dishmon Company expects to sell 7,000 units of product, what is the company’s margin of safety expressed in dollars?

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A) $500,000 B) $1,500,000 C) $3,000,000 D) $3,500,000 E) None of these choices are correct.

90) In Year 1, Girard Company sold 153,400 units at a sales price of $39 per unit. During Year 2 Girard expects to maintain the same sales price per unit and increase sales to 278,400 units. If Girard has a $1,003,400 break-even point, what is Girard’s margin of safety expressed in units for Year 2? A) 53,400 units B) 103,400 units C) 178,400 units D) 252,672 units

91) In Year 1, Girard Company sold 150,000 units at a sales price of $5 per unit. During Year 2 Girard expects to maintain the same sales price per unit and increase sales to 275,000 units. If Girard has a $1,000,000 break-even point, what is Girard’s margin of safety expressed in units for Year 2? A) 50,000 units B) 75,000 units C) 100,000 units D) 175,000 units

92) Which of the following software applications is most useful for performing cost-volumeprofit sensitivity analysis?

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A) Database software B) Spreadsheet software C) Presentation software D) Word processing software

93) When sales price, fixed cost, variable cost, and production volume are changing simultaneously, the best approach to determining profitability is:

A) contribution margin. B) contribution ratio. C) sensitivity analysis. D) equation.

94) To get a feel for the impact on profits of various changes in costs and volume levels, management should perform:

A) cost benefit analysis B) sensitivity analysis C) cost analysis D) profitability analysis

95)

The Victor Company sells two products. The following information is provided:

Unit selling price Unit variable cost Number of units produced and sold

Product A

Product B

$200 $58 20,000

$250 $73 60,000

What is the weighted average contribution margin per unit?

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A) $168.25 B) $177.00 C) $159.50 D) $150.75

96)

The Victor Company sells two products. The following information is provided:

Unit selling price Unit variable cost Number of units produced and sold

Product A

Product B

$100 $30 20,000

$150 $70 60,000

What is the weighted average contribution margin per unit? A) $77.50 B) $80.00 C) $75.00 D) $72.50

97) The Travel Pro Company sells two kinds of luggage. The company projected the following cost information for the two products: Rolling Bag Unit selling price Unit variable cost Number of units produced and sold

$200 $114 4,000

Carry-on Bag $100 $47 12,000

The company's total fixed costs are expected to be $294,000. Based on this information, what is the combined number of units of the two products that would be required to break even with the projected sales mix? Note: Do not round your intermediate calculations. Round your final answer to the nearest whole unit.

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A) 4,800 units B) 4,483 units C) 5,547 units D) None of these choices are correct.

98) The Travel Pro Company sells two kinds of luggage. The company projected the following cost information for the two products: Rolling Bag Unit selling price Unit variable cost Number of units produced and sold

$250 $110 4,000

Carry-on Bag $120 $80 6,000

The company's total fixed costs are expected to be $280,000. Based on this information, what is the combined number of units of the two products that would be required to break even with the projected sales mix? Note: Round your answer to the nearest whole unit. A) 3,500 units B) 3,111 units C) 1,556 units D) None of these choices are correct.

99) Zed Company sells two kinds of mainframe computer power supplies. The company projected the following cost information for the two products: Standard Supply Unit selling price Unit variable cost Number of units produced and sold

$100 $46 3,000

Heavy-Duty Supply $50 $22 7,000

Assume that total fixed costs are $121,720. How many units of the standard supply unit would be included in the total number of units required to break even with the projected sales mix? Note: Do not round your intermediate calculations. Round your answer to the nearest whole unit.

Version 1

A) 3,400 units B) 1,020 units C) 2,254 units D) 1,484 units

100) Zed Company sells two kinds of mainframe computer power supplies. The company projected the following cost information for the two products: Standard Supply Unit selling price Unit variable cost Number of units produced and sold

$250 $110 7,000

Heavy-Duty Supply $120 $50 3,000

Assume that total fixed costs are $428,400. How many units of the standard supply unit would be included in the total number of units required to break even with the projected sales mix? Note: Round your answer to the nearest whole unit. A) 3,600 units B) 2,520 units C) 1,080 units D) 2,040 units

101) Broadway Company produces and sells two models of calculators. The following monthly data are provided: Unit selling price Unit variable manufacturing cost Unit variable selling and administrative cost Number of units produced and sold

Standard

Premium

$400 $208 $11 5,000

$200 $90 $12 5,000

Total monthly fixed costs are expected to be $585,900. What is the break-even point in sales dollars at the expected sales mix? Note: Round your final answer to the whole dollar.

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A) $189,000 B) $380,100 C) $569,100 D) $1,260,000

102) Broadway Company produces and sells two models of calculators. The following monthly data are provided: Unit selling price Unit variable manufacturing cost Unit variable selling and administrative cost Number of units produced and sold

Standard

Premium

$100 $60 $15 3,000

$150 $90 $30 1,000

Total monthly fixed costs are expected to be $15,000. What is the break-even point in sales dollars at the expected sales mix? Note: Do not round intermediate calculations. A) $19,231 B) $43,478 C) $68,182 D) $64,286

103) Crown Company produces and sells two products. The following monthly data are provided: Unit selling price Variable manufacturing costs Variable selling and administrative costs Estimated unit sales per month

Slicer

Chopper

$82 42 1 640

$87 27 1 780

The break-even point for the current sales mix is 540 units (162 Slicer models and 378 Chopper models). What would be the impact on profit if 540 units are sold but 163 Slicer models are sold instead of 162?

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A) $39 decrease B) $59 increase C) $20 decrease D) $20 increase

104) Crown Company produces and sells two products. The following monthly data are provided: Unit selling price Variable manufacturing costs Variable selling and administrative costs Estimated unit sales per month

Slicer

Chopper

$10 6 1 280

$15 9 1 420

The break-even point for the current sales mix is 360 units (144 Slicer models and 216 Chopper models). What would be the impact on profit if 360 units are sold but 145 Slicer models are sold instead of 144? A) $3 decrease B) $5 increase C) $2 decrease D) $2 increase

105) Company A has break-even sales of 93,000 units and budgeted sales of 111,000 units. What is the margin of safety as expressed as a percentage? A) 17.00% B) 19.40% C) 16.22% D) None of these choices are correct.

106) Company A has break-even sales of 90,000 units and budgeted sales of 99,000 units. What is the margin of safety as expressed as a percentage? Version 1

A) 9.00% B) 10.0% C) 9.09% D) None of these choices are correct.

107) If total fixed costs increase while variable costs and sales price are unchanged, what happens to the break-even point?

A) The break-even point increases, and therefore more units must be sold to break even. B) The break-even point decreases, and therefore fewer units must be sold to break even. C) The break-even point remains the same. D) The break-even point decreases and therefore more units must be sold to break even.

108)

When drawing a cost-volume-profit graph, how are the axes labeled?

A) The horizontal axis would be labeled with dollars (of cost or revenue), while the vertical axis would be labeled with number of units (volume or activity). B) The horizontal axis would be labeled with dollars (of total fixed costs), while the vertical axis would be labeled with dollars (of total variable costs). C) The horizontal axis would be labeled with number of units (volume or activity), while the vertical axis would be labeled with dollars (of cost or revenue). D) None of these choices are correct.

109) Chesterfield Corporation has been operating well above its break-even point. What will happen to Chesterfield's margin of safety if the variable cost per unit increases?

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A) The break-even point would decrease, and the margin of safety would decrease. B) The break-even point would decrease, and the margin of safety would increase. C) The break-even point would increase, and the margin of safety would decrease. D) The break-even point would increase, and the margin of safety would increase.

110) Chesterfield Corporation has been operating well below its break-even point. What will happen to Chesterfield's margin of safety if the variable cost per unit decreases? A) The break-even point would decrease, and the margin of safety would decrease. B) The break-even point would decrease, and the margin of safety would increase. C) The break-even point would increase, and the margin of safety would decrease. D) The break-even point would increase, and the margin of safety would increase.

111) When performing sensitivity analysis, which of the following is an example of a variable that management may consider changing to answer "what if" questions?

A) Variable cost per unit B) Sales price per unit C) Fixed cost per unit D) Both Variable cost per unit and Sales price per unit are correct.

112) Thomas Company buys and sells a product that has a variable cost per unit of $27. Thomas’ fixed costs amount to $88,000. The product sells for $32 each. Thomas currently expects to make and sell 34,000 units. Management believes that if the price per unit is lowered by one dollar, the Company could sell an additional 4,000 units of product. If Thomas implements the lower price strategy, profitability will

Version 1

A) increase by $7,200. B) decrease by $4,000. C) decrease by $18,000. D) increase by $22,000.

113) Thomas Company buys and sells a product that has a variable cost per unit of $22. Thomas’ fixed costs amount to $78,000. The product sells for $27 each. Thomas currently expects to make and sell 29,000 units. Management has an opportunity to reduce its variable cost per unit by one dollar. If Thomas passes the savings on to its customers by lowering the sales price, the lower sales price will increase sales by 1,000 units. If management implements the new pricing strategy, profitability will A) increase by $10,000. B) decrease by $15,000. C) decrease by $25,000. D) increase by $5,000.

114) What happens to the break-even point in sales dollars when the contribution margin ratio increases?

A) Break-even point increases. B) Break-even point decreases. C) Break-even point stays the same. D) Not enough information to answer the question.

115) Jasper Company has variable costs per unit of $15, fixed costs of $240,000, and a breakeven point of 40,000 units. What will be the new break-even point in units if variable costs decrease by $4 per unit and fixed costs increase by $120,000?

Version 1

A) 67,200 units B) 24,000 units C) 36,000 units D) 144,000 units

116) Jasper Company has variable costs per unit of $20, fixed costs of $300,000, and a breakeven point of 60,000 units. What will be the new break-even point in units if variable costs decrease by $3 per unit and fixed costs increase by $100,000?

A) 93,333 units B) 33,333 units C) 50,000 units D) 200,000 units

117) Company X has variable costs per unit of $25, fixed costs of $292,500, and a break-even point in units of 58,500 units. If the sales price per unit decreases by $3 and the variable cost per unit decreases by $3, what would happen to the break-even point?

A) Break-even point increases. B) Break-even point in dollars decreases. C) Break-even point stays the same. D) Break-even point in dollars decreases and break-even point in units stays the same.

118) Company X has variable costs per unit of $20, fixed costs of $300,000, and a break-even point in units of 60,000 units. If the sales price per unit decreases by $2 and the variable cost per unit decreases by $2, what would happen to the break-even point?

Version 1

A) Break-even point increases. B) Break-even point in dollars decreases. C) Break-even point stays the same. D) Break-even point in dollars decreases and break-even point in units stays the same.

119)

What happens to break-even point when the sales price per unit decreases?

A) Break-even point increases. B) Break-even point decreases. C) Break-even point stays the same. D) None of these choices are correct.

120) Assume that the company sells two products, X and Y, with contribution margins per unit of $12 and $10, respectively. What happens to the break-even point if the sales mix shifts to favor product X? (In other words, sales of product X will make up a higher percentage of the sales mix.)

A) Break-even point increases. B) Break-even point decreases. C) Break-even point stays the same. D) None of these choices are correct.

121) Clipper Company sells two types of nail clippers. One focuses on the economy oriented customer and the other aims to satisfy the high-end clientele. The economy clipper cost $6 and has a sales price of $8. The high-end model costs $12 and sells for $18. Fixed costs associated with this product line amount to $40,940. Economy clippers constitute 70 percent of the market with the remaining 30 percent being high-end clippers. Based on this information what is the weighted average contribution margin?

Version 1

A) $4.70 B) $3.70 C) $3.20 D) $1.00

122) Clipper Company sells two types of nail clippers. One focuses on the economy oriented customer and the other aims to satisfy the high-end clientele. The economy clipper costs $6 and has a sales price of $8. The high-end model costs $12 and sells for $18. Fixed costs associated with this product line amount to $40,940. Economy clippers constitute 70 percent of the market with the remaining 30 percent being high-end clippers. Based on this information what is the total break-even point (the total number of economy line plus the number of high-end clippers)? Note: Round your final answer to nearest whole number. A) 2,559 clippers B) 12,679 clippers C) 1,919 clippers D) 12,794 clippers

123) Clipper Company sells two types of nail clippers. One focuses on the economy oriented customer and the other aims to satisfy the high-end clientele. The economy clipper costs $8 and has a sales price of $12. The high-end model costs $12 and sells for $18. Fixed costs associated with this product line amount to $40,940. Economy clippers constitute 70 percent of the market with the remaining 30 percent being high-end clippers. Based on this information what is the break-even point for the high-end clippers? A) 2,559 clippers B) 6,230 clippers C) 2,670 clippers D) 8,900 clippers

Version 1

124) Clipper Company sells two types of nail clippers. One focuses on the economy oriented customer and the other aims to satisfy the high-end clientele. The economy clipper costs $9 and has a sales price of $13. The high-end model costs $13 and sells for $19. Fixed costs associated with this product line amount to $45,080. Economy clippers constitute 70 percent of the market with the remaining 30 percent being high-end clippers. Based on this information what is the total number of clippers that must be sold to earn a $21,620 profit? A) 14,500 clippers B) 10,150 clippers C) 4,350 clippers D) None of these choices are correct.

125) Clipper Company sells two types of nail clippers. One focuses on the economy oriented customer and the other aims to satisfy the high-end clientele. The economy clipper costs $12 and has a sales price of $16. The high-end model costs $16 and sells for $22. Fixed costs associated with this product line amount to $42,780. Economy clippers constitute 70 percent of the market with the remaining 30 percent being high-end clippers. Assume Clipper Company currently sells 13,500 units of clippers and earns a $19,320 profit. Management believes the profitability can be improved by shifting the sales mix to 60 percent share for the economy line and 40 percent for the high-end line. The company believes it can continue to sell a total of 13,500 under the new sales mix. If management is able to accomplish the shift in sales mix A) profit will increase by $2,700. B) profit will increase by $22,020. C) profit will decrease $19,320. D) profit will not be affected.

126)

What is the formula for calculating contribution margin ratio?

A) Contribution margin ÷ Net income B) Contribution margin ÷ Fixed costs C) Contribution margin ÷ Desired profit D) Contribution margin ÷ Sales

Version 1

127) Falls Company has a contribution margin of $23 per unit and fixed costs of $357,100, and it desires to earn a profit of $142,000. What is the sales volume in units required to achieve this desired profit?

A) 6,174 units B) 21,700 units C) 15,526 units D) 9,352 units

128) Falls Company has a contribution margin of $32 per unit and fixed costs of $500,000, and it desires to earn a profit of $100,000. What is the sales volume in units required to achieve this desired profit?

A) 3,125 units B) 18,750 units C) 15,625 units D) 12,500 units

129)

At the break-even point:

A) Sales would be equal to total costs. B) Contribution margin would be equal to total fixed costs. C) Sales would be equal to fixed costs. D) Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct.

130)

Which of the following statements regarding Company A is incorrect?

Version 1

A) If Company A has fixed costs of $939,600, a selling price of $52 per unit, and contribution margin of $36 per unit, its break-even point in units is 58,725 units. B) If Company A has fixed costs of $939,600, a selling price of $52 per unit, and contribution margin of $36 per unit, its variable expenses must be $16 per unit. C) If Company A has fixed costs of $939,600, a selling price of $52 per unit, and contribution margin of $36 per unit, once it has covered its fixed costs, net income will increase by $36 for each additional unit sold. D) Both if Company A has fixed costs of $939,600, a selling price of $52 per unit, and contribution margin of $36 per unit, its break-even point in units is 58,725 units and if Company A has fixed costs of $939,600, a selling price of $52 per unit, and contribution margin of $36 per unit, its variable expenses must be $16 per unit are incorrect.

131)

Which of the following statements regarding Company A isincorrect?

A) If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its break-even point in units is 36,000 units. B) If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its variable expenses must be $20 per unit. C) If Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, once it has covered its fixed costs, net income will increase by $30 for each additional unit sold. D) Both if Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its break-even point in units is 36,000 units and if Company A has fixed costs of $720,000, a selling price of $50 per unit, and contribution margin of $30 per unit, its variable expenses must be $20 per unit are incorrect.

132)

Which of the following statements about a cost-volume-profit graph is correct?

Version 1

A) A cost-volume-profit graph is prepared with activity (number of units) on the vertical axis. B) The intersection of the total sales line and the total cost line represents the break-even point. C) The area above the break-even point represents the area of loss. D) The total cost line intersects the vertical axis at the dollar amount of total variable costs.

133) Bloom Company has variable cost per unit of $20 and a sales price of $35 per unit. Its total fixed costs are $240,000. Which of the following is a correct statement?

A) Bloom Company's break-even point is 12,000 units. B) If budgeted sales are 25,000 units, Bloom's margin of safety is 10,000 units. C) If Bloom Company's variable cost per unit increases and nothing else changes, the margin of safety will decrease. D) If Bloom Company's variable cost per unit decreases and nothing else changes, the break-even point will stay the same.

134) Joseph Company has variable costs of $100 per unit, total fixed costs of $198,000, and a break-even point of 5,500 units. If the variable cost per unit decreases by $3, how many units must Joseph Company sell to break even? Note: Roundup your final answer to the next whole unit. A) 1,923 units B) 1,980 units C) 18,334 units D) 5,077 units

135) Joseph Company has variable costs of $80 per unit, total fixed costs of $200,000, and a break-even point of 5,000 units. If the variable cost per unit decreases by $8, how many units must Joseph Company sell to break even? Version 1

A) 2,778 units B) 2,500 units C) 6,250 units D) 4,167 units

136) Sharon Company has variable costs of $92 per unit, total fixed costs of $163,200, and a break-even point of 4,800 units. If the sales price per unit is increased by $16, how many units must Sharon Company sell to break even?

A) 3,264 units B) 3,000 units C) 6,336 units D) 3,168 units

137) Sharon Company has variable costs of $80 per unit, total fixed costs of $200,000, and a break-even point of 5,000 units. If the sales price per unit is increased by $10, how many units must Sharon Company sell to break even?

A) 4,000 units B) 5,000 units C) 6,000 units D) 3,000 units

138) Select theincorrect statement regarding cost-volume-profit relationships for multiple products.

Version 1

A) For a company that sells many different products, the level of the break-even point is affected by the company's sales mix. B) An increase in sales volume accompanied by a change in sales mix could cause a company's profits to decrease. C) For a multi-product company, cost-volume-profit analysis can be done using the contribution margin ratio of the most profitable product. D) None of these choices are correct.

139)

Select the correct statement regarding break-even point analysis.

A) The break-even point in sales dollars equals total fixed costs divided by contribution margin per unit. B) An increase in fixed costs causes the break-even point to increase. C) An increase in contribution margin per unit causes the break-even point in units to increase. D) A decrease in the variable cost per unit causes the break-even point in units to increase.

140)

Which of the following statements regarding cost-volume-profit analysis isincorrect?

A) Cost-volume-profit analysis assumes that fixed cost per unit is constant. B) Cost-volume-profit analysis assumes that the selling price cost per unit is constant. C) An increase in inventory during a period will affect cost-volume-profit relationships. D) Although cost-volume-profit analysis is based on assumptions that seldom will be perfectly achieved, the technique is still useful to managers.

141) Rose Corporation sells backpacks. Variable costs for this product are $22 per unit, and the sales price per unit is $32 per unit. Total fixed costs amount to $86,000. How many backpacks does Rose need to sell to achieve a desired profit of $38,000?

Version 1

A) 1,727 units B) 10,673 units C) 5,636 units D) 12,400 units

142) Rose Corporation sells backpacks. Variable costs for this product are $30 per unit, and the sales price per unit is $50 per unit. Total fixed costs amount to $100,000. How many backpacks does Rose need to sell to achieve a desired profit of $60,000?

A) 2,000 units B) 5,000 units C) 5,333 units D) 8,000 units

143) Martinez Company sells one product that has a sales price of $14 per unit, variable costs of $7 per unit, and total fixed costs of $192,000. What is the contribution margin ratio? Note: Round your answer to whole percentage value. A) 64% B) 50% C) 36% D) 14%

144) Martinez Company sells one product that has a sales price of $20 per unit, variable costs of $8 per unit, and total fixed costs of $200,000. what is the contribution margin ratio?

Version 1

A) 40% B) 60% C) 50% D) 66%

145) Ng Company sells one product that has a sales price of $27 per unit, variable costs of $9 per unit, and total fixed costs of $218,000. What is the amount of sales volume in dollars necessary to attain a desired profit of $100,000? Note: Do not round intermediate calculations. A) $119,250 B) $357,750 C) $477,000 D) $286,200

146) Ng Company sells one product that has a sales price of $20 per unit, variable costs of $12 per unit, and total fixed costs of $300,000. What is the amount of sales volume in dollars necessary to attain a desired profit of $100,000?

A) $250,000 B) $750,000 C) $1,000,000 D) $666,667

147)

Select the correct statement regarding the contribution margin ratio.

Version 1

A) The contribution margin ratio can be calculated using either total amounts or per unit amounts. B) The contribution margin ratio equals contribution margin per unit divided by variable cost per unit. C) Total fixed costs divided by the contribution margin ratio equals the break-even point in units. D) An increase in variable cost per unit will cause the contribution margin ratio to increase.

148)

For a company using target costing, market price minus profit equals target price. ⊚ ⊚

true false

149) Adams Company sells a product whose contribution margin is $10 and selling price is $25. If the company's break-even point is 100 units, its total fixed costs must be $500. ⊚ ⊚

true false

150) When computing the break-even point in units, a company should round to the next whole unit because partial units ordinarily are not sold. ⊚ ⊚

true false

151) Jensen Company has a contribution margin ratio of 45%. This means that its variable costs are 55% of sales. ⊚ ⊚

Version 1

true false

152) Wayans Company has a contribution margin ratio of 60%. This means that its variable costs are 60% of sales. ⊚ ⊚

true false

153) Contribution margin ratio will remain the same at various levels of sales even if total fixed costs are altered. ⊚ ⊚

true false

154) To attain a target profit, the total gross margin generated from sales must be sufficient to cover total fixed costs plus the target profit. ⊚ ⊚

true false

155) A company can use target profit analysis to determine the level of sales required to earn a target loss. ⊚ ⊚

true false

156) Assuming a company uses a markup equal to 25% of cost, the cost of a product that sells for $100 is $75. ⊚ ⊚

Version 1

true false

157) Target costing begins with determining the cost of the product and then focusing on developing ways to sell the product at a price that will enable the company to achieve its desired profit margin. ⊚ ⊚

true false

158) One of the advantages of target costing is that it specifically considers the probable market price for the product. ⊚ ⊚

true false

159) If a company is operating beyond its break-even point, sale of one more unit of product increases the company's profit by the amount of the unit contribution margin. ⊚ ⊚

160)

true false

An increase in total fixed costs increases the break-even point. ⊚ ⊚

true false

161) In order to perform cost-volume-profit analysis, a company must be able to identify its variable and fixed costs. ⊚ ⊚

Version 1

true false

162) Contribution margin cannot be calculated for a service-type business, and cost-volumeprofit analysis is not applicable for a company that provides services rather than selling goods. ⊚ ⊚

true false

163) Preston Company sells a product whose contribution margin ratio is 20%. Assuming fixed costs don't change, incremental sales of $50,000 will generate $20,000 of additional profit. ⊚ ⊚

true false

164) The accuracy of cost-volume-profit analysis is limited because it assumes a strictly linear relationship between the variables. ⊚ ⊚

true false

165) Techpro has a selling price of $10 and variable costs of $6. If both the selling price and the variable costs increase by 10%, the break-even point will not change. ⊚ ⊚

true false

166) Database software is especially useful for performing cost-volume-profit sensitivity analysis. ⊚ ⊚

Version 1

true false

167) If a company changes from a labor-intensive system that incurs significant hourly wage cost to an automated system that increases fixed cost, the total cost line on the company's costvolume-profit graph will shift up and have a steeper slope. ⊚ ⊚

true false

168) On a cost-volume-profit graph, the total revenue line lies below the total cost line to the left of the break-even point. ⊚ ⊚

true false

169) On a cost-volume-profit graph, the total revenue line begins at the break-even point and slopes upward to the right. ⊚ ⊚

true false

170) Ecco Company has total fixed costs of $5,000, sells a product whose contribution margin is $50 and selling price per unit is $125, and has current sales of $15,000. The company's margin of safety ratio is 20%. ⊚ ⊚

true false

171) A margin of safety of 30% means that every dollar in revenue generates thirty cents in profit. ⊚ ⊚

Version 1

true false

172)

Sensitivity analysis is performed in order to determine optimal sales mix. ⊚ ⊚

true false

173) Sensitivity analysis acknowledges that profitability is often affected by multidimensional forces. ⊚ ⊚

true false

174) For a company that sells several products, different sales mixes generally give rise to different break-even sales levels, even if overall sales volume remains unchanged. ⊚ ⊚

true false

175) To find the break-even point for a company that sells several products, the analyst must make an assumption about what the sales mix will be and calculate a weighted average contribution margin based on that sales mix. ⊚ ⊚

true false

176) For a company that sells several products, cost-volume-profit techniques cannot be used to calculate the sales volume required to yield a target level of profit. ⊚ ⊚

Version 1

true false

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Answer Key Test name: Chap 03_10e_Edmonds 1) A 2) C 3) A 4) B 5) A 6) C 7) B 8) B 9) D 10) B 11) A 12) A 13) B 14) B 15) D 16) D 17) C 18) C 19) D 20) A 21) A 22) A 23) A 24) C 25) B 26) D Version 1

27) A 28) B 29) B 30) A 31) D 32) A 33) C 34) C 35) B 36) B 37) B 38) D 39) A 40) D 41) D 42) B 43) B 44) C 45) B 46) D 47) B 48) C 49) C 50) D 51) A 52) A 53) B 54) D 55) D 56) D Version 1

57) B 58) D 59) B 60) D 61) C 62) D 63) A 64) B 65) B 66) D 67) D 68) B 69) D 70) A 71) B 72) D 73) C 74) C 75) C 76) D 77) A 78) B 79) B 80) D 81) D 82) D 83) A 84) A 85) A 86) C Version 1

87) C 88) A 89) A 90) D 91) B 92) B 93) C 94) B 95) A 96) A 97) A 98) A 99) B 100) B 101) D 102) D 103) C 104) C 105) C 106) C 107) A 108) C 109) C 110) B 111) D 112) C 113) D 114) B 115) C 116) C Version 1

117) D 118) D 119) A 120) B 121) C 122) D 123) C 124) A 125) A 126) D 127) B 128) B 129) D 130) A 131) A 132) B 133) C 134) D 135) D 136) A 137) A 138) C 139) B 140) A 141) D 142) D 143) B 144) B 145) C 146) C Version 1

147) A 148) FALSE 149) FALSE 150) TRUE 151) TRUE 152) FALSE 153) TRUE 154) FALSE 155) TRUE 156) FALSE 157) FALSE 158) TRUE 159) TRUE 160) TRUE 161) TRUE 162) FALSE 163) FALSE 164) TRUE 165) FALSE 166) FALSE 167) FALSE 168) TRUE 169) FALSE 170) FALSE 171) FALSE 172) FALSE 173) TRUE 174) TRUE 175) TRUE 176) FALSE Version 1

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Chapter 4 Cost Accumulation, Tracing, and Allocation 1)

Cost objects may be:

A) Products. B) Services. C) Departments. D) All of the answers are correct.

Cost accumulation is used to:

A) Determine the cost of a particular cost object. B) Identify and estimate opportunity costs. C) Identify fixed and variable costs. D) Set the selling price for a service.

Select thefalse statement from the following.

A) Only direct costs are traced to cost objects. B) The same cost may be assigned to more than one cost object. C) General, selling, and administrative costs cannot be assigned to a cost object. D) A given cost can be driven by more than one cost driver.

Which of the following is not an example of a cost object and its related cost driver? Cost Object A. Rent B. Transportation C. Direct labor hours D. Utilities

Version 1

Cost Driver Square feet Miles driven Indirect labor Machine hours

A) Option A B) Option B C) Option C D) Option D

Select theincorrect statement from the following.

A) Indirect costs can be easily traced to a cost object. B) Actual costs are useful for evaluating managerial performance. C) Actual costs are not relevant in many decisions because actual costs cannot be determined until after the decision has been made. D) When accumulating the cost of a specific cost object, the indirect costs are allocated to the cost object.

6) Which of the following costs is most likely to be directly traceable to a specific department in a retail clothing store?

A) The cost of heating and air-conditioning. B) The cost of supplies. C) The cost of the department manager's salary. D) Rent on the store building.

7) A chair manufacturer makes custom chairs using hand tools, wood, glue, and varnish. Which of the following statements is true?

A) The costs of wood and glue would be treated as direct costs. B) Wood, glue, and varnish would all be direct materials. C) Wood would be accounted for as a direct cost, and glue and varnish as indirect costs. D) The concepts of direct and indirect costs are not applicable here.

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8) Managers of a discount store chain are considering whether to add a new auto service department. In reaching this decision, the managers should consider:

A) Direct costs only. B) Indirect costs but not direct costs. C) Both direct and indirect costs. D) Neither direct nor indirect costs.

Southeast Manufacturing Company has identified the following cost objects:

Cost Object 1: The cost of operating the finishing department Cost Object 2: The cost of a particular product made in June Cost Object 3: The cost of operating the factory With respect to these cost objects, the cost of the salary of the supervisor of the finishing department is directly traceable to cost objects:

A) 1 and 2. B) 2 and 3. C) 1 and 3. D) 1, 2, and 3.

10) Cobalt Company management has identified the following cost objects: Cost Object 1: The cost of operating the finishing department Cost Object 2: The cost of operating the factory Cost Object 3: The cost of a particular product made in June With respect to these cost objectives, how would rent paid by the finishing department for storage space be classified? Object 1 A. B.

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Direct Direct

Object 2 Direct Direct

Object 3 Direct Indirect

C. D.

Indirect Indirect

Indirect Direct

A) Option A B) Option B C) Option C D) Option D

11)

Which of the following costs generally can be traced directly to units of product?

A) Indirect materials B) Overhead costs C) Assembly labor D) Indirect materials and assembly labor

12) Some costs that possibly could be traced directly to cost objects are nonetheless classified as indirect costs because:

A) Such costs cannot be traced to objects in a cost-effective manner. B) Such practice results in a more accurate accumulated cost for the object. C) Generally accepted accounting principles require some costs to be treated as indirect. D) All of the answers are correct.

13)

Which of the following statements is true?

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A) Indirect costs can easily be traced to a cost object; direct costs cannot be easily traced to a cost object. B) Direct costs can be traced easily to a cost object, but indirect costs cannot be easily traced to a cost object. C) Both direct and indirect costs can easily be traced to a cost object. D) Neither direct nor indirect costs are easily traced to a cost object.

14)

Overhead costs include:

A) Direct and indirect costs. B) Indirect costs only. C) Direct costs only. D) Neither direct nor indirect costs.

15)

Overhead costs:

A) Cannot be traced to cost objects in a cost-effective manner, but are instead allocated to cost objects. B) Cannot be allocated to cost objects. C) Are always variable costs. D) Are only incurred by manufacturing companies.

16) Preston Company has three divisions. The company should consider a cost to be a direct cost of a division if:

A) It meets guidelines imposed by generally accepted accounting principles. B) It can be traced to a division in a cost-effective manner. C) It is a variable cost. D) It can be allocated to a division.

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17) Which of the following statements is true regarding the salary of the manager of a fastfood 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 the answers are correct.

18)

Cost allocation involves:

A) Identifying a cost driver for each cost to be allocated. B) Calculating an allocation rate for each cost to be allocated. C) Multiplying the allocation rate by the weight of the cost driver. D) All of the answers are correct.

19) Craig Manufacturing Company operates its three production departments within a single facility. Each department produces its own products and maintains its own production equipment. Although they share a common facility, each department is overseen by a separate supervisor. Which one of the following costs is a direct cost of each department?

A) Lease payment on facility B) Depreciation on the facility C) Production supervisor salary D) Plant manager salary

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20) Blankenship Company operates a factory with two departments, X and Y. The utilities to heat and light the manufacturing facility would most likely be allocated to departments X and Y on the basis of:

A) Square footage occupied. B) Machine hours. C) Direct labor hours. D) Units sold.

21)

Marsden Company has three departments occupying the following amount of floor space:

Department 1

17,000 square feet

Department 2

11,100 square feet

Department 3

27,000 square feet

How much store rent should be allocated to Department 3 if total rent is equal to $102,000? Note: Do not round intermediate calculations. A) $27,000 B) $49,982 C) $20,548 D) None of the answers are correct.

22)

Marsden Company has three departments occupying the following amount of floor space:

Department 1 Department 2 Department 3

15,000 square feet 10,000 square feet 25,000 square feet

How much store rent should be allocated to Department 3 if total rent is equal to $200,000? Note: Do not round intermediate calculations. A) $100,000 B) $50,000 C) $66,667 D) None of the answers are correct.

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23)

Select the correct statement from the following.

A) The allocation base determines whether a cost is classified as direct or indirect. B) The same cost cannot be classified as both direct and indirect. C) Relevant costs can include direct and indirect costs. D) Direct costs always display a variable behavior pattern.

24) The Western and Pacific Railroad has two divisions, the Western Division and the Pacific Division. The company recently invested $7,000,000 to maintain its railroad track. Pertinent data for the two divisions are as follows: Total Miles Traveled: Western Division

700,000 miles

Pacific Division

1,100,000 miles

The amount of track improvement cost that should be allocated to the Western Division is: Note: Round intermediate calculations to 1 decimal place. A) $455,000. B) $2,730,000. C) $350,000. D) $427,778.

25) The Western and Pacific Railroad has two divisions, the Western Division and the Pacific Division. The company recently invested $8,000,000 to maintain its railroad track. Pertinent data for the two divisions are as follows: Total Miles Traveled: Western Division Pacific Division

800,000 miles 1,200,000 miles

The amount of track improvement cost that should be allocated to the Western Division is: Note: Do not round your intermediate calculations.

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A) $4,000,000. B) $3,200,000. C) $800,000. D) $5,333,333.

26) At the beginning of the year, Rangle Company expected to incur $45,000 of overhead costs in producing 5,000 units of product. The direct material cost is $28 per unit of product. Direct labor cost is $38 per unit. During January, 410 units were produced. The total cost of the units made in January was: A) $30,750 B) $27,060 C) $3,690 D) None of the answers are correct.

27) 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 the answers are correct.

28) At the beginning of the year, Lilli Company expected to incur $100,000 of overhead costs in producing 1,000 units of product. During January, 200 units were produced with direct materials cost of $25,000 and direct labor cost of $30,000. Based on this information, what is the total cost of the units made in January?

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A) $45,000 B) $75,000 C) $20,000 D) $50,000

29) At the beginning of the year, Barcroft Company estimated that its total annual fixed overhead costs would amount to $28,800. Further, Barcroft estimated that its volume of production would be 2,950 units of product. Based on these estimates, Barcroft computed a predetermined overhead rate that was used to allocate overhead costs to the products made during the year. As predicted, actual fixed overhead costs did amount to $28,800. However, actual volume of production amounted to 3,150 units of product. Based on this information alone:

A) Products were costed accurately during the year. B) Products were overcosted during the year. C) Products were undercosted during the year. D) The answer cannot be determined from the information provided.

30) At the beginning of the year, Barcroft Company 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 during the year. 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:

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31) Great Outdoors Company makes two types of camping tents. Making a standard camping tent requires 4 hours of labor while making a deluxe camping tent requires 10 hours of labor. During the most recent accounting period the company made 2,650 standard camping tents and 1,150 deluxe camping tents. Indirect manufacturing costs amounted to $375,700 and are allocated based on labor hours. Based on this information:

A) $17 of overhead cost should be allocated to each camping tent regardless of the type of tent made. B) $88.40 of overhead cost should be allocated to each camping tent regardless of the type of tent made C) $68 of overhead cost should be assigned to each standard camping tent and $170 of overhead cost should be assigned to each deluxe tent. D) None of the answers are correct.

32) Great Outdoors Company makes two types of camping tents. Making a standard camping tent requires 4 hours of labor while making a deluxe camping tent requires 10 hours of labor. During the most recent accounting period the company made 2,000 standard camping tents and 500 deluxe camping tents. Indirect manufacturing costs amounted to $52,000 and are allocated based on labor hours. Based on this information:

A) $4 of overhead cost should be allocated to each camping tent regardless of the type of tent made. B) $20.80 of overhead cost should be allocated to each camping tent regardless of the type of tent made. C) $16 of overhead cost should be assigned to each standard camping tent and $40 of overhead cost should be assigned to each deluxe tent. D) None of the answers are correct.

33)

Sheddon Industries produces two products. The products' identified costs are as follows: Product A

Direct materials

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$ 28,000

Product B $ 23,000

Direct labor

18,000

32,000

The company's overhead costs of $62,000 are allocated based on labor cost. Assume 12,000 units of product A and 13,000 units of Product B are produced. What amount of production costs would be assigned to Product A? Note: Do not round intermediate calculations. A) $55,000 B) $68,320 C) $117,000 D) None of the answers are correct.

34)

Sheddon Industries produces two products. The products' identified costs are as follows:

Direct materials Direct labor

Product A

Product B

$ 20,000 12,000

$ 15,000 24,000

The company's overhead costs of $108,000 are allocated based on direct labor cost. Assume 4,000 units of product A and 5,000 units of Product B are produced. What amount of production costs would be assigned to Product A? Note: Do not round intermediate calculations. A) $36,000 B) $111,000 C) $68,000 D) None of the answers are correct.

35)

Sheddon Industries produces two products. The products' identified costs are as follows:

Direct materials Direct labor

Product A

Product B

$ 30,000 16,000

$ 25,000 34,000

The company's overhead costs of $60,000 are allocated based on direct labor cost. Assume 14,000 units of product A and 15,000 units of product B are produced. What is the cost per unit for product B? Note: Do not round intermediate calculations.

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A) $6.65 B) $8.65 C) $9.10 D) None of the answers are correct.

36)

Sheddon Industries produces two products. The products' identified costs are as follows: Product A

Direct materials Direct labor

$ 20,000 12,000

Product B $ 15,000 24,000

The company's overhead costs of $108,000 are allocated based on direct labor cost. Assume 4,000 units of product A and 5,000 units of product B are produced. What is the cost per unit for product B? Note: Do not round intermediate calculations. A) $7.80 B) $22.20 C) $16.80 D) None of the answers are correct.

37) Logan Corporation has 200 employees, 95 in "A-line," and 105 in "B-line." Logan incurred $350,000 in fringe benefits costs last year. How much in fringe benefit costs should be allocated to "A-line"? A) $350,000 B) $332,500 C) $166,250 D) Cannot determine from the information given.

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38) The Science Institute has three departments: Biology, Chemistry, and Physics. The institute's controller wants to estimate the cost of operating each department. He has identified several indirect costs that must be allocated to each department including $61,000 of indirect salaries, $13,500 of office supplies, and $45,500 of office rent. There are 500 students in the Biology Department, 200 in Chemistry and 300 in Physics. The director of the Institute wants to know how much of the indirect cost to allocate to each department. Based on this information: A) the amount of the cost to be allocated is $120,000. B) the indirect cost is the "allocation base". C) the students are the "cost objects". D) All of the answers are correct.

39) The Science Institute has three departments: Biology, Chemistry, and Physics. The institute's controller wants to estimate the cost of operating each department. He has identified several indirect costs that must be allocated to each department including $55,000 of indirect salaries, $10,500 of office supplies, and $42,500 of office rent. There are 500 students in the Biology Department, 200 in Chemistry and 300 in Physics (1,000 total students as the allocation base). The amount of cost that should be allocated to the Chemistry Department is A) $54,000. B) $21,600. C) $32,400. D) There is no correct answer.

40) The following information was drawn from the accounting records of Marlin Manufacturing Company Product 1 Direct Material Cost Direct Labor Cost Direct Labor Hours

Product 2

Product 3

$ 115,000

$ 120,000

$ 125,000

$ 210,000

$ 220,000

$ 230,000

4,800 hours

5,400 hours

5,600 hours

Factory overhead is estimated to be $759,000 and is applied on a basis of direct labor dollars. This overhead cost is not traceable to any particular product. Factory overhead allocated to Product 2 is: Version 1

A) $15,600 B) $241,500 C) $253,000 D) $253,800

41) The following information was drawn from the accounting records of Marlin Manufacturing Company Product 1 Direct Material Cost Direct Labor Cost Direct Labor Hours

Product 2

Product 3

$ 120,000

$ 125,000

$ 130,000

$ 220,000

$ 230,000

$ 240,000

5,000 hours

5,600 hours

5,800 hours

Factory overhead is estimated to be $828,000 and is applied on a basis of direct labor dollars. This overhead cost is not traceable to any particular product. The total cost of Product 1 is: A) $264,000 B) $604,000 C) $622,362 D) $668,749

42)

The process of dividing a total cost into parts and assigning it to cost objects is known as: A) cost tracing. B) cost division. C) cost allocation. D) None of the answers are correct.

43)

Which of the following is not a step in allocating indirect costs to cost objects?

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A) Multiply the allocation rate by the weight of the cost driver. B) Trace direct costs to individual cost pools. C) Compute an allocation rate by dividing the total cost to be allocated by the total cost driver volume. D) All of the answers are steps in allocating indirect costs.

44)

Which of the following statements is false?

A) Both direct and indirect costs can be assigned to a cost object. B) Cost drivers are often selected based on the availability of information. C) Volume measures are good drivers for fixed overhead costs. D) Fixed costs that do not have a definitive cost driver are allocated using an allocation base that distributes a rational share of the cost to each product.

45)

Selection of a cost driver depends on: A) The availability of information for both the cost and the potential cost driver. B) A cause-and-effect relationship between the cost driver and the cost. C) Judgment of management. D) All of the answers are correct.

46)

For a manufacturer, measures of volume may include:

A) Number of units produced. B) Number of square feet occupied. C) Amount of direct materials used in production. D) Both number of units produced and amount of direct materials used in production are correct.

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47) The Flintstone Construction Company delivers dirt and stone from local quarries to its construction sites. A new truck that was purchased for a cost of $123,000 at the beginning of the year was expected to deliver 123,000 tons over its useful life. The following is a breakdown of the tons delivered during the year to each construction site: Construction Sites: Tons Delivered:

A 1,300

B 2,800

C 3,300

D 800

How much truck depreciation should be allocated to Site A? Note: Do not round intermediate calculations. Round your answer to the nearest dollar. A) $12,000 B) $1,300 C) $1,230 D) None of the answers are correct.

48) The Flintstone Construction Company delivers dirt and stone from local quarries to its construction sites. A new truck that was purchased for a cost of $120,000 at the beginning of the year was expected to deliver 200,000 tons over its useful life. The following is a breakdown of the tons delivered during the year to each construction site: Construction Sites: Tons Delivered:

A 2,000

B 3,500

C 4,000

D 1,500

How much truck depreciation should be allocated to Site A? Note: Do not round intermediate calculations. A) $21,818 B) $30,000 C) $2,000 D) None of the answers are correct.

49) State University's College of Business is divided into three departments, accounting, marketing, and management. Relevant information for each department is provided below: Cost Driver Number of students Number of classes per semester Number of faculty

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Accounting 716 48 26

Marketing 416 34 28

Management 216 30 13

The Dean of the College of Business is trying to assign funds from the operating budget to the three departments. Assuming that the chair of each department is trying to attain the highest funding possible for his/her department, which of the following most accurately describes the allocation base that each chair will favor? A) The chair of the Management department will want to use the number of classes while the chair of the Marketing department will prefer the number of faculty. B) The chair of the Marketing department will want to use number of students, while the chair of the Accounting department will want to use number of classes per semester. C) The chair of the Accounting department and the chair of the Management department will want to use the number of faculty. D) The chair of the Accounting department will want to use number of students while the chair of the Management department will want to use number of faculty.

50) State University's College of Business is divided into three departments, accounting, marketing, and management. Relevant information for each department is provided below: Cost Driver Number of students Number of classes per semester Number of faculty

Accounting 700 32

Marketing 400 18

Management 200 14

The Dean of the College of Business is trying to assign funds from the operating budget to the three departments. Assuming that the chair of each department is trying to attain the highest funding possible for his/her department, which of the following most accurately describes the allocation base that each chair will favor? A) The chair of the Management department will want to use the number of classes while the chair of the Marketing department will prefer the number of faculty. B) The chair of the Accounting department and the chair of the Management department will want to use the number of faculty. C) The chair of the Marketing department will want to use number of students, while the chair of the Accounting department will want to use number of classes per semester. D) The chair of the Accounting department will want to use number of students while the chair of the Management department will want to use number of faculty.

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51) During the current year, Kemp Construction Company built 23 custom homes that ranged in size from 2,500 square feet to 8,000 square feet. One home was completed each month during January, February, and March. Three homes were completed during April and May. Two homes were completed during each of the months from June through December. Based upon this information, the most appropriate allocation base (i.e., cost driver) for the assignment of indirect overhead costs to each house would be the:

A) Number of homes built during the month. B) Number of months in the year. C) Number of homes built during the year. D) Size of the home.

52) Saylind Molding paid $1,625,000 in rent for the year. The company's three departments are Headrests, Armrests, and Floor Mats. The accountant has identified two possible cost drivers: the number of employees in each department, and the square footage of space occupied by each department. The number of employees working in each department includes 94 in the Headrests Department, 64 in the Armrests Department and 144 in Floor Mats Department. The departments occupy 22,000, 23,300, and 19,700 square feet, for Headrests, Armrests, and Floor Mats respectively. How much of the rent cost should be allocated to the products made in the Floor Mats department? A) $492,500 B) $550,000 C) $582,500 D) $585,000

53) Bank's Department Store has three departments: Men's, Women's, and Children's. The store incurred $22,000 of store rental costs during the current year. The departments identified the following cost drivers: Labor dollars Number of employees Square footage Number of sales transactions

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Men's

Women's

Children's

$ 522,000 28 2,200 292,000

$ 767,000 38 7,200 892,000

$ 232,000 22 1,700 82,000

Using the most appropriate cost driver, how much rental cost should be allocated to the Women's Department? Note: Do not round intermediate calculations. Round final answer to the nearest dollar. A) $14,270 B) $1,425 C) $5,500 D) $3,356

54) Bank's Department Store has three departments: Men's, Women's and Children's. The store incurred $50,000 of store rental costs during the current year. The departments identified the following cost drivers: Labor dollars Number of employees Square footage Number of sales transactions

Men's

Women's

Children's

$ 530,000 10 3,000 300,000

$ 775,000 20 8,000 900,000

$ 240,000 4 1,000 90,000

55) Humphries Construction Company builds warehouses that range in size from 12,000 to 100,000 square feet. Which of the following would not be a rational base for allocating overhead costs to the warehouses? A) Labor hours B) Direct material costs C) Number of warehouses completed D) Square footage of the warehouses

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56) Jessup Company expects to incur overhead costs of $14,000 per month and direct production costs of $140 per unit. The estimated production activity for the upcoming year is 1,400 units. If the company desires to earn a gross profit of $65 per unit, the sales price per unit would be which of the following amounts? A) $213 B) $325 C) $145 D) $205

57) Jessup Company expects to incur overhead costs of $20,000 per month and direct production costs of $125 per unit. The estimated production activity for the upcoming year is 1,000 units. If the company desires to earn a gross profit of $50 per unit, the sales price per unit would be which of the following amounts? A) $175 B) $195 C) $415 D) $290

58) Haskins Company employs material handling employees who move materials between production divisions at a labor cost of $184,000 a year. It is estimated that these employees move 800,000 pounds of material per year. If 64,000 pounds are moved in March, how much of the material handling cost should be assigned to products made in March? Note: Do not round intermediate calculations. A) $14,720 B) $8,720 C) $15,720 D) $21,720

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59) Haskins Company employs material handling employees who move materials between production divisions at a labor cost of $360,000 a year. It is estimated that these employees move 600,000 pounds of material per year. If 60,000 pounds are moved in March, how much of the material handling cost should be assigned to products made in March? Note: Do not round intermediate calculations. A) $36,000 B) $24,000 C) $50,000 D) $38,000

60) Michael & Company expects overhead costs of $23,000 per month and direct production costs of $18 per unit. The estimated production activity for the current accounting period is as follows: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Units produced

12,100

9,600

8,550

15,750

The predetermined overhead rate based on units produced is: Note: Round your answer to the nearest penny A) $24.00 per unit. B) $2.00 per unit. C) $6.00 per unit. D) $0.50 per unit.

61) Michael & Company expects overhead costs of $60,000 per month and direct production costs of $24 per unit. The estimated production activity for the current accounting period is as follows: Units produced

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

11,500

9,000

8,250

11,250

The predetermined overhead rate based on units produced is: Note: Round the answer to 2 decimal places.

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A) $1.50 per unit. B) $2.67 per unit. C) $18.00 per unit. D) $42.00 per unit.

62) Jiminez Company paid its annual property tax of $12,200 on its manufacturing facility in January. The company expects to make 6,100 units of product during the year. During January, 500 units of product were produced. Based on this information: Note: Do not round intermediate calculations. A) $3,050 of the property tax cost should be allocated to the January production. B) $1,000 of the property tax cost should be allocated to the January production. C) $12,200 of the property tax cost should be assigned to the January production. D) $1,017 of the property tax cost should be allocated to the January production.

63) Jiminez Company paid its annual property tax of $6,000 on its manufacturing facility in January. The company expects to make 4,000 units of product during the year. During January, 300 units of product were produced. Based on this information: A) $450 of the property tax cost should be allocated to the January production. B) $1,500 of the property tax cost should be allocated to the January production. C) $6,000 of the property tax cost should be assigned to the January production. D) $500 of the property tax cost should be allocated to the January production.

64) Danforth Manufacturing Company uses a cost-plus pricing strategy. At the beginning of the year, Danforth estimated that total annual fixed overhead costs would amount to $60,000. Further, Danforth estimated that the annual volume of production would be 1,000 units of product. Based on these estimates, Danforth computed a predetermined overhead rate that was used to allocate overhead cost to the products made throughout the year. As predicted, the actual volume of production amounted to 1,000 units of product. However, actual fixed overhead costs amounted to $56,000. Based on this information alone:

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A) a lower than appropriate selling price was assigned to products during the year. B) a higher than appropriate selling price was assigned to products during the year. C) the correct selling price was assigned to products during the year. D) the answer cannot be determined from the information provided.

65) Herald Manufacturing Company uses a predetermined overhead rate to allocate fixed manufacturing overhead to production on a monthly basis. At the end of the accounting period it was determined that actual overhead cost was less than the estimated overhead cost and that the actual volume of production was higher than estimated. Based on this information alone: A) The correct amount of cost was assigned to products during the accounting period. B) Too much cost was assigned to products during the accounting period. C) Too little cost was assigned to products during the accounting period. D) The answer cannot be determined from the information provided.

66)

Which of the following is not a true statement regarding the pooling of indirect costs?

A) Costs that have been pooled for one purpose may require disaggregation for a different purpose. B) Pooling costs that have different cost drivers may result in unreliable cost allocation. C) A single cost pool will have more than one cost driver for different cost objects. D) Pooled costs may require disaggregation when allocating costs for different purposes.

67)

Which of the following is not a joint product with the other products listed? A) Cheese B) Cream C) Butter D) Eggs

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68) Joint products A and B emerge from common processing that costs $72,000 and yields 4,200 units of Product A and 3,200 units of Product B. Product A can be sold for $170 per unit. Product B can be sold for $260 per unit. What amount of the joint costs will be assigned to Product B if joint costs are allocated on the basis of number of units produced? Note: Do not round intermediate calculations. A) $32,820 B) $40,865 C) $31,135 D) $39,180

69) Joint products A and B emerge from common processing that costs $150,000 and yields 8,000 units of Product A and 4,000 units of Product B. Product A can be sold for $100 per unit. Product B can be sold for $80 per unit. What amount of the joint costs will be assigned to Product B if joint costs are allocated on the basis of number of units produced? Note: Do not round intermediate calculations. A) $42,857 B) $66,667 C) $50,000 D) $100,000

70) The Silver Center (TSC) produces cups and platters. TSC purchases silver and other metals that are processed into silver alloy that is used to make platters and cups. TSC incurred $64,000 of materials cost and $68,000 of labor cost to produce the silver alloy. Platters are made first and the residual alloy is remixed into a lower grade silver plated material that is used to make the cups. Remixing costs amount to $8,000. The recent batch contained 16,000 platters and 7,000 cups. TSC sold the platters for $220,000 and the cups for $36,000. Based on this information the total amount of joint cost is:

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A) $64,000. B) $68,000. C) $132,000. D) $140,000.

71) The Silver Center (TSC) produces cups and platters. TSC purchases silver and other metals that are processed into silver alloy that is used to make platters and cups. TSC incurred $64,000 of materials cost and $68,000 of labor cost to produce the silver alloy. Platters are made first and the residual alloy is remixed into a lower grade silver plated material that is used to make the cups. Remixing costs amount to $8,000. The recent batch contained 16,000 platters and 7,000 cups. TSC sold the platters for $220,000 and the cups for $36,000. If number of units is used to allocate the joint cost, what is the income earned for platters? Note: Round intermediate calculation to 2 decimal places. A) $91,840 B) $128,160 C) $36,000 D) $(4,180)

72) The Silver Center (TSC) produces cups and platters. TSC purchases silver and other metals that are processed into silver alloy that is used to make platters and cups. TSC incurred $70,000 of materials cost and $74,000 of labor cost to produce the silver alloy. Platters are made first and the residual alloy is remixed into a lower grade silver plated material that is used to make the cups. Remixing cost amounts to $9,500. The recent batch contained 19,000 platters and 8,500 cups. TSC sold the platters for $250,000 and the cups for $42,000. Assume number of units is used as the base to allocate the joint cost. Based on this information: Note: Round intermediate calculation to 2 decimal places.

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A) the company's total income will decrease by $42,000 if it stops making and selling cups. B) the company's total income will increase by $12,040 if it stops making and selling cups. C) the company's total income will increase by 2,540 if it stops making and selling cups. D) the company's total income will decrease by $32,500 if it stops making and selling cups.

73) The Silver Center (TSC) produces cups and platters. TSC purchases silver and other metals that are processed into silver alloy that is used to make platters and cups. TSC incurred $68,000 of materials cost and $72,000 of labor cost to produce the silver alloy. Platters are made first and the residual alloy is remixed into a lower grade silver plated material that is used to make the cups. Remixing costs amount to $9,000. The recent batch contained 18,000 platters and 8,000 cups. TSC sold the platters for $240,000 and the cups for $40,000. If relative market value is used to allocate the joint cost, what is the income earned for cups? Note: Round intermediate calculation to 2 decimal places. A) $(11,000) B) $120,000 C) $11,000 D) $9,000

74) Product A and Product B have joint costs of $301,700. Production for Product A is 11,700 gallons. Production for Product B is 31,700 gallons. How much of the joint costs should be allocated to Product A? Note: Round intermediate calculations to two decimal places. A) $101,700 B) $226,700 C) $81,315 D) $31,700

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75) Product A and Product B have joint costs of $300,000. Production for Product A is 10,000 gallons. Production for Product B is 30,000 gallons. How much of the joint costs should be allocated to Product A? Note: Round intermediate calculations to two decimal places. A) $30,000 B) $75,000 C) $100,000 D) $225,000

76) Which of the following is an advantage of using the relative sales value as an allocation base?

A) Using relative sales value at the split-off point more accurately reflects each product’s gross margin. B) Using relative sales value at the split-off point increases both product’s gross margin. C) Using relative sales value at the split-off point makes it more likely for managers to eliminate profitable products. D) Using relative sales value at the split-off point equally weights the sales value of each product.

77) Product A and Product B have joint costs of $20,800. Production for Product A is 8,800 gallons. Production for Product B is 2,800 gallons. How much of the joint costs should be allocated to Product B? Note: Round intermediate calculations to two decimal places. A) $2,800 B) $16,800 C) $8,800 D) $5,012

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78) Product A and Product B have joint costs of $20,000. Production for Product A is 8,000 gallons. Production for Product B is 2,000 gallons. How much of the joint costs should be allocated to Product B? A) $2,000 B) $4,000 C) $8,000 D) $16,000

79) Which of the following allocation bases should managers use when deciding whether or not to eliminate a product that has joint costs?

A) Volume produced B) Production time C) Production cost D) Relative sales value

80) Joint products A and B emerge from common processing that costs $112,000 and yields 3,000 units of Product A and 2,400 units of Product B. Product A can be sold for $240 per unit. Product B can be sold for $180 per unit. How much of the joint cost will be assigned to Product A if joint costs are allocated on the basis of relative sales values? Note: Do not round intermediate calculations. A) $67,500 B) $70,000 C) $60,000 D) $65,000

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81) Joint products A and B emerge from common processing that costs $200,000 and yields 2,000 units of Product A and 1,000 units of Product B. Product A can be sold for $100 per unit. Product B can be sold for $120 per unit. How much of the joint cost will be assigned to Product A if joint costs are allocated on the basis of relative sales values? Note: Do not round intermediate calculations. A) $75,000 B) $125,000 C) $100,000 D) $133,333

82)

Financial reporting standards require that joint costs: A) Be treated as a period cost and expensed immediately. B) Be assigned to the product produced in the largest quantity. C) Be assigned to the product with the highest sales value. D) Be allocated to the two or more joint products.

83)

Allocation of costs to various cost objects may:

A) affect managers' performance evaluation. B) affect the overall profitability of a company. C) affect the apparent profitability of the various products a company makes. D) affect managers' performance evaluation and the apparent profitability of the various products a company makes.

84) Olly University has 74 total faculty members and the total budget for copying costs will be $40,600. The university allocates copying costs based on the number of faculty members in a department. The Management department has 26 faculty, Accounting has 21 faculty, Finance has 16 faculty and Marketing has 11 faculty. What is the allocation rate per faculty member?

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A) $2,600 B) $4,600 C) $549 D) $8,600

85) Olly University has 50 total faculty members and the total budget for copying costs will be $40,000. The university allocates copying costs based on the number of faculty members in a department. The Management department has 20 faculty, Accounting has 15 faculty, Finance has 10 faculty and Marketing has 5 faculty. What is the allocation rate per faculty member?

A) $800 B) $2,000 C) $8,000 D) $4,000

86)

Which of the following statements is correct?

A) Allocation is a mathematical procedure that can be manipulated by the parties involved. B) The allocation process always pleases everyone in the organization. C) Allocation does not impact the resources available to each department. D) There is only one possible cost driver for each allocation decision.

87)

Which of the following is not affected by cost allocation decisions?

A) Managerial compensation B) Managerial motivation C) Performance evaluations D) Format of external financial reporting

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88)

Which of the following is typically present when selecting a cost driver?

A) Human emotion B) Views influenced by self-interest C) Differences of opinion D) All of the answers are correct.

89) In an organization, departments that have tasks leading to the primary objectives of the organization are: A) service departments. B) operating departments. C) primary departments. D) strategic departments.

90)

In an organization, departments that provide support to operating departments are called: A) service departments. B) primary departments. C) operating departments. D) strategic departments.

91)

In a manufacturing company, service department costs are: A) reported as selling and administrative expenses. B) allocated to the products made by the company. C) treated as direct costs. D) expensed when incurred.

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92) Patterson Lawn Company is the primary provider of lawn care maintenance in the city of Jasper. The company has two operating departments, one that performs lawn care services for commercial properties and one that services residential properties. Both operating departments are supported by two service departments, administrative and machine maintenance. Costs for each of these supporting departments are as follows: Total cost

Administrative

Machine Maintenance

$152,700

$229,050

T he follow ing estimates that are related to the operating departments as follows:

Number of employees Number of customers Number of billable hours Total overhead cost*

Commercial Properties 40 125 3,054 $ 432,650

Residential Properties 20 160 2,036 $ 356,300

Total 60 285 5,090 $ 788,950

*Note that total overhead cost includes costs allocated from service departments and other overhead costs. The company uses the direct method to allocate service department cost to the operating departments. In order to allocate administrative costs, the company has elected to use the number of employees as the cost driver. To allocate machine maintenance costs, the company uses the number of billable hours as the cost driver. Based on the information provided, how much of the administrative cost will be allocated to the residential properties operating department? A) $101,800 B) $152,700 C) $122,160 D) $50,900

93) Patterson Lawn Company is the primary provider of lawn care maintenance in the city of Jasper. The company has two operating departments, one that performs lawn care services for commercial properties and one that services residential properties. Both operating departments are supported by two service departments, administrative and machine maintenance. Costs for each of these supporting departments are as follows: Total cost

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Administrative

Machine Maintenance

$153,000

$229,500

The following estimates that are related to the operating departments is as follows:

Number of employees Number of customers Number of billable hours Total overhead cost*

Commercial Properties 40 125 3,060 $ 433,500

Residential Properties 20 160 2,040 $ 357,000

Total 60 285 5,100 $ 790,500

*Note that total overhead cost includes costs allocated from service departments and other overhead costs. The company uses the direct method to allocate service department cost to the operating departments. In order to allocate administrative costs, the company has elected to use the number of employees as the cost driver. To allocate machine maintenance costs, the company uses the number of billable hours as the cost driver. Based on the information provided, how much of the machine maintenance cost will be allocated to the commercial properties operating department? A) $137,700 B) $91,800 C) $122,400 D) $229,500

94) Patterson Lawn Company wants to determine the cost of each lawn care maintenance job. The company has two operating departments, one that performs lawn care services for commercial properties and one that services residential properties. Both operating departments are supported by two service departments, administrative and machine maintenance. Costs for each of these supporting departments are as follows: Total cost

Administrative

Machine Maintenance

$151,800

$227,700

T he follow ing estimates that are related to the operating de partments is as follows:

Number of employees Number of customers Number of billable hours Total overhead cost*

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Commercial Properties 40 125 3,036 $ 430,100

Residential Properties 20 160 2,024 $ 354,200

Total 60 285 5,060 $ 784,300

*Note that total overhead cost includes costs allocated from service departments and other overhead costs. The company uses the direct method for all cost allocations. Assume that total overhead cost is allocated based on the number of billable hours incurred by each operating department. Suppose a lawn care maintenance job in the residential properties department has a direct cost of $262 and takes 13 hours to complete. What is the total cost of this job? Note: Round your intermediate calculations to the nearest whole dollar. A) $750 B) $2,537 C) $262 D) $2,275

95) Patterson Lawn Company is the primary provider of lawn care maintenance in the city of Jasper. The company has two operating departments, one that performs lawn care services for commercial properties and one that services residential properties. Both operating departments are supported by two service departments, administrative and machine maintenance. Costs for each of these supporting departments are as follows: Administrative Total cost

$150,600

Machine Maintenance $225,900

T he follow ing estimates that are related to the operating departments is as follow s: Commercial Properties Number of employees 40 Number of customers 125 Number of billable 3,012 hours Total overhead cost $ 426,700

Residential Properties 20 160 2,008

Machine Maintenance 39 n/a n/a

Total

$ 351,400

n/a

$ 778,100

99 285 5,020

The company uses the step method for cost allocation as the administrative service department also provides services to the machine maintenance department. Assume that costs are allocated between service departments based on the number of employees. Using the information provided, what is the total amount of machine maintenance cost that will be allocated to the operating departments? Note: Round your intermediate calculations to the nearest whole dollar.

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A) $59,319 B) $285,219 C) $80,360 D) $100,400

96)

Using the direct method of allocating service department costs, the costs are allocated to: A) operating departments only. B) service departments only. C) both operating departments and service departments. D) neither operating departments nor service departments.

97)

Using the step method of allocating service department costs, the costs are allocated to: A) service departments only. B) operating departments only. C) both service departments and operating departments. D) neither service departments nor operating departments.

98) St. Anne University has two departments: Finance and Accounting. The two departments are supported by two service departments, Personnel and Secretarial Support. The total cost to operate the Personnel support is $118,900 and the total cost to operate the Secretarial Support is $158,700. The total number of faculty members in both departments is 37. The total number of work requests is 999. What is the allocation rate for Personnel?

A) $6,400 per faculty member B) $9,400 per faculty member C) $3,214 per faculty member D) $7,400 per faculty member

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99) St. Anne University has two departments: Finance and Accounting. The two departments are supported by two service departments, Personnel and Secretarial Support. The total cost to operate the Personnel support is $117,000 and the total cost to operate the Secretarial Support is $156,800. The total number of faculty members in both departments is 18. The total number of work requests is 980. What is the allocation rate for Personnel?

A) $6,500 per faculty member B) $4,500 per faculty member C) $7,500 per faculty member D) $5,500 per faculty member

100) The method of allocating service department costs that allocates the costs to both service departments and operating departments is the: A) direct method. B) indirect method. C) weighted-average method. D) step method.

101)

Which of the following statements is incorrect?

A) The primary purpose of the step method is to avoid distortions. B) The direct method is the simplest allocation approach. C) The direct method includes one additional stage in the allocation process. D) The direct method allocates costs only from service cost pools to operating cost pools.

102) What type of relationship involves a two-way association in which departments provide and receive services from one another?

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A) operating relationships B) step relationships C) direct relationships D) reciprocal relationships

103) Luna University has two departments: Finance and Accounting. The two departments are supported by two service departments, Personnel and Administrative Support. The total cost to operate the Personnel support is $118,900 and the total cost to operate the Administrative Support is $175,420. The total number of faculty members in both departments is 37. The total number of work requests is 980. For the Administrative Support department, what is the allocation rate per work request?

A) $189 B) $269 C) $219 D) $179

104) Luna University has two departments: Finance and Accounting. The two departments are supported by two service departments, Personnel and Administrative Support. The total cost to operate the Personnel support is $117,000 and the total cost to operate the Administrative Support is $156,800. The total number of faculty members in both departments is 18. The total number of work requests is 980. For the Administrative Support department, what is the allocation rate per work request?

A) $200 B) $170 C) $160 D) $250

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105) Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. The company expects to make 2,000 comforters during the current year. With respect to the comforters, how would the hourly wages of sewing machine operators be classified? A) Direct and variable B) Direct and fixed C) Indirect and variable D) Indirect and fixed

106) Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. The company expects to make 2,000 comforters during the current year. With respect to the comforters, how would the supervisory salaries be classified? A) Direct and variable B) Direct and fixed C) Indirect and variable D) Indirect and fixed

107) Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. During the upcoming year, the company expects to make 2,000 comforters. With respect to the comforters, how would the fabric used to make the comforters be classified? A) Direct and variable B) Direct and fixed C) Indirect and variable D) Indirect and fixed

108)

A factor having a "cause-and-effect" relationship with a cost object is called a(n):

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A) cost driver. B) allocation base. C) direct cost. D) indirect cost.

109) Pets ‘n Pals is attempting to determine the cost of operating a particular store. Which of the following costs would be classified as an indirect cost? A) Fees paid to external accountant for corporate audit B) Cost of operating company-owned vehicles by the store C) Salary of store manager D) Cost of aquariums used to display exotic fish

110) Which of the following is an appropriate cost driver for allocating indirect costs to a human resources department in a service company? A) Number of employees B) Number of customers C) Square footage of office space D) Either number of employees or square footage of office space depending on the nature of the indirect cost

111)

Indirect costs are often pooled, and not allocated individually because: A) individual allocation would be more timely. B) individual allocation would be more accurate. C) individual allocation would be tedious. D) the benefits of individual allocation of indirect costs are greater than the costs.

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112) Sturbridge Company manufactures fine furniture and grandfather clocks. Sturbridge has an excellent reputation, and each grandfather clock sells for several thousand dollars. Which of the following should not be treated as direct costs, assuming the cost object is individual clocks? A) The clock face B) The timing mechanism for each clock C) Wood D) Depreciation on clock-making equipment

113) Sturbridge Company manufactures fine furniture and grandfather clocks. Sturbridge has an excellent reputation, and each grandfather clock sells for several thousand dollars. Which of the following is an indirect cost, assuming the cost object is the Clock Department? A) Salary of the clock production supervisor. B) Depreciation on the factory building. C) Depreciation on clock-making equipment. D) All of the answers are correct.

114)

Which of the following regarding direct costs is a correct statement? A) Direct costs are always fixed costs. B) Direct costs are always variable costs. C) Direct costs are easily traced to cost objects. D) Direct costs are never selling and administrative expenses.

115)

Which of the followings statements is correct regarding direct and indirect costs?

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A) Direct costs cannot easily be traced to a cost object, whereas indirect costs can be easily traced to a cost object. B) Direct costs can be easily traced to a cost object, whereas indirect costs cannot be easily traced to a cost object. C) Direct costs are always relevant to a particular cost decision, whereas indirect costs are never relevant to a cost decision. D) Direct costs are never relevant to a particular cost decision, whereas indirect costs are always relevant to a cost decision.

116) All of the following are examples of indirect costs that can be classified as being variable costs except: A) Utilities. B) Material handling costs. C) Production supervisor salaries. D) Transportation costs.

117) Which formula best represents the first step used to allocate an indirect cost to a cost object? A) Total cost to be allocated divided by cost driver B) Cost driver divided by allocation rate C) Cost driver divided by total cost to be allocated D) Allocation rate divided by total cost to be allocated

118) Assume that a factory seeks to allocate rent to several departments that occupy the factory. The factory is occupied by all of the departments. Which of the following is the most logical cost driver for allocating the factory rent?

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A) Number of employees B) Square footage occupied by each department C) Machine hours D) Number of labor hours in each department

119) Which of the following is not an important factor in determining the appropriate cost driver to use in allocating a cost? A) A cause-and-effect relationship between the cost and the cost driver. B) The availability of information about the cost and cost driver. C) The ability of the cost driver to allocate indirect costs to cost objects. D) All of the answers are important factors in determining the appropriate cost driver to use in allocating a cost.

120)

Joint products are: A) easily traced to products. B) similar products that result from a common process. C) different products that result from a common process. D) different products that are combined to create a single product.

121)

The split-off point: A) is the point at which production of joint products begins. B) is the point at which joint products become unidentifiable. C) refers to the point where title to goods sold passes from the seller to the buyer. D) is the point at which joint products separate from each other.

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122) Which of the following best describes the term used to assign indirect costs to a cost object? A) Cost tracing B) Cost allocation C) Cost assignment D) Cost accumulation

123)

The following are Acme's production costs for the quarter ended September 30th:

Direct materials

$ 120,000

Direct labor

170,000

Factory overhead

48,000

What amount of costs should be traced to specific products in the process? A) $120,000 B) $290,000 C) $338,000 D) $168,000

124)

The following are Acme's production costs for the quarter ended September 30th:

Direct materials Direct labor Factory overhead

$ 150,000 175,000 225,000

What amount of costs should be traced to specific products in the process? A) $150,000 B) $175,000 C) $225,000 D) $325,000

125) Alleghany Community College operates four departments. The square footage used by each department is shown below.

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Department Accounting Marketing Technology Sciences Total

Square Footage 4,000 5,000 7,000 4,000 20,000

Alleghany's annual building rental cost is $240,000. What amount of rent expense should be allocated to the Technology Department? A) $60,000 B) $48,000 C) $240,000 D) $84,000

126) Alleghany Community College operates four departments. The square footage used by each department is shown below. Department Accounting Marketing Technology Sciences Total

Square Footage 3,000 4,000 6,000 3,000 16,000

Alleghany's annual building rental cost is $320,000. What amount of rent expense should be allocated to the Technology Department? A) $60,000 B) $80,000 C) $120,000 D) $192,000

127) Alleghany Community College operates four departments. The square footage used by each department is shown below: Department Accounting Marketing

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Square Footage 6,000 7,000

Technology Sciences

5,000 6,000

Total

24,000

Alleghany's annual building rental cost is $210,000. What amount of rent expense should be allocated to the Sciences Department? A) $43,750 B) $70,000 C) $52,500 D) $61,250

128) Alleghany Community College operates four departments. The square footage used by each department is shown below: Department Accounting Marketing Technology Sciences Total

Square Footage 3,000 4,000 6,000 3,000 16,000

Alleghany's annual building rental cost is $320,000 What amount of rent expense should be allocated to the Sciences Department? A) $60,000 B) $80,000 C) $120,000 D) $106,667

129)

Which of the following statements is incorrect?

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A) A predetermined overhead rate may be used to allocate overhead costs when volume varies during the year. B) A predetermined overhead rate is calculated using actual cost and volume data. C) A predetermined overhead rate is calculated by dividing costs by volume, using a measure of volume such as direct labor hours or direct materials cost. D) A company may need to allocate overhead costs to products to make pricing decisions for the products.

130)

The selection of a cost driver is important to managers because the cost driver affects

A) how costs are allocated to the manager’s department. B) whether managers classify costs as fixed or variable. C) whether managers classify costs as direct or indirect. D) All of the answers are reasons the cost driver selection is important to managers.

131)

Volume measures are best for allocating

A) fixed overhead costs. B) fixed direct labor costs. C) variable overhead costs. D) variable direct labor costs.

132) During the most recent year, Finn Company produced 12,500 chairs and 8,500 desks. It incurred $500,500 of indirect material costs during the period and spent 100,500 hours on the total manufacturing project. Using number of units, how much of the indirect material costs should be allocated to the chairs? Note: Do not round intermediate calculations and round final answer to the nearest whole dollar amount.

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A) $200,500 B) $60,500 C) $297,917 D) $40,500

133) During the most recent year, Finn Company produced 12,000 chairs and 8,000 desks. It incurred $500,000 of indirect material costs during the period and spent 100,000 hours on the total manufacturing project. Using number of units, how much of the indirect material costs should be allocated to the chairs?

A) $40,000 B) $60,000 C) $200,000 D) $300,000

134)

Selection of a cost driver will affect

A) how managers make decisions. B) how costs are allocated. C) how direct costs are measured. D) how managers make decisions and how costs are allocated.

135) During the most recent year, Calvin Company incurred $102,000 of direct material costs to produce 4,000 plates and $106,000 of direct material costs to produce 3,200 bowls. It took 2,400 direct labor hours to produce the plates and 2,600 direct labor hours to produce the bowls. It incurred $42,000 of indirect material costs during the period. Using direct labor hours, how much of the indirect material costs should be allocated to the bowls? Note: Do not round intermediate calculations and round final answer to the nearest whole dollar amount.

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A) $18,000 B) $17,000 C) $21,840 D) $27,000

136) During the most recent year, Calvin Company incurred $100,000 of direct material costs to produce 2,000 plates and $200,000 of direct material costs to produce 1,200 bowls. It took 400 direct labor hours to produce the plates and 600 direct labor hours to produce the bowls. It incurred $40,000 of indirect material costs during the period. Using direct labor hours, how much of the indirect material costs should be allocated to the bowls?

A) $15,000 B) $16,000 C) $24,000 D) $25,000

137) King Company uses a predetermined overhead rate to allocate fixed manufacturing overhead to production. The cost driver is number of machine hours. At the end of the accounting period, it was determined that actual overhead cost was greater than estimated overhead cost. Assuming the estimate for number of machine hours was accurate:

A) The correct amount of cost was assigned to products during the accounting period. B) Too much cost was assigned to products during the accounting period. C) Too little cost was assigned to products during the accounting period. D) The answer cannot be determined from the information provided.

138) King Company uses a predetermined overhead rate to allocate fixed manufacturing overhead to production. The cost driver is number of machine hours. At the end of the accounting period, it was determined that actual overhead cost was less than the estimated overhead cost. Assuming the estimate for number of machine hours was accurate:

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139) During the most recent year, Lee Company produced 10,000 chairs and 5,000 desks. It incurred $150,000 of indirect material costs during the period. Using number of units, how much of the indirect material costs should be allocated to the desks?

A) $30,000 B) $50,000 C) $100,000 D) $150,000

140) During the most recent year, Go Company incurred $500,000 of direct material costs to produce 10,000 scooters and $700,000 of direct material costs to produce 7,000 ebikes. It incurred $240,000 of indirect materials costs during the period. Using direct material costs, how much of the indirect material costs should be allocated to the scooters?

A) $2,000 B) $3,500 C) $100,000 D) $140,000

141) During the most recent year, Alpine Company incurred $160,000 of direct material costs to produce 1,000 skis and incurred $100,000 of direct material costs to produce 600 snowboards. It took 200 direct labor hours to produce the skis and 300 direct labor hours to produce the snowboards. It incurred $200,000 of indirect material costs during the period. Using direct labor hours, how much of the indirect material costs should be allocated to the snowboards?

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A) $75,000 B) $80,000 C) $120,000 D) $125,000

142) Jasmine & Company expects overhead costs of $92,800 per month and direct production costs of $26 per unit. The estimated production activity for the current fiscal year is as follows: Units produced Direct labor Cost Machine hours

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

11,200 $ 24,200 1,120

8,200 $ 19,200 420

4,200 $ 17,700 320

11,200 $ 23,700 620

The predetermined overhead rate based on units produced is: A) $32 per unit B) $37 per unit C) $17 per unit D) $74 per unit

143) Jasmine & Company expects overhead costs of $50,000 per month and direct production costs of $14 per unit. The estimated production activity for the current fiscal year is as follows: Units produced Direct labor Cost Machine hours

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

10,000 $ 23,000 1,000

7,000 $ 18,000 300

3,000 $ 16,500 200

10,000 $ 22,500 500

The predetermined overhead rate based on units produced is: A) $5 per unit B) $20 per unit C) $25 per unit D) $50 per unit

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144) Darius & Company expects overhead costs of $400,000 per year and direct production costs of $7 per unit. The estimated production activity for the current fiscal year is as follows: Units produced Direct labor Cost Machine hours

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

800 $ 23,000 1,000

500 $ 18,000 300

200 $ 16,500 200

100 $ 22,500 500

The predetermined overhead rate based on units produced is: A) $250 per unit B) $400 per unit C) $500 per unit D) $800 per unit

145) 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

146) A manager believes that the number of units sold drives the company's selling costs. The number of units sold would be referred to as the cost driver. ⊚ true ⊚ false

147) The accuracy of managerial accounting information usually is more important than timeliness. ⊚ true ⊚ false

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148)

The first step in cost accumulation is to identify cost objects. ⊚ true ⊚ false

149)

An allocation base has a cause-and-effect relationship with a cost object. ⊚ true ⊚ false

150) A cost object is anything for which management desires a separate tracking of costs, while a cost driver is the factor that causes the cost object to increase or decrease. ⊚ true ⊚ false

151) The terms "cost tracing" and "cost allocation" may be used interchangeably because they mean the same thing. ⊚ true ⊚ false

152)

Both direct and indirect costs can be relevant to a particular decision. ⊚ true ⊚ false

153)

Costs that can be traced to a cost object in a cost-effective way are called direct costs. ⊚ true ⊚ false

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154) How a particular cost behaves (fixed versus variable) is dependent on whether the cost is classified as direct or indirect. ⊚ true ⊚ false

155) It is possible that the same cost might be direct with respect to one cost object but indirect with respect to another cost object. ⊚ true ⊚ false

156)

The goal in allocating a cost to cost objects is to achieve a rational allocation. ⊚ true ⊚ false

157) Cost allocation is the process of dividing a total cost into its fixed and variable components. ⊚ true ⊚ false

158) The most useful cost driver for allocating a particular cost is the one with the strongest cause-and-effect relationship. ⊚ true ⊚ false

159) Blanton Company wishes to allocate rent expense of $24,000 to its three operating departments, A, B, and C. Assuming the three departments occupy 10,000, 20,000, and 30,000 square feet, respectively, the cost allocation rate for Department C is $0.80 per square foot.

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⊚ ⊚

true false

160) Volume measures serve as good cost drivers for allocating variable overhead costs because of the causal relationship that exists between those drivers and variable costs. ⊚ true ⊚ false

161)

A company may use several different cost drivers to allocate its indirect costs. ⊚ true ⊚ false

162)

Sometimes, volume-based cost drivers are used to allocate fixed indirect costs. ⊚ true ⊚ false

163) The selection of the most appropriate cost driver often requires considerable judgment in the absence of a strong cause-and-effect relationship. ⊚ true ⊚ false

164) Wayne Company wishes to allocate overhead costs in a heavily automated production department. Direct labor hours would be a less appropriate cost driver than machine hours. ⊚ true ⊚ false

165) data.

A predetermined overhead rate is calculated using estimated or predicted cost and volume

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⊚ ⊚

true false

166) Because Fenwick Company has significant swings in its monthly production, the best way to allocate its plant manager's $58,000 annual salary is to allocate 1/12th of the cost each month. ⊚ true ⊚ false

167) Each indirect cost should be allocated to products individually to provide the most useful cost information. ⊚ true ⊚ false

168)

A cost pool should be made up of costs with a common cost object. ⊚ true ⊚ false

169) The primary advantage of establishing cost pools is reducing the number of individual cost allocations that are made. ⊚ true ⊚ false

170)

Indirect costs should not be pooled unless they share a common cost driver. ⊚ true ⊚ false

171)

Once indirect costs are pooled, they must remain pooled for all allocations.

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⊚ ⊚

true false

172) Inaccurate allocation of joint costs to the individual products could cause an unprofitable product to appear to be profitable. ⊚ true ⊚ false

173) To avoid the appearance that a joint product is incurring losses, a company might allocate joint costs based on relative sales value of each product at the split-off point. ⊚ true ⊚ false

174)

A company's total profit can be affected by the method used to allocate joint costs. ⊚ true ⊚ false

175) Sometimes, several types of costs are accumulated into a single total for the purpose of cost allocation. This single total is referred to as a joint cost. ⊚ true ⊚ false

176) For financial reporting, joint costs are assigned to the product with the highest sales value. ⊚ true ⊚ false

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177) The split-off point is the point at which individual products resulting from a joint process can be identified. ⊚ true ⊚ false

178) Joint costs are irrelevant in a decision to sell a joint product at the split-off point or process it further. ⊚ true ⊚ false

179) Joint costs total $24,000 for a production process that yields two main products, A and B. If joint costs are allocated to the products on the basis of their respective $20,000 and $30,000 sales values, 2/3 of the joint costs (or $16,000) would be allocated to Product A. ⊚ true ⊚ false

180) The amount of joint costs allocated to a product must be considered when deciding whether to sell a joint product at the split-off point or later after additional processing. ⊚ true ⊚ false

181) The direct method of allocating service department costs does not take into account the fact that service departments often provide assistance to other service departments. ⊚ true ⊚ false

182) Services performed by service departments for the benefit of an operating department are called interdepartmental services. ⊚ true ⊚ false

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183) The step method of allocating service department costs allocates those costs to operating departments only. ⊚ true ⊚ false

184) Use of the direct method to allocate service department costs may cause distortions in the measurement of cost objects. ⊚ true ⊚ false

185) The method used to allocate service department costs can cause overstatement of costs for some cost objects and understatement for others. ⊚ true ⊚ false

186) The direct method of allocating service department costs allocates those costs to operating departments only. ⊚ true ⊚ false

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Answer Key Test name: Chap 04_10e_Edmonds 1) D 2) A 3) C 4) C 5) A 6) C 7) C 8) C 9) C 10) B 11) C 12) A 13) B 14) B 15) A 16) B 17) D 18) D 19) C 20) A 21) B 22) A 23) C 24) B 25) B 26) A Version 1

27) C 28) B 29) B 30) B 31) C 32) C 33) B 34) C 35) A 36) B 37) C 38) A 39) B 40) C 41) B 42) C 43) B 44) C 45) D 46) D 47) B 48) D 49) A 50) A 51) D 52) A 53) A 54) A 55) C 56) B Version 1

57) C 58) A 59) A 60) C 61) C 62) B 63) A 64) B 65) D 66) C 67) D 68) C 69) C 70) C 71) B 72) D 73) C 74) C 75) B 76) A 77) D 78) B 79) D 80) B 81) B 82) D 83) D 84) C 85) A 86) A Version 1

87) D 88) D 89) B 90) A 91) B 92) D 93) A 94) B 95) B 96) A 97) C 98) C 99) A 100) D 101) C 102) D 103) D 104) C 105) A 106) D 107) A 108) A 109) A 110) D 111) C 112) D 113) B 114) C 115) B 116) C Version 1

117) A 118) B 119) D 120) C 121) D 122) B 123) B 124) D 125) D 126) C 127) C 128) A 129) B 130) A 131) C 132) C 133) D 134) D 135) C 136) C 137) C 138) B 139) B 140) C 141) C 142) A 143) B 144) A 145) B 146) TRUE Version 1

147) FALSE 148) TRUE 149) FALSE 150) TRUE 151) FALSE 152) TRUE 153) TRUE 154) FALSE 155) TRUE 156) TRUE 157) FALSE 158) TRUE 159) FALSE 160) TRUE 161) TRUE 162) TRUE 163) TRUE 164) TRUE 165) TRUE 166) FALSE 167) FALSE 168) FALSE 169) TRUE 170) TRUE 171) FALSE 172) TRUE 173) TRUE 174) FALSE 175) FALSE 176) FALSE Version 1

177) TRUE 178) TRUE 179) FALSE 180) FALSE 181) TRUE 182) FALSE 183) FALSE 184) TRUE 185) TRUE 186) TRUE

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Chapter 5 Cost Management in an Automated Business Environment: ABC, ABM, and TQM 1) Performance Bicycle Company makes steel and titanium handlebars for bicycles. It requires approximately one hour of labor to make one handlebar of either type. During the most recent accounting period, Performance Bicycle Company made 7,300 steel bars and 2,700 titanium bars. Setup costs amounted to $39,000. One batch of each type of bar was run each month. If a single companywide overhead rate based on direct labor hours is used to allocate overhead costs to the two products, the amount of setup cost assigned to the steel bars will be: Note: Do not round your intermediate calculations. A) $28,470. B) $3,900. C) $10,530. D) $39,000.

2) Performance Bicycle Company makes steel and titanium handlebars for bicycles. It requires approximately one hour of labor to make one handlebar of either type. During the most recent accounting period, Performance Bicycle Company made 7,000 steel bars and 3,000 titanium bars. Setup costs amounted to $84,000. One batch of each type of bar was run each month. If a single companywide overhead rate based on direct labor hours is used to allocate overhead costs to the two products, the amount of setup cost assigned to the steel bars will be:

A) $8,400. B) $84,000. C) $49,000. D) $58,800.

In the early days of the industrial revolution, indirect manufacturing costs:

A) were a significant cost of producing most products. B) were relatively large compared to the direct costs of producing a product. C) were highly correlated with the use of labor. D) were largely fixed. Version 1

4) was:

Traditionally, the most popular companywide base for allocating overhead to products

A) machine hours. B) direct labor hours or costs. C) number of units produced. D) number of units sold.

5) What is the principal reason that direct labor hours are no longer an effective base for allocating indirect costs in many modern manufacturing companies?

A) Automation B) Workers are not as productive as they were in the past C) Movement from full-time to part-time workers D) Changes in generally accepted accounting principles

Which of the following costs is likely to be driven by machine usage?

A) Factory insurance B) Depreciation on factory building C) Factory utilities D) Factory rent

Which type of cost driver is most appropriate for automated processes?

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A) Volume-based drivers B) Activity-based drivers C) Direct labor-based drivers D) All of these answers are correct

8) Which of the following allocation bases for automation costs would be an improvement over direct labor hours?

A) Number of units sold B) Direct labor costs C) Machine hours D) Direct material cost

9) Morris Company allocates overhead based on direct labor hours. It allocates overhead costs of $14,000 to two different jobs as follows: Job 1: (10 hours) = $7,000; Job 2: (10 hours) = $7,000 The production process for Job 2 was then automated. Now Job 2 requires only two hours of direct labor but four hours of mechanical processing. As a result, total overhead increases to $19,200. With the change in the production process for Job 2, the amount of overhead assigned to: A) each product will increase. B) each product will decrease. C) Job 1 will increase. D) Job 1 will decrease.

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10) Morris Company allocates overhead based on direct labor hours. It allocates overhead costs of $12,800 to two different jobs as follows: Job 1: (10 hours) = $6,400; Job 2: (10 hours) = $6,400 The production process for Job 2 was then automated. Now Job 2 requires only two hours of direct labor but four hours of mechanical processing. As a result, total overhead increases to $17,000. With the change in the production process for Job 2, the amount of overhead assigned to: A) each product will increase. B) Job 1 will decrease. C) each product will decrease. D) Job 1 will increase.

11) Keene Company allocates overhead based on direct labor hours. It allocates overhead costs of $5,900 to two different jobs as follows: Job 1: (8 hours) = $2,950; Job 2: (8 hours) = $2,950 The production process for Job 2 was then automated. Now Job 2 requires only two hours of direct labor but four hours of mechanical processing. As a result, total overhead increased to $8,600. How much overhead cost will be assigned to Job 1 after automation? A) $4,670 B) $1,720 C) $6,880 D) $2,950

12) Keene Company allocates overhead based on direct labor hours. It allocates overhead costs of $8,000 to two different jobs as follows: Job 1: (10 hours) = $4,000; Job 2: (10 hours) = $4,000 The production process for Job 2 was then automated. Now Job 2 requires only two hours of direct labor but four hours of mechanical processing. As a result, total overhead increased to $12,000. How much overhead cost will be assigned to Job 1 after automation?

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A) $10,000 B) $6,000 C) $4,000 D) $2,000

13) Hazel Company allocates overhead based on direct labor hours. It allocates overhead costs of $14,400 to two different jobs as follows: Job 1: (10 hours) = $7,200; Job 2: (10 hours) = $7,200 The production process for Job 2 was then automated. Now Job 2 requires only two hours of direct labor but four hours of mechanical processing. As a result, total overhead increases to $19,800. Select the incorrect statement from the following. A) The use of machine hours as the allocation base would significantly improve the overhead cost allocations. B) The increased overhead costs associated with automation should be allocated to both jobs. C) While the actual processing of Job 1 was not affected by automation, it received an increase of $9,300 in its overhead allocation. D) Automation and the costing system used by the company cause the cost of Job 1 to be significantly overstated.

14) Hazel Company allocates overhead based on direct labor hours. It allocates overhead costs of $8,000 to two different jobs as follows: Job 1: (10 hours) = $4,000; Job 2: (10 hours) = $4,000 The production process for Job 2 was then automated. Now Job 2 requires only two hours of direct labor but four hours of mechanical processing. As a result, total overhead increases to $12,000. Select the incorrect statement from the following.

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A) While the actual processing of Job 1 was not affected by automation, it received an increase of $6,000 in its overhead allocation. B) The use of machine hours as the allocation base would significantly improve the overhead cost allocations. C) Automation and the costing system used by the company cause the cost of Job 1 to be significantly overstated. D) The increased overhead costs associated with automation should be allocated to both jobs.

15)

Select theincorrect statement from the following.

A) If overhead costs are allocated based on activities, the amount of overhead allocated to a particular product can be reduced by increasing the number of activities required by the product, thereby spreading the overhead costs over more units. B) Activity costs are considered relevant for decision-making because the cost of an activity will be avoided if the activity is eliminated. C) In highly automated environments where companies produce many different products with varying levels of production, activity-based cost drivers are superior to volume-based drivers. D) Activity-based cost drivers produce a better cost allocation than volume-based drivers because they distribute only relevant costs to the appropriate products.

16)

Which of the following is an activity-based cost driver?

A) Number of machine setups B) Material cost C) Machine hours D) All of these answers are correct.

17)

Which of the following is a volume-based cost driver?

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A) Machine hours B) Material cost C) Direct labor hours D) All of these answers are correct

18) Westmorland makes ink that it uses in ball point pens. The Company produces two colors of ink. One is blue the other is red. Ink is made in batches with setup costs being $5,950 per batch. Demand for blue ink is significantly stronger than for red ink. During the most recent week, the company made 2 batches of ink, one blue the other red. It requires 1 hour of labor to make a gallon of ink regardless of color. There were 950 hours of labor used to make the blue ink and the 750 hours of labor used to make the red ink. If the Company uses a single company wide overhead rate based on labor hours, the amount of setup cost allocated to the A) blue ink is $5,250 and red ink is $6,650. B) blue ink is $6,650 and red ink is $5,250. C) blue ink is $5,950 and red ink is $5,950. D) blue ink is $11,900 and red ink is zero.

19) Westmorland makes ink that it uses in ball point pens. The Company produces two colors of ink. One is blue the other is red. Ink is made in batches with setup costs being $5,500 per batch. Demand for blue ink is significantly stronger than for red ink. During the most recent week, the company made 2 batches of ink, one blue the other red. It requires 1 hour of labor to make a gallon of ink regardless of color. There were 1,200 hours of labor used to make the blue ink and the 1,000 hours of labor used to make the red ink. If the Company uses activity-based costing and allocates the setup cost on the basis of the number of batches, the setup cost allocated to the A) blue ink is $11,000 and red ink is zero. B) blue ink is $6,000 and red ink is $5,000. C) blue ink is $5,000 and red ink is $6,000. D) blue ink is $5,500 and red ink is $5,500.

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20)

Select the correct statement regarding activity-based costing (ABC).

A) ABC does not use cost drivers. B) ABC uses a single activity center but multiple cost drivers. C) ABC uses multiple activity cost centers and multiple cost drivers. D) ABC uses multiple activity cost centers but a single cost driver.

21)

A modern cost allocation process that employs multiple cost drivers is:

A) activity-based costing. B) contribution costing. C) process costing. D) job order costing.

22) Actions or units of work undertaken by an organization to accomplish its mission are referred to as:

A) costs. B) work in process. C) activities. D) cost objects.

23)

The number of activity cost centers used by a company should:

A) equal the number of activities required to produce the product. B) equal the number of departments it has. C) equal the number of products it has. D) be determined on a cost/benefit basis.

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24)

Which of the following is not a cost resulting from a unit-level activity? A) The cost of electricity to power manufacturing equipment B) The cost of sending monthly statements to customers C) The indirect cost of glue used on each product D) The per unit cost of packaging goods

25) Which of the following activity costs would not likely be included in a unit-level activity cost pool? A) Indirect material B) Packaging costs C) Machine setup costs D) Machine-related utilities

26) All of the following are hierarchical categories in which a firm's overhead support costs can be classified except: A) product-level activities. B) industry-level activities. C) batch-level activities. D) facility-level activities.

27) Compared to a traditional two-stage cost allocation system, activity-based costing systems:

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A) Use fewer cost centers. B) Use more cost drivers. C) Are less expensive to maintain. D) All of these answers are correct.

28) Which of the following activity costs would likely be included in a batch-level activity cost pool?

A) Per unit inspection costs. B) Machine set-up costs. C) Quality control costs. D) All of these answers are correct.

29)

A product-level activity center would likely include all of the following costs except: A) engineering development costs. B) legal fees to obtain and protect patents. C) packaging design costs. D) materials handling costs.

30) Select theincorrect statement regarding the use of cost drivers in activity-based costing systems.

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A) ABC uses volume-based and activity-based cost drivers. B) Volume-based drivers are most appropriate for costs that are affected by the number of units produced. C) ABC's use of multiple cost drivers will produce less accurate unit costs when a company produces many different products that require different types and levels of overhead costs. D) An arbitrary cost driver must be selected when allocating facility-level activity costs.

31) Miller Company makes two types of chairs. One of the chairs is a rocking chair. The other is a straight-back chair. Both chairs are made by hand. Miller Company uses a companywide overhead rate that is based on direct labor hours to assign overhead costs to the two products. If Miller automates the production of straight-back chairs and continues to use direct labor hours as a companywide allocation basis:

A) rocking chairs will be overcosted. B) straight-back chairs will be overcosted. C) rocking chairs will be undercosted. D) there should be no impact on unit cost.

32) Which of the following activity costs should usually be ignored when making a decision regarding whether to eliminate a product?

A) Product-level costs B) Batch-level costs C) Unit-level costs D) Facility-level costs

33) Finn Manufacturing incurred the following costs during Year 2 to produce high-quality drones. The company used an activity-based costing system. Based on the following activities, what is the total facility-level cost?

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Material handling Insurance on manufacturing plant Inventory storage Depreciation on manufacturing plant Salaries of receiving clerks Setup for each batch produced

$ 11,200 $ 25,200 $ 8,200 $ 46,200 $ 61,200 $ 13,200

A) $132,600 B) $82,600 C) $79,600 D) $71,400

34) Finn Manufacturing incurred the following costs during Year 2 to produce high-quality drones. The company used an activity-based costing system. Based on the following activities, what is the total facility-level cost? Material handling Insurance on manufacturing plant Inventory storage Depreciation on manufacturing plant Salaries of receiving clerks Setup for each batch produced

$ 10,000 $ 24,000 $ 7,000 $ 45,000 $ 60,000 $ 12,000

A) $69,000 B) $129,000 C) $76,000 D) $79,000

35) Luna Manufacturing incurred the following costs during Year 2 to produce high-quality blenders. The company used an activity-based costing system. Based on the following activities, what is the total product-level cost? Material handling Engineering product design Inventory storage Depreciation on production equipment Salary of manager in charge of blender line

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$ 10,600 $ 35,600 $ 7,600 $ 45,600 $ 70,600

Setup for each batch produced

$ 12,600

A) $113,800 B) $170,000 C) $124,400 D) $106,200

36) Luna Manufacturing incurred the following costs during Year 2 to produce high-quality blenders. The company used an activity-based costing system. Based on the following activities, what is the total product-level cost? Material handling Engineering product design Inventory storage Depreciation on production equipment Salary of manager in charge of blender line Setup for each batch produced

$ 10,000 $ 35,000 $ 7,000 $ 45,000 $ 70,000 $ 12,000

A) $105,000 B) $112,000 C) $122,000 D) $167,000

37) Spark Manufacturing incurred the following costs during Year 2 to produce high-quality televisions. The company used an activity-based costing system. Based on the following activities, what is the total unit-level cost? Labeling and packaging Engineering product design Inventory storage Depreciation on production equipment Supplies Setup for each batch produced

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$ 9,900 $ 33,900 $ 11,900 $ 26,900 $ 6,900 $ 13,900

A) $9,900 B) $28,700 C) $16,800 D) $118,800

38) Spark Manufacturing incurred the following costs during Year 2 to produce high-quality televisions. The company used an activity-based costing system. Based on the following activities, what is the total unit-level cost? Labeling and packaging Engineering product design Inventory storage Depreciation on production equipment Supplies Setup for each batch produced

$ 8,000 $ 32,000 $ 10,000 $ 25,000 $ 5,000 $ 12,000

A) $8,000 B) $23,000 C) $13,000 D) $15,000

39) Spark Manufacturing incurred the following costs during Year 2 to produce high-quality televisions. The company used an activity-based costing system. Based on the following activities, what is the total batch-level cost? Labeling and packaging Engineering product design Inspection of each batch produced Depreciation on production equipment Supplies Setup for each batch produced

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$ 10,000 $ 34,000 $ 22,000 $ 27,000 $ 7,000 $ 14,000

A) $36,000 B) $22,000 C) $41,000 D) $63,000

40) Spark Manufacturing incurred the following costs during Year 2 to produce high-quality televisions. The company used an activity-based costing system. Based on the following activities, what is the total unit-level cost? Labeling and packaging Engineering product design Inspection of each batch produced Depreciation on production equipment Supplies Setup for each batch produced

$ 8,000 $ 32,000 $ 10,000 $ 25,000 $ 5,000 $ 12,000

A) $57,000 B) $20,000 C) $32,000 D) $37,000

41) Benitez Company makes wicker and wooden slat picnic baskets. It requires approximately one hour of labor to make one basket of either type. Wicker baskets are produced in batches of 100 units and require 0.5 machine hours per basket. Wooden slat baskets are produced in batches of 50 units and require 0.75 machine hours per basket. Setup is required for each batch. During the most recent accounting period, the company made 8,300 wicker baskets and 2,300 wooden slat baskets. Setup costs amounted to $25,800 for the baskets produced during the period. If activity-based costing is used to allocate overhead costs to the two products, the amount of setup cost assigned to the wicker baskets will be:

A) $16,600. B) $12,900. C) $18,208. D) $20,250.

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42) Benitez Company makes wicker and wooden slat picnic baskets. It requires approximately one hour of labor to make one basket of either type. Wicker baskets are produced in batches of 100 units and require 0.5 machine hours per basket. Wooden slat baskets are produced in batches of 50 units and require 0.75 machine hours per basket. Setup is required for each batch. During the most recent accounting period, the company made 8,000 wicker baskets and 2,000 wooden slat baskets. Setup costs amounted to $24,000 for the baskets produced during the period. If activity-based costing is used to allocate overhead costs to the two products, the amount of setup cost assigned to the wicker baskets will be:

A) $17,455. B) $19,200. C) $12,000. D) $16,000.

43) Bates Company makes two products. Product X requires 6,800 hours of labor, and Product Y requires 4,800 hours of labor. Bates undertook an automation program that reduced the consumption of labor required by Product X to only 2,800 hours of labor. Product Y was not affected by the automation process. Overhead cost prior to the automation totaled $12,760. After automation, overhead cost amounted to $28,880. Assuming Bates uses direct labor hours as a companywide allocation base before and after the automation, the amount of overhead cost allocated to: A) Product X would be $5,280 prior to automation and $18,240 after automation. B) Product Y would be $5,280 prior to automation and $18,240 after automation. C) Product Y would be $10,640 prior to automation and $18,240 after automation. D) Product X would be $7,480 prior to automation and $18,240 after automation.

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44) Bates Company makes two products. Product X requires 6,000 hours of labor, and Product Y requires 4,000 hours of labor. Bates undertook an automation program that reduced the consumption of labor required by Product X to only 2,000 hours of labor. Product Y was not affected by the automation process. Overhead cost prior to the automation totaled $10,000. After automation, overhead cost amounted to $24,000. Assuming Bates uses direct labor hours as a companywide allocation base before and after the automation, the amount of overhead cost allocated to:

A) Product X would be $4,000 prior to automation and $16,000 after automation. B) Product X would be $6,000 prior to automation and $16,000 after automation. C) Product Y would be $8,000 prior to automation and $8,000 after automation. D) Product Y would be $4,000 prior to automation and $16,000 after automation.

45) Chastain Company recently implemented an activity-based costing system. As a result of the ABC allocations, the cost of one of the company's products was determined to be above its current selling price. Due to competition, the company is unable to raise the price of this product. Which of the following options is most reasonable, assuming Chastain employs a target pricing strategy?

A) Use less expensive materials to make the product. B) Raise prices under the assumption that the company's competitors will follow suit. C) Target advertising to high-income customers. D) Return to the old allocation method, which produces a lower amount of estimated cost.

46) Rocoe Company produces a variety of garden tools in a highly automated manufacturing facility. The costs and cost drivers associated with four activity cost pools are given below: Activities:

Unit Level

Batch Level

Total Cost

$ 38,400

$ 13,400

Total Cost Driver Volume

6,400 labor hours

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268 set ups

Product Facility Level Level $ 8,800 $ 44,800 percentage 44,800 units of use

Production of 10,000 units of a handheld tiller required 350 labor hours, 40 setups, and consumed 25% of the product sustaining activities. Assuming the company uses activity-based costing, how much total overhead will be allocated to this tool? Note: Do not round intermediate calculations. Round final answer to the nearest whole dollar. A) $27,620 B) $23,000 C) $16,300 D) $12,900

47) Rocoe Company produces a variety of garden tools in a highly automated manufacturing facility. The costs and cost drivers associated with four activity cost pools are given below: Activities: Total cost Total cost driver volume

Unit Level $ 30,000 5,000 labor hours

Batch Level

Product Level

$ 12,000 240 set ups

$ 6,000 percentage of use

Facility Level $ 36,000 36,000 units

Production of 10,000 units of a handheld tiller required 1,000 labor hours and 80 setups and consumed 25% of the product sustaining activities. Assuming the company uses activity-based costing, how much total overhead will be allocated to this tool? A) $84,000 B) $26,000 C) $21,500 D) $11,500

48) Valpar Company produces several lines of laundry hampers. The factory is highly automated and uses an activity-based costing system to allocate overhead costs to its various products. During the upcoming period, the company expects to produce 81,000 units. The costs and cost drivers associated with four activity cost pools are given below: ACTIVITIES:

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UNIT LEVEL

BATCH LEVEL

PRODUCT LEVEL

FACILITY LEVEL

Cost Cost Driver

$ 39,000 15,000 labor hours

$ 8,900 290 set ups

$ 15,900 % of use

$ 36,900 81,000 units

Production of 49,000 units of its popular foldable hamper required 4,300 labor hours, 159 setups and consumed one-third of the product sustaining activities. What amount of unit-level costs will be allocated to the product? Note: Do not round intermediate calculations. A) $15,000 B) $12,250 C) $11,180 D) $3,650

49) Valpar Company produces several lines of laundry hampers. The factory is highly automated and uses an activity-based costing system to allocate overhead costs to its various products. During the upcoming period, the company expects to produce 72,000 units. The costs and cost drivers associated with four activity cost pools are given below: ACTIVITIES: Cost Cost driver

UNIT LEVEL

BATCH LEVEL PRODUCT FACILITY LEVEL LEVEL

$ $ $ $ 30,000 8,000 15,000 36,000 12,000 labor hours 200 set ups % of 72,000 units use

Production of 20,000 units of its popular foldable hamper required 3,000 labor hours and 75 setups and consumed one-third of the product sustaining activities. What amount of unit-level costs will be allocated to the product? A) $2,500 B) $7,500 C) $5,000 D) $6,000

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50) Sanford Tools produces a variety of scissors and other cutting instruments at its Birmingham manufacturing plant. The plant is highly automated and uses an activity-based costing system to allocate overhead costs to its various product lines. The company expects to produce 24,000 total units during the current period. The costs and cost drivers associated with four activity cost pools are given below: ACTIVITIES: Cost Cost Driver

UNIT LEVEL

BATCH LEVEL

$ 24,000

2,000 labor hours

150 set ups

PRODUCT LEVEL $ 7,000

FACILITY LEVEL $ 192,000

% of use

24,000

units

Production of 1,000 units of a pipe-cutting tool required 600 labor hours, 10 setups, and consumed 20% of the product sustaining activities, and resulted in an overhead allocation of $18,200. What amount of batch-level overhead cost was allocated to pipe-cutting tools during the period? Note: Do not round intermediate calculations. A) $1,600 B) $24,000 C) $16,600 D) None of these answers is correct.

51) Sanford Tools produces a variety of scissors and other cutting instruments at its Birmingham manufacturing plant. The plant is highly automated and uses an activity-based costing system to allocate overhead costs to its various product lines. The company expects to produce 24,000 total units during the current period. The costs and cost drivers associated with four activity cost pools are given below: ACTIVITIES: Cost Cost Driver

UNIT LEVEL $ 50,000 4,000 labor hours

BATCH LEVEL ? 100 set ups

PRODUCT LEVEL FACILITY LEVEL $ 10,000 % of use

$ 120,000 24,000 units

Production of 1,000 units of a pipe-cutting tool required 400 labor hours, and 10 setups, consumed 30% of the product sustaining activities, and resulted in an overhead allocation of $15,400. What amount of batch-level overhead cost was allocated to pipe-cutting tools during the period?

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A) $24,000 B) $2,400 C) $12,500 D) None of these answers is correct.

52) Pro Tool Company expects to produce 29,000 total units during the current period. The costs and cost drivers associated with four activity cost pools are given below: ACTIVITIES: Cost Cost Driver

UNIT LEVEL $ 65,000 5,000 labor hours

BATCH LEVEL $ 20,000 100 set ups

PRODUCT FACILITY LEVEL LEVEL $ 22,000 $ 203,000 % of use

29,000 units

Production of 2,000 units of an auto towing tool required 800 labor hours, 15 setups and consumed 20% of the product sustaining activities. How much total overhead cost will be allocated to this product if the company allocates overhead using a single overhead allocation rate based on direct labor hours? Note: Do not round intermediate calculations. A) $14,000 B) $19,850 C) $49,600 D) $65,000

53) Pro Tool Company expects to produce 24,000 total units during the current period. The costs and cost drivers associated with four activity cost pools are given below: ACTIVITIES Cost Cost Driver

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UNIT LEVEL $ 50,000 4,000 labor hours

BATCH LEVEL $ 20,000 100 set ups

PRODUCT LEVEL

FACILITY LEVEL

$ $ 120,000 10,000 % of 24,000 units use

Production of 1,000 units of an auto towing tool required 800 labor hours and 12 setups and consumed 30% of the product sustaining activities. How much total overhead cost will be allocated to this product if the company allocates overhead using a single overhead allocation rate based on direct labor hours? A) $18,400 B) $10,000 C) $100,000 D) $40,000

54) The Lamp Company (TLC) produces a variety of lamps in a highly automated manufacturing facility. The costs and cost drivers associated with four activity cost centers are given below. These data represent total costs for all types of lamps produced by the Company. Activity Center Overhead Cost Cost Driver

Allocation Rate

Unit-level

Batch-level

$ 140,000 20,000 labor hours

$ 79,200 880 setup

$ 7 per labor hour

$ 90 per setup

ProductFacility-level level $ $ 22,000 74,000 % 74,000 units of use $ 1 per unit

During the most recent accounting period TLC made 9,000 units of its small tiffany style lamps. Making the lamps required 2,600 labor hours, 70 setups, and consumed 20% of the product-level costs. If the Company uses direct labor hours as the single company wide cost driver, the amount of overhead cost allocated to the tiffany lamps is Note: Round intermediate calculations to two decimal places. A) $24,500. B) $40,976. C) $31,510. D) $9,600.

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55) The Lamp Company (TLC) produces a variety of lamps in a highly automated manufacturing facility. The costs and cost drivers associated with four activity cost centers are given below. These data represent total costs for all types of lamps produced by the Company. Activity Center Overhead Cost

Unit-level

Batch-level

$ 126,000

$ 65,600

Cost Driver

18,000 labor hours

800 setup

Allocation Rate

$ 7 per labor hour

$ 82 per setup

Productlevel $ 20,000 % of use

Facility-level $ 73,600 73,600 units

$ 1 per unit

During the most recent accounting period TLC made 8,200 units of its tiffany type lamps. Making the lamps required 2,200 labor hours, 62 setups, and consumed 20% of the product-level costs. If the Company uses activity-based costing, the amount of overhead cost allocated to the tiffany lamps is A) $32,684. B) $34,848. C) $15,400. D) $28,510.

56)

When making a long-term cost plus pricing decision, a company should consider:

A) The upstream research and development cost. B) The allocated portion of facility-level cost. C) The direct manufacturing cost. D) All of these answers are correct.

57)

Which of the following is an upstream cost?

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A) Research and development costs B) Shipping costs to ship completed goods C) Sales commissions D) Sales promotion and advertising costs

58)

All of the following are downstream costsexcept:

A) advertising costs. B) distribution costs. C) patent filing legal costs. D) warehousing costs.

59)

The Tangier Company is considering eliminating the following product line: Product AXP

Sales Less variable costs:

$ 57,000

Raw materials Direct labor Contribution margin Less fixed costs:

33,500 11,800 $ 11,700

Production costs allocated to products Profit (Loss)

18,400 $ (6,700)

What amount of cost is avoidable if Tangier outsources production of this product? A) $63,700 B) $45,300 C) $6,700 D) $38,600

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60)

The Tangier Company is considering eliminating the following product line: Product AXP

Sales Less variable costs:

$ 80,000

Raw materials Direct labor Contribution margin Less fixed costs:

50,000 10,000 $ 20,000

Production costs allocated to products

30,000

Profit (Loss)

$ (10,000)

What amount of cost is avoidable if Tangier outsources production of this product? A) $60,000 B) $50,000 C) $90,000 D) $20,000

61) Gym One manufactures two types of treadmills: Advanced and Basic. During Year 2, the company incurred $278,200 of inspection cost. Gym One recently established an activity-based costing system that classified its activities into four categories. Categories and cost drivers are in table below.

Advanced Basic

Direct Labor Hours 15,700 5,700

Number of Batches 20 5

21,400

Total

Number of Inspectors 4 1 5

What is the allocation rate assuming costs are driven by unit-level activities? A) $11,128 per batch B) $13 per direct labor hour C) $20 per direct labor hour D) $13,910 per batch

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62) Gym One manufactures two types of treadmills: Advanced and Basic. During Year 2, the company incurred $300,000 of inspection cost. Gym One recently established an activity-based costing system that classified its activities into four categories. Categories and cost drivers are in table below.

Advanced Basic

Direct Labor Hours 15,000 5,000

Total

20,000

Number of Batches

Number of Inspectors 20 5

3 2

What is the allocation rate assuming costs are driven by unit-level activities? A) $12,000 per batch B) $15 per direct labor hour C) $15,000 per batch D) $20 per direct labor hour

63) Gym One manufactures two types of treadmills: Advanced and Basic. During Year 2, the company incurred $357,000 of inspection cost. Gym One recently established an activity-based costing system that classified its activities into four categories. Categories and cost drivers are in table below.

Advanced Basic

Direct Labor Hours 15,500 5,500

Number of Batches 24 4

21,000

Total

Number of Inspectors 5 2 7

What is the allocation rate assuming costs are driven by product level activities? A) $12,750 per batch B) $71,400 per inspector C) $14,875 per batch D) $51,000 per inspector

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64) Gym One manufactures two types of treadmills: Advanced and Basic. During Year 2, the company incurred $300,000 of inspection cost. Gym One recently established an activity-based costing system that classified its activities into four categories. Categories and cost drivers are in table below.

Advanced Basic

Direct Labor Hours 15,000 5,000

Number of Batches 20 5

20,000

Total

Number of Inspectors 3 2 5

What is the allocation rate assuming costs are driven by product level activities? A) $12,000 per batch B) $100,000 per inspector C) $60,000 per inspector D) $15,000 per batch

65)

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.

66) Mason Company is planning to introduce an activity-based costing system. Which of the following actions by employees couldlower the success of the new system?

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A) Employees may purposely report on their time cards different amounts of time than they actually worked. B) Employees may decrease their productivity to demonstrate their dissatisfaction with the new system. C) Employees may resist having to maintain additional records (such as the number of setups). D) All of these answers are correct.

67)

Costs incurred to avoid nonconforming products are: A) prevention costs. B) appraisal costs. C) internal failure costs D) external failure costs

68)

Concerning the prevention of defects, which of the following statements is true?

A) Zero defects is a cost-effective strategy. B) When the product falls to the right of the cost minimization point on the total quality cost curve, then incurring failure costs is worth the cost. C) It is always wiser to spend money on correcting failures than on preventing defects. D) When the product falls to the right of the cost minimization point on the total quality cost curve, then incurring prevention costs is wise.

69)

For most businesses, quality means:

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A) the degree to which products or services exceed customer expectations. B) absolutely no defects. C) the degree to which products or services conform to design specifications. D) none of these answers are correct.

70)

All of the following are prevention costsexcept:

A) training costs. B) inspection costs. C) regularly scheduled maintenance. D) engineering and design costs.

71)

Which of the following is an appraisal cost?

A) Depreciation of testing equipment B) Customer service costs C) Engineering and design costs D) Costs to repair defective units

72)

Which of the following is an internal failure cost? A) Costs to rework defective units B) Warranty replacement costs C) Engineering and design costs D) Depreciation on testing equipment

73)

All of the following are internal failure costsexcept:

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A) inventory inspection costs. B) rework costs. C) downtime costs. D) scrap costs.

74) OSC Manufacturing Company incurred the following costs during Year 2. Based on the table below, what is OSC’s total amount of voluntary costs? Prevention Costs Internal Failure Costs Appraisal Costs External Failure Costs

$ 116,000 $ 51,000 $ 66,000 $ 91,000

A) $167,000 B) $324,000 C) $142,000 D) $182,000

75) OSC Manufacturing Company incurred the following costs during Year 2. Based on the table below, what is OSC’s total amount of voluntary costs? Prevention Costs Internal Failure Costs Appraisal Costs External Failure Costs

$ 100,000 $ 35,000 $ 50,000 $ 75,000

A) $150,000 B) $135,000 C) $110,000 D) $260,000

76) OSC Manufacturing Company incurred the following costs during Year 2. Based on the table below, what is OSC’s total amount of voluntary costs?

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Product design cost Downtime costs Training costs Inventory inspection costs Scrap Reliability testing Warranty repairs Customer relations

$ 69,000 $ 19,000 $ 54,000 $ 24,000 $ 14,000 $ 29,000 $ 34,000 $ 39,000

A) $282,000 B) $126,000 C) $176,000 D) $166,000

77) OSC Manufacturing Company incurred the following costs during Year 2. Based on the table below, what is OSC’s total amount of voluntary costs? Product design cost Downtime costs Training costs Inventory inspection costs Scrap Reliability testing Warranty repairs Customer relations

$ 65,000 $ 15,000 $ 50,000 $ 20,000 $ 10,000 $ 25,000 $ 30,000 $ 35,000

A) $250,000 B) $110,000 C) $150,000 D) $160,000

78) Layla Company produces jewelry. As part of the company’s total quality management program, they incurred the following costs. Based on this information, what is the company’s total internal failure costs? Restocking and packaging Reinspection

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$ 47,000 $ 38,000

Scrap Reliability testing Inventory inspection Repair and rework

$ 8,000 $ 53,000 $ 32,000 $ 65,000

A) $111,000 B) $143,000 C) $103,000 D) $196,000

79) Layla Company produces jewelry. As part of the company’s total quality management program, they incurred the following costs. Based on this information, what is the company’s total internal failure costs? Restocking and packaging Reinspection Scrap Reliability testing Inventory inspection Repair and rework

$ 27,000 $ 18,000 $ 5,000 $ 33,000 $ 12,000 $ 45,000

A) $63,000 B) $68,000 C) $80,000 D) $113,000

80) Cam Company produces skateboards. As part of the company’s total quality management program, they incurred the following costs. Based on this information, what is the company’s total external failure costs? Restocking and packaging Reinspection Scrap Customer relations Inventory inspection Warranty repairs and replacement

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$ 20,000 $ 25,000 $ 7,000 $ 30,000 $ 13,000 $ 44,000

A) $114,000 B) $94,000 C) $70,000 D) $95,000

81) Cam Company produces skateboards. As part of the company’s total quality management program, they incurred the following costs. Based on this information, what is the company’s total external failure costs? Restocking and packaging Reinspection Scrap Customer relations Inventory inspection Warranty repairs and replacement

$ 17,000 $ 22,000 $ 4,000 $ 27,000 $ 10,000 $ 41,000

A) $80,000 B) $58,000 C) $85,000 D) $99,000

82)

The voluntary costs of quality include:

A) Internal failure costs. B) External failure costs. C) Appraisal costs. D) All of these answers are correct.

83)

The amounts of voluntary costs and failure costs:

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A) Are equal by definition. B) Tend to move in opposite directions (as one increases the other decreases). C) Tend to move in the same direction (as one increases the other increases). D) None of these answers are correct.

84)

Managing quality costs to achieve the highest level of customer satisfaction is known as:

A) activity-based management. B) total quality management. C) strategic management. D) quality costs.

85)

The minimum amount of total quality costs is achieved when the:

A) marginal voluntary expenditures exceed marginal failure costs. B) marginal voluntary expenditures equal the marginal savings on failure costs. C) marginal voluntary expenditures are less than the marginal savings on failure costs. D) none of the other answers are correct.

86)

The Farber Company recorded the following costs of quality during the current period:

Downtime Inspection Product design Reliability testing upon completion of production Restocking and packaging Training Warranty repairs and replacements Total Costs of Quality

$ 1,600 1,100 4,100 2,600 1,600 3,100 2,600 $ 16,700

Which choice below represents the correct amount of prevention and appraisal costs?

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Prevention

Appraisal

$ 4,100

$ 1,100

$ 3,100

$ 1,100

$ 7,200

$ 3,700

$ 3,100

$ 2,600

A) Choice A B) Choice B C) Choice C D) Choice D

87)

The Farber Company recorded the following costs of quality during the current period:

Downtime Inspection Product design Reliability testing upon completion of production Restocking and packaging Training Warranty repairs and replacements Total Costs of Quality

$ 1,500 1,000 4,000 2,500 1,500 3,000 2,500 $ 16,000

Which choice below represents the correct amount of prevention and appraisal costs? Prevention

Appraisal

$ 4,000

$ 1,000

$ 3,000

$ 1,000

$ 7,000

$ 3,500

$ 3,000

$ 2,500

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A) Choice A B) Choice B C) Choice C D) Choice D

88) a(n):

Electricity to run sanding machines in a furniture-making department is an example of

A) unit-level cost. B) batch-level cost. C) product-level cost. D) facility-level cost.

89)

Legal costs to file design patents are an example of a(n):

A) unit-level cost. B) batch-level cost. C) product-level cost. D) facility-level cost.

90)

The insurance cost for a large factory would be considered a:

A) unit-level cost. B) batch-level cost. C) product-level cost. D) facility-level cost.

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91)

Invoice processing costs would be considered a:

A) unit-level cost. B) batch-level cost. C) product-level cost. D) facility-level cost.

92) Which of the following is an appropriate cost driver for electricity used for production equipment in a factory?

A) Machine hours B) Number of inspections C) Setup hours D) Number of units

93) Which of the following is an appropriate cost driver for setting up production equipment for a production run?

A) Machine hours B) Number of setups C) Setup hours D) Either number of setups or setup hours would be appropriate

94)

Which of the following is an appropriate cost driver for issuance of purchase orders?

A) Number of units B) Number of purchase orders C) Number of setups D) Either number of units or number of purchase orders would be appropriate

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95)

The first step in developing an ABC system is to:

A) allocate costs to activity cost pools. B) identify the cost driver that has the best "cause-and-effect relationship" to the cost pool. C) identify essential activities and the cost of performing those activities. D) calculate activity rates.

96)

All of the following are examples of volume-based driversexcept:

A) machine hours. B) number of product design changes. C) direct labor hours. D) number of units.

97)

Which of the following would be classified as a batch-level activity?

A) Depreciation on production equipment B) Inspection of a product, where each unit must be individually inspected C) Changing machine configuration before starting a production run D) Sales commissions

98)

Sales commissions are an example of:

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A) unit-level activities. B) batch-level activities. C) facility-level activities. D) product-level activities.

99)

Depreciation on a manufacturing facility is an example of a(n):

A) unit-level activity. B) batch-level activity. C) product-level activity. D) facility-level activity.

100) Which of the following is the most appropriate cost driver for maintaining parts inventory?

A) Number of parts for a product B) Direct labor hours C) Sales dollars D) Number of setups

101)

Direct labor hours is an appropriate cost driver when:

A) production is labor-intensive. B) overhead costs increase. C) production is automated. D) all of these answers are correct.

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102)

Increasing automation in a manufacturing facility will likely:

A) Increase the number of direct labor hours and decrease overhead costs. B) Decrease the number of direct labor hours and increase overhead costs. C) Decrease the number of direct labor hours and decrease overhead costs. D) None of these answers is correct.

103)

Which of the following statements regarding activity-based cost drivers is correct?

A) Activity-based cost drivers are measures of activity that are directly associated with production. B) Activity-based cost drivers are directly related to the volume of production. C) Activity-based cost drivers improve the accuracy of direct cost allocations. D) None of these answers are correct.

104)

Which activity is likely to be involved in the acquisition of raw materials?

A) Identifying potential suppliers B) Getting price quotations C) Preparing purchase orders D) All of the other answers are correct.

105) Which of the following statement(s) regarding activity-based costing is (are) true? 1.Use of activity-based costing improves cost tracing by using more cause-and-effect relationships to assign indirect costs to activity centers. 2. An activity-based system is characterized by multiple cost pools and multiple volume and activity cost drivers. 3. Activity-based costing can cause distortion of cost, assigning too much cost to some products and too little to others.

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A) I and III B) I and II C) II and III D) III only

106) Which of the following statements regarding unit-level activities is (are) true? 1.Unit-level activities occur each time a batch of units is produced. 2. Unit-level costs follow a variable cost behavior pattern. 3. Unit-level activities benefit the production as a whole and are not related to any specific product. A) I only B) I and II C) II and III D) II only

107) Which of the following costs would be most fairly allocated using a volume-based cost driver?

A) Inventory holding costs B) Property taxes C) Setup costs for product batches D) Indirect labor costs

108) Hough Company manufactures a wide variety of products. A high proportion of its indirect costs are batch-level costs, such as acquiring materials, moving materials within the factory, and setting up machines. Hough uses direct labor hours to assign indirect costs to all of its products. How is this use of a traditional product costing system likely to affect the costs of Hough's high-volume and low-volume products?

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A) All of its products are undercosted. B) Its low-volume products are overcosted. C) All of its products are overcosted. D) Its high-volume products are overcosted.

109)

All of the following are categories of quality costsexcept:

A) prevention costs. B) design costs. C) internal failure costs. D) appraisal costs.

110)

Voluntary costs refer to:

A) prevention and appraisal costs. B) prevention and internal failure costs. C) appraisal and external failure costs. D) internal failure costs and external failure costs.

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111) In the below graph, which shows the relationship among components of quality cost, Line "B" depicts:

A) total quality costs. B) external failure quality cost. C) voluntary quality costs. D) internal failure quality costs.

112) In the below graph, which shows the relationship among components of quality cost, Line "C" depicts:

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A) failure costs. B) internal quality cost. C) voluntary quality failure costs. D) prevention costs.

113)

All of the following are external failure costsexcept:

A) warranty repairs and replacement. B) reliability testing C) customer relations. D) restocking and packaging.

114)

Which of the following is an example of a prevention cost?

A) Downtime B) Inventory inspection C) Product design D) Repair and rework

115)

Which of the following statements isincorrect?

A) An activity-based costing system uses more cause-and-effect relationships in tracing costs than does a traditional cost allocation system. B) An activity-based costing system first assigns or traces costs to the departments in which products are made. C) The hierarchical categories into which activities are grouped are unit-level, batchlevel, product-level, and facility-level activities. D) The total amount of unit-level costs changes in proportion to the number of units of product made.

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116)

Which of the following costs is the result of a facility-level activity?

A) Utility costs related to heating and lighting a manufacturing facility B) The cost of landscaping the grounds for the manufacturing unit C) Costs associated with trademarks D) Both utility costs related to heating and lighting a manufacturing facility and the cost of landscaping the grounds for the manufacturing unit are correct

117) 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 produce the company's products has been provided. Category Unit-level

Estimated Cost $ 153,000

Cost Driver Labor hours

Bay Windows 890

Casement 640

Batch-level

$ 82,000

Inspections

Productlevel Facilitylevel

$ 33,600

Storage Space Machine hours

4,900 sq feet 10,400

3,500 sq feet 7,400

$ 178,000

The amount of batch-level cost that should be allocated to the bay windows equals: A) $49,200. B) $32,800. C) $82,000. D) $8,200.

118) 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 produce the company's products has been provided. Category Unit-level

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Estimated Cost $ 125,000

Cost Driver Labor hours

Bay Windows 750

Casement 500

Batch-level

$ 75,000

Inspections

Productlevel Facilitylevel

$ 35,000

Storage Space

$ 165,000

Machine hours

3,500 sq feet 9,000

2,100 sq feet 6,000

The amount of batch-level cost that should be allocated to the bay windows equals: A) $30,000. B) $45,000. C) $75,000. D) $7,500.

119) 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 produce the company's products has been provided. Category Estimated Cost Unit-level $ 159,000

Cost Driver Labor hours

Bay Windows 920

Casement 670

Batchlevel Productlevel Facilitylevel

$ 83,500

Inspections

$ 43,200

Storage Space Machine hours

5,200 sq feet 10,700

3,800 sq feet 7,700

$ 257,600

The amount of product-level cost that should be allocated to the casement windows equals: A) $33,400. B) $50,100. C) $24,960. D) $18,240.

120) 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 produce the company's products has been provided. Category

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Estimated Cost

Cost Driver

Bay Windows

Casement

Unit-level

$ 125,000

Labor hours

750

500

Batch-level

$ 75,000

Inspections

Productlevel

$ 35,000

Storage Space

3,500 sq feet

Facilitylevel

$ 165,000

Machine hours

9,000

2,100 sq feet 6,000

The amount of product-level cost that should be allocated to the casement windows equals: A) $13,125. B) $21,875. C) $30,000. D) $45,000.

121) 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 produce the company's products has been provided. Category Unit-level

Estimated Cost $ 181,200

Cost Driver Labor hours

Bay Windows 880

Casement 630

Batch-level

$ 81,500

Inspections

Productlevel Facilitylevel

$ 36,900

Storage Space

$ 176,000

Machine hours

4,800 sq feet 10,300

3,400 sq feet 7,300

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 are correct.

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122) 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 produce the company's products has been provided. Category Unit-level

Estimated Cost $ 125,000

Cost Driver Labor hours

Bay Windows 750

Casement 500

Batch-level

$ 75,000

Inspections

Productlevel Facilitylevel

$ 35,000

Storage Space

$ 165,000

Machine hours

3,500 sq feet 9,000

2,100 sq feet 6,000

123) Which of the following best describes the impact of undercosting in the allocation of production costs? A) This is a goal of all companies because undercosting all products allows for larger profit margins. B) Companies will use target pricing to undercost products. C) Undercosting some products will lead to overcosting other products, which may then become overpriced and lose market share. D) Undercosting some products can lead to overcosting other products, which is acceptable because it all balances out in the long run.

124)

An activity center:

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A) Is an organizational structure where companies are organized into related activities, and the overhead costs associated with performing these activities are combined into cost pools. B) Combines overhead costs into cost pools. C) Is an organizational structure associated with minimal record-keeping tasks. D) None of these answers are correct.

125)

Which of the following statements isfalse regarding upstream and downstream costs?

A) Both upstream and downstream costs are unnecessary and should be minimized, if not eliminated. B) Upstream costs occur before and downstream costs occur after goods are manufactured. C) Product design is an example of an upstream cost. D) Customer service is an example of a downstream cost.

126)

The objective of using the following graph is to:

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A) minimize quality. B) maximize profit. C) minimize total quality costs. D) maximize total quality costs.

127)

Activities that support specific products or product lines are known as:

A) facility-level activities B) unit-level activities C) product-level activities D) batch-level activities

128)

All of the following quality costs are directly controllable by managementexcept:

A) Repair and rework B) Product design C) Training costs D) Reliability testing

129)

Traditional cost systems usually allocate overhead to products based on direct labor. ⊚ ⊚

true false

130) As companies have become more highly automated, overhead costs have become a larger part of total manufacturing cost. ⊚ ⊚

Version 1

true false

131) In a highly automated manufacturing company, labor costs vary considerably with volume of production. ⊚ ⊚

true false

132) Many automated processes generate costs that have no cause-and-effect relationship with volume-based cost drivers. ⊚ ⊚

true false

133) Anderson Company produces a variety of products, some in labor-intensive departments and some in heavily automated departments. Using a companywide overhead allocation rate based on direct labor will result in overcosting some products and undercosting others. ⊚ ⊚

true false

134) Companies operating in a highly automated environment that produce many different products with varying levels of production should use activity-based cost drivers to improve the accuracy of their cost allocations. ⊚ ⊚

true false

135) Because volume-based allocation rates assign more cost to high-volume products, lowvolume products are often undercosted. ⊚ ⊚

Version 1

true false

136) The first step in implementing an activity-based costing system is to trace overhead costs to one or more departments. ⊚ ⊚

true false

137) One of the advantages of activity-based costing systems over traditional systems is that ABC systems require less record keeping. ⊚ ⊚

true false

138) Unit-level activity costs follow a fixed cost behavior pattern (i.e., such costs vary on a per unit basis but are constant in total). ⊚ ⊚

true false

139) To reduce its total batch-level costs, a company should produce its products in large batches. ⊚ ⊚

true false

140) Using a single plant-wide overhead rate is likely to cause some distortion in allocation of product-level costs. ⊚ ⊚

Version 1

true false

141)

Inspection of products may sometimes be considered a batch-level activity. ⊚ ⊚

142)

true false

Activity-based costing does not use volume-based cost drivers. ⊚ ⊚

true false

143) In an activity-based costing system, a volume-based cost driver is appropriate for product-level activities. ⊚ ⊚

true false

144) The objective of target pricing is to establish a price that will maximize profits given existing costs. ⊚ ⊚

true false

145) Most companies allocate facility-level activity costs directly to products for decisionmaking purposes. ⊚ ⊚

Version 1

true false

146) Bennett Company pays its salespeople a sales commission on each sale they make. This commission is an example of an upstream cost. ⊚ ⊚

147)

true false

Upstream costs are relevant for deciding whether to discontinue a product line. ⊚ ⊚

true false

148) Gaining personnel support and obtaining accurate data are two of the more challenging obstacles to the implementation of a successful activity-based costing system. ⊚ ⊚

149)

true false

Downstream costs are not relevant to a product elimination decision. ⊚ ⊚

true false

150) The successful implementation of an activity-based costing system depends on employees' attitudes and cooperation. ⊚ ⊚

true false

151) Implementation of an activity-based costing system requires a company to generate more detailed accounting information than would be required by a traditional product cost system.

Version 1

⊚ ⊚

true false

152) The term "quality" refers to the degree to which products or services exceed customer expectations. ⊚ ⊚

true false

153) Farber Company produces its product in three departments, Prepping, Machining, and Finishing. A customer recently returned a defective product that had not been machined properly. The company's accountant would classify the repair cost as an internal failure cost. ⊚ ⊚

154)

true false

Voluntary costs refer to internal and external failure costs. ⊚ ⊚

true false

155) The concept of cost of quality is not applicable in service-type businesses such as accounting firms. ⊚ ⊚

156)

true false

Total quality control cost is the sum of voluntary and failure costs. ⊚ ⊚

Version 1

true false

157)

The goal of zero defects will generally lead to minimizing quality costs. ⊚ ⊚

true false

158) An increase in appraisal costs will probably lead to a decrease in internal failure costs and an increase in external failure costs. ⊚ ⊚

true false

159) An increase in prevention costs may result in decreases in appraisal, internal failure, and external failure costs and a decrease in total quality costs. ⊚ ⊚

true false

160) Most firms have found that it is cost-effective to achieve a "zero defects" condition among their products and services. ⊚ ⊚

161)

true false

An increase in prevention costs will often reduce a firm's overall costs of quality. ⊚ ⊚

Version 1

true false

Answer Key Test name: Chap 05_10e_Edmonds 1) A 2) D 3) C 4) B 5) A 6) C 7) B 8) C 9) C 10) D 11) C 12) A 13) B 14) D 15) A 16) A 17) D 18) B 19) D 20) C 21) A 22) C 23) D 24) B 25) C 26) B Version 1

27) B 28) B 29) D 30) C 31) A 32) D 33) D 34) A 35) A 36) B 37) C 38) C 39) A 40) C 41) A 42) D 43) B 44) D 45) A 46) C 47) C 48) C 49) B 50) A 51) B 52) C 53) D 54) B 55) A 56) D Version 1

57) A 58) C 59) B 60) A 61) B 62) B 63) D 64) C 65) D 66) D 67) A 68) B 69) C 70) B 71) A 72) A 73) A 74) D 75) A 76) C 77) D 78) A 79) B 80) B 81) C 82) C 83) B 84) B 85) B 86) C Version 1

87) C 88) A 89) C 90) D 91) B 92) A 93) D 94) B 95) C 96) B 97) C 98) A 99) D 100) A 101) A 102) B 103) D 104) D 105) B 106) D 107) D 108) D 109) B 110) A 111) C 112) A 113) B 114) C 115) B 116) D Version 1

117) A 118) B 119) D 120) A 121) D 122) D 123) C 124) A 125) A 126) C 127) C 128) A 129) TRUE 130) TRUE 131) FALSE 132) TRUE 133) TRUE 134) TRUE 135) TRUE 136) FALSE 137) FALSE 138) FALSE 139) TRUE 140) TRUE 141) TRUE 142) FALSE 143) FALSE 144) FALSE 145) FALSE 146) FALSE Version 1

147) TRUE 148) TRUE 149) FALSE 150) TRUE 151) TRUE 152) FALSE 153) FALSE 154) FALSE 155) FALSE 156) TRUE 157) FALSE 158) FALSE 159) TRUE 160) FALSE 161) TRUE

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Chapter 6 Relevant Information for Special Decisions 1)

All of the following statements describe qualities of relevance except:

A) Relevant information requires a high degree of precision. B) Relevant information differs among the alternatives. C) Relevant information is future-oriented. D) Relevant information includes qualitative as well as quantitative data.

Select thecorrect statement regarding relevant costs and revenues.

A) Relevant costs are also known as unavoidable costs. B) Relevant costs are only those that are based on past experience. C) Relevant revenues must differ among the alternatives. D) All of these choices are correct.

3) Ann is trying to decide which one of two job offers she will accept. Several items are presented below: (1) Base salary (2) Overtime compensation (3) Moving allowance (4) Signing bonus (5) Job search costs incurred

Job Offer A

Job Offer B

$50,000 Compensation time $3,000 $2,100 $350

$50,000 Hourly rate $3,000 $0 $550

Select the items that are irrelevant to Ann's decision. A) (1), (2), (3), (4), (5) B) (2), (4) C) (2), (3), (4) D) (1), (3), (5)

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4) Ann is trying to decide which one of two job offers she will accept. Several items are presented below: Job Offer A (1) Base salary (2) Overtime compensation (3) Moving allowance (4) Signing bonus (5) Job search costs incurred

$50,000 Compensation time $3,000 $2,000 $300

Job Offer B $50,000 Hourly rate $3,000 $0 $500

Select the items that are irrelevant to Ann's decision. A) (1), (2), (3), (4), (5) B) (2), (3), (4) C) (1), (3), (5) D) (2), (4)

5) Alex brought his lunch today but now a coworker has asked him to go to the deli across the street. Select the correct statement from the following. A) The cost of the lunch Alex had brought is relevant to Alex's decision to have lunch with his friend. B) The cost of the lunch that Alex had brought has nothing to do with his current decision. C) The cost to buy lunch at the deli is not relevant because it has not yet been incurred. D) The cost of the lunch Alex already has represents the opportunity cost of dining with his friend.

Select the correct statement regarding relevant revenues.

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A) Relevant revenues must not differ among the alternatives being considered. B) Past or future revenues may be relevant. C) Relevant revenues must make a difference in the decision under consideration. D) Revenues are not considered relevant in the same way as relevant costs.

7) Bates Company plans to add a new item to its line of consumer product offerings. Two possible products are under consideration. Each unit of Product A costs $44 to produce and has a contribution margin of $22, while each unit of Product B costs $69 and has a contribution margin of $23. What is the differential revenue for this decision?

A) $25 B) $26 C) $47 D) $1

8) Bates Company plans to add a new item to its line of consumer product offerings. Two possible products are under consideration. Each unit of Product A costs $6 to produce and has a contribution margin of $3, while each unit of Product B costs $12 and has a contribution margin of $4. What is the differential revenue for this decision?

A) $7 B) $1 C) $6 D) $9

9) Which of the following isnot a possible alternate term for costs that can be eliminated by taking a specified course of action?

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A) Avoidable costs B) Opportunity costs C) Relevant costs D) Differential costs

10)

For purposes of decision making, avoidable costs are costs that:

A) were incurred in the past. B) will not be incurred in the future, regardless of the alternative chosen. C) differ among alternatives. D) None of these choices are correct.

11)

Relevant costs are often referred to as:

A) Unavoidable costs. B) Differential costs. C) Sunk costs. D) All of these choices are correct.

12) Scholastic Tours is trying to decide which one of two tours it will introduce. The costs and revenues associated with each alternative are listed below: Eastern Tour

Western Tour

Projected revenue Variable costs Fixed costs

$7,000 1,000 2,000

$10,000 6,000 2,000

Profit

$4,000

$2,000

What are the incremental (differential) costs of the Western Tour?

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A) $3,000. B) $2,000. C) $5,000. D) None of these choices are correct.

13) Scholastic Tours is trying to decide which one of two tours it will introduce. The costs and revenues associated with each alternative are listed below: Eastern Tour

Western Tour

Projected revenue Variable costs Fixed costs

$14,000 2,000 6,000

$18,000 10,000 6,000

Profit

$6,000

$2,000

What are the incremental (differential) costs of the Western Tour? A) $4,000. B) $6,000. C) $8,000. D) None of these choices are correct.

14)

Which of the following statements is true?

A) Fixed costs are sometimes relevant for decision making. B) Opportunity costs are never relevant for decision making. C) Information must be exactly accurate to be relevant for decision making. D) A cost that is relevant in one decision context is relevant in other decision contexts.

15)

Osprey Company is trying to decide between the following two alternatives: Alternative A

Projected revenue

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$50,000

Alternative B $60,000

Direct material Assembly labor Production supervisor's salary Facility-related costs

6,000 9,000 10,000 10,000

12,000 9,000 10,000 15,000

Profit

$15,000

$14,000

Which of the following conclusions can be drawn from this example? A) Variable costs are always relevant for decision making. B) Fixed costs are sunk and thus are never relevant for decision making. C) Relevant costs may include variable costs and fixed costs. D) None of these choices are correct.

16) Great Outdoors Company operates a store in downtown Denver that has five departments including a fishing department. If the fishing department is closed, the store manager's position will not be affected, but if the entire store is closed, the manager will be terminated. Which of the following lessons should be learned from this example?

A) Opportunity costs are always present. B) Sunk costs cannot be avoided. C) Relevance of costs is context sensitive. D) Information does not have to be precisely accurate in order to be relevant.

17)

Select the incorrect statement regarding relevant costs and revenues.

A) To be relevant, a cost or revenue must be future-oriented and must differ among the alternatives. B) Sunk costs are never relevant for decision-making purposes. C) Differential revenues are expected future revenues that differ from past revenues. D) Avoidable costs are also known as differential costs.

18)

Select theincorrect statement regarding sunk costs.

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A) Sunk costs cannot be avoided. B) Sunk costs are relevant if they differ among the alternatives. C) Sunk costs are costs that have been incurred in past transactions. D) Sunk costs include historical costs such as equipment acquisition costs.

19) Rachel is deciding whether to remain in the home she has lived in for the past ten years, which is located very near her work, or to move into a newer home that is located in the suburbs farther from her job. The old house was purchased for $160,000 and has a market value of $220,000. The new home can be purchased for $285,000. Which of the following isnot relevant to Rachel's decision?

A) Driving distance to work B) Cost of the old house C) Market value of the old house D) Cost of the new house

20) Stephenson Company is trying to decide which one of two contracts it will accept. The costs and revenues associated with each are listed below: Contract Revenue Materials Labor Depreciation on Equipment Cost Incurred for Consulting Advice Allocated Portion of Overhead

Contract X

Contract Z

$200,000 10,000 88,000 8,000 1,500 5,000

$260,000 10,000 120,000 10,000 1,500 3,000

The equipment was purchased last year and has no resale value. Which of these amounts is relevant for the selection of one contract over another? A) Contract revenue and labor costs B) Materials, consulting advice, and allocated overhead C) Cost of consulting advice and allocated overhead D) Contract revenue, labor costs, and depreciation on equipment

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21) Jason is trying to decide which one of two job offers he will accept. Several items are presented below: (1) Base salary (2) Overtime compensation (3) Moving allowance (4) Signing bonus (5) Job search costs incurred

Job Offer A

Job Offer B

$40,000 Compensation time $2,000 $1,000 $500

$40,000 Hourly rate $2,000 $0 $500

Which of the above items would be considered relevant costs? A) (1), (3), (5) B) (2), (4) C) (5) D) None of these choices are correct.

22)

Select thecorrect statement regarding relevant costs and revenues.

A) Sunk costs are relevant for decision-making purposes. B) Relevant costs are frequently called unavoidable costs. C) Direct labor is an example of a unit-level cost. D) Only variable costs are relevant for decision making.

23) Expected future revenues that differ among the alternatives under consideration are often referred to as:

A) Alternative revenues. B) Preferential revenues. C) Relative revenues. D) Differential revenues.

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24) QRC Company is trying to decide which one of two alternatives it will accept. The costs and revenues associated with each alternative are listed below: Alternative A Projected revenue Unit-level costs Batch-level costs Product-level costs Facility-level costs

$180,000 34,000 21,500 24,000 19,000

Alternative B $240,000 45,000 33,000 26,000 21,500

What is the differential revenue for this decision? A) $85,000 B) $240,000 C) $60,000 D) $180,000

25) QRC Company is trying to decide which one of two alternatives it will accept. The costs and revenues associated with each alternative are listed below: Alternative A Projected revenue Unit-level costs Batch-level costs Product-level costs Facility-level costs

$62,500 12,500 6,250 7,500 5,000

Alternative B $75,000 18,000 12,000 8,500 6,250

What is the differential revenue for this decision? A) $25,000 B) $12,500 C) $62,500 D) $75,000

26) Ethan paid $3 for a bottle of ThirstAid. Later, while on a hiking trip, he was offered $8 for the ThirstAid. Select thecorrect statement from the following: Version 1

A) The $8 offer is not relevant if Ethan refuses to sell the ThirstAid. B) If Ethan drinks the ThirstAid, no opportunity cost is associated with his decision. C) The $3 original purchase price is irrelevant to his decision to sell the ThirstAid. D) All of these choices are correct.

27)

The benefits sacrificed when one alternative is chosen over another are referred to as:

A) Avoidable costs. B) Opportunity costs. C) Sacrificial costs. D) Beneficial costs.

28) Lindsay purchased a raffle ticket for $27. Just before the grand prize drawing two people tried to buy her ticket. The first person offered $120, and another offered $155. What is Lindsay's opportunity cost of keeping the raffle ticket?

A) $155 B) $182 C) $147 D) $54

29) Lindsay purchased a raffle ticket for $5. Just before the grand prize drawing two people tried to buy her ticket. The first person offered $30, and another offered $65. What is Lindsay's opportunity cost of keeping the raffle ticket?

A) $60 B) $65 C) $90 D) $95

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30)

The costs associated with two alternative types of Kombucha are listed below.

Brandless Kombucha Materials cost per bottle Sales commissions per bottle Rent of refrigerated display Advertising

$1.00 0.50 200.00 2,000.00

Name-Brand Kombucha Materials cost per bottle

$2.00

Sales commissions per bottle Rent of refrigerated display Advertising

1.00 200.00 1,000.00

Which costs are relevant to the decision of which type of Kombucha to produce? A) Materials and sales commissions B) Materials, sales commissions and advertising C) Rent of refrigerated display and advertising D) All of the costs are relevant

31) Finn Company is trying to decide which of two skateboards to manufacture. Cost data pertaining to the two choices follow. Cost of materials per unit Cost of labor per unit Advertising cost per year Depreciation on equipment

Skateboard A

Skateboard B

$25 30 12,000 6,000

$45 30 10,000 8,000

Which costs are relevant to the decision of which skateboard to produce? A) Cost of materials and labor B) Cost of advertising and depreciation C) Cost of materials and advertising D) Cost of materials, advertising, and depreciation

32)

Select thecorrect statement regarding opportunity costs.

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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 choices are correct.

33)

Select theincorrect statement concerning opportunity costs.

A) Opportunity costs are relevant costs. B) Opportunity costs are cumulative. C) Opportunity costs are future-oriented. D) Opportunity costs are not recorded in the books.

34)

Select thecorrect statement regarding quantitative and qualitative information.

A) To be relevant, qualitative data need not be quantified. B) Relevant information cannot have both quantitative and qualitative characteristics. C) Qualitative data should only be considered when quantitative data are inconclusive. D) To be relevant, qualitative data need not differ among the alternatives but must be future-oriented.

35)

Qualitative information is relevant when:

A) it makes a difference in the decision and it differs among the alternatives. B) it differs among the alternatives only. C) it makes a difference in the decision only. D) None of these choices are correct.

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36)

Which of the following items is qualitative?

A) Cost of new machine B) Depreciation of existing machine C) Book value of the existing machine D) Degree to which the new machine can be integrated with existing machinery

37) is a:

The cost that is avoided when a company eliminates a single item of a product or service

A) Unit-level cost. B) Facility-level cost. C) Product-level cost. D) Batch-level cost.

38)

Which of the following costs is an example of a product-level cost?

A) Machine setup costs B) Patent filing costs C) Materials and labor costs D) Shipping and handling costs

39)

Which of the following costs is an example of a batch-level cost?

A) Assembly setup costs. B) Materials handling costs. C) Shipping and handling costs to ship an order to a customer. D) All of these choices are correct.

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40)

Engineering design costs are generally referred to as:

A) Batch-level costs. B) Facility-level costs. C) Unit-level costs. D) Product-level costs.

41) The Page Turner Publishing Company is trying to decide whether to accept a special order for its latest blockbuster. In making this decision, which level of costs will most likely be relevant to the decision?

A) Batch-level costs. B) Facility-level costs. C) Unit-level costs. D) None of these choices are correct.

42)

The costs and revenues associated with two alternatives are listed below: Alternative 1

Projected revenue Unit-level costs Batch-level costs Product-level costs Facility-level costs

Alternative 2

$128,000 25,600 25,600 19,200 12,800

$160,000 38,400 38,400 19,200 12,800

Which alternative should be selected based on this information? A) Alternative 1 because it has fewer unit-level costs. B) Alternative 2 because it has a higher profit. C) Alternative 2 because it has the same product- and facility-level costs. D) Alternative 1 because it has a higher profit.

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43)

The costs and revenues associated with two alternatives are listed below: Alternative 1

Projected revenue Unit-level costs Batch-level costs Product-level costs Facility-level costs

Alternative 2

$100,000 20,000 20,000 15,000 10,000

$125,000 30,000 25,000 15,000 10,000

Which alternative should be selected based on this information? A) Alternative 2 because it has a higher profit. B) Alternative 2 because it has the same product- and facility-level costs. C) Alternative 1 because it has fewer unit-level costs. D) Alternative 1 because it has a higher profit.

44) Clean, Incorporated cleans and waxes floors for commercial customers. The company is presently operating at less than capacity, with equipment and employees idle at times. The company recently received an order from a potential customer outside the company's normal geographic service region for a price of $19,000. The size of the proposed job is 32,000 square feet. The company's normal service costs are as follows: Unit-level materials Unit-level labor Unit-level variable overhead Facility-level overhead

$0.28 per square foot $0.35 per square foot $0.18 per square foot Allocated at $0.20 per square foot

If the company accepts the special offer: A) The company will earn $10,040 on the job. B) The company will lose $13,320 on the job. C) The company will lose $6,920 on the job. D) The company will lose $1,160 on the job.

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45) Clean, Incorporated cleans and waxes floors for commercial customers. The company is presently operating at less than capacity, with equipment and employees idle at times. The company recently received an order from a potential customer outside the company's normal geographic service region for a price of $4,500. The size of the proposed job is 11,000 square feet. The company's normal service costs are as follows: Unit-level materials Unit-level labor Unit-level variable overhead Facility-level overhead

$0.18 per square foot $0.25 per square foot $0.08 per square foot Allocated at $0.10 per square foot

If the company accepts the special offer: A) The company will lose $1,110 on the job. B) The company will lose $2,210 on the job. C) The company will lose $230 on the job. D) The company will earn $2,520 on the job.

46) Carpet, Incorporated, installs carpet for commercial customers. The company is presently operating at less than capacity. The company received an order from a potential customer outside the company's normal geographic region for a price of $9,400. The size of the proposed job is 10,110 square feet. The company's normal service costs are as follows: Unit-level materials Unit-level labor Unit-level variable overhead Facility-level overhead

$0.95 $0.90 $0.65

per square foot per square foot per square foot

Allocated at $1.05

per square foot

What is the total relevant cost associated with the special order? A) $25,275 B) $8,600 C) $25,275 D) $5,100

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47) Carpet, Incorporated, installs carpet for commercial customers. The company is presently operating at less than capacity. The company received an order from a potential customer outside the company's normal geographic region for a price of $9,500. The size of the proposed job is 10,000 square feet. The company's normal service costs are as follows: Unit-level materials Unit-level labor Unit-level variable overhead Facility-level overhead

$0.40 $0.35 $0.10

per square foot per square foot per square foot

Allocated at $0.50

per square foot

What is the total relevant cost associated with the special order? A) $4,000 B) $7,500 C) $8,500 D) $13,500

48) The Mighty Music Company produces and sells a desktop speaker for $350. The company has the capacity to produce 75,000 speakers each period. At capacity, the costs assigned to each unit are as follows: Unit-level costs Product-level costs Facility-level costs

$170 $40 $30

The company has received a special order for 26,000 speakers. If this order is accepted, the company will have to spend $35,000 on additional costs. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order? A) $181.85 B) $221.35 C) $178.85 D) $171.35

49) The Mighty Music Company produces and sells a desktop speaker for $100. The company has the capacity to produce 50,000 speakers each period. At capacity, the costs assigned to each unit are as follows:

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Unit-level costs Product-level costs Facility-level costs

$45 $15 $5

The company has received a special order for 500 speakers. If this order is accepted, the company will have to spend $15,000 on additional costs. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order? A) $95 B) $45 C) $75 D) $60

50) Finn Flying Company produces and sells kites for $48. The company has the capacity to produce 10,300 kites each period. At capacity, the costs assigned to each unit are as follows: Unit-level costs Product-level costs Facility-level costs

$28 $13 $8

The company has received a special order for 215 kites. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order? A) $55 B) $45 C) $28 D) $50

51) Finn Flying Company produces and sells kites for $45. The company has the capacity to produce 10,000 kites each period. At capacity, the costs assigned to each unit are as follows: Unit-level costs Product-level costs Facility-level costs

$25 $10 $5

The company has received a special order for 200 kites. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order?

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A) $25 B) $35 C) $40 D) $30

52) Sun Company manufactures sunscreen and normally sells it for $10 per bottle. Sun’s unitlevel cost is $2 per bottle and its fixed cost is $72,000 per year. A makeup company has offered to purchase 11,200 bottles of sunscreen from Sun Company for $7 per bottle. Based on this information, what is the total relevant cost of the special order? A) $22,400 B) $50,000 C) $80,000 D) $60,000

53) Sun Company manufactures sunscreen and normally sells it for $10 per bottle. Sun’s unitlevel cost is $2 per bottle and its fixed cost is $60,000 per year. A makeup company has offered to purchase 10,000 bottles of sunscreen from Sun Company for $7 per bottle. Based on this information, what is the total relevant cost of the special order? A) $20,000 B) $60,000 C) $80,000 D) $50,000

54) Kat Company produces animal carriers. Kat has capacity for 50,800 units a year but is only producing and selling 30,800 units a year. The carrier’s normal price is $66 per unit. The unit-level costs are $13 for direct materials and $14 for direct labor. The total product- and facility-level costs are $408,000 and $158,000. Assume Kat receives a special order to sell 20,800 carriers at $38 per carrier. Should Kat accept?

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A) Yes, the special order will increase profit by $228,800 B) No, the special order will decrease profit by $20,800 C) No, the special order will decrease profit by $170,800 D) Yes, the special order will increase profit by $504,000

55) Kat Company produces animal carriers. Kat has capacity for 50,000 units a year but is only producing and selling 30,000 units a year. The carrier’s normal price is $50 per unit. The unit-level costs are $5 for direct materials and $6 for direct labor. The total product- and facilitylevel costs are $400,000 and $150,000. Assume Kat receives a special order to sell 20,000 carriers at $30 per carrier. Should Kat accept? A) Yes, the special order will increase profit by $500,000 B) Yes, the special order will increase profit by $380,000 C) No, the special order will decrease profit by $20,000 D) No, the special order will decrease profit by $170,000

56) Sienna Company produces surfboards. A customer has offered Sienna $436 a unit for 136 units. To fill the special order, Sienna would incur unit-level costs of $386 per unit and batchlevel costs of $7,300. Sienna also incurred $71,800 of product-level costs to design the board and $11,800 of facility-level costs. Based on your quantitative analysis, should Sienna Company accept the special order? A) Yes, differential revenue is $14,000 greater than differential costs. B) Yes, differential revenue is $680 greater than differential costs. C) No, differential revenue is $6,800 less than differential costs. D) No, differential revenue is $500 less than differential costs.

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57) Sienna Company produces surfboards. A customer has offered Sienna $400 a unit for 100 units. To fill the special order, Sienna would incur unit-level costs of $350 per unit and batchlevel costs of $5,500. Sienna also incurred $70,000 of product-level costs to design the board and $10,000 of facility-level costs. Based on your quantitative analysis, should Sienna Company accept the special order? A) Yes, differential revenue is $5,000 greater than differential costs. B) Yes, differential revenue is $500 greater than differential costs. C) No, differential revenue is $5,000 less than differential costs. D) No, differential revenue is $500 less than differential costs.

58) Oliver produces e-bikes. A customer has offered Oliver $1,038 per unit for 238 units. To fill the order, Oliver would incur unit-level costs of $638 per unit and batch-level costs of $6,900. Oliver also incurred $61,900 of product-level costs to design the board and $21,900 of facility-level costs. What is the amount of differential revenue? A) $76,900 B) $247,044 C) $16,900 D) $109,500

59) Oliver produces e-bikes. A customer has offered Oliver $1,000 per unit for 200 units. To fill the order, Oliver would incur unit-level costs of $600 per unit and batch-level costs of $5,000. Oliver also incurred $60,000 of product-level costs to design the board and $20,000 of facility-level costs. What is the amount of differential revenue? A) $100,000 B) $200,000 C) $15,000 D) $75,000

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60) Benitez Company currently outsources a relay switch that is a component in one of its products. The switches cost $24 each. The company is considering making the switches internally at the following projected annual production costs: Unit-level material cost Unit-level labor cost Unit-level overhead Batch-level set-up cost (7,000 units per batch) Product-level supervisory salaries Allocated facility-level costs

$5 $4 $3 $33,000 $41,500 $28,000

The company expects an annual need for 7,000 switches. If the company makes the product, it will have to utilize factory space currently being leased to another company for $2,300 a month. If the company decides to make the parts, total costs will be: A) $18,100 more than if the switches are purchased. B) $23,400 less than if the switches are purchased. C) $28,000 less than if the switches are purchased. D) $46,100 more than if the switches are purchased.

61) Benitez Company currently outsources a relay switch that is a component in one of its products. The switches cost $20 each. The company is considering making the switches internally at the following projected annual production costs: Unit-level material cost Unit-level labor cost Unit-level overhead Batch-level set-up cost (5,000 units per batch) Product-level supervisory salaries Allocated facility-level costs

$3 $2 $1 $25,000 $37,500 $20,000

The company expects an annual need for 5,000 switches. If the company makes the product, it will have to utilize factory space currently being leased to another company for $1,500 a month. If the company decides to make the parts, total costs will be: A) $10,500 more than if the switches are purchased. B) $27,000 less than if the switches are purchased. C) $20,000 less than if the switches are purchased. D) $30,500 more than if the switches are purchased.

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62) Safety Products currently outsources an electrical switch that is a component in its sprinkler systems. The switches are purchased for $41 each. The company is considering making the switches internally and has conducted a study to determine the costs involved. The costs below are projected annual production costs: Unit-level material cost Unit-level labor cost Unit-level overhead Batch-level cost (5,000 units per batch) Product-level supervisory salaries Allocated facility-level costs

$9 $8 $7 $11,000 $40,500 $26,000

Assume that the company needs 10,000 of the switches, which would be produced in two batches. Assume also that the company will still be operating within the relevant range. If Safety decides to make the parts under these conditions, the total relevant costs will be: A) $302,500. B) $328,500. C) $317,500. D) $291,500.

63) Safety Products currently outsources an electrical switch that is a component in its sprinkler systems. The switches are purchased for $20 each. The company is considering making the switches internally and has conducted a study to determine the costs involved. The costs below are projected annual production costs: Unit-level material cost Unit-level labor cost Unit-level overhead Batch-level cost (5,000 units per batch) Product-level supervisory salaries Allocated facility-level costs

$3 $2 $1 $5,000 $37,500 $20,000

Assume that the company needs 15,000 of the switches, which would be produced in three batches. Assume also that the company will still be operating within the relevant range. If Safety decides to make the parts under these conditions, the total relevant costs will be:

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A) $132,500. B) $162,500. C) $105,000. D) $142,500.

64) Jose Company produces athletic equipment and is currently producing 10,500 weight benches annually. A supplier has offered to produce the bench for Jose Company for $510 per bench. Jose Company incurs unit-level costs of $460 per unit. Jose also spends $60,500 on product design each year and incurs $80,500 of facility-level costs. Calculate the avoidable production cost for Jose Company to produce 1 bench. A) $500 B) $500 C) $474 D) $466

65) Jose Company produces athletic equipment and is currently producing 10,000 weight benches annually. A supplier has offered to produce the bench for Jose Company for $500 per bench. Jose Company incurs unit-level costs of $450 per unit. Jose also spends $60,000 on product design each year and incurs $80,000 of facility-level costs. Calculate the avoidable production cost for Jose Company to produce 1 bench. A) $450 B) $456 C) $464 D) $490

66) Asli produces winter coats and is currently producing 10,300 luxury coats annually. A supplier has offered to manufacture the luxury coats for Asli for $206 per coat. Asli incurs unitlevel costs of $106 per unit. Asli also spends $140,300 on product design each year and incurs $60,300 of facility-level costs. Based on your quantitative analysis, should Asli Company outsource the luxury coats? Version 1

A) No, outsourcing will decrease profit by $889,700 B) No, outsourcing will decrease profit by $1,001,500 C) Yes, outsourcing will increase profit by $889,700 D) Yes, outsourcing will increase profit by $1,001,500

67) Asli produces winter coats and is currently producing 10,000 luxury coats annually. A supplier has offered to manufacture the luxury coats for Asli for $200 per coat. Asli incurs unitlevel costs of $100 per unit. Asli also spends $140,000 on product design each year and incurs $60,000 of facility-level costs. Based on your quantitative analysis, should Asli Company outsource the luxury coats? A) No, outsourcing will decrease profit by $1,000,000 B) No, outsourcing will decrease profit by $860,000 C) Yes, outsourcing will increase profit by $1,000,000 D) Yes, outsourcing will increase profit by $860,000

68) Hugo Corporation makes and sells snowmobiles. Hugo currently makes the 7,200 wheels used in its snowmobiles but can purchase wheels from a reliable manufacturer for the following annual costs. Materials (7,200 units × $92) Labor (7,200 units × $52) Depreciation on equipment Salary of production supervisor Rental cost of equipment to make wheels Allocated portion of corporate level facility costs Total cost to make wheels

$662,400 374,400 49,200 131,200 51,200 78,000 $1,346,400

What is the maximum amount Hugo would be willing to pay for the wheels? A) $180 B) $235 C) $229 D) $169

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69) Hugo Corporation makes and sells snowmobiles. Hugo currently makes the 6,000 wheels used in its snowmobiles but can purchase wheels from a reliable manufacturer for the following annual costs. Materials (6,000 units × $80) Labor (6,000 units × $40) Depreciation on equipment Salary of production supervisor Rental cost of equipment to make wheels Allocated portion of corporate level facility costs Total cost to make wheels

$480,000 240,000 48,000 130,000 50,000 66,000 $1,014,000

What is the maximum amount Hugo would be willing to pay for the wheels? A) $169 B) $150 C) $175 D) $120

70) All of the following are variables that could be considered in a decision to outsource a component that is currently being produced in-house. Which of the following isnot likely to be relevant?

A) The impact on employee morale B) The book value of equipment used in making the component C) The importance of vertical integration to the company D) The reliability of the supplier

71) ServicePro provides two kinds of services. During the most recent accounting period, the two service lines produced the following operating results: Service 1 Service revenue Unit-level materials Unit-level labor

Version 1

$110,000 $(26,000) $(36,000)

Service 2 $40,000 $(8,000) $(20,000)

Product-level selling & administrative costs Companywide facility-level costs Net income

$(16,000)

$(9,500)

$(4,000)

$28,000

$(1,500)

If the company stops providing Service 2: A) The company's income will decrease by $3,500 per year. B) The company's income will increase by $2,500 per year. C) The company's income will increase by $3,500 per year. D) The company's income will decrease by $2,500 per year.

72) ServicePro provides two kinds of services. During the most recent accounting period, the two service lines produced the following operating results: Service 1 Service revenue Unit-level materials Unit-level labor Product-level selling & administrative costs Companywide facility-level costs Net income

Service 2

$80,000 $(20,000) $(30,000) $(10,000)

$20,000 $(2,000) $(14,000) $(2,500)

$(5,000)

$15,000

$(3,500)

If the company stops providing Service 2: A) The company's income will decrease by $1,500 per year. B) The company's income will increase by $1,500 per year. C) The company's income will decrease by $3,500 per year. D) The company's income will increase by $3,500 per year.

73) The Mansfield Company manufactures and sells two lines of fishing rods. During the most recent accounting period, the Pro line and the Novice line sold 18,800 and 5,800 units, respectively. The company's most recent financial statements are shown below: Sales

Version 1

Pro

Novice

$1,128,000

$696,000

Less cost of goods sold: Unit-level production cost Depreciation, production equipment Gross margin Less operating expenses: Unit-level selling and administrative costs Corporate-level facility expenses (fixed) Net income (loss)

752,000 182,000

391,500 145,000

$194,000

$159,500

49,500 45,120

188,500 45,120

$99,380

$(74,120)

Based on this information, the company should: A) Eliminate the Novice line because it is operating at a loss. B) It is impossible to determine with the given information. C) Keep the Novice line because it contributes $159,500 to total profitability. D) Keep the Novice line because it contributes $116,000 to total profitability.

74) The Mansfield Company manufactures and sells two lines of fishing rods. During the most recent accounting period, the Pro line and the Novice line sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below: Sales Less cost of goods sold: Unit-level production cost Depreciation, production equipment Gross margin Less operating expenses: Unit-level selling and administrative costs Corporate-level facility expenses (fixed) Net income (loss)

Pro

Novice

$900,000

$240,000

600,000 125,000

135,000 50,000

$175,000

$55,000

40,000 36,000

65,000 36,000

$99,000

$(46,000)

Based on this information, the company should:

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A) Eliminate the Novice line because it is operating at a loss. B) Keep the Novice line because it contributes $40,000 to total profitability. C) Keep the Novice line because it contributes $55,000 to total profitability. D) It is impossible to determine with the given information.

75) Hancock Company manufactures and sells two lines of furniture, case goods and upholstery. During the most recent accounting period, the Case Goods and Upholstery Divisions sold 17,800 and 2,420 units, respectively. The company's most recent financial statements are shown below: Case Goods Sales Less cost of goods sold: Unit-level production cost Depreciation, production equipment Gross margin Less operating expenses: Unit-level selling and administrative costs Corporate-level facility expenses (fixed) Net income (loss)

Upholstery

$1,894,000

$484,000

1,182,000 282,000

290,400 72,600

$430,000

$121,000

71,200

60,500

66,000

$292,800

$(5,500)

If unit sales for both divisions increased 10%, the company would report which of the following? Note: Do not round intermediate calculations. A) A net income for the Upholstery Division of $7,810 B) A 10% increase in total net income of the company C) A $66,000 increase in net income for the Upholstery Division D) A decline in profit for the Upholstery Division

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76) Hancock Company manufactures and sells two lines of furniture, case goods and upholstery. During the most recent accounting period, the Case Goods and Upholstery Divisions sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below: Case Goods Sales Less cost of goods sold: Unit-level production cost Depreciation, production equipment Gross margin Less operating expenses: Unit-level selling and administrative costs Corporate-level facility expenses (fixed) Net income (loss)

Upholstery

$1,600,000

$400,000

1,000,000 240,000

240,000 60,000

$360,000

$100,000

60,000

50,000

52,000

$248,000

$(2,000)

If unit sales for both divisions increased 10%, the company would report which of the following? Note: Do not round intermediate calculations. A) A $52,000 increase in net income for the Upholstery Division B) A 10% increase in total net income of the company C) A decline in profit for the Upholstery Division. D) A net income for the Upholstery Division of $9,000

77) West Company has three segments: Tennis, Golf, and Fishing. The Tennis segment is currently producing 2,150 units annually. The units sell for $450 each. The cost of each unit West produces is $140. The Tennis segment spends $101,500 on product design each year. The segment also is allocated $201,500 of annual facility-level costs. What is the differential revenue if West Company were to eliminate the Tennis segment? A) $221,500 B) $387,500 C) $967,500 D) $187,500

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78) West Company has three segments: Tennis, Golf, and Fishing. The Tennis segment is currently producing 2,000 units annually. The units sell for $300 each. The cost of each unit West produces is $110. The Tennis segment spends $100,000 on product design each year. The segment also is allocated $200,000 of annual facility-level costs. What is the differential revenue if West Company were to eliminate the Tennis segment? A) $180,000 B) $380,000 C) $220,000 D) $600,000

79) Peru Company has three segments: Slides, Swings, and Lighting. The Slides segment is currently producing 10,200 units annually. The units sell for $300 each. The cost of each unit is $130. The Slides segment spends $87,000 on product design each year. The segment also is allocated $102,000 of annual facility-level costs. Calculate the avoidable cost if Peru Company were to eliminate the Slides segment. A) $1,413,000 B) $1,087,000 C) $1,002,000 D) $1,326,000

80) Peru Company has three segments: Slides, Swings, and Lighting. The Slides segment is currently producing 10,000 units annually. The units sell for $100 each. The cost of each unit is $90. The Slides segment spends $85,000 on product design each year. The segment also is allocated $100,000 of annual facility-level costs. Calculate the avoidable cost if Peru Company were to eliminate the Slides segment. A) $900,000 B) $985,000 C) $1,085,000 D) $1,000,000

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81) Based on the segment income statement below, Chips, Incorporated is considering eliminating its Barbecue Division line. Revenue from Barbecue Division sales Salaries for Barbecue Division workers Direct material Sunk costs (equipment depreciation) Allocated company-wide facility-sustaining costs Net loss

$540,000 (140,000) (360,000) (85,000) (70,000) $(115,000)

If the Division is eliminated, what is the total amount of avoidable cost? A) $610,000. B) $555,000. C) $500,000. D) $585,000.

82) Based on the segment income statement below, Chips, Incorporated is considering eliminating its Barbecue Division line. Revenue from Barbecue Division sales Salaries for Barbecue Division workers Direct material Sunk costs (equipment depreciation) Allocated company-wide facility-sustaining costs

$538,000 (138,000) (357,000) (84,500) (69,000)

Net loss

$(110,500)

If Barbecue Division were eliminated, profitability would A) increase $553,500. B) increase $15,500. C) decrease $43,000. D) decrease $15,500.

83)

A condensed income statement for Gilbert, Incorporated follows:

Products Sales (total)

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F $255,000

G $185,500

H $375,000

Total $815,500

Total Unit-Level Costs

(142,000)

(161,100)

(211,000)

(514,100)

Contribution Margin Company-Wide FacilityLevel Costs

113,000 (26,100)

24,400 (31,100)

164,000 (51,000)

301,400 (108,200)

Income (Loss)

$86,900

$(6,700)

$113,000

$193,200

Gilbert's management is considering whether to eliminate manufacturing product G at the beginning of the next year. The elimination will have no effect on the sales or unit-level costs of products F and H. The change in income that would result from eliminating product G is A) $31,100 increase B) $24,400 decrease C) $6,700 increase D) $6,700 decrease

84) Mountain Gear has been using the same machines to make its name-brand clothing for the last five years. A cost efficiency consultant has suggested that production costs may be reduced by purchasing more technologically advanced machinery. The old machines cost the company $240,000. The old machines presently have a book value of $124,000 and a market value of $16,000. They are expected to have a five-year remaining life and zero salvage value. The new machines would cost the company $140,000 and have operating expenses of $19,000 a year. The new machines are expected to have a five-year useful life and no salvage value. The operating expenses associated with the old machines are $34,000 a year. The new machines are expected to increase quality, justifying a price increase and thereby increasing sales revenue by $14,000 a year. Select the true statement.

A) The company will be $32,000 better off over the 5 year period if it replaces the old equipment. B) The company will be $21,000 better off over the 5 year period if it replaces the old equipment. C) The company will be $48,000 better off over the 5 year period if it keeps the old equipment. D) The company will be $16,000 better off over the 5 year period if it replaces the old equipment.

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85) Mountain Gear has been using the same machines to make its name-brand clothing for the last five years. A cost efficiency consultant has suggested that production costs may be reduced by purchasing more technologically advanced machinery. The old machines cost the company $100,000. The old machines presently have a book value of $60,000 and a market value of $6,000. They are expected to have a five-year remaining life and zero salvage value. The new machines would cost the company $50,000 and have operating expenses of $9,000 a year. The new machines are expected to have a five-year useful life and no salvage value. The operating expenses associated with the old machines are $15,000 a year. The new machines are expected to increase quality, justifying a price increase and thereby increasing sales revenue by $5,000 a year. Select the true statement.

A) The company will be $11,000 better off over the five-year period if it replaces the old equipment. B) The company will be $20,000 better off over the five-year period if it keeps the old equipment. C) The company will be $12,000 better off over the five-year period if it replaces the old equipment. D) The company will be $6,000 better off over the five-year period if it replaces the old equipment.

86) Kendra Company is considering replacing an old machine. The old machine was purchased for $101,800 and has a book value of $41,800 and should last four more years with no salvage value. The company believes that it could currently sell the old machine for $21,800. The new machine cost $81,800 and will have a 4-year life and a $11,800 salvage value. Currently, it costs $21,800 annually to operate the old machine. The new machine is more efficient and should reduce operating cost by 50%. Based on quantitative analysis, should Kendra Company replace the old machine? A) No, because the relevant cost of the new machine is $21,800 more than the old machine. B) Yes, because the relevant cost of the new machine is $8,200 less than the old machine. C) No, because the relevant cost of the new machine is $4,600 more than the old machine. D) Yes, because the relevant cost of the new machine is $18,200 less than the old machine.

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87) Kendra Company is considering replacing an old machine. The old machine was purchased for $100,000 and has a book value of $40,000 and should last four more years with no salvage value. The company believes that it could currently sell the old machine for $20,000. The new machine cost $80,000 and will have a 4-year life and a $10,000 salvage value. Currently, it cost $20,000 annually to operate the old machine. The new machine is more efficient and should reduce operating cost by 50%. Based on quantitative analysis, should Kendra Company replace the old machine? A) Yes, because the relevant cost of the new machine is $10,000 less than the old machine. B) No, because the relevant cost of the new machine is $10,000 more than the old machine. C) Yes, because the relevant cost of the new machine is $20,000 less than the old machine. D) No, because the relevant cost of the new machine is $20,000 more than the old machine.

88) Oliver Company owns a machine with a current book value of $71,800. The market value of the machine is $31,800. The operating expenses are $10,800. Oliver is evaluating whether to sell the machine for $21,800 and purchase a new machine that will have lower operating expenses. In this scenario, what is the sunk cost related to Oliver's decision? A) $31,800 B) $21,800 C) $41,800 D) $71,800

89) Oliver Company owns a machine with a current book value of $70,000. The market value of the machine is $30,000. The operating expenses are $9,000. Oliver is evaluating whether to sell the machine for $20,000 and purchase a new machine that will have lower operating expenses. In this scenario, what is the sunk cost related to Oliver's decision?

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A) $70,000 B) $30,000 C) $40,000 D) $20,000

90) In the short run, asset replacement decisions often result in lower reported profits in the period of replacement. Which of the following doesnot 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.

91) A manager refuses to replace an existing asset even though an extensive analysis indicates that replacement is desirable. One possible explanation for the manager's action is that:

A) A financial loss may be reported in the current period if the asset is replaced. B) The manager is concerned that his or her superior may think that the original asset purchase was a mistake on the part of the manager. C) The manager expects to be promoted or transferred in the near future and is concerned primarily about short-term performance. D) All of these choices are correct.

92)

Which of the following is a way to relax a constraint or bottleneck?

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A) Have employees work overtime. B) Install faster machinery. C) Train workers to improve productivity. D) All of these choices are correct.

93) The management practice that increases profitability through the management of bottlenecks is known as:

A) the theory of constraints. B) the theory of restraints. C) the materiality principle. D) total quality management.

94)

The best objective when faced with limited resources is to maximize:

A) the gross profit per unit of the constraining resource. B) the contribution margin per unit of the constraining resource. C) production of the product with the highest selling price. D) production of the product with the highest customer demand.

95)

Farris Company reported the following information for its two products: Product X

Selling price per unit Variable cost per unit

$110 66

Product Y $120 54

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A) Product X should be produced and sold because it has a lower cost than Product Y. B) Product Y should be produced and sold because it provides a higher contribution margin per unit than Product X. C) Product X should be produced and sold because it provides a higher contribution margin per labor hour than Product Y. D) Product Y should be produced and sold because it provides more revenue than Product X.

96)

Farris Company reported the following information for its two products: Product X

Selling price per unit Variable cost per unit

$25 15

Product Y $35 20

Due to labor constraints, demand for each of the products is greater than its supply. Product X requires one hour of labor to produce and Product Y requires three hours of labor to produce. Which of the following statements is true? A) Product X should be produced and sold because it has a lower cost than Product Y. B) Product X should be produced and sold because it provides a higher contribution margin per labor hour than Product Y. C) Product Y should be produced and sold because it provides a higher contribution margin per unit than Product X. D) Product Y should be produced and sold because it provides more revenue than Product X.

97)

Omega Company reported the following information for the company's two products: Product X

Selling price per unit Variable cost per unit

$ 40 22

Product Y $ 30 18

Assume that 75,200 machine hours are available; Product X takes four machine hours to produce, and Product Y takes two machine hours to produce. The company can sell all it can make of either product. Which of the following statements is true?

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A) Product Y should be produced because more of it can be produced. B) Both products provide the same total profit. C) Product Y should be produced because it will produce greater total profit. D) Product X should be produced because it provides a greater contribution margin.

98)

Omega Company reported the following information for the company's two products: Product X

Selling price per unit Variable cost per unit

Product Y

$35 20

$25 15

Assume that 75,000 machine hours are available; Product X takes four machine hours to produce, and Product Y takes two machine hours to produce. The company can sell all it can make of either product. Which of the following statements is true? A) Product Y should be produced because more of it can be produced. B) Product Y should be produced because it will produce greater total profit. C) Product X should be produced because it provides a greater contribution margin. D) Both products provide the same total profit.

99)

The following information is provided for two products: Product X

Selling price per unit Variable cost per unit

$70 34

Product Y $60 30

Assume the products will be sold in a store where shelf space is a scarce resource and there is sufficient room for only one of the two products. Expected sales for Product X are 7,400 units, and expected sales for Product Y are 9,400 units. Which product should be sold and why? A) Product X should be sold because sales of this product will provide a greater profit. B) Product Y should be sold solely because the expected demand for this product is greater than the expected demand for Product X. C) Product Y should be sold because sales of this product will provide a greater profit. D) Product X should be sold solely because the sales price for this product is greater than the sales price for Product Y.

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100)

The following information is provided for two products: Product X

Selling price per unit Variable cost per unit

$35 20

Product Y $25 15

Assume the products will be sold in a store where shelf space is a scarce resource and there is sufficient room for only one of the two products. Expected sales for Product X are 6,000 units, and expected sales for Product Y are 8,000 units. Which product should be sold and why? A) Product Y should be sold solely because the expected demand for this product is greater than the expected demand for Product X. B) Product Y should be sold because sales of this product will provide a greater profit. C) Product X should be sold solely because the sales price for this product is greater than the sales price for Product Y. D) Product X should be sold because sales of this product will provide a greater profit.

101) Clairnex Company produces two products with selling price and variable cost per unit as follows: Product A Selling price per unit Variable cost per unit

$110 60

Product B $145 115

Due to labor constraints, demand for the products is greater than supply. Product A requires 2 hours of labor to produce and Product B requires 5 hours of labor to produce. Based on this information Clairnex should hire additional labor if the labor rate for Product A is A) $49 per hour. B) $74 per hour. C) $24 per hour. D) None of these choices are correct.

102)

Sunk costs:

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A) are not considered when evaluating new proposals. B) differ among the alternatives. C) impact the future. D) are relevant.

103) Jack currently works for a law firm full time and earns $60,000 a year. He is thinking of quitting his job to pursue a medical degree. Medical school will cost him $100,000 per year. If Jack quits his job and goes to medical school, the salary he currently earns would be considered what type of cost? A) Irrelevant cost B) Sunk cost C) Opportunity cost D) Fixed cost

104) Outdoor Living Company has just received a special order for 500 hammocks. Outdoor Living has sufficient idle capacity to accept the order. Accepting the order will increase Outdoor Living's variable manufacturing costs. Which type of cost is considered a sunk cost to Outdoor Living's decision whether to accept or reject the special order?

A) Raw materials to make the 500 hammocks B) Labor cost to make the 500 hammocks C) Depreciation on equipment that would be used to make the hammocks D) Materials handling cost

105) Outdoor Living Company has just received a special order for 500 hammocks. Outdoor Living has sufficient idle capacity to accept the order. Accepting the order will increase Outdoor Living's total variable manufacturing costs. Which type of cost is considered relevant to Outdoor Living's decision whether to accept or reject the special order?

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A) Raw materials to make the 500 hammocks B) Company president's salary C) Salary of the production manager D) Depreciation on equipment that would be used to make the hammocks

106) Outdoor Living Company has just received a special order for 500 hammocks. Outdoor Living has sufficient idle capacity to accept the order. Accepting the order will increase Outdoor Living's variable manufacturing costs. Variable selling and administrative costs would be unaffected. What is the minimum price that Outdoor Living should accept for the special order?

A) A price equivalent to the hammock's variable manufacturing cost per unit B) A price equivalent to the hammock's unit contribution margin C) The same price that Outdoor Living charges its existing customers D) None of these choices are correct.

107)

When evaluating alternatives, what type of costs should be considered?

A) Relevant costs B) Sunk costs C) Prevention costs D) Fixed costs

108)

Special order decisions involve:

A) An offer to sell goods at a price that is higher than normal. B) Buying goods from other companies rather than making them internally. C) An offer from a customer to buy goods at a lower-than-normal selling price. D) None of these choices are correct.

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109)

Which of the following statements isincorrect?

A) An outsourcing decision typically affects only product-level costs. B) Accepting a special order will involve incurring unit-level costs. C) Eliminating a business segment often allows a company to avoid some facility-level costs. D) Facility-level costs generally are not relevant in special order decisions.

110) Gibbs Corporation makes indoor gas fireplaces. A standard fireplace includes unit-level materials, labor, and overhead costs. In addition, the company incurs product-level engineering and advertising costs. The sales staff is paid a 5% commission on each fireplace sold. A sales representative has been in contact with a building developer who wants to buy 20 fireplaces only if he can buy them at an amount lower than Gibbs’s normal selling price. Which of the following costs would be relevant to this special order decision?

A) The sales commissions B) The product-level engineering and advertising costs C) The unit-level materials, labor, and overhead D) All of these choices are correct.

111)

Which of the following statements isincorrect?

A) When faced with multiple demands on constrained resources, managers should choose the product that provides the highest unit contribution margin. B) Constraints are limitations on a company's ability to satisfy demands for its products. C) Constraints are also referred to as bottlenecks. D) Managers seek to minimize the impact of bottlenecks on the operations of a business.

112)

Which of the following is a true statement regarding product-level costs?

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A) Product-level costs are only relevant to a decision when adding a product to a company's product line. B) Product-level costs are generally relevant to outsourcing decisions. C) Product-level costs are generally relevant to special order decisions. D) Product-level costs are incurred to support the entire company.

113) Harcourt Manufacturing (HM) has the capacity to produce 14,000 fax machines per year. HM currently produces and sells 9,000 units per year. The fax machines normally sell for $300 each. Modem Products has offered to buy 4,000 fax machines from HM for $160 each. Unitlevel costs associated with manufacturing the fax machines are $55 each for direct labor and $80 each for direct materials. Product-level and facility-level costs are $70,000 and $85,000, respectively. How much would profit increase (decrease) if HM accepted this special order? A) $(544,000) B) $544,000 C) $(100,000) D) $100,000

114) Harcourt Manufacturing (HM) has the capacity to produce 12,800 fax machines per year. HM currently produces and sells 8,400 units per year. HM currently leases its excess capacity for a rental fee of $66,500. The fax machines normally sell for $240 each. Modem Products has offered to buy 3,400 fax machines from HM for $130 each. Unit-level costs associated with manufacturing the fax machines are $43 each for direct labor and $68 each for direct materials. Product-level and facility-level costs are $64,000 and $79,000, respectively. Based on this information (ignore qualitative characteristics) A) HM should reject the offer because accepting it will reduce profitability by $12,800. B) HM should accept the offer because accepting it will contribute $12,800 to profit. C) HM should reject the offer because accepting it will reduce profitability by $1,900. D) HM should accept the offer because accepting it will contribute $66,500 to profit.

115)

All of the following are examples of product-level costsexcept:

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A) product inspection costs. B) property and real estate taxes costs. C) engineering design costs. D) patent costs.

116) Easton Company makes and sells scooters. Easton incurred the following costs in its most recent fiscal year: Cost Items Appearing on the Income Statement Materials cost ($10 per unit)

Depreciation on manufacturing equipment

Company president's salary

Salaries of administrative personnel

Labor cost ($4 per unit)

Research and development costs

Advertising costs (150,000 per year)

Real estate taxes on factory

Shipping and handling ($0.15 per unit)

Inspection costs

Easton can currently purchase the scooters it makes from another company. If the company purchases the scooters, Easton would still continue to use its own logo, sales staff, and advertising programs. Which of the following costs would be classified as a unit-level cost? A) Company president's salary B) Depreciation on manufacturing equipment C) Materials cost D) Real estate taxes on factory

117) Easton Company makes and sells scooters. Easton incurred the following costs in its most recent fiscal year: Cost Items Appearing on the Income Statement Materials cost ($10 per unit)

Depreciation on manufacturing equipment

Company president's salary

Salaries of administrative personnel

Labor cost ($4 per unit)

Research and development costs

Advertising costs (150,000 per year)

Real estate taxes on factory

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Shipping and handling ($0.15 per unit)

Inspection costs

Easton can currently purchase the scooters it makes from another company. If the company purchases the scooters, Easton would still continue to use its own logo, sales staff, and advertising programs. Which of the following costs would be classified as a facility-level cost? A) Inspection costs B) Shipping and handling C) Materials cost D) Company president's salary

118) Easton Company makes and sells scooters. Easton incurred the following costs in its most recent fiscal year: Cost Items Appearing on the Income Statement Materials cost ($10 per unit)

Depreciation on manufacturing equipment

Company president's salary

Salaries of administrative personnel

Labor cost ($4 per unit)

Research and development costs

Advertising costs (150,000 per year)

Real estate taxes on factory

Shipping and handling ($500 per year)

Inspection costs

Easton can currently purchase the scooters it makes from Weston Company. If the company purchases the scooters, Easton would still continue to use its own logo, sales staff, and advertising programs. If Easton outsources the scooters to Weston, which of the following costs would be relevant to the outsourcing decision? A) Materials cost B) Labor cost C) Inspection costs D) All of these choices are correct.

119)

Which of the following statements is true?

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A) Outsourcing decreases the extent of a company's vertical integration. B) Reputation of the supplier is a critical issue in an outsourcing decision. C) An outsourcing decision involves a purchase offer from a customer at a lower than normal selling price. D) Outsourcing decreases the extent of a company's vertical integration and the reputation of the supplier is a critical issue in an outsourcing decision.

120)

Asset replacement decisions involve:

A) Choices between continuing to use existing materials or replacing them with less expensive materials. B) Choices between closing down or continuing to operate a segment of a business. C) Choices between continuing to operate existing equipment or replacing it with new equipment. D) None of these choices are correct.

121)

Which costs are relevant for equipment replacement decisions?

A) Unit-level costs B) Batch-level costs C) Product-level costs D) All of these choices are correct.

122) Breezy Company is disposing of equipment that was originally purchased for $520,000 and has $142,000 of accumulated depreciation to date. The same equipment would cost $640,000 to replace. What is the total amount of sunk cost in this decision?

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A) $520,000 B) $142,000 C) $640,000 D) $378,000

123) Breezy Company is disposing of equipment that was originally purchased for $600,000 and has $240,000 of accumulated depreciation to date. The same equipment would cost $800,000 to replace. What is the total amount of sunk cost in this decision?

A) $240,000 B) $360,000 C) $840,000 D) $800,000

124) Jason Company is considering replacing equipment which originally cost $750,000. New equipment costs $650,000 and the old equipment can be sold for $475,000. What is the sunk cost in this situation? A) $275,000 B) $475,000 C) $650,000 D) $750,000

125) Max bought a ticket to the championship baseball game for $85. Someone approaches him outside the stadium and offers him $195 for his ticket. If Max decides to go to the game instead of selling his ticket, how much does it cost Max to go to the game?

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A) $195 B) $110 C) $85 D) None of these choices are correct.

126) Max bought a ticket to the championship baseball game for $75. Someone approaches him outside the stadium and offers him $175 for his ticket. If Max decides to go to the game instead of selling his ticket, how much does it cost Max to go to the game?

A) $75 B) $100 C) $175 D) None of these choices are correct.

127) Pilot Motors Corporation is an automobile manufacturer. The company produces its own motors, tires, and other automobile parts. Pilot has the opportunity to purchase tires from another manufacturer instead of producing the tires in its own facility. This type of decision is typically known as a(n):

A) outsourcing decision. B) special order decision. C) segment elimination decision. D) asset replacement decision.

128) Tom's Toolery is operating at 70% of its productive capacity. It is currently paying $14 per unit for a part used in its manufacturing operation. Tom's estimates it could make the part internally for a total cost of $15 per unit, consisting of $10 of unit-level production costs and $5 of facility-level costs that are currently attributed to other products. Tom's usually purchases 69,000 units of the part each year. These units could be manufactured using Tom's excess capacity. What is the effect on cost if the company decides to start making the part?

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A) $276,000 cost increase B) $1,380,000 cost increase C) $276,000 cost decrease D) $138,000 cost increase

129) U-RIDE, Incorporated currently produces the electric engines that are used in golf carts made and sold by the company. Electco has offered to sell the electric engines to U-RIDE at a price of $319 each. Current production information follows: Unit-level material and labor Facility-level depreciation of manufacturing equipment Product-level engine production supervisor's salary Annual facility-level utilities

$260 $6,700 /month $3,700 /month $23,500

U-RIDE is currently operating profitably producing and selling 3,700 engines a year using 70% of its manufacturing capacity. Which of the following is true? A) U-RIDE should make the engines for cost savings of $59 per unit. B) U-RIDE has avoidable costs of greater than $319 per unit and should therefore buy the engines. C) Buying the units would increase U-RIDE's cost by $47 per unit. D) Buying the units would increase profitability by $106 per unit.

130) U-RIDE, Incorporated currently produces the electric engines that are used in golf carts made and sold by the company. Electco has offered to sell the electric engines to U-RIDE at a price of $277 each. Current production information follows: Unit-level material and labor Facility-level depreciation of manufacturing equipment Product-level engine production supervisor's salary Annual facility-level utilities

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$230 $6,100 /month $3,100 /month $20,500

Buying the engines will free up manufacturing capacity that could be used to make a new economy line golf cart that would produce an additional $111,600 profit per year. U-RIDE is currently operating profitably producing and selling 3,100 engines annually. Based on this information, which of the following is true? A) The $111,600 is not relevant because it is an estimate. B) The cost of buying the engines is $1 per unit less than the relevant cost of making the units. C) Buying the units would increase U-RIDE's cost by $35 per unit. D) U-RIDE has avoidable costs of less than $277 per unit and should therefore buy engines.

131) To be relevant in decision making, cost or revenue information must be future-oriented and must not differ among the alternatives. ⊚ ⊚

true false

132) Mary must decide between two alternatives for the weekend: babysitting or yard work. If she babysits, she will receive $40 and will incur $15 in transportation costs. If she does yard work, she will receive $40 and will incur $3 in lawn mower gas and oil costs and $5 in transportation costs. The payment she would receive for the jobs is relevant in deciding which alternative to select. ⊚ ⊚

true false

133) Differential revenues are expected future revenues that vary among the alternatives under consideration. ⊚ ⊚

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true false

134) An alternative under consideration involves incurring $50 in costs to generate $60 in revenue. The differential revenue for this alternative is $10. ⊚ ⊚

135)

true false

Relevant costs are frequently called unavoidable costs. ⊚ ⊚

true false

136) Grady Corporation is evaluating two decision alternatives. Alternative One has costs of $2,000 and revenues of $3,000 while Alternative Two has costs of $3,200 and revenues of $4,000. The amount of differential revenue is $1,000. ⊚ ⊚

137)

Only variable costs are relevant for decision making. ⊚ ⊚

138)

true false

Variable costs are always relevant in decision making. ⊚ ⊚

true false

139) Fixed costs are relevant for decision making if they vary among the alternatives and are future-oriented.

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⊚ ⊚

140)

true false

Sunk costs are sometimes relevant for decision-making purposes. ⊚ ⊚

true false

141) Natalie purchased a concert ticket recently for $50. She is trying to decide whether to drive, take a taxi, or ride the public transit bus. The cost of driving to the concert is a sunk cost because Natalie purchased her car several years ago. ⊚ ⊚

true false

142) Monica paid $12 for a music CD for which she later was offered $15. After that someone offered her $18 for the CD. If Monica keeps the CD, the amount of her opportunity cost is $33. ⊚ ⊚

true false

143) Although opportunity costs are not recorded in the financial records, they nevertheless are useful for decision making. ⊚ ⊚

144)

true false

Qualitative information is only relevant for decision making if it can be quantified. ⊚ ⊚

Version 1

true false

145) For decision-making purposes, qualitative factors are relevant if they differ among the alternatives and relate to the future. ⊚ ⊚

true false

146) A company that provides services (not goods) to its customers may incur costs that are appropriately classified as product-level costs. ⊚ ⊚

147)

true false

Direct labor is an example of a product-level cost. ⊚ ⊚

true false

148) Costs that are not related to any specific product, batch, or unit of production are referred to as facility-level costs. ⊚ ⊚

true false

149) The decision to accept a lower than normal selling price may depend on the availability of excess capacity. ⊚ ⊚

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true false

150) The practice of buying goods and services from other companies is commonly known as vertical integration. ⊚ ⊚

true false

151) One of the potential dangers from outsourcing is the possible occurrence of low-ball pricing. ⊚ ⊚

true false

152) A potential danger from outsourcing is that a company may become too dependent on the supplier. ⊚ ⊚

153)

true false

Outsourcing reduces the extent of a company's vertical integration. ⊚ ⊚

true false

154) A business segment should be eliminated if the revenue generated by the segment exceeds only its fixed costs. ⊚ ⊚

155)

true false

Facility-level costs are not involved in decisions to eliminate a segment of a business.

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⊚ ⊚

true false

156) Segment reports are used to evaluate the true profitability of a company's business segments. ⊚ ⊚

true false

157) Equipment should be evaluated for possible replacement only as it nears the end of its useful life. ⊚ ⊚

true false

158) The book value of equipment generally is one of the most important factors to consider in deciding to replace the equipment. ⊚ ⊚

true false

159) The market value of equipment owned by a company is a sunk cost and should not be taken into account in deciding whether or not to replace the equipment. ⊚ ⊚

true false

160) Taylor Company is considering whether or not to replace a drill press that is several years old. The current market value of the old equipment is an opportunity cost of keeping the drill press.

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⊚ ⊚

true false

161) A company's compensation system for its managers should provide incentives for the managers to maximize the company's long-term profitability. ⊚ ⊚

true false

162) If managers' performance is evaluated solely on the current year's profitability, managers are likely to make decisions that lead to the company's long-term profitability. ⊚ ⊚

true false

163) Variable costs that are proxies for long-term costs should be used to measure profitability. ⊚ ⊚

true false

164) For many managerial decisions (such as outsourcing and special order decisions), unitlevel costs are avoidable costs. ⊚ ⊚

165)

true false

A constraint is a factor that restricts sales of a company's products or services. ⊚ ⊚

Version 1

true false

166) A company that is subject to the effect of a scarce resource should concentrate on providing products or services that give the greatest contribution margin per unit of product or service. ⊚ ⊚

167)

true false

The practice of relaxing constraints is likely to increase a business's profitability. ⊚ ⊚

Version 1

true false

Answer Key Test name: Chap 06_10e_Edmonds 1) A 2) C 3) D 4) C 5) D 6) C 7) B 8) A 9) B 10) C 11) B 12) C 13) C 14) A 15) C 16) C 17) C 18) B 19) B 20) A 21) B 22) C 23) D 24) C 25) B 26) C Version 1

27) B 28) A 29) B 30) B 31) C 32) B 33) B 34) A 35) A 36) D 37) A 38) B 39) D 40) D 41) C 42) B 43) A 44) C 45) A 46) C 47) C 48) D 49) C 50) C 51) A 52) A 53) A 54) A 55) B 56) D Version 1

57) D 58) B 59) B 60) A 61) A 62) A 63) D 64) D 65) B 66) A 67) B 68) D 69) B 70) B 71) D 72) A 73) D 74) B 75) A 76) D 77) C 78) D 79) A 80) B 81) C 82) C 83) B 84) B 85) A 86) C Version 1

87) B 88) D 89) A 90) A 91) D 92) D 93) A 94) B 95) C 96) B 97) C 98) B 99) A 100) D 101) C 102) A 103) C 104) C 105) A 106) A 107) A 108) C 109) A 110) C 111) A 112) B 113) D 114) C 115) B 116) C Version 1

117) D 118) D 119) D 120) C 121) D 122) D 123) B 124) D 125) A 126) C 127) A 128) C 129) C 130) B 131) FALSE 132) FALSE 133) TRUE 134) FALSE 135) FALSE 136) TRUE 137) FALSE 138) FALSE 139) TRUE 140) FALSE 141) FALSE 142) FALSE 143) TRUE 144) FALSE 145) TRUE 146) TRUE Version 1

147) FALSE 148) TRUE 149) TRUE 150) FALSE 151) TRUE 152) TRUE 153) TRUE 154) TRUE 155) FALSE 156) TRUE 157) FALSE 158) FALSE 159) FALSE 160) TRUE 161) TRUE 162) FALSE 163) FALSE 164) TRUE 165) TRUE 166) FALSE 167) TRUE

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Chapter 7 Planning for Profit and Cost Control 1)

Expressing plans for a business in financial terms is commonly called:

A) master planning. B) budgeting. C) strategic planning. D) operational planning.

2) A company's numerous specific budgets (sales, inventory purchases, etc.) together are referred to as the:

A) grand plan. B) strategic plan. C) current budget. D) master budget.

Select theincorrect statement about budgeting committees.

A) Membership on the budget committee is restricted most often to accountants because the budget involves numbers. B) Budget committees usually have responsibility for the coordination of budgeting activities. C) The budget committee is responsible for settling disputes among various departments over budget matters. D) One of the responsibilities of the budget committee is to monitor the organization's progress toward achieving its budget standards.

Select theincorrect statement about the planning process.

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A) The longer the time period, the more specific the plans. B) Planning decisions can often be subdivided into three distinct planning phases: short term, intermediate term, and long term. C) The nature of planning changes with the length of the time period being considered. D) The shorter the time period, the less general the plans.

Select thecorrect statement about the master budget.

A) The master budget is a group of detailed budgets and schedules representing the company's operating and financial plans for the past accounting period. B) The master budget usually includes operating budgets and capital budgets and pro forma financial statements. C) The budgeting process usually begins with preparing the strategic budgets. D) Preparing the master budget begins with the cash budget.

6) Planning concerned with long-range decisions such as defining the scope of the business is referred to as:

A) operations budgeting. B) master planning. C) capital budgeting. D) strategic planning.

7) Budgeting that involves decisions such as whether to buy or lease equipment or build a new factory is referred to as:

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A) capital budgeting. B) operations budgeting. C) facilities planning. D) strategic planning.

8) Budgeting that involves the development of a master budget to direct the firm's activities over the short term is referred to as:

A) capital budgeting. B) operations budgeting. C) strategic planning. D) None of these answers is correct.

The master budget normally covers:

A) 3 months. B) 1 year. C) 1–5 years. D) 5–10 years.

10) The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planning horizon, is referred to as:

A) participative budgeting. B) capital budgeting. C) continuous budgeting. D) zero-based budgeting.

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11)

Which of the following isnot an advantage of budgeting?

A) Provides assurance that accounting records are in accordance with generally accepted accounting principles B) Forces coordination among departments to promote decisions in the best interests of the company as a whole C) Provides advance notice of potential shortages, bottlenecks, or other weaknesses in operating plans D) Provides a way to evaluate performance

12) The budgeting process formalizes and documents managerial plans to clearly communicate objectives to both superiors and subordinates. This budgeting requirement is an example of:

A) performance measurement. B) planning. C) budget coordination. D) taking corrective action.

13) When a company’s district managers submitted their preliminary budget proposals, top management discovered that the southern district manager had requested a new project management information system. Unfortunately, the system is incompatible with the system used at headquarters. Which of the following advantages of budgeting reduces the likelihood that the company will end up with two incompatible systems?

A) Planning B) Coordination C) Performance measurement D) Corrective measures

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14) One company's practice is to provide bonuses to salespeople who exceed their sales targets. Which of the following advantages of budgeting enables the company to establish its recognition program?

A) Planning B) Coordination C) Performance measurement D) Corrective action

15) Jason had been operating his machine for an entire month before he realized that it was generating more scrap than usual. Which advantage of budgeting would have helped him identify this problem sooner?

A) Performance measurement B) Coordination C) Planning D) Corrective action

16) Which of the following would represent the order in which most master budgets are prepared?

A) Sales, Income Statement, Cash, Purchases B) Purchases, Cash, Sales, Income Statement C) Purchases, Sales, Cash, Income Statement D) Sales, Purchases, Cash, Income Statement

17) Which of the following would be prepared first when a merchandising company uses a master budget?

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A) Selling and administrative expense budget B) Budgeted income statement C) Sales forecast D) Inventory purchases budget

18) Which of the following budgets needs to be prepared prior to preparing an inventory purchases budget?

A) Selling and administrative expense budget B) Sales budget C) Cash budget D) All of the answers are correct.

19)

Select thecorrect statement.

A) The four advantages of budgeting include planning, coordination, performance measurement, and reporting. B) In a participative budgeting system, budget information flows in one direction only, from bottom to top. C) The three major categories of the master budget are operating budgets, capital budgets, and pro forma financial statements. D) The accounting department normally coordinates the development of the sales forecast.

20)

Select thecorrect statement about budgeting and human behavior.

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A) People are usually very comfortable with budgets. B) The attitudes of upper managers significantly impact budget effectiveness. C) Budgets increase individual freedom within an organization. D) Participative budgeting contributes to fear and resentment.

21)

Select theincorrect statement regarding the human factor in the budgeting process.

A) Budgets force employees to follow the organization's plan. B) The evaluation feature of budget systems is frightening for many people. C) There is a tendency for people to be uncomfortable with budgets. D) Proper handling of human relations is essential to the establishment of an effective budget system.

22) The budgeting technique that provides for employee input into the planning process is known as:

A) continuous budgeting. B) perpetual budgeting. C) participative budgeting. D) zero-based budgeting.

23)

Which of the following is a benefit of participative budgeting?

A) Employees tend to be more motivated to achieve the budget. B) A twelve-month planning horizon is maintained at all times. C) Budget planning is highly centralized. D) Communication is clearer because it flows in only one direction—upward.

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24)

What is the role of top management in a participative budgeting system?

A) Top management has no role—the budget is entirely developed by the lower-level employees. B) Top management must always tighten employee-set budget standards to eliminate employees' attempts to build slack into the standards. C) Top management must ensure that employee-generated objectives are consistent with those of the company. D) All of the answers are correct.

25)

Which of the following items isnot needed to prepare a sales budget by product line?

A) Expected purchase price of each product. B) Expected unit sales of each product. C) Expected selling price of each product. D) All of the answers are correct.

26) Which of the following items would beleast useful in preparing a schedule of cash receipts?

A) Expected revenue from cash sales. B) Number of units expected to be purchased. C) Service charges for credit card sales. D) Past accounts receivable collection experience.

27) Markham Company has completed its sales budget for the first quarter of Year 2. Projected credit sales for the first four months of the year are shown below: January February

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$ 31,000 $ 37,000 8

March April

$ 46,000 $ 49,000

The company's past records show collection of credit sales as follows: 40% in the month of sale and the balance in the following month. The total cash collection from receivables in March is expected to be: A) $46,000. B) $43,210. C) $32,860. D) $40,600.

28) Markham Company has completed its sales budget for the first quarter of Year 2. Projected credit sales for the first four months of the year are shown below: January February March April

$ 30,000 $ 36,000 $ 45,000 $ 48,000

29)

Compton Company expects the following total sales:

Month March April May June

Sales $ 38,000 $ 28,000 $ 22,000 $ 33,000

The company expects 60% of its sales to be credit sales and 40% for cash. Credit sales are collected as follows: 30% in the month of sale, 70% in the month following the sale. The budgeted accounts receivable balance on May 31 is:

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A) $9,240. B) $16,500. C) $30,150. D) $10,150.

30)

Compton Company expects the following total sales:

Month March April May June

Sales $ 30,000 $ 20,000 $ 30,000 $ 25,000

31)

Benton Company's sales budget shows the following expected total sales: Month

January February March April

Sales $ 22,000 $ 26,000 $ 31,000 $ 44,000

The company expects 80% of its sales to be on account (credit sales). Credit sales are collected as follows: 25% in the month of sale and 70% in the month following the sale, with the remainder being uncollectible and written off. The total cash receipts during April would be:

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A) $25,200. B) $34,960. C) $23,100. D) $23,925.

32)

Benton Company's sales budget shows the following expected total sales:

Month January February March April

Sales $ 25,000 $ 30,000 $ 35,000 $ 40,000

The company expects 80% of its sales to be on account (credit sales). Credit sales are collected as follows: 25% in the month of sale and 72% in the month following the sale, with the remainder being uncollectible and written off. The total cash receipts during April would be: A) $16,000. B) $28,160. C) $24,640. D) $36,160.

33) Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2:

Credit sales Cash sales

December Year January Year 2 February Year 1 (Actual) (Budgeted) 2 (Budgeted)

March Year 2 (Budgeted)

$ 51,000

$ 131,000

$ 146,000

$ 101,000

$ 18,000

$ 16,000

$ 21,000

$ 3,000

Based on the company's collection history, 42% of credit sales are collected in month of sale, and the remainder is collected in the following month. Cash collections in January from December credit sales would be:

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A) $19,860. B) $32,130. C) $24,000. D) $29,580.

34) Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2:

Credit sales Cash sales

December Year January Year 2 February Year 1 (Actual) (Budgeted) 2 (Budgeted)

March Year 2 (Budgeted)

$ 120,000

$ 280,000

$ 310,000

$ 220,000

$ 20,000

$ 50,000

$ 60,000

$ 24,000

35) Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2:

Credit sales Cash sales

December Year January Year 2 February Year 1 (Actual) (Budgeted) 2 (Budgeted) $ 50,000 $ 130,000 $ 145,000 $ 19,000

$ 15,000

$ 20,000

March Year 2 (Budgeted) $ 100,000 $ 2,000

Based on the company's collection history, 42% of credit sales are collected in month of sale and the remainder is collected in the following month. Total budgeted cash receipts in February are expected to be:

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A) $22,000. B) $20,620. C) $32,000. D) $156,300.

36) Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2:

Credit sales Cash sales

December Year January Year 2 February Year 1 (Actual) (Budgeted) 2(Budgeted)

March Year 2 (Budgeted)

$ 120,000

$ 280,000

$ 310,000

$ 220,000

$ 20,000

$ 50,000

$ 60,000

$ 24,000

37) Hernandez Company expects credit sales for January to be $54,000. Cash sales are expected to be $34,000. The company expects credit and cash sales to increase 10% for the month of February. Credit sales are collected in the month following the month in which sales are made. Based on this information, the amount of cash collections in February would be:

A) $100,320. B) $88,000. C) $91,400. D) $95,560.

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38) Hernandez Company expects credit sales for January to be $100,000. Cash sales are expected to be $60,000. The company expects credit and cash sales to increase 10% for the month of February. Credit sales are collected in the month following the month in which sales are made. Based on this information, the amount of cash collections in February would be:

A) $166,000. B) $160,000. C) $170,000. D) $176,000.

39) Which of the following items isnot needed to prepare an inventory purchases budget for a merchandising business?

A) Expected unit selling price B) Beginning inventory C) Expected unit sales D) Desired ending inventory

40) Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2:

Cost of goods sold

December Year January Year 2 February Year 1 (Actual) 2 (Budgeted) (Budgeted) $ 32,000 $ 62,000 $ 82,000

March Year 2 (Budgeted) $ 52,000

Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February Year 2 would be: A) $61,600. B) $74,500. C) $79,900. D) $91,120.

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41) Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: December Year January Year 2 1 (Actual) (Budgeted) Cost of goods sold

$ 80,000

$ 140,000

Febebruary Year 2 (Budgeted) $ 180,000

March Year 2 (Budgeted) $ 120,000

Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February Year 2 would be: A) $135,000. B) $165,000. C) $180,000. D) $225,000.

42) Payne Company provided the following information relevant to its inventory sales and purchases for December Year 1 and the first quarter of Year 2:

Cost of goods sold

December Year January Year 2 February Year 1 (Actual) (Budgeted) 2 (Budgeted) $ 84,000 $ 144,000 $ 184,000

March Year 2 (Budgeted) $ 124,000

Desired ending inventory levels are 25% of the following month's projected cost of goods sold. The company purchases all inventory on account. January Year 2 budgeted purchases are $154,000. The normal schedule for inventory payments is 60% payment in month of purchase and 40% payment in month following purchase. Budgeted cash payments for inventory in February Year 2 would be: A) $136,000. B) $156,400. C) $101,400. D) $163,000

43) Payne Company provided the following information relevant to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: Version 1

Cost of goods sold

December Year 1 (Actual) $ 80,000

January Year 2 (Budgeted) 140,000

Febebruary Year 2 (Budgeted) 180,000

March Year 2 (Budgeted) 120,000

Desired ending inventory levels are 25% of the following month's projected cost of goods sold. The company purchases all inventory on account. January Year 2 budgeted purchases are $150,000. The normal schedule for inventory payments is 60% payment in month of purchase and 40% payment in month following purchase. Budgeted cash payments for inventory in February Year 2 would be: A) $132,600. B) $152,600. C) $99,000. D) $159,000.

44) Skymont Company wants an ending inventory each month equal to 30% of that month's cost of goods sold. Cost of goods sold for February is projected at $90,000. Ending inventory at the end of January was $18,000. Based on this information, purchases for February would be:

A) $72,000. B) $67,500. C) $99,000. D) $85,500.

45) Skymont Company wants an ending inventory each month equal to 30% of that month's cost of goods sold. Cost of goods sold for February is projected at $45,000. Ending inventory at the end of January was $12,000. Based on this information, purchases for February would be:

A) $31,500. B) $46,500. C) $43,500. D) $33,000.

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46) O’Hare Company is in the process of preparing a purchases budget for the first quarter of Year 2. The company has budgeted sales as follows: December Year 1 January Year 2 February Year 2 March Year 2

$ 46,000 $ 48,500 $ 53,000 $ 63,500

Cost of goods sold is expected to be 75% of sales. The company would like to have ending inventory each month equal to 25% of the following month's predicted cost of sales. The total cost of purchases in January Year 2 is: A) $48,500. B) $46,000. C) $61,700. D) $37,219.

47) O’Hare Company is in the process of preparing a purchases budget for the first quarter of Year 2. The company has budgeted sales as follows: December Year 1 January Year 2 February Year 2 March Year 2

$ 44,000 $ 46,500 $ 51,000 $ 61,500

48) Sales for January are budgeted at 52,000 units, and the company expects sales to increase 5% each month. How many units will need to be purchased in February if the company's policy is to keep ending inventory each month at 11,000 units?

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A) 54,600 units B) 56,700 units C) 65,000 units D) None of the answers are correct

49) Sales for January are budgeted at 50,000 units, and the company expects sales to increase 4% each month. How many units will need to be purchased in February if the company's policy is to keep ending inventory each month at 10,000 units?

A) 52,000 units B) 54,000 units C) 62,000 units D) None of these answers is correct.

50)

Select thecorrect equation format for the purchases budget.

A) Beginning inventory + expected sales = required purchases. B) Cost of budgeted sales + beginning inventory − desired ending inventory = required purchases. C) Beginning inventory + expected sales − desired ending inventory = required purchases. D) Cost of budgeted sales + desired ending inventory − beginning inventory = required purchases.

51)

The following budget information is available for the Arch Company for January Year 2:

Sales

$ 940,000

Cost of goods sold

620,000

Utilities expense

4,400

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Administrative salaries

180,000

Sales commissions Advertising

5 % of sales 36,000

Depreciation on store equipment

66,000

Rent on administration building

76,000

Miscellaneous administrative expenses

26,000

All operating expenses are paid in cash in the month incurred. Compute the total budgeted selling and administrative expenses (excluding interest) amount for January Year 2. A) $435,000 B) $435,400 C) $368,000 D) $398,500

52)

The following budget information is available for the Arch Company for January Year 2:

Sales

$ 860,000

Cost of goods sold

540,000

Utilities expense

2,800

Administrative salaries

100,000

Sales commissions Advertising

5 % of sales 20,000

Depreciation on store equipment

50,000

Rent on administration building

60,000

Miscellaneous administrative expenses

10,000

All operating expenses are paid in cash in the month incurred. Compute the total budgeted selling and administrative expenses (excluding interest) amount for January Year 2.

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A) $262,500 B) $283,000 C) $240,000 D) $285,800

53) Which of the following would appear on a selling and administrative expense budget, but wouldnot appear on a schedule of cash payments for selling and administrative expenses?

A) Cost of goods sold B) Depreciation expense C) Salary expense D) Sales expense

54) Which of the following items typically found on the selling and administrative expense budget will also impact the cash budget?

A) Depreciation expense B) Administrative salaries C) Advertising expense D) Both administrative salaries and advertising expense are correct.

55) Select thecorrect statement regarding the selling and administrative (S&A) expense budget.

A) The S&A budget is prepared after the sales budget. B) The S&A budget is prepared before the cash budget. C) The S&A budget is prepared before the pro forma income statement. D) All of the answers are correct.

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56) Which of the following budgets or schedules uses data contained in the selling and administrative expense budget?

A) Cash receipts schedule B) Cash payments schedule C) Inventory purchases budget D) Sales budget

57)

The following budget information is available for Crescent Company for January Year 2:

Sales

$ 840,000

Cost of goods sold

580,000

Utilities expense

3,300

Administrative salaries

140,000

Sales commissions Advertising

5 % of sales 28,000

Depreciation on store equipment

58,000

Rent on administration building

68,000

Miscellaneous administrative expenses

18,000

Percentage of sales on credit

80 %

All operating expenses are paid in cash in the month incurred. The amount of expected cash outflow for selling and administrative expenses would be: A) $319,500. B) $299,300. C) $338,500. D) $402,500.

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58)

The following budget information is available for Crescent Company for January Year 2:

Sales

$ 800,000

Cost of goods sold

540,000

Utilities expense

2,500

Administrative salaries

100,000

Sales commissions Advertising

5 % of sales 20,000

Depreciation on store equipment

50,000

Rent on administration building

60,000

Miscellaneous administrative expenses

10,000

Percentage of sales on credit

80 %

All operating expenses are paid in cash in the month incurred. The amount of expected cash outflow for selling and administrative expenses would be: A) $262,500. B) $247,500. C) $232,500. D) $312,500.

59)

Budgeted depreciation expense would not appear on a:

A) Selling and administrative expense budget. B) Budgeted income statement. C) Cash budget. D) All of the answers are correct.

60)

Which of the following cash budget equations isincorrect?

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A) Cash payments + cash receipts = cash requirements B) Beginning cash + cash receipts = total cash available C) Cash payments + cash cushion = total cash needed D) Period 1 ending cash balance = Period 2 beginning cash balance

61)

Hilliard Company budgeted the following transactions for April Year 2:

Sales (75% collected in month of sale) Cash Operating Expenses Cash Purchases of Investment Cash Payment of Debt Depreciation on Operating Assets

$ 400,000 125,000 95,000 35,000 52,000

The beginning cash balance was $90,000. The company desires to have a $185,000 ending cash balance. The surplus (or shortage) of cash before considering any borrowings in April would be: A) $100,000 surplus. B) $100,000 shortage. C) $50,000 shortage. D) There is no cash surplus or shortage.

62)

Hilliard Company budgeted the following transactions for April Year 2:

Sales (75% collected in month of sale) Cash Operating Expenses Cash Purchases of Investments Cash Payment of Debt Depreciation on Operating Assets

$ 200,000 105,000 75,000 15,000 12,000

The beginning cash balance was $50,000. The company desires to have a $25,000 ending cash balance. The surplus (or shortage) of cash before considering any borrowings in April would be: A) $40,000 surplus. B) $40,000 shortage. C) $20,000 shortage. D) There is no cash surplus or shortage.

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63)

Bantam Industries has budgeted the following information for March:

Cash receipts Beginning cash balance Cash payments Desired ending cash balance

$ 319,000 17,000 352,000 37,000

If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments, and interest is paid monthly at 1% on the first day of the following month. The company had no debt before March 1. How much cash will the company need to borrow in March? A) $53,000 B) The company should not need to borrow any cash in March C) $43,000 D) $10,000

64)

Bantam Industries has budgeted the following information for March:

Cash receipts Beginning cash balance Cash payments Desired ending cash balance

$ 271,000 5,000 280,000 25,000

If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments, and interest is paid monthly at 1% on the first day of the following month. The company had no debt before March 1. How much cash will the company need to borrow in March? A) $25,000 B) $29,000 C) The company should not need to borrow any cash in March D) $4,000

65)

Cheyenne Company has budgeted the following information for June:

Cash receipts Beginning cash balance

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$ 323,000 18,000

Cash payments Desired ending cash balance

358,000 38,000

If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments, and interest is paid monthly at 1% on the first day of the following month. The company had no debt before June 1. The amount of interest paid on July 1 would be: A) $550. B) $416. C) $790. D) $510.

66)

Cheyenne Company has budgeted the following information for June:

Cash receipts Beginning cash balance Cash payments Desired ending cash balance

$ 271,000 5,000 280,000 25,000

If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments, and interest is paid monthly at 1% on the first day of the following month. The company had no debt before June 1. The amount of interest paid on July 1 would be: A) $250. B) $400. C) $221. D) $290.

67)

Which of the following items willnot appear on a cash budget?

A) Expected cash collections B) Expected cash payments C) Expected credit sales D) Financing activities

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68) Dobson Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: January

February

March

Salary expense Sales commissions, 5% of sales Utilities Depreciation on store equipment Rent Miscellaneous

$ 41,500 25,500 3,100 2,100 7,500 2,100

$ 37,500 31,500 3,100 2,100 7,500 2,100

$ 37,500 29,500 3,100 2,100 7,500 2,100

Total operating expenses

$ 81,800

$ 83,800

$ 81,800

Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of cash to be paid for operating expenses during the month of January is: A) $55,100. B) $54,200. C) $79,100. D) None of the answers are correct.

69) Dobson Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: January

February

March

Salary expense Sales commissions, 5% of sales Utilities Depreciation on store equipment Rent Miscellaneous

$ 40,000 24,000 2,800 1,800 7,200 1,800

$ 36,000 30,000 2,800 1,800 7,200 1,800

$ 36,000 28,000 2,800 1,800 7,200 1,800

Total operating expenses

$ 77,600

$ 79,600

$ 77,600

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A) $53,600. B) $51,800. C) $77,600. D) None of the answers are correct.

70) Barnes Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: January

February

March

Salary expense Sales commissions, 5% of sales Utilities Depreciation on store equipment Rent Miscellaneous

$ 37,500 31,500 3,100 1,300 7,500 2,100

$ 37,500 33,500 3,100 1,300 7,500 2,100

$ 37,500 25,500 3,100 1,300 7,500 2,100

Total operating expenses

$ 83,000

$ 85,000

$ 77,000

Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of accumulated depreciation appearing on the company's March 31 pro forma balance sheet is: A) $2,150. B) $3,900. C) $12,150. D) $1,300.

71) Barnes Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: Salary expense Sales commissions, 5% of sales Utilities Depreciation on store equipment

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January

February

March

$ 36,000 30,000 2,800 1,000

$ 36,000 32,000 2,800 1,000

$ 36,000 24,000 2,800 1,000

Rent Miscellaneous Total operating expenses

7,200 1,800

$ 78,800

$ 80,800

$ 72,800

Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of accumulated depreciation appearing on the company's March 31 pro forma balance sheet is: A) $1,000. B) $2,000. C) $3,000. D) $12,000.

72) Scranton Company expects to begin operating on July 1, Year 1. The company's master budget contained the following operating expense budget: July

August

September

Salary expense Sales commissions, 5% of sales Utilities Depreciation on store equipment Rent Miscellaneous

$ 36,300 30,300 2,860 1,060 7,260 1,860

$ 36,300 32,300 2,860 1,060 7,260 1,860

$ 36,300 24,300 2,860 1,060 7,260 1,860

Total operating expenses

$ 79,640

$ 81,640

$ 73,640

Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of commissions payable that would appear on the company's pro forma balance sheet as of September 30, Year 1 is: A) $24,300. B) $30,300. C) $36,030. D) $32,300.

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73) Scranton Company expects to begin operating on July 1, Year 1. The company's master budget contained the following operating expense budget: July

August

September

Salary expense Sales commissions, 5% of sales Utilities Depreciation on store equipment Rent Miscellaneous

$ 36,000 30,000 2,800 1,000 7,200 1,800

$ 36,000 32,000 2,800 1,000 7,200 1,800

$ 36,000 24,000 2,800 1,000 7,200 1,800

Total operating expenses

$ 78,800

$ 80,800

$ 72,800

Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of commissions payable that would appear on the company's pro forma balance sheet as of September 30, Year 1 is: A) $32,000. B) $30,000. C) $36,000. D) $24,000.

74)

Which of the following isnot considered a pro forma financial statement?

A) Sales budget B) Balance sheet C) Cash flow statement D) Income statement

75)

With regards to financial statements, "pro forma" means:

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A) Budgeted. B) Prepared in advance. C) Financial condition or position that can be expected if planning assumptions prove correct. D) All of the answers are correct.

76)

Budgeted sales commissions would appear on the:

A) selling, general, and administrative budget and pro forma income statement B) selling, general, and administrative budget and pro forma balance sheet C) sales budget and pro forma balance sheet D) sales budget and pro forma income statement

77)

Budgeted cash payments for inventory would appear on the:

A) inventory purchases budget and the pro forma income statement. B) capital budget and pro forma statement of cash flows. C) cash budget and pro forma balance sheet. D) inventory purchases budget and pro forma statement of cash flows.

78) Which of the following accounts would appear on the inventory purchases budgetand pro forma balance sheet?

A) Cost of goods sold B) Sales revenue C) Accounts receivable D) Accounts payable

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79) Which of the following accounts would appear on the sales budgetand the pro forma income statement?

A) Selling and administrative expenses B) Sales revenue C) Accounts receivable D) Both sales revenue and accounts receivable are correct

80)

Which of the following statements isincorrect?

A) Capital budgeting affects the master budget because it considers what assets a company should have and use when achieving its budgets. B) Capital budgeting involves decisions about whether to buy or lease equipment C) Capital budgeting focuses on short-term planning. D) Cash outflows for capital budgeting will appear on the cash budget.

81)

Which of the following is generally included in a sales budget?

A) Schedule of cash receipts for the projected sales B) Desired ending inventory C) Budgeted cost of goods sold D) Schedule of cash payments for inventory purchases

82)

What information does the sales budget provide for pro forma financial statements?

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A) Total budgeted sales to be used on the pro forma income statement B) Cash collections from customers to be used on the pro forma balance sheet C) The ending balance in accounts payable, which appears on the pro forma balance sheet D) All of the answers are correct.

83)

Which of the following wouldnot be included in the inventory purchases budget?

A) Required purchases B) Cash collections C) Budgeted cost of goods sold D) Desired ending inventory

84)

What budget is generallynot included in a master budget?

A) Strategic budget B) Capital budget C) Operating budget D) All of the answers are correct.

85)

Which of the following is a true statement?

A) Pro forma financial statements are based on the company's budgets. B) Companies prepare pro forma financial statements to show how their performance for the period will "look" if actual results match the budget. C) Companies usually prepare a pro forma income statement, pro forma balance sheet, and pro forma statement of cash flows. D) All of the answers are correct.

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86)

Which of the following wouldnot be included in the cash budget?

A) Receipts from customers B) Ending cash balance C) Interest expense D) Depreciation expense

87)

The master budget details:

A) Long-term objectives. B) Intermediate objectives. C) Short-term objectives. D) All of the answers are correct.

88)

Which of the following is a benefit associated with budgeting?

A) Promotes planning and coordination. B) The ability to take corrective action to improve performance. C) Enhances performance measurement. D) All of the answers are correct.

89) The type of planning that involves long-term decisions, such as defining the scope of the business and deciding what products to make, is known as:

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A) Continuous planning. B) Strategic planning. C) Capital budgeting. D) Operations budgeting.

90)

The cash budget is based on which budget?

A) Sales budget B) Inventory purchases budget C) Selling and administrative expense budget D) All of the answers are correct.

91)

The inventory purchases budget is based on which budget?

A) Cash budget B) Sales budget C) Selling and administrative expense budget D) None of the answers are correct.

92) Which of the following wouldnot be included in a selling and administrative expenses budget?

A) Budgeted salary expenses B) Budgeted rent expense C) Cash payments for selling and administrative expenses D) Budgeted interest expense

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93) Bright Minds Toy Company prepared the following sales budget for the second quarter. Projected sales for each of the first three months of operations are as follows: Sales Budget Cash Sales Sales on Account

April 75,000 415,000

May 61,000 468,000

June 100,000 450,000

490,000

529,000

550,000

Bright Minds expects to collect 70% of the sales on account in the month of sale, 20% in the month following the sale, and the remainder in the second month following the sale. What is the amount of budgeted cash collections for June? A) $484,300 B) $550,000 C) $550,100 D) $505,900

94) Bright Minds Toy Company prepared the following sales budget for the second quarter. Projected sales for each of the first three months of operations are as follows: Sales Budget Cash Sales Sales on Account

April 30,000 370,000

May 43,000 432,000

June 55,000 405,000

400,000

475,000

460,000

95) Bright Minds Toy Company prepared the following sales budget for the second quarter. Projected sales for each of the first three months of operations are as follows: Sales Budget

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April

May

June

Cash Sales Sales on Account

55,000 395,000

53,000 452,000

80,000 430,000

450,000

505,000

510,000

Bright Minds expects to collect 70% of the sales on account in the month of sale, 20% in the month following the sale, and the remainder in the second month following the sale. What is the ending accounts receivable balance that would be reported on the pro forma balance sheet prepared as of June 30? A) $299,000 B) $128,500 C) $174,200 D) $91,400

96) Bright Minds Toy Company prepared the following sales budget for the second quarter. Projected sales for each of the first three months of operations are as follows: Sales Budget Cash Sales Sales on Account

April 30,000 370,000

May 43,000 432,000

June 55,000 405,000

400,000

475,000

460,000

Bright Minds expects to collect 70% of the sales on account in the month of sale, 20% in the month following the sale, and the remainder in the second month following the sale. What is the ending accounts receivable balance that would be reported on the pro forma balance sheet prepared as of June 30? A) $164,700 B) $121,500 C) $283,500 D) $86,400

97) Bright Minds Toy Company prepared the following sales budget for the second quarter. Projected sales for each of the first three months of operations are as follows: Sales Budget Cash Sales

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April 50,000

May 51,000

June 75,000

Sales on Account

390,000

448,000

425,000

440,000

499,000

500,000

Bright Minds expects to collect 70% of the sales on account in the month of sale, 20% in the month following the sale, and the remainder in the second month following the sale. What is the amount of sales revenue that the company will report on the second quarter pro forma income statement? A) $1,439,000 B) $1,303,000 C) $1,079,800 D) $1,217,800

98) Bright Minds Toy Company prepared the following sales budget for the second quarter. Projected sales for each of the first three months of operations are as follows: Sales Budget Cash Sales Sales on Account

April 30,000 370,000

May 43,000 432,000

June 55,000 405,000

400,000

475,000

460,000

Bright Minds expects to collect 70% of the sales on account in the month of sale, 20% in the month following the sale, and the remainder in the second month following the sale. What is the amount of sales revenue that the company will report on the second quarter pro forma income statement? A) $1,335,000 B) $1,129,800 C) $1,207,000 D) $1,001,800

99)

Budgeted sales for the month of April are shown in the following table:

Sales Cash Sales

April $ 1,350

Sales on Account

$ 1,650

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May

June

The company expects a 10% increase in sales per month for May and June. The amount of sales revenues that would appear on the company's 2nd quarter pro forma income statement would be A) $3,630.00. B) $9,930.00. C) $9,199.25. D) $5,461.50.

100)

Budgeted sales for the month of April are shown in the following table:

Sales Cash Sales

April $ 1,250

Sales on Account

$ 1,550

May

June

The company expects a 25% increase in sales per month for May and June. Also, the company expects to collect cash from receivables in the month following the month in which the receivables are established. The amount of accounts receivable appearing on the pro forma balance sheet would be A) $2,421.88. B) $10,675.01. C) $4,090.63. D) $5,909.38.

101)

Budgeted sales for the month of April are shown in the following table:

Sales Cash Sales

April $ 1,100

Sales on Account

$ 1,400

May

June

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A) $9,531.25. B) $3,125.00. C) $2,775.00. D) $3,906.25.

102) Star Company projected unit credit sales for the last four months of the year as shown below: September October November December

5,000 5,200 6,100 7,600

The company's past records show collection of credit sales as 40% in the month of sale and the balance in the following month. If inventory units are sold for $27, the total cash collections on receivables in November will be A) $65,880. B) $26,852. C) $164,700. D) $150,120.

103) Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $95,000. October

November

December

Budgeted Cost of Goods Sold Plus: Desired Ending Inventory

85,000 9,750

65,000 ?

75,000 ?

Inventory Needed Less: Beginning Inventory

94,750 12,750

? ?

Required purchases (on Account)

82,000

What would be the required purchases (on account) for December?

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A) $75,000 B) $78,000 C) $89,000 D) $67,000

104) Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $70,000. October

November

December

Budgeted Cost of Goods Sold Plus: Desired Ending Inventory Inventory Needed Less: Beginning Inventory

60,000 6,000 66,000 9,000

40,000 ? ? ?

50,000 ? ? ?

Required purchases (on Account)

57,000

What would be the required purchases (on account) for December?

A) $47,000 B) $50,000 C) $53,000 D) $60,500

105) Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $115,000. October

November

December

Budgeted Cost of Goods Sold Plus: Desired Ending Inventory

105,000 12,750

85,000 ?

95,000 ?

Inventory Needed Less: Beginning Inventory

117,750 15,750

? ?

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Required purchases (on Account)

102,000

What is the amount of cost of goods sold the company will report on its fourth quarter pro forma income statement? A) $190,000 B) $95,000 C) $308,100 D) $285,000

106) Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $70,000. October

November

December

Budgeted Cost of Goods Sold Plus: Desired Ending Inventory Inventory Needed Less: Beginning Inventory

60,000 6,000 66,000 9,000

40,000 ? ? ?

50,000 ? ? ?

Required purchases (on Account)

57,000

What is the amount of cost of goods sold the company will report on its fourth quarter pro forma income statement?

A) $100,000 B) $50,000 C) $150,000 D) $162,300

107) Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $125,000. October

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November

December

Budgeted Cost of Goods Sold Plus: Desired Ending Inventory

115,000 14,250

95,000 ?

105,000 ?

Inventory Needed Less: Beginning Inventory

129,250 17,250

? ?

Required purchases (on Account)

112,000

What is the amount of ending inventory that the company will report on its pro forma balance sheet?

A) $15,750 B) $107,800 C) $68,000 D) $18,750

108) Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $70,000. October

November

December

Budgeted Cost of Goods Sold Plus: Desired Ending Inventory

60,000 6,000

40,000 ?

50,000 ?

Inventory Needed Less: Beginning Inventory

66,000 9,000

? ?

Required purchases (on Account)

57,000

What is the amount of ending inventory that the company will report on its pro forma balance sheet?

A) $7,500 B) $10,500 C) $35,300 D) $60,500

109)

Purchases on account are given below: October

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November

December

35,000

45,000

55,000

55% of the month's purchases will be paid in the month of the purchase; the remaining 45% will be paid in the following month. How much will the cash payments for purchases be in November?

A) $40,500 B) $52,000 C) $51,900 D) $57,000

110)

Purchases on account are given below: October 30,000

November 40,000

December 50,000

55% of the month's purchases will be paid in the month of the purchase; the remaining 45% will be paid in the following month. How much will the cash payments for purchases be in November?

A) $35,500 B) $34,500 C) $40,000 D) $36,000

111)

Purchases on account are given below: October 50,000

November 60,000

December 70,000

55% of the month's purchases will be paid in the month of the purchase; the remaining 45% will be paid in the following month. How much will the cash payments for purchases be in December?

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A) $66,000 B) $65,500 C) $70,000 D) $64,100

112)

Purchases on account are given below: October 30,000

November 40,000

December 50,000

55% of the month's purchases will be paid in the month of the purchase; the remaining 45% will be paid in the following month. How much will the cash payments for purchases be in December?

A) $44,500 B) $50,000 C) $46,000 D) $45,500

113)

Purchases on account are given below: October 73,000

November 93,000

December 113,000

60% of the month's purchases will be paid in the month of the purchase; the remaining 40% will be paid in the following month. Assume no purchases were made prior to October. How much will the cash payments for purchases be in October?

A) $43,800 B) $45,800 C) $45,300 D) $56,500

114)

Purchases on account are given below:

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October 60,000

November 80,000

December 100,000

70% of the month's purchases will be paid in the month of the purchase; the remaining 30% will be paid in the following month. Assume no purchases were made prior to October. How much will the cash payments for purchases be in October?

A) $42,000 B) $50,000 C) $46,000 D) $45,500

115) The accounts payable balance at the beginning of the year was $88,000. The company purchased $395,000 worth of goods on account, and the ending balance of the payables account was $85,000. What were the total payments on account?

A) $468,000 B) $538,000 C) $398,000 D) $453,000

116) The accounts payable balance at the beginning of the year was $85,000. The company purchased $380,000 worth of goods on account, and the ending balance of the payables account was $70,000. What were the total payments on account?

A) $450,000 B) $395,000 C) $535,000 D) $465,000

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117) The beginning inventory is expected to be 3,500 cases. Expected sales are 14,500 cases, and the company wishes to begin the next period with an inventory of 2,500 cases. The number of cases the company must purchase during the month is A) 17,000 cases. B) 14,500 cases. C) 13,500 cases. D) 20,500 cases.

118) A sales budget has been prepared for April. Management wants the amount of ending inventory each month to be equal to 25% of that month's cost of goods sold. Cost of goods sold for April is projected at $67,000. Ending inventory at the end of March is expected to be $13,400. Based on this information, what would the amount of purchases be for April? A) $70,350 B) $69,000 C) $83,750 D) $53,600

119) Metro, Incorporated sells backpacks. The Company's accountant is preparing the purchases budget for the first quarter operations. Metro maintains ending inventory at 10% of the following month's expected cost of goods sold. Expected cost of goods sold for April is $89,000. January

February

March

Budgeted cost of goods sold Plus: Desired ending inventory

$49,500 6,900

$69,000

$69,500

Inventory needed

56,400

Less: Beginning inventory

(4,950)

Required purchases

$46,500

Based on this information the total amount of expected purchases for February is

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A) $51,450. B) $71,450. C) $69,050. D) None of these choices are correct.

120) Metro, Incorporated sells backpacks. The Company's accountant is preparing the purchases budget for the first quarter operations. Metro maintains ending inventory at 15% of the following month's expected cost of goods sold. Expected cost of goods sold for April is $81,000. All purchases are made on account with 20% of accounts paid in the month of purchase and the remaining 80% paid in the month following the month of purchase. January

February

March

Budgeted cost of goods sold Plus: Desired ending inventory

$45,500 9,150

$61,000

$65,500

Inventory needed

54,650

Less: Beginning inventory

(6,825)

Required purchases

$45,550

Based on this information the total cash paid in March to settle accounts payable is A) $49,340. B) $67,825. C) $62,905. D) $13,565.

121) Metro, Incorporated sells backpacks. The Company's accountant is preparing the purchases budget for the first quarter operations. Metro maintains ending inventory at 15% of the following month's expected cost of goods sold. Expected cost of goods sold for April is $81,000. All purchases are made on account with 20% of accounts paid in the month of purchase and the remaining 80% paid in the month following the month of purchase. Budgeted cost of goods sold

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January

February

March

$45,500

$61,000

$65,500

Plus: Desired ending inventory

9,150

Inventory needed

54,650

Less: Beginning inventory

(6,825)

Required purchases

$45,550

Based on this information the amount of accounts payable appearing on the March 31 pro forma balance sheet is A) $13,565. B) $54,260. C) $67,825. D) None of these choices are correct.

122) October

November

December

Budgeted Selling and Administrative Expenses Salary Expense Sales Commissions 5% of Sales Insurance Expense Rent Depreciation on equipment Utilities

38,000 19,000 16,000 19,200 22,500 2,500

38,500 19,500 16,000 19,200 22,500 2,700

39,000 19,300 16,000 19,200 22,500 2,900

Total Operating Expenses

117,200

118,400

118,900

Schedule of Cash Payments for Selling and Administrative Expenses Salary Expense 100% of Prior Month Sales Commissions Insurance Expense Rent 100% of Prior Months Utilities Expense

? 19,100 16,000 ? 2,600

38,500 ? 16,000 ? ?

? ? 16,000 19,200 ?

Total Payments for Selling and Administrative Expenses

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The amount of cash paid for Selling and Administrative expenses during the month of November is:

A) $95,200 B) $100,600 C) $98,700 D) $105,800

123) October

November

December

Budgeted Selling and Administrative Expenses Salary Expense Sales Commissions 5% of Sales Insurance Expense Rent Depreciation on equipment Utilities

10,000 5,000 2,000 2,400 1,500 1,100

10,500 5,500 2,000 2,400 1,500 1,300

11,000 5,300 2,000 2,400 1,500 1,500

Total Operating Expenses

22,000

23,200

23,700

Schedule of Cash Payments for Selling and Administrative Expenses Salary Expense 100% of Prior Month Sales Commissions Insurance Expense Rent 100% of Prior Months Utilities Expense

? 5,100 2,000 ? 1,200

10,500 ? 2,000 ? ?

? ? 2,000 2,400 ?

Total Payments for Selling and Administrative Expenses

The amount of cash paid for S&A expenses during the month of November is: A) $21,000 B) $22,200 C) $21,700 D) $23,200

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124) The following budget information is available for the HD Sales Company (HDC) for January: Sales

$400,000

Freight out Depreciation on Administrative Equipment Sales & Administrative Salaries Advertising

$0.20 $18,000

per unit sold

$49,600 $20,000

+ 3% of sales

Depreciation on Manufacturing Equipment Lease on Sales Building

$23,000

Miscellaneous Selling Expenses

$6,600

$48,200

All operating expenses are paid in cash in the month incurred. If HDC expects to sell 28,000 units of inventory, the total budgeted selling and administrative expenses would be what amount on the January pro forma income statement? A) $160,000 B) $142,000 C) $183,000 D) $338,000

125)

The following budget information is available for the HD Sales Company for January:

Sales

$395,000

Freight out Depreciation on Administrative Equipment Sales & Administrative Salaries Advertising

$0.25 $17,500

per unit sold

$49,000 $19,500

+ 2% of sales

Depreciation on Manufacturing Equipment Lease on Sales Building

$22,500

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$48,000

Miscellaneous Selling Expenses

$6,500

Based on January sales of 27,500, the amount of HD's expected cash outflow for selling and administrative expenses would be A) $160,275. B) $137,775. C) $155,275. D) $155,625.

126) Overhead expenses are budgeted at $6,000 per month. Included in the $6,000 are $2,500 of monthly depreciation expense and $1,200 of allocated expenses related to the insurance premium that is paid in September. What is the cash outflow for overhead for the month of May? A) $5,200 B) $1,500 C) $1,200 D) $2,300

127) Durango Company reported the following on the selling and administrative expense budget. Salaries and utilities are paid in the month following their occurrence. How much should Durango Company budget for cash disbursements for selling and administrative expenses for the month of November? Salary Expense Utility Expense Depreciation Expense

October

November

$ 112,000 $ 32,000 $ 21,000

$ 212,000 $ 14,000 $ 21,000

A) $226,000 B) $247,000 C) $144,000 D) $165,000

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128) Durango Company reported the following on the selling and administrative expense budget. Salaries and utilities are paid in the month following their occurrence. How much should Durango Company budget for cash disbursements for selling and administrative expenses for the month of November? Salary Expense Utility Expense Depreciation Expense

October

November

$ 100,000 $ 20,000 $ 15,000

$ 200,000 $ 8,000 $ 15,000

A) $135,000 B) $120,000 C) $208,000 D) $223,000

129) October

November

December

Budgeted Selling and Administrative Expenses Salary Expense Sales Commissions 5% of Sales Insurance Expense Rent Depreciation on equipment Utilities

48,000 24,000 21,000 25,200 30,000 3,000

48,500 24,500 21,000 25,200 30,000 3,200

49,000 24,300 21,000 25,200 30,000 3,400

Total Operating Expenses

151,200

152,400

152,900

Schedule of Cash Payments for Selling and Administrative Expenses Salary Expense 100% of Prior Month Sales Commissions Insurance Expense Rent 100% of Prior Months Utilities Expense Total Payments for Selling and

? 24,100 21,000 ? 3,100

48,500 ? 21,000 ? ?

? ? 21,000 25,200 ?

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Administrative Expenses

What is the amount of sales commissions payable that the company will report on its pro forma balance sheet at the end of the fourth quarter? A) $24,000 B) $49,000 C) $24,300 D) $24,500

130) October

November

December

Budgeted Selling and Administrative Expenses Salary Expense Sales Commissions 5% of Sales Insurance Expense Rent Depreciation on equipment Utilities

10,000 5,000 2,000 2,400 1,500 1,100

10,500 5,500 2,000 2,400 1,500 1,300

11,000 5,300 2,000 2,400 1,500 1,500

Total Operating Expenses

22,000

23,200

23,700

? 5,100 2,000 ? 1,200 ?

10,500 ? 2,000 ? ? ?

? ? 2,000 2,400 ? ?

What is the amount of sales commissions payable that the company will report on its pro forma balance sheet at the end of the fourth quarter?

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A) $5,500 B) $5,000 C) $5,300 D) $11,000

131) October

November

December

Budgeted Selling and Administrative Expenses Salary Expense Sales Commissions 5% of Sales Insurance Expense Rent Depreciation on equipment Utilities

40,000 20,000 17,000 20,400 24,000 2,600

40,500 20,500 17,000 20,400 24,000 2,800

41,000 20,300 17,000 20,400 24,000 3,000

Total Operating Expenses

124,000

125,200

125,700

? 20,100

40,500 ?

? ?

17,000 ? 2,700

17,000 ? ?

17,000 20,400 ?

What is the total amount of Selling and Administrative expenses for the fourth quarter that the company will report on its pro forma income statement? A) $374,900 B) $302,400 C) $125,700 D) $302,900

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132) October

November December

Budgeted Selling and Administrative Expenses Salary Expense Sales Commissions 5% of Sales Insurance Expense Rent Depreciation on equipment Utilities

10,000 5,000 2,000 2,400 1,500 1,100

10,500 5,500 2,000 2,400 1,500 1,300

11,000 5,300 2,000 2,400 1,500 1,500

Total Operating Expenses

22,000

23,200

23,700

Schedule of Cash Payments for Selling and Administrative Expenses Salary Expense 100% of Prior Month Sales Commissions Insurance Expense Rent 100% of Prior Months Utilities Expense

? 5,100 2,000 ? 1,200

10,500 ? 2,000 ? ?

? ? 2,000 2,400 ?

Total Payments for Selling and Administrative Expenses

What is the total amount of Selling and Administrative expenses for the fourth quarter that the company will report on its pro forma income statement? A) $64,400 B) $68,900 C) $23,700 D) $63,900

133) October Budgeted Selling and Administrative Expenses Salary Expense

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15,000

November December

15,500

16,000

Sales Commissions 5% of Sales Insurance Expense Rent Depreciation on equipment Utilities

6,000 7,000 4,400 2,500 3,100

6,500 7,000 4,400 2,500 3,300

6,300 7,000 4,400 2,500 3,500

Total Operating Expenses

38,000

39,200

39,700

? 15,100 7,000 ? 2,200 ?

15,500 ? 7,000 ? ? ?

? ? 7,000 4,400 ? ?

What is the amount of accumulated depreciation that the company will report on its fourth quarter, pro forma balance sheet? A) $5,000 B) $7,500 C) $2,500 D) $30,000

134) October

November December

Budgeted Selling and Administrative Expenses Salary Expense Sales Commissions 5% of Sales Insurance Expense Rent Depreciation on equipment Utilities

10,000 5,000 2,000 2,400 1,500 1,100

10,500 5,500 2,000 2,400 1,500 1,300

11,000 5,300 2,000 2,400 1,500 1,500

Total Operating Expenses

22,000

23,200

23,700

Schedule of Cash Payments for Selling and Administrative Expenses

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Salary Expense 100% of Prior Month Sales Commissions Insurance Expense Rent 100% of Prior Months Utilities Expense Total Payments for Selling and Administrative Expenses

? 5,100 2,000 ? 1,200 ?

10,500 ? 2,000 ? ? ?

? ? 2,000 2,400 ? ?

What is the amount of accumulated depreciation that the company will report on its fourth quarter, pro forma balance sheet? A) $1,500 B) $3,000 C) $4,500 D) $18,000

135)

Inventory purchases on account are given below: October 41,000

November 56,500

December 55,500

70% of the month's purchases will be paid in the month of the purchase; the remaining 30% will be paid in the following month. Assume there were no purchases made prior to October. How much will the cash outflow for inventory purchases be on the pro forma statement of cash flows? A) $136,350 B) $97,500 C) $153,000 D) $112,000

136)

Inventory purchases on account are given below: October 30,000

November 40,000

December 50,000

90% of the month's purchases will be paid in the month of the purchase; the remaining 10% will be paid in the following month. How much will the cash outflow for inventory purchases be on the pro forma statement of cash flows?

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A) $90,000 B) $115,000 C) $120,000 D) $70,000

137) Valley Farm Supply started the period with $140,000 cash. Cash receipts for January were expected to total $494,000. Cash disbursements for January were expected to be $410,000. What is the expected cash balance at the end of January?

A) $224,000 B) $494,000 C) $140,000 D) $410,000

138) Valley Farm Supply started the period with $80,000 cash. Cash receipts for January were expected to total $350,000. Cash disbursements for January were expected to be $290,000. What is the expected cash balance at the end of January?

A) $290,000 B) $350,000 C) $80,000 D) $140,000

139) Cash receipts for January are expected to total $182,000. Cash disbursements for January are expected to be $163,500. The company's minimum desired cash balance is $21,000. It started the period with $46,000. What is the expected cash balance at the end of January?

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A) $25,000 B) $64,500 C) $21,000 D) $228,000

140)

The following information is drawn from Royal Industries' cash budget:

Cash Receipts Beginning Cash Balance Cash Payments Desired Ending Cash Cushion

$41,300 $23,000 $52,000 $18,000

If there is a cash shortage, the company borrows money. If a surplus occurs funds are used to repay loans or to invest in short-term assets. The company had no debt before January 1st. The amount "needed" to borrow or the amount "available" for repayment of debt in January would be A) $30,300 available. B) $28,700 needed. C) $5,700 needed. D) $12,300 available.

141)

Royal Industries has budgeted the following information for January:

Cash Receipts Beginning Cash Balance Cash Payments Desired Ending Cash Cushion

$41,400 $24,000 $52,300 $19,000

If there is a cash shortage, the company borrows money. If a surplus occurs, funds are used to repay loans or to invest in short-term assets. All borrowing, repayments, and interest payments occur on the last day of the month. The company had no debt before January 1. The interest rate is 2.50% per month. The amount of interest expense incurred for January is: A) $327.50. B) $147.50. C) $475.00. D) None of these choices are correct.

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142)

Royal Industries has budgeted the following information for January:

Cash Receipts Beginning Cash Balance Cash Payments Desired Ending Cash Cushion

$41,600 $26,000 $52,900 $21,000

If there is a cash shortage, the company borrows money. If a surplus occurs funds are used to repay loans or to invest in short-term assets. All borrowing, repayments, and interest payments occur on the last day of the month. The interest rate is 2.00% per month. The company had no debt before January 1st. The amount of interest paid in February would be A) $126. B) $630. C) $2,100. D) $210.

143) Total cash receipts equal $52,000, total cash payments equal $16,000, beginning cash equals $22,000 and ending cash equals $24,000. The total cash available is

A) $38,000 B) $74,000 C) $62,000 D) $68,000

144) Total cash receipts equal $50,000, total cash payments equal $14,000, beginning cash equals $20,000 and ending cash equals $22,000. The total cash available is

A) $34,000 B) $70,000 C) $56,000 D) $64,000

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145) Total cash disbursements for inventory is $28,500, for selling and administrative expenses is $38,500, and for a capital expenditure is $68,500. What are the total cash disbursements on the cash budget?

A) $67,000 B) $135,500 C) $97,000 D) $107,000

146) Total cash disbursements for inventory is $20,000, for selling and administrative expenses is $30,000, and for a capital expenditure is $60,000. What are the total cash disbursements on the cash budget?

A) $50,000 B) $80,000 C) $110,000 D) $90,000

147) Durango Company has cash receipts of $138,000 and total cash disbursements of $123,500. Durango Company started with a beginning cash balance of $12,000 and desires an ending cash balance of $14,000. Durango Company can borrow money in $2,600 increments. How much does Durango Company need to borrow?

A) $10,600 B) $19,200 C) $25,200 D) $0

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148) Durango Company has cash receipts of $130,000 and total cash disbursements of $115,500. Durango Company started with a beginning cash balance of $8,000 and desires an ending cash balance of $10,000. Durango Company can borrow money in $1,000 increments. How much does Durango Company need to borrow?

A) $13,000 B) $0 C) $22,000 D) $12,000

149)

Spartan Industries has budgeted the following information for January:

Cash Receipts

$ 42,800

Beginning Cash Balance

$ 15,800

Cash Payments

$ 60,800

Desired Ending Cash Balance

$ 10,800

If there is not enough cash on hand to meet the desired ending balance, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,400 increments. Interest is paid monthly on the first day of the following month. The interest rate is 1 percent per month. The company had no debt before January 1. The shortage or surplus of cash before considering cash borrowed or interest payments in January would be a:

A) $2,200 shortage. B) $8,600 surplus. C) $2,200 surplus. D) $8,600 shortage.

150)

Spartan Industries has budgeted the following information for January:

Cash Receipts

$ 42,000

Beginning Cash Balance

$ 15,000

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Cash Payments

$ 60,000

Desired Ending Cash Balance

$ 10,000

If there is not enough cash on hand to meet the desired ending balance, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments. Interest is paid monthly on the first day of the following month. The interest rate is 1 percent per month. The company had no debt before January 1. The shortage or surplus of cash before considering cash borrowed or interest payments in January would be a:

A) $3,000 surplus. B) $3,000 shortage. C) $7,000 surplus. D) $7,000 shortage.

151)

Spartan Industries has budgeted the following information for January:

Cash Receipts

$ 44,400

Beginning Cash Balance

$ 17,400

Cash Payments

$ 62,400

Desired Ending Cash Balance

$ 12,400

If there is not enough cash on hand to meet the desired ending balance, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $2,200 increments. Interest is paid monthly on the first day of the following month. The interest rate is 1 percent per month. The company had no debt before January 1. The ending cash balance on January 31 would be: A) $12,400. B) $600. C) $11,800. D) $6,200.

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152)

Spartan Industries has budgeted the following information for January:

Cash Receipts

$ 42,000

Beginning Cash Balance

$ 15,000

Cash Payments

$ 60,000

Desired Ending Cash Balance

$ 10,000

If there is not enough cash on hand to meet the desired ending balance, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments. Interest is paid monthly on the first day of the following month. The interest rate is 1 percent per month. The company had no debt before January 1. The ending cash balance on January 31 would be: A) $5,000. B) $10,000. C) $3,000. D) $7,000.

153)

Spartan Industries has budgeted the following information for January:

Cash Receipts

$ 44,800

Beginning Cash Balance

$ 19,200

Cash Payments

$ 67,000

Desired Ending Cash Balance

$ 13,200

If there is not enough cash on hand to meet the desired ending balance, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,700 increments. Interest is paid monthly on the first day of the following month. The interest rate is 1 percent per month. The company had no debt before January 1. The amount of interest paid in February would be: A) $60. B) $132. C) $102. D) $0.

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154)

Spartan Industries has budgeted the following information for January:

Cash Receipts

$ 42,000

Beginning Cash Balance

$ 15,000

Cash Payments

$ 60,000

Desired Ending Cash Balance

$ 10,000

If there is not enough cash on hand to meet the desired ending balance, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments. Interest is paid monthly on the first day of the following month. The interest rate is 1 percent per month. The company had no debt before January 1. The amount of interest paid in February would be: A) $50. B) $100. C) $0. D) $70.

155)

Which section isnot included on the cash budget?

A) Investing B) Cash payments C) Cash receipts D) Financing

156)

Which of the following statements is true?

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A) Participative budgeting means that a company's budget should be prepared by lowerlevel employees. B) The attitudes and actions of upper-level management have little impact on the effectiveness of a company's budget. C) Employees often find that budgets are constraining and limiting. D) In preparing a budget, information flows occur only from the bottom up.

157)

Select theincorrect statement regarding the cash budget.

A) The cash budget helps managers to anticipate cash shortages and excess cash balances. B) Cash inflows and outflows indicated on the cash budget are reported on a company's pro forma statement of cash flows. C) Cash payments may include outflows for inventory, selling and administrative expenses, and equipment purchases. D) The total cash available is calculated by adding cash receipts and the ending cash balance.

158) Pro forma financial statements are financial statements that are prepared based on budgeted future amounts. ⊚ ⊚

159)

true false

The capital budget does not affect any of a company's operating budgets. ⊚ ⊚

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true false

160) The responsibility for the coordination of a company's budgeting activities normally rests with the Chief Financial Officer (CFO). ⊚ ⊚

true false

161) The nature of planning changes with the length of the time period being considered. Generally, the shorter the time period, the more general the plans. ⊚ ⊚

162)

true false

Strategic planning deals with the establishment of long-term company objectives. ⊚ ⊚

true false

163) Under continuous budgeting, a new month is added to the end of the budget period each time the present month expires, so that a twelve-month budget is available at all times. ⊚ ⊚

true false

164) Four purposes or advantages for budgeting are planning, coordination, performance measurement, and punitive action. ⊚ ⊚

true false

165) Janice was questioned recently about her department's spending in excess of the budget. This is an example of using the budget for performance measurement.

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⊚ ⊚

true false

166) The three major components of the master budget are the financial budgets, the capital budgets, and the pro forma financial statements. ⊚ ⊚

167)

true false

The master budget generally starts with a sales forecast. ⊚ ⊚

true false

168) One advantage of participatory budgeting is that it allows subordinates to perform the budgeting function, thus freeing up upper management for more important tasks. ⊚ true ⊚ false

169) Vector Company seeks input from salespeople regarding the number of units they believe they can sell during the upcoming budget period. This is an example of participative budgeting. ⊚ ⊚

true false

170) In a participative budgeting system, budget information flows in both directions, from bottom to top and from top to bottom. ⊚ ⊚

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true false

171) If a budgeting system is designed correctly, top management will not have to get involved in the process. ⊚ ⊚

172)

The first budget prepared in a master budget is the cash receipts budget. ⊚ ⊚

173)

true false

A schedule of cash receipts is often prepared in conjunction with the sales budget. ⊚ ⊚

174)

true false

The marketing department is primarily responsible for establishing the sales forecast. ⊚ ⊚

true false

175) If a company purchases its inventory on account, it need not prepare a schedule of cash payments for inventory purchases. ⊚ ⊚

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true false

176) Although only 20 units are on hand at the beginning of the year, World Company plans to sell 100 units during Year 2. Assuming the company desires an ending inventory of 10 units, it should plan to purchase 110 units. ⊚ true ⊚ false

177) Interest expense is not included in the selling and administrative budget because a company cannot estimate interest expense until it prepares the cash budget and makes borrowing projections. ⊚ ⊚

178)

true false

The selling and administrative expense budget is prepared prior to the cash budget. ⊚ ⊚

true false

179) Depreciation expense will appear on the schedule of cash payments for selling and administrative expenses. ⊚ ⊚

true false

180) The basic cash budget format is Total cash available − Total cash disbursed = Surplus or shortage of cash +/ − Effects of financing = Ending cash. ⊚ true ⊚ false

181) The cash budget includes three sections: (1) operating activities, (2) investing activities, and (3) financing activities.

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⊚ ⊚

182)

true false

The cash budget is not the same as the pro forma cash flow statement. ⊚ ⊚

true false

183) Pro forma financial statements are prepared at the end of the year and are used to evaluate the performance of managers. ⊚ ⊚

true false

184) The pro forma income statement gives managers an advance estimate of a company's profitability. ⊚ ⊚

true false

185) If a financial statement is labeled "pro forma," this means that the statement was prepared by a professional accountant (usually the firm's auditor) following a prescribed format. ⊚ true ⊚ false

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Answer Key Test name: Chap 07_10e_Edmonds 1) B 2) D 3) A 4) A 5) B 6) D 7) A 8) B 9) B 10) C 11) A 12) B 13) B 14) C 15) A 16) D 17) C 18) B 19) C 20) B 21) A 22) C 23) A 24) C 25) A 26) B Version 1

27) D 28) D 29) A 30) B 31) B 32) D 33) D 34) A 35) D 36) C 37) C 38) A 39) A 40) B 41) B 42) D 43) D 44) C 45) B 46) D 47) A 48) A 49) A 50) D 51) B 52) D 53) B 54) D 55) D 56) B Version 1

57) B 58) C 59) C 60) A 61) C 62) C 63) A 64) B 65) A 66) D 67) C 68) B 69) B 70) B 71) C 72) A 73) D 74) A 75) D 76) A 77) D 78) D 79) B 80) C 81) A 82) A 83) B 84) A 85) D 86) D Version 1

87) C 88) D 89) B 90) D 91) B 92) D 93) C 94) B 95) C 96) A 97) A 98) A 99) B 100) A 101) C 102) D 103) B 104) C 105) D 106) C 107) D 108) B 109) A 110) A 111) B 112) D 113) A 114) A 115) C 116) B Version 1

117) C 118) A 119) C 120) C 121) B 122) A 123) A 124) A 125) B 126) D 127) C 128) B 129) C 130) C 131) A 132) B 133) D 134) D 135) A 136) B 137) A 138) D 139) B 140) C 141) D 142) A 143) B 144) B 145) B 146) C Version 1

147) D 148) B 149) A 150) B 151) A 152) B 153) C 154) D 155) A 156) C 157) D 158) TRUE 159) FALSE 160) FALSE 161) FALSE 162) TRUE 163) TRUE 164) FALSE 165) TRUE 166) FALSE 167) TRUE 168) FALSE 169) TRUE 170) TRUE 171) FALSE 172) FALSE 173) TRUE 174) TRUE 175) FALSE 176) FALSE Version 1

177) TRUE 178) TRUE 179) FALSE 180) TRUE 181) FALSE 182) TRUE 183) FALSE 184) TRUE 185) FALSE

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Chapter 8 Performance Evaluation 1)

A budget prepared at a single volume of activity is referred to as a: A) Strategic budget. B) Standard budget. C) Static budget. D) Flexible budget.

Select the incorrect statement regarding flexible budgets. A) Flexible budgets often show the estimated revenues and costs at multiple volume

levels. B) A flexible budget is used to compare actual to budgeted amounts. C) A flexible budget is also known as a master budget. D) Standard prices and costs are used in preparing a flexible budget.

3) Which of the following income statement formats is most commonly used with flexible budgeting? A) Sales − Variable costs = Contribution margin; Contribution margin − Fixed costs = Net income B) Sales − Cost of goods sold = Gross margin; Gross margin − Operating expenses = Net income C) Sales − Manufacturing costs − Selling and administrative costs = Net income D) None of these answers are correct.

4) Spark Company's static budget is based on a planned activity level of 46,000 units. At the same time the static budget was prepared, the management accountant prepared two additional budgets, one based on 41,000 units and one based on 51,000. The company actually produced and sold 50,000 units. In evaluating its performance, management should compare the company's actual revenues and costs to which of the following budgets?

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A) A budget based on 41,000 units B) A budget based on 46,000 units C) A budget based on 51,000 units D) A budget based on 50,000 units

5) Jones Company developed the following static budget at the beginning of the company's accounting period: Revenue (8,000 units) Variable costs

$ 16,000 4,000

Contribution margin Fixed costs

$ 12,000 4,000

Net income

$ 8,000

If actual production totals 8,400 units, the flexible budget would show total costs of: A) $16,400. B) $8,200. C) $8,300. D) None of these answers are correct.

6) Jones Company developed the following static budget at the beginning of the company's accounting period: Revenue (8,000 units) Variable costs

$ 16,000 4,000

Contribution margin Fixed costs

$ 12,000 4,000

Net income

$ 8,000

If actual production totals 8,200 units, the flexible budget would show total costs of: A) $8,000. B) $8,100. C) $8,200. D) None of these are correct.

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7) Spark Company's static budget is based on a planned activity level of 45,000 units. At the same time the static budget was prepared, the management accountant prepared two additional budgets, one based on 40,000 units and one based on 50,000. The company actually produced and sold 49,000 units. In evaluating its performance, management should compare the company's actual revenues and costs to which of the following budgets? A) A budget based on 40,000 units B) A budget based on 45,000 units C) A budget based on 49,000 units D) A budget based on 50,000 units

Static and flexible budgets are similar in that: A) They both are based on the same per-unit variable amounts and the same fixed costs. B) They both concentrate solely on costs. C) They both are prepared for multiple activity levels. D) None of these answers are correct.

Which of the following applications is most suited for developing flexible budgets? A) Database B) Graphics C) Spreadsheet D) Word processing

10) Burruss Company developed a static budget at the beginning of the company's accounting period based on an expected volume of 5,000 units: Per Unit Revenue Variable costs

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$ 7.00 2.50

Contribution margin Fixed costs Net income

$ 4.50 3.00 $ 1.50

If actual production totals 6,000 units, which is within the relevant range, the flexible budget would show fixed costs of: A) $15,000. B) $3 per unit. C) $18,000. D) None of these answers are correct.

11) Burruss Company developed a static budget at the beginning of the company's accounting period based on an expected volume of 8,000 units: Per Unit Revenue Variable costs Contribution margin Fixed costs

$ 4.00 1.50 $ 2.50 2.00

Net income

$ 0.50

If actual production totals 10,000 units, which is within the relevant range, the flexible budget would show fixed costs of: A) $16,000. B) $2 per unit. C) $20,000. D) None of these answers are correct.

12) The cost accountant for Carlos Candies, Incorporated prepared the following static budget based on expected activity of 5,200 units: Revenues Variable Costs

$ 174,000 (130,000)

Contribution Margin Fixed Costs

44,000 (26,000)

Net Income

$ 18,000

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If Carlos actually produced 3,100 units, the flexible budget would show variable costs of A) $74,666. B) $44,000. C) $130,000. D) $77,500.

13) The cost accountant for Carlos Candies, Incorporated prepared the following static budget based on expected activity of 5,200 units: Revenues Variable Costs

$ 174,000 (130,000)

Contribution Margin Fixed Costs

44,000 (26,000)

Net Income

$ 18,000

If Carlos actually produced 3,800 units, the flexible budget would show fixed costs amounting to A) $27,800. B) $26,000. C) $156,000. D) None of these answers are correct.

14)

Amanda Manufacturing Company prepared the following static budget income statement:

Revenues Variable Costs

$ 362,250.00 (247,250.00)

Contribution Margin Fixed Costs

115,000.00 (56,000.00)

Net Income

$ 59,000.00

The budgeted costs were based on a planned sales volume of 11,500 units. Actual production was 7,300 units. The amount of net income based on a flexible budget of 7,300 units would have been

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A) $9,700.00. B) $11,700.00. C) $17,000.00. D) $191,250.00.

15) Musa Company prepared the following static budget based on sales projections of 8,000 units: Revenue Variable costs Contribution margin Fixed costs Net income

$ 56,000 33,000 23,000 6,200 16,800

What would be reported for net income on a flexible budget, assuming 16,000 units were sold? A) $29,200 B) $39,800 C) $46,000 D) $33,000

16) Musa Company prepared the following static budget based on sales projections of 5,000 units: Revenue Variable costs Contribution margin Fixed costs Net income

$ 50,000 30,000 20,000 5,000 15,000

What would be reported for net income on a flexible budget, assuming 10,000 units were sold? A) $35,000 B) $40,000 C) $30,000 D) $25,000

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17) Jaylon Company prepared the following static budget based on sales projections of 4,600 units: Revenue Variable costs Contribution margin Fixed costs Net income

$ 69,000 39,500 29,500 10,700 18,800

What would be reported for contribution margin on a flexible budget, assuming 9,800 units were sold? Note: Round your intermediate calculations to two decimal places. A) $40,200 B) $98,500 C) $62,818 D) $84,182

18) Jaylon Company prepared the following static budget based on sales projections of 4,000 units: Revenue Variable costs Contribution margin Fixed costs Net income

$ 50,000 30,000 20,000 5,000 15,000

What would be reported for contribution margin on a flexible budget, assuming 6,000 units were sold? Note: Round your intermediate calculations to two decimal places. A) $25,000 B) $30,000 C) $45,000 D) $70,000

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19) Ray’s cost accountant prepared the following static budget based on expected activity of 2,560 units for the current accounting period: Sales Revenue

$ 40,960

Variable Costs

(15,360)

Contribution Margin

25,600

Fixed Costs

(10,240)

Net Income

$ 15,360

If Ray actually produced 2,060 units, the flexible budget would show variable costs of A) $30,720 B) $12,360 C) $32,000 D) $15,360

20) Ray’s cost accountant prepared the following static budget based on expected activity of 2,000 units for the current accounting period: Sales Revenue

$ 32,000

Variable Costs

(12,000)

Contribution Margin

20,000

Fixed Costs

(8,000)

Net Income

$ 12,000

If Ray actually produced 1,500 units, the flexible budget would show variable costs of A) $9,000 B) $12,000 C) $24,000 D) $15,000

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21) Ray’s cost accountant prepared the following static budget based on expected activity of 2,200 units for the current accounting period: Sales Revenue

$ 35,200

Variable Costs

(13,200)

Contribution Margin

22,000

Fixed Costs

(8,800)

Net Income

$ 13,200

If Ray actually produced 1,700 units, the flexible budget would show fixed costs amounting to A) $16,500 B) $9,900 C) $8,800 D) $6,600

22) Ray’s cost accountant prepared the following static budget based on expected activity of 2,000 units for the current accounting period: Sales Revenue

$ 32,000

Variable Costs

(12,000)

Contribution Margin

20,000

Fixed Costs

(8,000)

Net Income

$ 12,000

If Ray actually produced 1,800 units, the flexible budget would show fixed costs amounting to A) $15,000 B) $9,000 C) $6,000 D) $8,000

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23)

When would a variance be labeled as favorable? A) When actual costs are less than standard costs B) When standard costs are equal to actual costs C) When standard costs are less than actual costs D) When estimated costs are greater than actual costs

24)

When would a variance be labeled as unfavorable? A) When standard costs are more than actual costs B) When expected sales are less than actual sales C) When actual sales are equal to expected sales D) None of these answers are correct.

25) Assuming actual volume is 15,000 units and planned volume is 19,500 units, the sales volume variance in units: A) Equals 4,500 units unfavorable. B) Equals 4,500 units favorable. C) Cannot be determined without additional information. D) None of these answers are correct.

26) Assuming actual volume is 10,000 units and planned volume is 12,000 units, the sales volume variance in units: A) Equals 2,000 units unfavorable. B) Equals 2,000 units favorable. C) Cannot be determined without additional information. D) None of these answers are correct.

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27) Sherman Company reported the following variances in Year 2. Which of the variances would be considered unfavorable? Standard Sales price Labor cost Materials cost Labor usage

$ 18 $ 6 $ 4 12,000

Actual

per unit per unit per unit hours

$ 16 $ 5 $ 2 8,000

per unit per unit per unit hours

A) labor usage B) materials cost C) labor cost D) sales price

28) Larson Company reported the following variances in Year 2. Which of the variances would be considered favorable? Standard Sales volume Fixed cost Materials usage Labor cost

30,000 $ 40,000 5,000 $ 12

units

Actual 25,000 $ 36,500

pounds per hour

4,600 $ 14

units

pounds per hour

A) materials usage and fixed cost B) labor cost and sales volume C) labor cost and fixed cost D) sales volume, fixed cost and materials usage

29)

Volume variances are computed for which of the following costs? A) Fixed manufacturing costs only B) Variable selling and administrative costs only C) Variable manufacturing and selling and administrative costs D) Variable manufacturing costs only

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30) A difference between the static budget based on planned volume and a flexible budget prepared at actual volume is called a: A) Flexible budget variance. B) Static budget variance. C) Production activity variance. D) Volume variance.

31)

The following static budget is provided: Per Unit

Total

Sales Less variable costs:

$ 50

$ 750,000

Manufacturing costs Selling and administrative costs Contribution margin

20 10 $ 20

300,000 150,000 $ 300,000

Less fixed costs: Manufacturing costs

77,000

Selling and administrative costs

127,000

Total fixed costs

204,000

Net income

$ 96,000

What will be the overall volume variance if 13,000 units are produced and sold? A) $40,000 U B) $112,000 U C) $112,000 F D) $136,000 U

32)

The following static budget is provided:

Version 1

Sales Less variable costs: Manufacturing costs Selling and administrative costs Contribution margin

Per Unit

Total

$ 60

$ 900,000

30 10

450,000 150,000

$ 20

$ 300,000

Less fixed costs: Manufacturing costs

75,000

Selling and administrative costs

125,000

Total fixed costs

200,000

Net income

$ 100,000

What will be the overall volume variance if 12,000 units are produced and sold? A) $80,000 F B) $80,000 U C) $60,000 U D) $160,000 U

33)

The following static budget is provided:

Units Sales

20,000 Units $ 240,000

Less variable costs: Manufacturing costs

$ 72,000

Selling and administrative costs

$ 40,000

Contribution margin

$ 128,000

Less fixed costs: Manufacturing costs

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$ 38,000

Selling and administrative costs Net Income

$ 23,000 $ 67,000

What will budgeted net income equal if 21,000 units are produced and sold? Note: Do not round intermediate calculations.

A) $70,350 B) $252,000 C) $73,400 D) $134,400

34)

The following static budget is provided:

Units Sales

20,000 Units $ 200,000

Less variable costs: Manufacturing costs

$ 70,000

Selling and administrative costs

$ 40,000

Contribution margin

$ 90,000

Less fixed costs: Manufacturing costs

$ 22,000

Selling and administrative costs

$ 17,000

Net Income

$ 51,000

What will budgeted net income equal if 21,000 units are produced and sold? Note: Do not round intermediate calculations. A) $53,550 B) $55,500 C) $94,500 D) $210,000

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35)

Select the incorrect statement.

A) If both the flexible budget and actual results are based on the actual volume of activity, the flexible budget sales variance will be attributable to sales price, not sales volume. B) Budget slack is the difference between deflated and realistic standards. C) Gamesmanship is decreased if superiors and subordinates participate sincerely in setting mutually agreeable, attainable standards. D) For performance evaluation, management should compare actual results to a flexible budget based on the actual volume of activity.

36)

Select the incorrect statement concerning the human factor of performance evaluation.

A) Variances should not be used to single out managers for punishment. B) Variances must be analyzed carefully to ensure that they are fully understood. C) Just because a cost variance is labeled as favorable doesn't necessarily mean that the manager should be commended for a job well done. D) Managers should always be punished for unfavorable variances.

37) Sometimes employees will deliberately overstate the amount of materials and/or labor that should be required to complete a job. The difference between inflated and realistic standards is known as: A) Budget slack. B) Making the numbers. C) Lowballing. D) Cooking the books.

38) Sometimes the sales staff will deliberately underestimate the amount of expected sales. This practice is known as:

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A) making the numbers. B) cooking the books. C) lowballing. D) budget slack.

39)

Which of the following can reduce the amount of employees' budget gamesmanship? A) Have superiors and subordinates participate in the standard-setting process. B) Incorporate standards into the firm's evaluation system. C) Avoid using standards for punitive purposes. D) All of these answers are correct.

40) Which of the following factors should be considered in establishing standards for use with a standard costing system? A) Historical data. B) Current and planned technology, plant layout, and operating procedures. C) Behavioral implications. D) All of these answers are correct.

41)

Standard cost systems facilitate the management practice known as: A) Management by the numbers. B) Management development. C) Management by exception. D) Just-in-time management.

42)

Which range of difficulty should normally be used to develop standards?

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A) Practical standards B) Lax standards C) Ideal standards D) Inflated standards

43) All of the following factors should influence the decision to investigate a variance except: A) Frequency of occurrence. B) Materiality of the variance amount. C) The direction of the variance (favorable or unfavorable). D) Capacity for management to control.

44)

Which of the following is not an advantage of using a standard cost system? A) Promotes the efficient use of management talent to control costs B) Provides immediate feedback that permits rapid response to problems C) The easiest cost system to develop and maintain D) Can boost morale and motivate employees

45)

The Russell Company provides the following standard cost data per unit of product:

Direct material (3 gallons @ $5 per gallon) Direct labor (2 hours @ $12 per hour)

$ 15.00 $ 24.00

During the period, the company produced and sold 26,000 units, incurring the following costs: Direct material Direct labor

81,000 gallons 52,500 hours

@ @

$ 4.90 per gallon $ 11.75 per hour

The direct labor usage variance was:

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A) $6,000 favorable. B) $6,000 unfavorable. C) $5,875 unfavorable. D) $5,875 favorable.

46)

The Russell Company provides the following standard cost data per unit of product:

Direct material (3 gallons @ $6 per gallon) Direct labor (2 hours @ $10 per hour)

$ 18.00 $ 20.00

During the period, the company produced and sold 22,000 units, incurring the following costs: Direct material Direct labor

68,000 gallons 45,500 hours

@ @

$ 5.90 per gallon $ 9.75 per hour

The direct labor usage variance was: A) $15,000 unfavorable. B) $15,000 favorable. C) $14,625 unfavorable. D) $14,625 favorable.

47)

The Russell Company provides the following standard cost data per unit of product:

Direct material (3 gallons @ $5 per gallon) Direct labor (2 hours @ $12 per hour)

$ 15.00 $ 24.00

During the period, the company produced and sold 26,000 units, incurring the following costs: Direct material Direct labor

81,000 gallons 52,500 hours

@ @

$ 4.90 per gallon $ 11.75 per hour

The direct labor price variance was: A) $13,125 favorable. B) $13,000 favorable. C) $13,125 unfavorable. D) $13,000 unfavorable.

48)

The Russell Company provides the following standard cost data per unit of product:

Version 1

Direct material (3 gallons @ $6 per gallon) Direct labor (2 hours @ $10 per hour)

$ 18.00 $ 20.00

During the period, the company produced and sold 22,000 units, incurring the following costs: Direct material Direct labor

68,000 gallons 45,500 hours

@ @

$ 5.90 per gallon $ 9.75 per hour

The direct labor price variance was: A) $11,000 unfavorable. B) $11,000 favorable. C) $11,375 unfavorable. D) $11,375 favorable.

49)

The Russell Company provides the following standard cost data per unit of product:

Direct material (3 gallons @ $5 per gallon) Direct labor (2 hours @ $12 per hour)

$ 15.00 $ 24.00

During the period, the company produced and sold 26,000 units, incurring the following costs: Direct material Direct labor

81,000 gallons 52,500 hours

@ @

$ 4.90 per gallon $ 11.75 per hour

The direct material usage variance was: A) $15,000 favorable. B) $14,700 favorable. C) $15,000 unfavorable. D) $14,700 unfavorable.

50)

The Russell Company provides the following standard cost data per unit of product:

Direct material (3 gallons @ $6 per gallon) Direct labor (2 hours @ $10 per hour)

$ 18.00 $ 20.00

During the period, the company produced and sold 22,000 units, incurring the following costs: Direct material Direct labor

68,000 gallons 45,500 hours

@ @

$ 5.90 per gallon $ 9.75 per hour

The direct material usage variance was:

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A) $12,000 unfavorable. B) $12,000 favorable. C) $11,800 unfavorable. D) $11,800 favorable.

51)

The Russell Company provides the following standard cost data per unit of product:

Direct material (3 gallons @ $2 per gallon) Direct labor (2 hours @ $11 per hour)

$ 6 $ 22

During the period, the company produced and sold 23,000 units, incurring the following costs: Direct material Direct labor

72,000 gallons 46,500 hours

@ @

$ 1.90 per gallon $ 10.75 per hour

The direct material price variance was: A) $6,900 favorable. B) $6,900 unfavorable. C) $7,200 unfavorable. D) $7,200 favorable.

52)

The Russell Company provides the following standard cost data per unit of product:

Direct material (3 gallons @ $6 per gallon)

$ 18.00

Direct labor (2 hours @ $10 per hour)

$ 20.00

During the period, the company produced and sold 22,000 units, incurring the following costs: Direct material Direct labor

68,000 gallons 45,500 hours

@ @

$ 5.90 per gallon $ 9.75 per hour

The direct material price variance was: A) $6,600 unfavorable. B) $6,600 favorable. C) $6,800 unfavorable. D) $6,800 favorable.

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53)

The Landrum Company provides the following standard cost data per unit of product:

Variable overhead

$ 9

Landrum anticipated that they would produce and sell 26,000 units. During the period, the company produced and sold 27,000 units, incurring $247,000 of variable overhead costs. The variable overhead flexible budget variance was: A) $4,000 favorable. B) $9,000 favorable. C) $4,000 unfavorable. D) $9,000 unfavorable.

54)

The Landrum Company provides the following standard cost data per unit of product:

Variable overhead

$ 8.00

Landrum anticipated that they would produce and sell 24,000 units. During the period, the company produced and sold 25,000 units, incurring $210,000 of variable overhead costs. The variable overhead flexible budget variance was: A) $8,000 unfavorable. B) $10,000 unfavorable. C) $8,000 favorable. D) $10,000 favorable.

55) White Company budgeted for $259,600 of fixed overhead cost and volume of 44,000 units. During the year, the company produced and sold 43,000 units and spent $268,400 on fixed overhead. The fixed overhead cost spending variance is: A) $8,800 unfavorable. B) $8,800 favorable. C) $5,900 favorable. D) $5,900 unfavorable.

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56) White Company budgeted for $200,000 of fixed overhead cost and volume of 40,000 units. During the year, the company produced and sold 39,000 units and spent $210,000 on fixed overhead. The fixed overhead cost spending variance is: A) $10,000 favorable. B) $10,000 unfavorable. C) $5,000 favorable. D) $5,000 unfavorable.

57) White Company budgeted for $259,600 of fixed overhead cost and volume of 44,000 units. During the year, the company produced and sold 43,000 units and spent $268,400 on fixed overhead. The fixed overhead cost volume variance is: A) $5,900 favorable. B) $8,800 favorable. C) $5,900 unfavorable. D) $8,800 unfavorable.

58) White Company budgeted for $200,000 of fixed overhead cost and volume of 40,000 units. During the year, the company produced and sold 39,000 units and spent $210,000 on fixed overhead. The fixed overhead cost volume variance is: A) $10,000 favorable. B) $10,000 unfavorable. C) $5,000 favorable. D) $5,000 unfavorable.

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59) Which of the following equations can be used to compute the total materials variance? (A = Actual; S = Standard; Q = Quantity; P = Price) A) (AQ × AP) − (SQ × SP) B) (SQ × SP) − (SQ × SP) C) (AQ × AP) − (AQ × SP) D) (AQ × SP) − (SQ × SP)

60) Abbot Company spent less than expected for materials and more than expected for labor. Select the incorrect statement from the following. A) You can always expect unfavorable labor variances if you have favorable material variances. B) In order to facilitate cost control, it will be necessary to analyze the price and quantity of each resource used in production. C) It cannot be determined from the information provided whether employees were paid higher wages or if they worked more hours. D) It cannot be determined from the information provided whether the company paid a lower purchase price for materials or if workers used less materials.

61)

The resources used in the manufacturing process are frequently called: A) Variances. B) Standards. C) Inputs. D) Outputs.

62) Select the correct statement from the following, assuming Carmichael Company had a favorable direct materials price variance of $2,000 and an unfavorable direct materials usage variance of $1,400.

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A) The total direct materials variance is $600 unfavorable. B) The total direct materials variance is $600 favorable. C) The total direct materials variance is $3,400 favorable. D) The total direct materials variance is $3,400 unfavorable.

63) Select the correct statement from the following, assuming Carmichael Company had a favorable direct materials price variance of $3,000 and an unfavorable direct materials usage variance of $2,000. A) The total direct materials variance is $1,000 unfavorable. B) The total direct materials variance is $5,000 favorable. C) The total direct materials variance is $5,000 unfavorable. D) The total direct materials variance is $1,000 favorable.

64) Global Company makes a product that is expected to use 2.2 pounds of material per unit of product. The material has a standard cost of $2 per pound. Global actually used 2.3 pounds of material per unit of product made in January. The actual cost of material was $1.95 per pound. Based on this information alone, the materials variances for the January production would be: A) Favorable for price and unfavorable for usage. B) Unfavorable for price and favorable for usage. C) Unfavorable for price and unfavorable for usage. D) Favorable for price and favorable for usage.

65) Shia Company makes a product that is expected to require 3 hours of labor per unit of product. The standard cost of labor is $5.30. Shia actually used 3.10 hours of labor per unit of product. The actual cost of labor was $5.40 per hour. Shia made 1,800 units of product during the period. Based on this information alone, the labor price variance is:

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A) $558 favorable. B) $558 unfavorable. C) $540 favorable. D) $540 unfavorable.

66) Shia Company makes a product that is expected to require 2 hours of labor per unit of product. The standard cost of labor is $5.20. Shia actually used 2.1 hours of labor per unit of product. The actual cost of labor was $5.30 per hour. Shia made 1,000 units of product during the period. Based on this information alone, the labor price variance is: A) $200 unfavorable. B) $200 favorable. C) $210 favorable. D) $210 unfavorable.

67) Kokko Company makes a product that is expected to require 3 hours of labor per unit of product. The standard cost of labor is $7.10. Kokko actually used 3.10 hours of labor per unit of product. The actual cost of labor was $7.35 per hour. Kokko made 1,200 units of product during the period. Based on this information alone, the labor usage variance is: A) $176 favorable. B) $689 favorable. C) $852 unfavorable. D) $639 favorable.

68) Kokko Company makes a product that is expected to require 2 hours of labor per unit of product. The standard cost of labor is $6.00. Kokko actually used 2.1 hours of labor per unit of product. The actual cost of labor was $6.25 per hour. Kokko made 1,100 units of product during the period. Based on this information alone, the labor usage variance is:

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A) $190 favorable. B) $660 unfavorable. C) $600 favorable. D) $660 favorable.

69) The standard amount of materials required to make one unit of Product Q is 5 pounds. Tusa's static budget showed a planned production of 5,000 units. During the period, the company actually produced 5,100 units of product. The actual amount of materials used averaged 4.9 pounds per unit. The standard price of material is $2.00 per pound. Based on this information, the materials usage variance was: A) $1,020 unfavorable. B) $1,020 favorable. C) $980 favorable. D) $980 unfavorable.

70) The standard amount of materials required to make one unit of Product Q is 4 pounds. Tusa's static budget showed a planned production of 3,800 units. During the period, the company actually produced 4,100 units of product. The actual amount of materials used averaged 3.9 pounds per unit. The standard price of material is $1.00 per pound. Based on this information, the materials usage variance was: A) $410 favorable. B) $380 unfavorable. C) $410 unfavorable. D) $380 favorable.

71) The Boyle Company estimated that April sales would be 163,000 units with an average selling price of $7.30. Actual sales for April were 162,000 units, and average selling price was $7.40. The sales revenue flexible budget variance was:

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A) $7,400 favorable. B) $7,300 unfavorable. C) $16,200 unfavorable. D) $16,200 favorable.

72) The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00. Actual sales for April were 149,000 units, and average selling price was $6.12. The sales revenue flexible budget variance was: A) $6,120 favorable. B) $6,000 unfavorable. C) $17,880 favorable. D) $17,880 unfavorable.

73) The Boyle Company estimated that April sales would be 162,000 units with an average selling price of $7.20. Actual sales for April were 161,000 units, and average selling price was $7.30. The sales volume variance was: A) $16,100 unfavorable. B) $16,100 favorable. C) $7,300 favorable. D) $7,200 unfavorable.

74) The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00. Actual sales for April were 149,000 units, and average selling price was $6.12. The sales volume variance was:

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A) $6,120 favorable. B) $6,000 unfavorable. C) $17,880 favorable. D) $17,880 unfavorable.

75) The Ferguson Company estimated that October sales would be 118,000 units with an average selling price of $7.80. Actual sales for October were 123,000 units, and average selling price was $7.75. The sales revenue flexible budget variance was: A) $5,900 unfavorable. B) $6,150 favorable. C) $6,150 unfavorable. D) $5,900 favorable.

76) The Ferguson Company estimated that October sales would be 100,000 units with an average selling price of $6.00. Actual sales for October were 105,000 units, and average selling price was $5.95. The sales revenue flexible budget variance was: A) $5,000 favorable. B) $5,000 unfavorable. C) $5,250 favorable. D) $5,250 unfavorable.

77) Krystal Clean Company had planned to clean 270 houses at an average price of $220 per house. By reducing the service charge to $150 per house, the company was able to increase the actual number of houses cleaned to 377. Based on this information, what is the sales revenue flexible budget variance?

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A) $23,540 unfavorable B) $23,540 favorable C) $26,390 unfavorable D) $26,390 favorable

78) Krystal Clean Company had planned to clean 200 houses at an average price of $150 per house. By reducing the service charge to $115 per house, the company was able to increase the actual number of houses cleaned to 300. Based on this information, what is the sales revenue flexible budget variance? A) $10,500 favorable B) $10,500 unfavorable C) $15,000 favorable D) $15,000 unfavorable

79)

Taunton Company established the following standard price and cost data.

Sales price Variable manufacturing cost Fixed manufacturing cost Fixed selling and administrative cost

$ 21 per unit $ 13 per unit $ 10,500 total $ 8,500 total

The company planned to produce 14,500 units. It actually produced and sold 16,500 units. Assuming, the actual variable manufacturing cost was $14 per unit, what is the variable manufacturing flexible budget variance? A) $16,500 favorable B) $2,000 unfavorable C) $2,000 favorable D) $16,500 unfavorable

80)

Taunton Company established the following standard price and cost data.

Sales price Variable manufacturing cost

Version 1

$ 12 $ 4

per unit per unit 29

Fixed manufacturing cost Fixed selling and administrative cost

$ 6,000 total $ 4,000 total

The company planned to produce 10,000 units. It actually produced and sold 12,000 units. Assuming, the actual variable manufacturing cost was $5 per unit, what is the variable manufacturing flexible budget variance? A) $2,000 favorable B) $2,000 unfavorable C) $12,000 favorable D) $12,000 unfavorable

81) The Ferguson Company estimated that October sales would be 103,000 units with an average selling price of $6.30. Actual sales for October were 108,000 units, and average selling price was $6.25. The sales volume variance was: A) $31,250 unfavorable. B) $31,500 unfavorable. C) $31,250 favorable. D) $31,500 favorable.

82) The Ferguson Company estimated that October sales would be 100,000 units with an average selling price of $6.00. Actual sales for October were 105,000 units, and average selling price was $5.95. The sales volume variance was: A) $30,000 favorable. B) $30,000 unfavorable. C) $29,750 favorable. D) $29,750 unfavorable.

83) Counsel Manufacturing Company prepared the following static budget income statement for 2020: Version 1

Sales Revenue Variable Costs

$133,500 (58,500)

Contribution Margin Fixed Cost

75,000 (38,500)

Net Income

$ 36,500

The budget was based on an expected sales volume of 13,500 units. Actual sales volume was 16,500 units. The sales revenue based on a flexible budget of 16,500 units is expected to be: A) $16,300. B) $77,000. C) $192,000. D) $163,185.

84) Counsel Manufacturing Company prepared the following static budget income statement for 2020: Sales Revenue Variable Costs

$125,000 (50,000)

Contribution Margin Fixed Cost

75,000 (30,000)

Net Income

$ 45,000

The budget was based on an expected sales volume of 5,000 units. Actual sales volume was 8,000 units. The sales revenue based on a flexible budget of 8,000 units is expected to be: A) $175,000. B) $200,000. C) $78,000. D) $60,000.

85) Which of the following equations can be used to compute a labor price variance? (A = Actual; S = Standard; H = Hour; P = Price)

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A) (AH × AP) − (AH × SP) B) (AH × SP) − (SH × SP) C) (AH × AP) − (SH × SP) D) (SH × SP) − (SH × SP)

86)

The following information is provided by the Atlas Company:

Actual direct material cost

$ 33,000

Standard direct material cost

$ 29,000

Direct material usage variance

$ 2,000 unfavorable

What is the direct materials price variance? A) $2,000 favorable B) $6,000 unfavorable C) Not enough information is provided D) $2,000 unfavorable

87)

The following information is provided by the Atlas Company:

Actual direct material cost

$ 20,000

Standard direct material cost

$ 24,000

Direct material usage variance

$ 3,000 favorable

What is the direct materials price variance? A) $1,000 favorable B) $1,000 unfavorable C) $5,000 unfavorable D) Not enough information is provided

88)

The following standard cost card is provided for Navid Company's Product A:

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Direct material (3 pounds @ $3.00 per pound) Direct labor (1 hour @ $7.00 per hour) Variable overhead (1 hour @ $3.00 per hour) Fixed overhead (1 hour @ $3.00 per hour) Total standard cost per unit

$ 9.00 7.00 3.00 3.00 $ 22.00

The fixed overhead rate is based on total budgeted fixed overhead of $13,000. During the period, the company produced and sold 5,600 units at the following costs: Direct material 13,200 pounds @ $2.50 per pound Direct labor 5,350 hours @ $7.00 per hour Overhead $30,020 The standard manufacturing cost per unit is $22.00. What is the actual manufacturing cost per unit? A) $17.94. B) $30.94. C) $14.61. D) Cannot be determined from the information provided.

89)

The following standard cost card is provided for Navid Company's Product A:

Direct material (2 pounds @ $5.00 per pound) Direct labor (1 hour @ $8.00 per hour) Variable overhead (1 hour @ $3.00 per hour) Fixed overhead (1 hour @ $2.00 per hour) Total standard cost per unit

$ 10.00 8.00 3.00 2.00 $ 23.00

The fixed overhead rate is based on total budgeted fixed overhead of $12,000. During the period, the company produced and sold 5,800 units at the following costs: Direct material 12,200 pounds @ $4.80 per pound Direct labor 5,950 hours @ $8.00 per hour Overhead $29,920 The standard manufacturing cost per unit is $23.00. What is the actual manufacturing cost per unit? A) $23.46. B) $36.16. C) $17.96. D) Cannot be determined from the information provided.

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90) Heartwood Company reported a $4,000 favorable direct labor price variance and a $1,500 unfavorable direct labor usage variance. Select the correct statement from the following. A) It took the employees less time to produce the outputs than expected. B) The total direct labor variance is $2,500 favorable. C) The actual direct labor rate must have exceeded the standard direct labor rate. D) It is probable that the supervisor attempted to use more highly skilled (and paid) employees than allowed for by the direct labor standards.

91)

Which of the following statements is true?

A) An unfavorable materials price variance could have resulted from actions taken by the purchasing agent. B) An unfavorable materials usage variance could have resulted from actions taken by the production supervisor. C) An unfavorable labor usage variance could have resulted from actions taken by the personnel department. D) All of these answers are correct.

92)

Which manager is usually held responsible for materials usage variances? A) Production supervisor B) Marketing manager C) Purchasing agent D) None of these answers are correct.

93)

Which manager is usually held responsible for materials price variances?

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A) Plant manager B) Purchasing agent C) Production supervisor D) Marketing manager

94)

Which manager is usually held responsible for labor price variances? A) Sales manager B) Purchasing agent C) Marketing manager D) Production supervisor

95)

Which manager is normally held responsible for fixed cost volume variances? A) Production supervisor B) Upper-level marketing managers C) Plant manager D) Purchasing agent

96) At the beginning of the accounting period, Nutrition Incorporated estimated that total fixed overhead cost would be $108,570 and that sales volume would be 21,000 units. At the end of the accounting period actual fixed overhead cost amounted to $121,170 and actual sales volume was 16,500 units. Nutrition uses a predetermined overhead rate and a cost plus pricing model to establish its sales price. Based on this information the predetermined overhead rate is A) $5.72. B) $5.17. C) $4.71. D) $5.21.

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97) At the beginning of the accounting period, Nutrition Incorporated estimated that total fixed overhead cost would be $108,570 and that sales volume would be 21,000 units. At the end of the accounting period actual fixed overhead was $121,170 and actual sales volume was 16,500 units. Nutrition uses a predetermined overhead rate and a cost plus pricing model to establish its sales price. Based on this information the fixed overhead spending variance is A) $1,743 unfavorable. B) $1,743 favorable. C) $12,600 favorable. D) $12,600 unfavorable.

98)

Select the correct statement regarding general, selling, and administrative (GS&A) costs.

A) Variable general, selling, and administrative costs can have price variances. B) Variable general, selling, and administrative costs cannot have usage variances. C) Cost variances are not generally computed for fixed general, selling, and administrative costs. D) All of these answers are correct.

99)

Select the correct statement regarding flexible budgets. A) A flexible budget can only be prepared for a single level of activity. B) A flexible budget is not used for planning. C) A flexible budget shows expected revenues and costs at a variety of activity levels. D) A flexible budget is also known as the master budget.

100)

Which of the following reason(s) cause flexible budgets to be useful planning tools?

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A) Flexible budgets allow managers to anticipate results under a variety of scenarios. B) Flexible budgets can help determine if a company's cash position is adequate. C) Flexible budgets can help managers judge if materials and storage facilities are appropriate for various production levels. D) All of these answers are correct.

101)

Which of the following is a difference between a static and a flexible budget?

A) Static budgets use the same fixed cost amounts, whereas flexible budgets change the amount of fixed costs at different levels of activity. B) Static budgets are based on the same per-unit variable amount, whereas flexible budgets are based on multiple per-unit variable amounts. C) Static budgets are based on a single estimate of volume, whereas flexible budgets show estimated costs and revenues at a variety of activity levels. D) None of these answers are correct.

102)

Which of the following is an incorrect statement regarding variances? A) A variance is favorable when expected sales are more than actual sales. B) A variance is a difference between budgeted and actual amounts. C) A variance can be calculated for both revenues and expenses. D) A variance can be both favorable and unfavorable.

103)

When would a sales variance be listed as favorable? A) When actual sales exceed budgeted or expected sales B) When actual sales are less than budgeted or expected sales C) When actual sales are equal to budgeted or expected sales D) None of these answers are correct.

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104)

The following information was drawn from the accounting records of Ashton Company. Budgeted

Sales Cost of Goods Sold

Actual

$ 15,000 (7,000)

$ 20,000 (9,600)

Gross Margin Variable Cost Fixed Cost

8,000 (3,000) (4,500)

10,400 (4,200) (3,400)

Net Income

$ 500

$ 2,800

Based on this information Ashton Company has a A) $5,000 favorable sales variance B) $2,300 favorable sales variance C) $5,000 unfavorable sales variance D) $2,300 unfavorable sales variance

105)

The following information was drawn from the accounting records of Ashton Company. Budgeted

Sales Cost of Goods Sold

Actual

$ 12,000 (5,800)

$ 15,800 (7,800)

6,200 (2,400) (3,300)

8,000 (3,300) (2,500)

$ 500

$ 2,200

Gross Margin Variable Cost Fixed Cost Net Income

Based on this information Ashton Company has a A) $800 unfavorable variable operating cost variance B) $900 unfavorable variable operating cost variance C) $900 favorable variable operating cost variance D) $800 favorable variable operating cost variance

106)

The following information was drawn from the accounting records of Ashton Company.

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Budgeted Sales Cost of Goods Sold Gross Margin Variable Cost Fixed Cost

Actual

$ 13,500 (6,400) 7,100 (2,700) (3,900)

$ 17,900 (8,700) 9,200 (3,750) (2,950)

$ 500

$ 2,500

Net Income

Based on this information Ashton Company has a A) $950 unfavorable fixed operating cost variance B) $950 favorable fixed operating cost variance C) $1,050 favorable fixed operating cost variance D) $1,050 unfavorable fixed operating cost variance

107)

When would a cost variance be listed as unfavorable? A) When actual costs are less than budgeted costs B) When actual costs exceed budgeted costs C) When actual costs are equal to budgeted costs D) When actual sales are less than budgeted sales

108)

The sales volume variance is the difference between the:

A) static budget (based on actual volume) and the flexible budget (based on planned volume). B) static budget (based on planned volume) and the flexible budget (based on actual volume). C) static budget (based on planned volume) and actual revenue or cost. D) flexible budget (based on actual volume) and actual revenue or cost.

109)

Which manager is generally held responsible for the sales volume variance?

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A) Purchasing agent B) Marketing manager C) Plant manager D) Production manager

110)

Achieving the sales volume in the master budget is known as: A) making the numbers. B) lowballing. C) cooking the books. D) budget slack.

111)

When would a sales price variance be listed as unfavorable? A) When the actual sales price is less than the standard sales price. B) When the actual sales price is equal to the standard sales price. C) When the actual sales price is greater than the standard sales price. D) When the actual sales volume is less than the budgeted sales volume.

112) Which of the following is not an example of budget gamesmanship that may occur in a company? A) Lowballing. B) Budget slack. C) Making the numbers. D) None of these answers are correct.

113)

The following information was drawn from the accounting records of Smith Company

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Static Budget Sales Cost of Goods Sold

Flexible Budget Actual Results

$ 19,500 (7,900)

$ 31,000 (11,000)

$ 35,500 (7,850)

Gross Margin Variable Cost Fixed Cost

11,600 (3,900) (2,900)

20,000 (5,250) (2,900)

27,650 (7,350) (3,200)

Net Income

$ 4,800

$ 11,850

$ 17,100

Based on this information the A) sales price flexible budget variance is a $16,000 unfavorable variance. B) sales price flexible budget variance is a $4,500 favorable variance. C) sales price flexible budget variance is a $11,500 favorable variance. D) sales price flexible budget variance is a $16,000 favorable variance.

114)

The following information was drawn from the accounting records of Smith Company Static Budget

Flexible Budget

Actual Results

Sales Cost of Goods Sold

$ 15,500 (7,100)

$ 23,000 (9,400)

$ 25,900 (7,450)

Gross Margin Variable Cost Fixed Cost

8,400 (3,100) (2,100)

13,600 (4,050) (2,100)

18,450 (5,350) (2,400)

Net Income

$ 3,200

$ 7,450

$ 10,700

Based on this information the A) cost of goods sold volume variance is a $2,300 unfavorable variance. B) cost of goods sold volume variance is a $1,400 favorable variance. C) cost of goods sold flexible budget variance is a $1,400 unfavorable variance. D) cost of goods sold flexible budget variance is a $2,300 favorable variance.

115)

The following information was drawn from the accounting records of Smith Company Static Budget

Sales

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$ 19,000

Flexible Budget Actual Results $ 30,000

$ 34,300

Cost of Goods Sold

(7,800)

(10,800)

(7,800)

Gross Margin Variable Cost Fixed Cost

11,200 (3,800) (2,800)

19,200 (5,100) (2,800)

26,500 (7,100) (3,100)

Net Income

$ 4,600

$ 11,300

$ 16,300

Based on this information the A) variable operating cost volume variance is a $2,000 favorable variance. B) variable operating cost flexible budget variance is a $2,000 unfavorable variance. C) variable operating cost flexible budget variance is a $2,200 favorable variance. D) variable operating cost volume variance is a $2,200 favorable variance.

116) For a product made by George Company, last year's standards for labor were 2 hours at $12 per hour. Which of the following considerations should George take into account in setting the standards for this year? A) George should revisit the prior year standards. B) George should consider whether or not the prior year standards were achieved. C) George should consider any changes that may influence worker productivity. D) All of these answers are correct.

117) Standards that do not allow for normal downtime, waste of materials, or machine breakdowns are known as: A) Lax standards. B) Practical standards. C) Exceptional standards. D) Ideal Standards.

118) Standards that do allow for normal downtime and can be achieved with reasonable amounts of effort are known as:

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A) Ideal standards. B) Lax Standards. C) Practical standards. D) Exceptional standards.

119) Item to Classify Sales volume Sales price Material usage Labor price

Standard 100,000 units $ 4 per unit 40,000 gallons $ 12.50 per hour

Actual 96,000 units $ 3.90 per unit 42,000 gallons $ 12.45 per hour

Which of the following statements is incorrect? A) The sales volume variance is unfavorable. B) The materials usage variance is unfavorable. C) The sales price variance is favorable. D) The labor price variance is favorable.

120) Item to Classify Sales volume Sales price Material usage Labor price

Standard 100,000 units $ 4 per unit 40,000 gallons $ 12.50 per hour

Actual 96,000 units $ 3.90 per unit 42,000 gallons $ 12.45 per hour

All of the following variances are unfavorable except? A) Materials usage B) Sales price C) Sales volume D) Labor price

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121) Item to Classify Sales volume Sales price Material usage Labor price

Standard 121,000 units $ 6.10 per unit 61,000 gallons $ 14.60 per hour

Actual 117,000 units $ 6.00 per unit 63,000 gallons $ 14.55 per hour

Standard 100,000 units $ 4 per unit 40,000 gallons $ 12.50 per hour

Actual 96,000 units $ 3.90 per unit 42,000 gallons $ 12.45 per hour

The sales volume variance was: A) $34,450 unfavorable. B) $24,400 favorable. C) $34,450 favorable. D) $24,400 unfavorable.

122) Item to Classify Sales volume Sales price Material usage Labor price

The sales volume variance was: A) $16,000 favorable. B) $16,000 unfavorable. C) $25,000 unfavorable. D) $25,000 favorable.

123) The Bach Company provides the following standard and actual costs relating to material price and labor usage. Item to Classify Material Price Labor Usage

Standard $ 8.50 per gallon 30,000 hours

Actual $ 8.35 per gallon 28,500 per hour

Based on the above information, which statement is correct?

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A) Both the material price variance and the labor usage variance are unfavorable. B) Both the materials price variance and the labor usage variance are favorable. C) The labor usage variance is unfavorable. D) The materials price variance is unfavorable.

124) Item to Classify Sales Revenue Wages Selling and Administrative Expenses Cost of Goods Sold

Standard $ 820,000 125,000 400,000 608,000

Actual $ 835,000 128,000 408,000 600,000

Which of the following statements is incorrect? A) The cost of goods sold variance is favorable. B) The selling and administrative expense variance is favorable. C) The sales revenue variance is favorable. D) The wage expense variance is unfavorable.

125) Item to Classify Sales Revenue Wages Selling and Administrative Expenses Cost of Goods Sold

Standard $ 840,000 145,000 420,000 630,000

Actual $ 865,000 150,000 430,000 620,000

The sales revenue flexible budget variance was: A) $25,000 favorable. B) $25,000 unfavorable. C) $15,000 unfavorable. D) $15,000 favorable.

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126) Item to Classify Sales Revenue Wages Selling and Administrative Expenses Cost of Goods Sold

Standard $ 820,000 125,000 400,000 608,000

Actual $ 835,000 128,000 408,000 600,000

The sales revenue flexible budget variance was: A) $15,000 unfavorable. B) $7,000 favorable. C) $15,000 favorable. D) $7,000 unfavorable.

127) Multiplying the difference between actual materials price per unit and the standard materials price per unit by actual quantity of materials used is known as the: A) Sales volume variance. B) Materials price variance. C) Labor price variance. D) Materials usage variance.

128)

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

129)

What is the result when the actual rate paid for labor is less than the standard rate?

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A) A favorable labor price variance B) An unfavorable labor price variance C) A favorable labor usage variance D) An unfavorable labor usage variance

130)

Which of the following statements is incorrect regarding variable overhead variances?

A) Variable overhead variances are based on the same general formulas used to compute the materials and labor price variances. B) Variable overhead costs represent many inputs such as supplies, utilities and indirect labor. C) All companies must calculate price and usage variances for variable overhead costs. D) None of these answers are correct.

131) Stafford Company prepared a static budget for a production and sales volume of 12,600 units. Per-Unit Standards Number of units Sales revenue Variable manufacturing costs: Materials Labor Overhead Variable general, selling, and administrative costs Contribution margin

Static Budget 12,600

$ 91.00

$ 1,146,600

$ 20.00 $ 18.00 $ 6.80 $ 20.00

252,000 226,800 85,680 252,000 $ 330,120

Fixed costs Manufacturing overhead General, selling, and administrative costs

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126,800 71,000

Net income

$ 132,320

What is the net income if 11,600 units are sold? A) $132,799 B) $132,161 C) $106,120 D) $124,118

132) Stafford Company prepared a static budget for a production and sales volume of 10,000 units. Per-Unit Standards Number of units

Static Budget 10,000

Sales revenue Variable manufacturing costs:

$ 65.00

$ 650,000

Materials Labor Overhead Variable general, selling, and administrative costs

$ 11.00 $ 9.00 $ 4.20 $ 11.00

110,000 90,000 42,000 110,000

Contribution margin

$ 298,000

Fixed costs Manufacturing overhead General, selling, and administrative costs Net income

100,800 45,000 $ 152,200

What is the net income if 9,000 units are sold? A) $152,100 B) $152,400 C) $137,300 D) $122,400

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133) Timberlake Company planned for a production and sales volume of 14,300 units. However, the company actually makes and sells 15,300 units. Per-Unit Standards

Static Budget 14,300

Flexible Budget 15,300

$ 88.00

$ 1,258,400

$ 1,346,400

$ 20.00 $ 18.00 $ 6.50 $ 20.00

286,000 257,400 92,950 286,000

306,000 275,400 99,450 306,000

$ 336,050

$ 359,550

Manufacturing overhead

123,800

General, selling, and administrative costs

68,000

$ 144,250

$ 167,750

Number of units Sales revenue Variable manufacturing costs: Materials Labor Overhead Variable general, selling, and administrative costs Contribution margin Fixed costs

Net income

What was the sales volume variance? A) $88,000 unfavorable B) $23,500 unfavorable C) $23,500 favorable D) $88,000 favorable

134) Timberlake Company planned for a production and sales volume of 12,000 units. However, the company actually makes and sells 13,000 units. Per-Unit Standards Number of units

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Static Budget 12,000

Flexible Budget 13,000

$ 65.00

$ 780,000

$ 845,000

$ 11.00 $ 9.00 $ 4.20 $ 11.00

132,000 108,000 50,400 132,000

143,000 117,000 54,600 143,000

$ 357,600

$ 387,400

Manufacturing overhead

100,800

General, selling, and administrative costs

45,000

$ 211,800

$ 241,600

Sales revenue Variable manufacturing costs: Materials Labor Overhead Variable general, selling, and administrative costs Contribution margin Fixed costs

Net income

What was the sales volume variance? A) $65,000 favorable B) $65,000 unfavorable C) $29,800 unfavorable D) $29,800 favorable

135) Timberlake Company planned for a production and sales volume of 14,000 units. However, the company actually makes and sells 15,000 units. Per-Unit Standards

Static Budget 14,000

Flexible Budget 15,000

$ 85.00

$ 1,190,000

$ 1,275,000

$ 20.00 $ 18.00 $ 6.20 $ 20.00

280,000 252,000 86,800 280,000

300,000 270,000 93,000 300,000

Number of units Sales revenue Variable manufacturing costs: Materials Labor Overhead Variable general, selling, and

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administrative costs Contribution margin

$ 291,200

$ 312,000

Manufacturing overhead

120,800

General, selling, and administrative costs

65,000

$ 105,400

$ 126,200

Fixed costs

Net income

What was the total variable cost volume variance? A) $64,200 unfavorable B) $64,200 favorable C) $20,800 favorable D) $20,800 unfavorable

136) Timberlake Company planned for a production and sales volume of 12,000 units. However, the company actually makes and sells 13,000 units. Per-Unit Standards

Static Budget 12,000

Flexible Budget 13,000

$ 65.00

$ 780,000

$ 845,000

$ 11.00 $ 9.00 $ 4.20 $ 11.00

132,000 108,000 50,400 132,000

143,000 117,000 54,600 143,000

$ 357,600

$ 387,400

Manufacturing overhead

100,800

General, selling, and

45,000

Number of units Sales revenue Variable manufacturing costs: Materials Labor Overhead Variable general, selling, and administrative costs Contribution margin Fixed costs

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administrative costs Net income

$ 211,800

$ 241,600

What was the total variable cost volume variance? A) $29,800 unfavorable B) $29,800 favorable C) $35,200 unfavorable D) $35,200 favorable

137)

Which of the following statements is correct? A) Establishing standards is the least difficult aspect of using a standard cost system. B) Managers should be praised or punished based on variances. C) A favorable variance may indicate the existence of unfavorable conditions. D) Budget slack exists when performance standards are set at an ideal, unachievable

level.

138)

Which of the following statements is incorrect?

A) In deciding whether to investigate a variance, managers should not consider the materiality of the variance. B) A material variance is one that will influence stockholders' investment decisions. C) The primary advantage of a standard cost system is to price products consistently. D) None of these answers are correct.

139) Roses, Incorporated made a batch of flower arrangements that were sold to grocery stores for Valentine's Day. The standard and actual costs of the roses used in each arrangement are as follows: Note: Do not round intermediate calculations. Standard Number of roses per arrangement

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Actual 17.1

Price per rose

$ 1.70

$ 1.68

The company made and sold 450 of the Valentine's Day arrangements. Based on this information the materials price variance was A) $153.90 Favorable. B) $153.90 Unfavorable. C) $76.50 Favorable. D) $76.50 Unfavorable.

140) Roses, Incorporated made a batch of flower arrangements that were sold to grocery stores for Valentine's Day. The standard and actual costs of the roses used in each arrangement are as follows: Note: Do not round intermediate calculations. Standard Number of roses per arrangement Price per rose

24 $ 2.40

Actual 24.1 $ 2.38

The company made and sold 100 of the Valentine's Day arrangements. Based on this information the materials usage variance was A) $48.20 Unfavorable. B) $24.00 Unfavorable. C) $48.20 Favorable. D) $24.00 Favorable.

141) Jared expects to charge $60 per hour for his industrial maintenance business during the following year. He expects to reach 50,000 hours at that price. Jared's partner disagrees with the estimate and expects closer to 40,000 hours. What should Jared do when preparing the budget for the year?

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A) Create a flexible budget showing a range of outcomes between 40,000 hours and 50,000 hours. B) Create two master budgets, one at 50,000 hours and one at 40,000 hours. C) Create only one budget at the more optimistic volume of 50,000 hours. D) Create a volume budget based on actual performance.

142) For performance evaluation, the amount of costs actually incurred should be compared to the costs that would have been incurred at the actual volume of activity rather than at the planned volume of activity. ⊚ true ⊚ false

143)

A static budget is one that shows estimated revenues and costs at multiple activity levels. ⊚ true ⊚ false

144) If the master budget prepared at a volume level of 10,000 units includes direct materials of $40,000, a flexible budget based on a volume of 12,000 units would include direct materials of $48,000. ⊚ true ⊚ false

145) If the master budget prepared at a volume level of 20,000 units includes factory rent of $40,000, a flexible budget based on a volume of 21,000 units would include factory rent of $40,000. ⊚ true ⊚ false

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146) If the master budget prepared at a volume level of 10,000 units includes direct labor of $10,000, a flexible budget based on a volume of 11,000 units would include direct labor of $10,000. ⊚ true ⊚ false

147)

The differences between the standard and actual amounts are called variances. ⊚ true ⊚ false

148)

A cost variance is unfavorable if actual cost exceeds standard cost. ⊚ true ⊚ false

149) The sales volume variance is the difference between sales revenue on the static budget and sales revenue on the flexible budget. ⊚ true ⊚ false

150) The sales volume variance is favorable if actual sales volume is higher than the budgeted volume. ⊚ true ⊚ false

151) When a comparison of static and flexible budgets shows an unfavorable sales volume variance, the variable cost volume variances will also be unfavorable. ⊚ true ⊚ false

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152) Sales volume variances are attributable to differences between planned and actual activity volumes, as well as differences in selling price. ⊚ true ⊚ false

153)

The total sales variance includes both price and volume variances. ⊚ true ⊚ false

154) Flexible budget amounts for variable costs and revenues come from multiplying standard per-unit amounts by the planned volume of production. ⊚ true ⊚ false

155)

Under all circumstances, unfavorable variances are bad; favorable variances are good. ⊚ true ⊚ false

156) Unfavorable flexible budget variances are those that are the result of lower than expected sales volume. ⊚ true ⊚ false

157) In general, budget variances should not be used to single out managers for praise or punishment. ⊚ true ⊚ false

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158) Two budgeting games sometimes played by employees are building in budget slack and making the numbers. ⊚ true ⊚ false

159) A favorable flexible budget materials variance may indicate that the price per unit of materials was lower than expected and that less material was used than expected, or either of these. ⊚ true ⊚ false

160)

Lax standards make allowances for normal material waste and spoilage. ⊚ true ⊚ false

161)

The best standards to include in a standard cost system are ideal standards. ⊚ true ⊚ false

162) A benefit of using a standard cost system is that it can boost morale and motivate employees, if properly maintained. ⊚ true ⊚ false

163)

Management by exception means that only unfavorable cost variances are investigated. ⊚ true ⊚ false

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164) To assess the importance of a variance, managers should consider, not just the materiality of the amount, but also the type of variance being analyzed. ⊚ true ⊚ false

165) With respect to cost variances, managers seek to achieve actual costs that are higher than standard costs. ⊚ true ⊚ false

166) The purchasing department is considered to have primary responsibility for the materials usage variance. ⊚ true ⊚ false

167) The two factors that determine the costs of manufacturing inputs (materials, labor, and overhead) are price and quantity. ⊚ true ⊚ false

168) In most cases, the production manager should be held accountable for fixed cost volume variances. ⊚ true ⊚ false

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169) Hurst Company's standard variable materials cost per unit was $8. The actual materials cost per unit on production of 10,000 units was $8.22. Based on this information, Hurst Company incurred an unfavorable variable materials price variance of $2,200. ⊚ true ⊚ false

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Answer Key Test name: Chap 08_10e_Edmonds 1) C 2) C 3) A 4) D 5) B 6) B 7) C 8) A 9) C 10) A 11) A 12) D 13) B 14) C 15) B 16) A 17) C 18) B 19) B 20) A 21) C 22) D 23) A 24) D 25) A 26) A Version 1

27) D 28) A 29) C 30) D 31) A 32) C 33) C 34) B 35) B 36) D 37) A 38) C 39) D 40) D 41) C 42) A 43) C 44) C 45) B 46) A 47) A 48) D 49) C 50) A 51) D 52) D 53) C 54) B 55) A 56) B Version 1

57) C 58) D 59) A 60) A 61) C 62) B 63) D 64) A 65) B 66) D 67) C 68) B 69) B 70) A 71) D 72) C 73) D 74) B 75) C 76) D 77) C 78) B 79) D 80) D 81) D 82) A 83) D 84) B 85) A 86) D Version 1

87) A 88) A 89) A 90) B 91) D 92) A 93) B 94) D 95) B 96) B 97) D 98) A 99) C 100) D 101) C 102) A 103) A 104) A 105) B 106) B 107) B 108) B 109) B 110) A 111) A 112) C 113) B 114) A 115) B 116) D Version 1

117) D 118) C 119) C 120) D 121) D 122) B 123) B 124) B 125) A 126) C 127) B 128) A 129) A 130) C 131) C 132) D 133) D 134) A 135) A 136) C 137) C 138) D 139) A 140) B 141) A 142) TRUE 143) FALSE 144) TRUE 145) TRUE 146) FALSE Version 1

147) TRUE 148) TRUE 149) TRUE 150) TRUE 151) FALSE 152) FALSE 153) TRUE 154) FALSE 155) FALSE 156) FALSE 157) TRUE 158) FALSE 159) TRUE 160) FALSE 161) FALSE 162) TRUE 163) FALSE 164) TRUE 165) FALSE 166) FALSE 167) TRUE 168) FALSE 169) TRUE

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Chapter 9 Responsibility Accounting 1)

The practice of delegating authority and responsibility is referred to as: A) Centralization of authority. B) Standard costing. C) Management by exception. D) Decentralization.

A major benefit of a decentralized organization is that:

A) Managers are more motivated to improve productivity. B) Upper-level managers are more involved in routine decisions. C) It avoids the necessity for a managerial accounting system. D) It avoids decision making by less experienced lower-level managers.

3) Thanks to his firm's decentralization and use of responsibility accounting, Matt has more time to review a proposed new joint venture with one of the firm's business partners. What advantage of decentralization does this illustrate?

A) Encourages upper-level management to concentrate on strategic decisions B) Trains lower-level managers to accept higher responsibilities C) Improves performance evaluation D) Motivates managers to improve productivity

Which of the following isnot an advantage of decentralization?

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A) Lower-level managers are trained for increased responsibilities. B) Managers are motivated to improve productivity. C) Upper-level managers are able to concentrate on routine decisions. D) All of these are advantages of decentralization.

Which of the following isnot typically found in a decentralized organization?

A) Cost center B) Decision center C) Investment center D) Profit center

6) Packrall Company makes computer chips. Curtis is manager of the company's maintenance department. Because his maintenance technicians are so well trained in maintaining expensive and sensitive circuit board stamping equipment, Curtis has been authorized to contract to perform maintenance for outside customers. Inthis company, the maintenance department is likely organized as:

A) A profit center. B) A revenue center. C) A cost center. D) An investment center.

7) The research and development department of Apple Computers would likely be organized as:

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A) A profit center. B) A cost center. C) A revenue center. D) An investment center.

8) of:

Contribution margin would be the most important variable in evaluating the performance

A) A cost center. B) A production center. C) An investment center. D) A profit center.

9) The kind of responsibility center that would be evaluated by comparing income on assets to the amount of assets invested is:

A) An investment center. B) An asset center. C) A cost center. D) A profit center.

10)

A tool that is often used to depict the lines of authority and responsibility within a firm is:

A) A variance report. B) An organization chart. C) A master budget. D) A responsibility report.

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11)

Which of the following statements regarding responsibility accounting is not correct?

A) It calls for the preparation of reports containing detailed information regarding the performance of a responsibility center. B) It is most effective in a decentralized business structure where many managers exert control over various segments of a company's operations. C) It calls for the preparation of responsibility reports listing the budgeted and actual revenue and/or expense items over which the manager has control. D) It requires top management to prepare a budget for the entire company and communicate that plan to lower levels of management.

12) Which of the following isnot a characteristic of an effective responsibility accounting system?

A) Reports that show the areas that need corrective action B) Reports that show revenue and/or expense items under a manager's control C) Reports that show budgeted and actual amounts of controllable revenue and expense items D) Reports that set goals for long-term strategic performance

13) Management recently instituted a new training program for upper-level managers. They budgeted the cost of the new program at $1,000 per employee trained, but actual costs were $1,250 per employee trained. The difference between the budgeted cost for training and the actual cost of training is called a:

A) Period cost. B) Loss. C) Variance. D) Controllable cost.

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14)

Responsibility reports are prepared:

A) for each manager who controls a responsibility center. B) only at the end of the accounting period. C) to identify and punish managers who fail to control their costs. D) for senior-level managers only.

15)

A responsibility report provided to a manager typically includes:

A) A list of all the items under the manager's control. B) The budgeted amount for each item on the report. C) The differences between the budgeted and actual amounts for each item on the report. D) All of these are correct answers.

16) Prentiss Company is decentralized with three divisions. While all three division managers have responsibility for costs, only the Division Three manager has responsibility for generating revenues. Select the correct statement from the following.

A) Prentiss Company is not large enough to benefit from preparing responsibility reports. B) Responsibility reports should be prepared for Division Three only. C) Responsibility reports should be prepared for all three divisions. D) Responsibility reports should be prepared for Divisions One and Two only.

17) The manager of the production department for Romulus Manufacturing has responsibility for all stages of the production process and does not have time to review all the operational details of his department. He has found it to be more productive to focus on the significant deviations from budget. This kind of management is called:

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A) Management by exception. B) Crisis management. C) Controllable management. D) Decentralized management.

18)

Select theincorrect statement concerning responsibility reports.

A) The reports should be stated in simple terms. B) The reports should show clearly the budgeted and actual amounts of controllable revenues and expenses. C) At the corporate level, responsibility reports generally include year-to-date contribution format income statements. D) The reports become more specific for higher levels within the organization.

19) Which of the following formats is typically used in year-to-date income statements prepared for internal use under a responsibility accounting system?

A) Sales − Cost of Goods Sold = Gross Margin; Gross Margin − Operating Expenses = Net Income B) Sales − Manufacturing Costs = Manufacturing Margin; Manufacturing Margin − Selling and Administrative Costs = Net Income C) Sales − Variable Costs = Contribution Margin; Contribution Margin − Fixed Costs = Net Income D) None of these answers are correct.

20) Marcy is plant manager for Diversified Industries. She and the managers of four other plants report to the vice president in charge of manufacturing operations. Three department managers report to Marcy. Select theincorrect statement regarding the preparation of responsibility reports.

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A) Marcy's responsibility report should include a detailed account of the individual items for which she is personally responsible. B) The vice president's responsibility report would contain information for Marcy's plant rolled together with that of the other four plants. C) Marcy's administrative costs should be included on the reports of her three department managers. D) Marcy's responsibility report should contain only summary information about the operations of the three departments in her chain of command.

21) Jacob is a department manager who recently instituted a new recognition program for his employees. He budgeted the cost of the new program at $10 per employee, but actual costs were $15 per employee. The cost associated with the recognition program would be considered which of the following kinds of cost?

A) Controllable cost B) Opportunity cost C) Fixed cost D) Product cost

22) Select theincorrect statement concerning the application of the controllability concept to responsibility accounting.

A) As a practical matter, control of costs or revenues may be shared rather than absolute. B) The concept of control is crucial to an effective responsibility accounting system. C) Managers lose motivation when they are held accountable for actions that are beyond their scope of control. D) Each manager should be evaluated on the costs but not the revenues that are under his or her control.

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23) Stephanie's responsibility report includes the salary and benefits of her secretary. Although Stephanie prepares a performance evaluation for the secretary each year, Stephanie's superior determines how much the secretary will be paid. This example is an illustration of the fact that:

A) Responsibility reporting systems are not perfect. B) Managers sometimes are held responsible for items over which they have only limited control. C) Control may be shared. D) All of these are correct answers.

24)

Jada Jewelry Company has the following static budget for variable costs.

Production in units Direct materials

8,700 bracelets $ 546,795

Direct labor

$ 166,170

Variable manufacturing overhead

$ 220,545

If Jada actually produces 9,700 bracelets, what amount of total variable costs would show up on the flexible budget? A) $245,895 B) $794,915 C) $1,040,810 D) $609,645

25)

Jada Jewelry Company has the following static budget for variable costs.

Production in units Direct materials

8,000 bracelets $ 500,000

Direct labor

$ 150,000

Variable manufacturing overhead

$ 200,000

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If Jada actually produces 9,000 bracelets, what amount of total variable costs would show up on the flexible budget? A) $562,500 B) $956,250 C) $731,250 D) $225,000

26) Jada Jewelry Company has the following static budget for variable and fixed manufacturing overhead costs. Production in units Variable manufacturing overhead

6,200 necklaces $ 112,000

Fixed manufacturing overhead

$ 262,000

If Jada actually produces 8,400 necklaces, what amount of fixed manufacturing overhead cost would show up on the flexible budget? A) $442,800 B) $318,000 C) $374,000 D) $262,000

27) Jada Jewelry Company has the following static budget for variable and fixed manufacturing overhead costs. Production in units Variable manufacturing overhead

5,000 necklaces $ 100,000

Fixed manufacturing overhead

$ 250,000

If Jada actually produces 6,000 necklaces, what amount of fixed manufacturing overhead cost would show up on the flexible budget?

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A) $250,000 B) $350,000 C) $300,000 D) $420,000

28) Nyla Company had the following budgeted and actual results for Year 1. Budget Sales Variable product costs Variable selling expense Other variable expenses Fixed product costs Fixed selling expense

$ 898,000 228,000 148,000 82,000 114,000 94,000

Actual results Sales Variable product costs Variable selling expense Other variable expenses Fixed product costs Fixed selling expense

780,000 238,000 128,000 84,000 134,000 74,000

Based on the table above, what is the Company’s sales variance for Year 1? A) $118,000 Unfavorable B) $118,000 Favorable C) $110,000 Unfavorable D) $110,000 Favorable

29) Nyla Company had the following budgeted and actual results for Year 1. Budget Sales Variable product costs Variable selling expense Other variable expenses Fixed product costs

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$ 850,000 220,000 140,000 78,000 110,000

Fixed selling expense

90,000

Actual results Sales Variable product costs Variable selling expense Other variable expenses Fixed product costs Fixed selling expense

740,000 230,000 120,000 80,000 130,000 70,000

Based on the table above, what is the Company’s sales variance for Year 1? A) $110,000 Favorable B) $110,000 Unfavorable C) $102,000 Favorable D) $102,000 Unfavorable

30)

Which of the following statements about return on investment (ROI) isfalse?

A) ROI equals margin divided by investment turnover. B) ROI is used to measure the performance of investment centers. C) Seeking to maximize ROI can result in a conflict between the interest of a particular manager and the interest of the business as a whole. D) Companies may minimize motivational problems by using original cost instead of book value in the denominator of the ROI formula.

31)

Huang Company reported the following information for the current year:

Sales Average Operating Assets Margin

$ 970,000 $ 670,000 10%

The company's return on investment was: A) 10.00%. B) 14.48%. C) 13.44%. D) Cannot be ascertained from the information provided.

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32)

Huang Company reported the following information for the current year:

Sales Average Operating Assets Margin

$ 400,000 $ 250,000 10%

The company's return on investment was: A) 10%. B) 6.25%. C) 16%. D) Cannot be ascertained from the information provided.

33) Campbell Candy Corporation desires a 10% return on investment (ROI) on all operations. The following information was available for the company for the current year: Sales Operating Income Turnover

$ 19,000 $ 4,500 0.5

What is the corporation's ROI? Note: Do not round intermediate calculation.

A) 23.68% B) 17.68% C) 11.84% D) Impossible to determine from the information given.

34) Campbell Candy Corporation desires a 16% return on investment (ROI) on all operations. The following information was available for the company for the current year: Sales Operating Income Turnover

$ 250,000 $ 70,000 0.6

What is the corporation's ROI?

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A) 16.8% B) 28% C) 32% D) Impossible to determine from the information given.

35) Joseph Company has an investment in assets of $864,000, operating income that is 10% of sales, and an ROI of 16%. From this information the amount of operating income would be: A) $138,240. B) $238,360. C) $153,240. D) Impossible to determine from the information given.

36) Joseph Company has an investment in assets of $450,000, operating income that is 10% of sales, and an ROI of 18%. From this information the amount of operating income would be:

A) $81,000. B) $45,000. C) $2,500,000. D) Impossible to determine from the information given.

37) The Family Restaurant chain had a 10% return on a $70,000 investment in new ovens. The investment resulted in increased sales and an increase in income that was 5% of the increase in sales. The increase in sales was: A) $7,000. B) $700,000. C) $70,000. D) $140,000.

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38) The Family Restaurant chain had a 12% return on a $60,000 investment in new ovens. The investment resulted in increased sales and an increase in income that was 3% of the increase in sales. The increase in sales was:

A) $7,200. B) $15,000. C) $180,000. D) $240,000.

39) Willis Company made a $150,000 investment in new machinery. Assuming the company's margin is 4%, what income will be earned if the investment generates $375,000 in additional sales? Note: Do not round intermediate calculations. A) $6,000. B) $15,000. C) $225,000. D) None of these choices are correct.

40) Willis Company made a $200,000 investment in new machinery. Assuming the company's margin is 4%, what income will be earned if the investment generates $600,000 in additional sales?

A) $80,000. B) $24,000. C) $400,000. D) None of these choices are correct.

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41) The Perez Company had a 15.0% return on a $115,000 investment in new equipment. The investment resulted in increased sales, and the resultant increase in income amounted to 6% of sales. The turnover (asset utilization) was: A) 1. B) 21.0. C) 2.5. D) 9.0.

42) The Perez Company had a 12.5% return on a $100,000 investment in new equipment. The investment resulted in increased sales, and the resultant increase in income amounted to 5% of sales. The turnover (asset utilization) was:

A) 1. B) 17.5. C) 2.5. D) 7.5.

43) The Cineplex Movie Theater has invested in a snack bar for its store, where individual pizzas would be prepared and sold. The investment cost the company $46,000. The company expects a sales volume for the new product to be 12,000 pizzas a year. Variable materials, preparation, and marketing costs are expected to be $1.55 per unit and fixed costs are estimated at $15,600 a year. Based on a desired 12% ROI, what should Cineplex charge as the selling price per pizza? A) $1.81 B) $3.31 C) $2.85 D) $5.31

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44) The Cineplex Movie Theater has invested in a snack bar for its store, where individual pizzas would be prepared and sold. The investment cost the company $45,000. The company expects a sales volume for the new product to be 12,000 pizzas a year. Variable materials, preparation, and marketing costs are expected to be $1.50 per unit and fixed costs are estimated at $15,000 a year. Based on a desired 12% ROI, what should Cineplex charge as the selling price per pizza?

A) $3.00 B) $2.75 C) $5.20 D) $3.20

45) Ormand Organic Grocery has invested in a yogurt stand for its store. The investment cost the company $100,000. Variable materials, preparation, and marketing costs are expected to be $0.75 per unit and fixed costs are estimated at $6,300 a year. If actual sales were 20,300 servings, what would the ROI be using the sales price of $1.85? A) 27.76% B) 16.03% C) 22.33% D) 31.26%

46) Ormand Organic Grocery has invested in a yogurt stand for its store. The investment cost the company $100,000. Variable materials, preparation, and marketing costs are expected to be $0.60 per unit and fixed costs are estimated at $6,000 a year. If actual sales were 20,000 servings, what would the ROI be using the sales price of $1.80?

A) 30.0% B) 22.0% C) 18.0% D) 24.0%

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47) Howard Company provided the following selected information about its consumer products division for the current year: Desired ROI Net Income Residual Income

12% $ 283,200 $ 210,000

Based on this information, the division's investment amount was: A) $610,000. B) $2,360,000. C) $4,110,000. D) $1,750,000.

48) Howard Company provided the following selected information about its consumer products division for the current year: Desired ROI Net Income Residual Income

12% $ 150,000 $ 30,000

Based on this information, the division's investment amount was: A) $250,000. B) $1,000,000. C) $1,500,000. D) $1,250,000.

49) Fairpoint Products provided the following selected information about its consumer products division for the current year: Desired ROI Net Income Residual Income

10% $ 104,000 $ 62,000

Based on this information, the division's investment amount was:

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A) $1,660,000. B) $620,000. C) $420,000. D) $1,040,000.

50) Fairpoint Products provided the following selected information about its consumer products division for the current year: Desired ROI Net Income Residual Income

8% $ 100,000 $ 60,000

Based on this information, the division's investment amount was: A) $500,000. B) $1,250,000. C) $750,000. D) $2,000,000.

51)

Payne Company reported the following information for the current year:

Sales Average Operating Assets Desired ROI Net Income

$ 980,000 $ 480,000 14% $ 68,000

The company's residual income was: A) $67,200. B) $800. C) $2,000. D) $2,800.

52)

Payne Company reported the following information for the current year:

Sales Average Operating Assets

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$ 1,600,000 $ 500,000 18

Desired ROI Net Income

14% $ 85,000

The company's residual income was: A) $(15,000). B) $14,000. C) $15,000. D) $24,000.

53)

Joseph Company reported the following information for the current year:

Sales Average Operating Assets Desired ROI Residual Income

$ 794,000 $ 382,000 13% $ 11,600

The company's operating income was: A) $61,260. B) $38,060. C) $103,220. D) $49,660.

54)

Joseph Company reported the following information for the current year:

Sales Average Operating Assets Desired ROI Residual Income

$ 787,000 $ 375,000 12% $ 11,250

The company's operating income was: A) $94,440. B) $56,250. C) $45,000. D) $33,750.

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55) Which of the following would increase residual income? (Assume all other things are equal)

A) Decrease in investment B) Decrease in operating income C) Increase in the desired return on investment D) None of these choices are correct.

56) To avoid suboptimization, many companies prefer to evaluate their investment centers using:

A) Residual income instead of return on investment. B) Return on investment instead of residual income. C) Gross margin instead of contribution margin. D) Sales instead of income.

57) When using residual income as a project-screening tool, management should accept a project if the residual income is:

A) positive. B) negative. C) equal to the ROI. D) greater than net income.

58) Brookings Company evaluates its managers on the basis of return on investment. Division Three has a return on investment (ROI) of 15%, while the company as a whole has an ROI of only 10%. Which of the following performance measures will motivate the manager of Division Three to accept a project earning a 12% return?

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A) ROI. B) Residual income. C) Both ROI and residual income will motivate the manager to accept the project. D) Neither ROI nor residual income will motivate the manager to accept the project.

59) Which of the following shouldnot be included in the investment base used to compute residual income?

A) Accounts receivable B) Inventory C) Cash D) Land held for future use

60)

Which of the following may be used to establish transfer prices?

A) Standard cost of a product B) A negotiated price C) Market price D) All of these are correct answers.

61)

Which of the following is an advantage of using cost-based transfer prices?

A) Such prices are an objective measure and easy to compute. B) Such prices motivate the buying division to control cost. C) Such prices provide a sense of fairness. D) Such prices will usually exceed the market-based or negotiated transfer prices.

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62)

The preferred method for setting transfer prices generally is some form of:

A) Price based on negotiation. B) Price based on industry cost averages. C) Price based on historical costs. D) Price based on market forces.

63) If a company is unable to use market-based transfer prices, the next best alternative is to use a price:

A) Based on negotiation. B) Based on variable cost. C) Based on standard cost. D) Set by senior management.

64) Hu Corporation has two operating divisions, A and B. The following information is provided for Division A: Unit selling price Unit variable costs Unit fixed costs

$ 84 $ 47 $ 27

Division B uses the type of product produced by Division A and has approached Division A about buying the product internally. Division B is currently paying $62 to purchase the product from an outside source. If Division A sells internally, it can save $9.50 per unit in variable costs. Assuming Division A is operating at capacity, what price should it charge Division B if the transfer is to be made? A) $74.00 B) $84.00 C) $62.00 D) $74.50

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65) Hu Corporation has two operating divisions, A and B. The following information is provided for Division A: Unit selling price Unit variable costs Unit fixed costs

$ 200 $ 120 $ 40

Division B uses the type of product produced by Division A and has approached Division A about buying the product internally. Division B is currently paying $180 to purchase the product from an outside source. If Division A sells internally, it can save $5 per unit in variable costs. Assuming Division A is operating at capacity, what price should it charge Division B if the transfer is to be made? A) $115 B) $195 C) $125 D) $200

66) Estes Company has two operating divisions, A and B. The following information is provided for Division A: Unit selling price Unit variable costs Unit fixed costs

$ 164 $ 114 $ 34

Division B uses the type of product produced by Division A and has approached Division A about buying the product internally. Division B is currently paying $159 to purchase the product from an outside source. If Division A sells internally, it can save $17.00 per unit in variable costs. Assuming that Division A has sufficient excess capacity to produce all of the units requested by Division B, which of the following is the lowest price Division A should consider for the transfer? A) $159.00 B) $147.00 C) $114.00 D) $97.00

67) Estes Company has two operating divisions, A and B. The following information is provided for Division A:

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Unit selling price Unit variable costs Unit fixed costs

$ 350 $ 200 $ 70

Division B uses the type of product produced by Division A and has approached Division A about buying the product internally. Division B is currently paying $300 to purchase the product from an outside source. If Division A sells internally, it can save $10 per unit in variable costs. Assuming that Division A has sufficient excess capacity to produce all of the units requested by Division B, which of the following is the lowest price Division A should consider for the transfer? A) $300 B) $190 C) $260 D) $250

68) year:

The Electronics Division of Anton Company reports the following results for the current

Revenues Operating expenses Operating income Operating assets

$ 427,000 $ 384,000 $ 43,000 $ 530,000

Anton Company has set a target return on investment (ROI) of 11% for the Electronics Division. The Electronic Division's return on investment is: A) 11.00%. B) 8.11%. C) 11.20%. D) 10.07%.

69) The Electronics Division of Anton Company reports the following results for the current year: Revenues Operating expenses Operating income Operating assets

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$ 800,000 $ 656,000 $ 144,000 $ 1,200,000

Anton Company has set a target return on investment (ROI) of 11% for the Electronics Division. The Electronic Division's return on investment is: A) 11.25%. B) 12%. C) 66.7%. D) 18%.

70) year:

The Electronics Division of Anton Company reports the following results for the current

Revenues Operating expenses Operating income Operating assets

$ 499,000 $ 448,000 $ 51,000 $ 610,000

Anton Company has set a target return on investment (ROI) of 13% for the Electronics Division. The Electronic Division's margin is: A) 8.36%. B) 14.86%. C) 11.38%. D) 10.22%.

71) year:

The Electronics Division of Anton Company reports the following results for the current

Revenues Operating expenses Operating income Operating assets

$ 800,000 $ 656,000 $ 144,000 $ 1,200,000

Anton Company has set a target return on investment (ROI) of 11% for the Electronics Division. The Electronic Division's margin is:

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A) 11.25%. B) 12%. C) 66.7%. D) 18%.

72) year:

The Electronics Division of Anton Company reports the following results for the current

Revenues Operating expenses Operating income Operating assets

$ 900,000 $ 746,000 $ 154,000 $ 1,250,000

Anton Company has set a target return on investment (ROI) of 13% for the Electronics Division. The Electronic Division's turnover (asset utilization) is: A) 0.1326. B) 0.12. C) 0.720. D) 0.17.

73) year:

The Electronics Division of Anton Company reports the following results for the current

Revenues Operating expenses Operating income Operating assets

$ 800,000 $ 656,000 $ 144,000 $ 1,200,000

Anton Company has set a target return on investment (ROI) of 11% for the Electronics Division. The Electronic Division's turnover (asset utilization) is: A) 0.1125. B) 0.12. C) 0.667. D) 0.18.

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74) Terra Company has two divisions, the Retail Division and the Wholesale Division. The following information was gathered for the two divisions for the current year: Retail Division Operating income Operating assets

$ 2,750,000 $ 18,500,000

Wholesale Division $ 6,250,000 $ 38,500,000

Terra Company has set a target return on investment (ROI) of 15% for both divisions. Based on ROI, which division appears to have performed better? A) Retail division. B) Wholesale division. C) Both divisions have the same results.. D) The answer cannot be determined using the information provided..

75) Terra Company has two divisions, the Retail Division and the Wholesale Division. The following information was gathered for the two divisions for the current year: Operating income Operating assets

Retail Division

Wholesale Division

$ 2,500,000 $ 16,000,000

$ 6,000,000 $ 36,000,000

Terra Company has set a target return on investment (ROI) of 15% for both divisions. Based on ROI, which division appears to have performed better? A) Retail division. B) Wholesale division. C) Both division have the same results. D) The answer cannot be determined using the information provided.

76) Terra Company has two divisions, the Retail Division and the Wholesale Division. The following information was gathered for the two divisions for the current year: Retail Division Operating income Operating assets

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$ 6,900,000 $ 36,900,000

Wholesale Division $ 3,400,000 $ 16,900,000

Assuming that these are the only divisions of Terra Company, what is the ROI for the company as a whole? A) 38.82% B) 19.14% C) 20.12% D) 18.70%

77) Terra Company has two divisions, the Retail Division and the Wholesale Division. The following information was gathered for the two divisions for the current year: Retail Division Operating income Operating assets

$ 2,500,000 $ 16,000,000

Wholesale Division $ 6,000,000 $ 36,000,000

Assuming that these are the only divisions of Terra Company, what is the ROI for the company as a whole? A) 15.7% B) 16.3% C) 16.6% D) 32.3%

78) Retail Sales and Wholesale Sales are the only divisions of Terra Company. The following information was gathered for the two divisions for the current year: Operating income Operating assets

Retail Division

Wholesale Division

$ 8,000,000 $ 38,000,000

$ 4,500,000 $ 18,000,000

The company has $3,000,000 in operating assets that are not assigned to either of the divisions and $400,000 in corporate expenses that are not reflected in the information above. Based on this information, what is the ROI for the company as a whole?

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A) 20.51% B) 46.05% C) 22.32% D) The answer cannot be determined using the information provided.

79) Retail Sales and Wholesale Sales are the only divisions of Terra Company. The following information was gathered for the two divisions for the current year: Operating income Operating assets

Retail Division

Wholesale Division

$ 2,500,000 $ 16,000,000

$ 6,000,000 $ 36,000,000

The company has $1,200,000 in operating assets that are not assigned to either of the divisions and $500,000 in corporate expenses that are not reflected in the information above. Based on this information, what is the ROI for the company as a whole? A) 17.7% B) 16.9% C) 15.0% D) The answer cannot be determined using the information provided.

80) Terra Company has two divisions, the Retail Division and the Wholesale Division. The following information was gathered for the two divisions for the current year: Operating income Operating assets

Retail Division

Wholesale Division

$ 2,710,000 $ 18,100,000

$ 6,210,000 $ 38,100,000

Terra Company has set a target return on investment (ROI) of 14% for both divisions. Which of the following statements is accurate? A) Residual income for the wholesale division was $176,000. B) Residual income for the wholesale division was $876,000. C) Residual income for the retail division was $876,000. D) None of these answers are correct.

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81) Terra Company has two divisions, the Retail Division and the Wholesale Division. The following information was gathered for the two divisions for the current year: Operating income Operating assets

Retail Division

Wholesale Division

$ 2,500,000 $ 16,000,000

$ 6,000,000 $ 36,000,000

Terra Company has set a target return on investment (ROI) of 15% for both divisions. Which of the following statements is accurate? A) Residual income for the wholesale division was $100,000. B) Residual income for the wholesale division was $600,000. C) Residual income for the retail division was $600,000. D) None of these answers are correct.

82) In the current year, the New Products Division of Testar Company had operating income of $10,100,000 and operating assets of $46,900,000. Testar has set a target return on investment (ROI) of 20% for each of its divisions. Which of the following statements iscorrect?

A) The New Products Division yielded ROI that was lower than the target ROI. B) Residual income for the New Products division was $720,000. C) The New Products Division yielded no residual income. D) All of these answers are correct.

83) In the current year, the New Products Division of Testar Company had operating income of $8,000,000 and operating assets of $44,800,000. Testar has set a target return on investment (ROI) of 16% for each of its divisions. Which of the following statements iscorrect?

A) The New Products division yielded ROI that was lower than the target ROI. B) Residual income for the New Products division was $832,000. C) The New Products division yielded no residual income. D) All of these answers are correct.

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84) The New Products Division of Testar Company has developed a potential new product that would require $9,700,000 in operating assets and would be expected to provide $1,552,000 in operating income each year. Testar has set a target return on investment (ROI) of 15.3% for each of its divisions. Which of the following statements is accurate?

A) The new product is unacceptable because it will yield an ROI that is lower than the target ROI. B) The new product is acceptable because it will yield an ROI that is higher than the target ROI and will yield residual income of 67,900. C) The new product will decrease the companywide ROI. D) The new product will yield residual income of $72,900.

85) The New Products Division of Testar Company has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year. Testar has set a target return on investment (ROI) of 16% for each of its divisions. Which of the following statements is accurate?

A) The new product is acceptable because it will yield an ROI that is higher than the target ROI and will yield residual income of $40,000. B) The new product will yield residual income of $45,000. C) The new product will decrease the companywide ROI. D) The new product is unacceptable because it will yield an ROI that is lower than the target ROI.

86) The New Products Division of Testar Company had operating income of $8,100,000 and operating assets of $44,900,000 during the current year. The New Products Division has developed a potential new product that would require $8,600,000 in operating assets and would be expected to provide $1,500,000 in operating income each year. Testar has set a target return on investment (ROI) of 17% for each of its divisions. Assuming that the new product is put into production, calculate the division's ROI.

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A) 18.04% B) 17.94% C) 17.44% D) The answer cannot be determined using the information provided.

87) The New Products Division of Testar Company had operating income of $8,000,000 and operating assets of $44,800,000 during the current year. The New Products Division has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year. Testar has set a target return on investment (ROI) of 16% for each of its divisions. Assuming that the new product is put into production, calculate the division's ROI.

A) 17.6% B) 17.9% C) 16.5% D) The answer cannot be determined using the information provided.

88) The New Products Division, of Testar Company had operating income of $8,500,000 and operating assets of $45,300,000 during the current year. The New Products Division has developed a potential new product that would require $9,000,000 in operating assets and would be expected to provide $1,900,000 in operating income each year. Testar has set a target return on investment (ROI) of 18% for each of its divisions. Assuming that the new product is put into production, calculate the residual income for the division. A) $1,274,000 B) $426,000 C) $586,000 D) $626,000

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89) The New Products Division of Testar Company had operating income of $8,000,000 and operating assets of $44,800,000 during the current year. The New Products Division has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year. Testar has set a target return on investment (ROI) of 16% for each of its divisions. Assuming that the new product is put into production, calculate the residual income for the division.

A) $832,000 B) $872,000 C) $528,000 D) $672,000

90)

The process of evaluating the performance of individual managers is known as:

A) Responsibility accounting. B) Management by exception. C) Responsibility management. D) Performance management.

91) All of the following are characteristics that are required for effective responsibility accountingexcept:

A) motivation. B) accountability. C) centralization. D) None of these answers are correct.

92)

Which of the following is an advantage of decentralization?

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A) Decentralization encourages lower-level managers to focus on strategic decisions. B) Authority and responsibility is not clear. C) Decentralization motivates managers to improve productivity. D) None of these answers are correct.

93) Which of the following is a characteristic that is needed for decentralization to work well in an organization?

A) Clear lines of authority. B) Responsibility. C) Good communication. D) All of these answers are correct.

94) A reporting unit of a decentralized business that controls identifiable revenue and/or expense items is known as a(n):

A) Management center. B) Performance center. C) Accounting center. D) Responsibility center.

95) Vanessa Grant is responsible for controlling expenses, but is not responsible for generating revenues. Vanessa Grant is a manager of a(n):

A) Cost center. B) Profit center. C) Investment center. D) Liability center.

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96)

Which of the following statements regarding cost centers isincorrect?

A) Cost centers are units within a business that incur expense but do not have responsibility for generating revenue. B) Cost centers tend to be found at upper levels on a company's organization chart. C) A manager of a cost center has less responsibility than a manager in an investment center. D) Cost center managers are evaluated on their ability to control costs and keep within budget.

97) a(n):

An organizational unit of a business that incurs costs and generates revenues is known as

A) Cost center. B) Sales center. C) Profit center. D) Investment center.

98)

Which of the following statements regarding profit centers is correct?

A) A manager of a profit center has more responsibility than a manager of an investment center. B) A manager of a profit center is evaluated only on his/her ability to control costs. C) A manager of a profit center is evaluated on his/her ability to control costs and generate revenues. D) A manager of a profit center is responsible for assets, liabilities, and earnings.

99)

Delegating authority and responsibility throughout an organization is known as:

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A) centralization. B) decentralization. C) management by exception. D) suboptimization.

100)

Which of the following statements regarding investment centers isincorrect?

A) A manager of an investment center is responsible for the investment of capital, but not revenues or expenses. B) Investment centers are commonly found at the higher levels of an organization chart. C) A manager of an investment center should be accountable for assets, liabilities, and earnings. D) Return on investment and residual income are tools used to assess managers of an investment center.

101) The cellular phone division of Stegall Company had budgeted sales of $1,190,000 and actual sales of $1,130,000. Budgeted expenses were $840,000, while actual expenses were $780,000. Based on this information, the responsibility report for the manager of this profit center would show:

A) A favorable revenue variance. B) A favorable cost variance. C) Both a favorable revenue variance and a favorable cost variance. D) None of these answers are correct.

102) The cellular phone division of Stegall Company had budgeted sales of $950,000 and actual sales of $900,000. Budgeted expenses were $600,000, while actual expenses were $550,000. Based on this information, the responsibility report for the manager of this profit center would show:

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A) A favorable revenue variance. B) A favorable cost variance. C) Both a favorable revenue variance and a favorable cost variance. D) None of these answers are correct.

103) The concept that says managers should be evaluated on the basis of revenues and/or expenses they can control is known as the:

A) Management by exception concept. B) Controllability concept. C) Responsibility concept. D) None of these answers are correct.

104)

Which of the following statements isincorrect?

A) ROI is calculated as revenue divided by operating assets. B) Operating assets are assets that are actually used to generate revenue. C) Nonoperating assets are not included in the calculation of return on investment. D) Operating assets include both current and long-term assets.

105) The manager of Pearless Company's Toy Division is not satisfied with the level of return on investment that the division achieved this year. What can be done to improve return on investment?

A) Decrease the investment in assets B) Increase operating expenses C) Increase sales D) Decrease the investment in assets and/or increase sales.

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106) Last year, Trevor Corporation had sales of $164,000 and expenses of $107,000 . If Trevor had $770,000 of operating assets last year, what was Trevor’s margin? A) 34.76 percent B) 13.90 percent C) 21.30 percent D) 7.40 percent

107) Last year, Trevor Corporation had sales of $150,000 and expenses of $100,000 . If Trevor had $700,000 of operating assets last year, what was Trevor’s margin? A) 7.14 percent B) 21.43 percent C) 33.33 percent D) 14.29 percent

108) Last year, Trevor Corporation had sales revenue of $190,000 and expenses of $120,000 . If Trevor had $900,000 of operating assets last year, what was Trevor’s turnover? A) 13.33 percent B) 21.11 percent C) 7.78 percent D) 36.84 percent

109) Last year, Trevor Corporation had sales revenue of $150,000 and expenses of $100,000 . If Trevor had $700,000 of operating assets last year, what was Trevor’s turnover?

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A) 7.14 percent B) 21.43 percent C) 33.33 percent D) 14.29 percent

110) Gabby Incorporated has a margin of 5.2 percent and a turnover of 3.0. What is Gabby’s return on investment? A) 0.57 percent B) 20.8 percent C) 15.6 percent D) 1.7 percent

111) Gabby Incorporated has a margin of 4.2 percent and a turnover of 2. What is Gabby’s return on investment? A) 2.1 percent B) 8.4 percent C) 0.47 percent D) 12.6 percent

112) The term that describes what occurs when a manager does what is in his/her best interests and not what is in the best interests of the company as a whole is known as:

A) suboptimization. B) strategic planning. C) lowballing. D) goal alignment.

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113)

Which of the following statements isincorrect?

A) Turnover is calculated by dividing sales by average operating assets. B) Margin is a measure of the profits generated from sales. C) Return on investment can be improved by increasing sales, decreasing expenses, or increasing the asset base. D) If return on investment increases when sales increase, that change usually is due at least in part to the effect of fixed costs (operating leverage).

114)

Which of the following statements about residual income is true?

A) Residual income = Operating Income − Sales B) Residual income = Operating Income − Operating Assets C) Residual income is the amount of income in excess of a target or desired return on investment D) None of these answers are correct.

115)

Which of the following statements regarding a balanced scorecard is correct?

A) A balanced scorecard includes several different performance measures that can be used to assess how well a business is accomplishing its mission. B) A balanced scorecard includes financial performance measures such as ROI. C) A balanced scorecard includes nonfinancial measures such as defect rates or on-time deliveries. D) All of these answers are correct.

116) Kelfour Enterprises has divided its operations into two divisions. Relevant accounting data for each division is as follows: Divisions

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Sales

Operating

Operating 40

Western Division Eastern Division

$ 300,000 $ 450,000

Assets $ 250,000 $ 300,000

Income $ 30,000 $ 31,500

Kelfour has an additional $65,000 of funds to invest. The manager of the Western Division believes that she can invest the funds at a rate of return (ROI) of 21.50% while the manager of the Eastern Division has found a new investment opportunity that is expected to yield a 19.50% ROI. Kelfour uses residual income (RI) to evaluate managerial performance. The company wide desired ROI is 17.50%. Based on this information A) The manager of the Western Division would accept the $65,000 additional investment opportunity because it would increase the Division's RI by $2,600. B) The manager of the Eastern Division would accept the $65,000 additional investment opportunity because it would increase the Division's RI by $2,600. C) The CEO would be indifferent because the $65,000 additional investment would increase the RI of the company as a whole regardless of which Division receives the additional investment. D) All of the answers represent true statements.

117) Ayla Company has operating income of $27,000 and operating assets of $194,000. Assuming the company’s desired ROI is 10%, what is the residual income? A) ($13,500) B) $13,500 C) $7,600 D) ($7,600)

118) Ayla Company has operating income of $20,000 and operating assets of $180,000. Assuming the company’s desired ROI is 10%, what is the residual income? A) ($10,000) B) $2,000 C) $10,000 D) ($2,000)

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119) Clear lines of authority and responsibility are essential to establishing a responsibility accounting system. ⊚ ⊚

true false

120) Decentralization encourages upper-level management to concentrate on short-term decisions. ⊚ ⊚

true false

121) An important disadvantage of decentralization is that managers may engage in suboptimal behavior. ⊚ ⊚

true false

122) Suboptimization refers to actions taken by a manager that are in the best interest of the firm as a whole but not in his/her own best interest. ⊚ ⊚

true false

123) Organization charts are drawn in a hierarchical fashion, with low-level managers shown at the bottom of the chart, middle-level managers in the middle of the chart, and senior-level managers shown at the top of the chart. ⊚ ⊚

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true false

124) A disadvantage of decentralization is that it fails to motivate managers to improve the productivity of their division. ⊚ ⊚

true false

125) A restaurant that is part of a retail store and managed by the retail manager would most likely be classified as a cost center. ⊚ ⊚

true false

126) Liam manages a division that is part of a large decentralized business. He has a substantial degree of control over the division's costs, revenues, and investment in assets. Based on this information, the division would be classified as a profit center. ⊚ ⊚

127)

true false

Investment centers are often evaluated on the basis of return on investment. ⊚ ⊚

true false

128) In a decentralized firm, a responsibility report should be prepared for investment center managers, but are not useful for profit center managers. ⊚ ⊚

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true false

129) Cambridge Company has three divisions that all report to the vice president of manufacturing. Each division has two departments. On Cambridge's organization chart, there will be three lines leading to the vice president of manufacturing, one for each division. ⊚ ⊚

true false

130) Patterson Company has three divisions that all report to the vice president of manufacturing. Each division has two departments. The vice president of manufacturing should receive detailed responsibility reports on all six of the departments. ⊚ ⊚

true false

131) Responsibility reports should be arranged in a manner that promotes management by exception. ⊚ ⊚

true false

132) In a responsibility reporting system, the reports of a particular manager contain summary information about the revenue and cost items directly under his or her control and detailed data on the activities of the responsibility centers that fall under his or her chain of authority. ⊚ ⊚

true false

133) Responsibility reports should be simple, show variances between the budgeted and actual amounts of controllable revenue and expense items, and be timely.

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⊚ ⊚

true false

134) When preparing responsibility reports, an accountant should remember that the utility of information tends to decrease with the length of time required to prepare and disseminate the information. ⊚ ⊚

true false

135) In a responsibility report, a cost center's actual costs should be compared to its flexible budget. ⊚ ⊚

true false

136) In responsibility accounting systems, managers never are held responsible for items over which they have less than absolute control. ⊚ ⊚

true false

137) In an optimal responsibility accounting system, managers are evaluated on only the revenues and costs that are under their control. ⊚ ⊚

138)

true false

The general formula for return on investment is revenue divided by investment in assets. ⊚ ⊚

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true false

139) If Pascal Company's turnover (asset utilization) measure is 2.5 and its margin is 7.5%, its ROI is 18.75%. ⊚ ⊚

true false

140) Unless there are other factors to be considered, an investment opportunity with a return on investment that equals or exceeds the company's required rate of return would be accepted. ⊚ ⊚

true false

141) An investment opportunity with a residual income that equals or exceeds the company's required rate of return should be accepted. ⊚ ⊚

true false

142) The preferred method for establishing transfer prices for transactions between divisions of the same firm is to base the transfer price on some form of competitive market price. ⊚ ⊚

true false

143) When a market-based transfer price is not possible, a transfer price imposed by upper management should preserve a sense of fairness among the divisions of the company affected by the transfer. ⊚ ⊚

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true false

144) A decentralized company should try to minimize autonomy among the managers of its divisions and departments. ⊚ ⊚

145) cost.

The most desirable way to set a transfer price is to base it on either variable cost or total

⊚ ⊚

146)

true false

A cost-based transfer price should be based on standard unit costs, not actual costs. ⊚ ⊚

true false

147) In a potential transfer price situation, if the supplying division is operating at capacity in making sales to outside customers, it should be required to accept a transfer price that would lower its overall profitability, because doing so will increase total firm profitability. ⊚ ⊚

Version 1

true false

Answer Key Test name: Chap 09_10e_Edmonds 1) D 2) A 3) A 4) C 5) B 6) A 7) B 8) D 9) A 10) B 11) D 12) D 13) C 14) A 15) D 16) C 17) A 18) D 19) C 20) C 21) A 22) D 23) D 24) C 25) B 26) D Version 1

27) A 28) A 29) B 30) A 31) B 32) C 33) C 34) A 35) A 36) A 37) D 38) D 39) B 40) B 41) C 42) C 43) B 44) D 45) B 46) C 47) A 48) B 49) C 50) A 51) B 52) C 53) A 54) B 55) A 56) A Version 1

57) A 58) B 59) D 60) D 61) A 62) D 63) A 64) D 65) B 66) D 67) B 68) B 69) B 70) D 71) D 72) C 73) C 74) B 75) B 76) B 77) B 78) A 79) C 80) B 81) B 82) B 83) B 84) B 85) A 86) B Version 1

87) A 88) D 89) B 90) A 91) C 92) C 93) D 94) D 95) A 96) B 97) C 98) C 99) B 100) A 101) B 102) B 103) B 104) A 105) D 106) A 107) C 108) B 109) B 110) C 111) B 112) A 113) C 114) C 115) D 116) A Version 1

117) C 118) B 119) TRUE 120) FALSE 121) TRUE 122) FALSE 123) TRUE 124) FALSE 125) FALSE 126) FALSE 127) TRUE 128) FALSE 129) TRUE 130) FALSE 131) TRUE 132) FALSE 133) TRUE 134) TRUE 135) TRUE 136) FALSE 137) TRUE 138) FALSE 139) TRUE 140) TRUE 141) FALSE 142) TRUE 143) FALSE 144) FALSE 145) FALSE 146) TRUE Version 1

147) FALSE

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Chapter 10 Planning for Capital Investments 1)

All of the following are capital investment decisions except: A) purchasing equipment for $44,800. B) paying $554,000 to renovate a restaurant. C) acquiring $460,000 of common stock. D) buying a $4,150,000 manufacturing plant.

All of the following are capital investment decisionsexcept:

A) acquiring $100,000 of common stock. B) buying a $5,000,000 manufacturing plant. C) purchasing equipment for $80,000. D) paying $600,000 to renovate a restaurant.

3) Which of the following isnot a factor in explaining why the present value of a future dollar is less than one dollar?

A) Inflation B) Interest C) Risk of failure to receive expected cash inflows D) Historic cost

Which statement characterizes the time value of money concept?

A) The future value of a present dollar is greater than one dollar. B) The present value of a future dollar is greater than one dollar. C) The timing of cash flows is not relevant to decision making. D) None of these answers are correct

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5) Evergreen Company has two investment opportunities. Both investments cost $5,000 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below: Period 1 Period 2 Period 3 Period 4 Total

Investment I

Investment II

$ 1,700 1,700 3,120 5,680 $ 12,200

$ 4,540 3,120 3,120 1,420 $ 12,200

Select the correct statement. A) Evergreen should choose Investment I because of the time value of money. B) Evergreen should be indifferent between the two investments because they provide the same total cash inflows. C) Time value of money techniques are not useful for comparing these investments. D) Evergreen should choose Investment II because it generates more immediate cash inflows.

6) Evergreen Company has two investment opportunities. Both investments cost $5,000 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below: Investment I

Investment II

Period 1 Period 2 Period 3 Period 4

$ 1,000 1,000 2,000 4,000

$ 3,000 2,000 2,000 1,000

Total

$ 8,000

Select the correct statement.

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A) Evergreen should choose Investment I because of the time value of money. B) Evergreen should choose Investment II because it generates more immediate cash inflows. C) Evergreen should be indifferent between the two investments because they provide the same total cash inflows. D) Time value of money techniques are not useful for comparing these investments.

Which of the following statements describes the cost of capital?

A) The internal rate of return on investments B) The maximum acceptable rate of return on investments C) The minimum rate of return on investments D) The interest rate the bank charges its best customers

The cost of capital is called all of the following except:

A) cutoff rate. B) discount rate. C) hurdle rate. D) All of these are terms for the cost of capital.

For a capital investment project to be acceptable, it must generate a rate of return:

A) less than the hurdle rate. B) equal to or greater than the cost of capital. C) equal to the conversion rate. D) None of these answers are correct.

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10) What amount of cash must be invested today in order to have $37,000 at the end of one year, assuming the rate of return is 8%? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. A) $34,040 B) $31,722 C) $29,600 D) $34,259

11) What amount of cash must be invested today in order to have $60,000 at the end of one year assuming the rate of return is 9%? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. A) $45,455 B) $54,000 C) $55,046 D) $54,600

12) What amount of cash would result at the end of one year, if $18,000 is invested today and the rate of return is 10%? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. A) $19,800 B) $16,200 C) $19,620 D) $18,000

13) What amount of cash would result at the end of one year, if $15,000 is invested today and the rate of return is 8%? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided.

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A) $16,200 B) $13,889 C) $15,000 D) $1,200

14) Ashley projects that she can get $140,000 cash per year for 5 years on a real estate investment project. If Ashley wants to earn a rate of return of 12%, what is the maximum that she should pay for the investment? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Round your answer to the nearest dollar. A) $644,000 B) $95,282 C) $463,698 D) $504,669

15) Ashley projects that she can get $100,000 cash per year for 5 years on a real estate investment project. If Ashley wants to earn a rate of return of 12%, what is the maximum that she should pay for the investment? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Round your answer to the nearest dollar. A) $56,743 B) $446,429 C) $360,478 D) $560,000

16) Connor has $520,000 to invest in a 5-year annuity. Assuming the time value of money is 12%, what amount will Connor receive in cash each year? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your PV factors. Round your answer to the nearest dollar.

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A) $104,000 B) $114,400 C) $144,253 D) None of these answers are correct.

17) Connor has $300,000 to invest in a 5-year annuity. Assuming the time value of money is 10%, what amount will Connor receive in cash each year? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your PV factors. Round your answer to the nearest dollar. A) $79,139 B) $60,000 C) $96,631 D) None of these answers are correct.

18)

A cash flow that only occurs in equal amounts each year is referred to as:

A) a lump sum. B) a perpetuity. C) an annuity. D) None of these answers are correct.

19) Assuming equal time intervals between the payments and a constant rate of return, which of the following cash flow patterns represents an annuity? A) B) C)

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Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

$ 1,200 $ 800 $ 200

$ 1,200 $ 0 $ 300

$ 1,200 $ 800 $400

$ 1,200 $ 800 $ 500

$ 1,200 $ 800 $ 600

$ 1,200 $ 0 $ 700

A) A B) B C) C D) Any of the answers can represent an annuity.

20) Assuming equal time intervals between the payments and a constant rate of return, which of the following cash flow patterns represents an annuity? A) B) C)

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

$ 1,000 $ 500 $ 100

$ 1,000 $ 0 $ 200

$ 1,000 $ 500 $ 300

$ 1,000 $ 500 $ 400

$ 1,000 $ 500 $ 500

$ 1,000 $ 0 $ 600

A) A B) B C) C D) Any of the answers can represent an annuity.

21)

Which one of the following statements best describes an ordinary annuity?

A) Series of cash inflows of varying amounts collected at the end of each period B) Series of cash flows of equal amounts collected at the end of each period C) Series of cash flows of varying amounts collected at the beginning of each period D) Series of cash flows of equal amounts collected at the beginning of each period

22)

Which of the following isnot a major cash inflow from a capital investment?

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A) Incremental revenue B) Increase in working capital commitments C) Cost savings D) Salvage value

23)

When calculating the present value of an ordinary annuity, it is assumed that:

A) cash flows will be reinvested at the required rate of return. B) cash flows occur at the end of each accounting period. C) the investor will wait until the end of the investment period to withdraw cash flows. D) cash flows will be reinvested at the required rate of return and cash flows occur at the end of each accounting period.

24)

A customary assumption in capital budgeting analysis is that:

A) the desired rate of return includes the effects of compounding. B) the cash inflows generated by the investment are not reinvested. C) annual cash flows occur at the beginning of each period. D) the time value of money is ignored.

25) Jiminez Company has two investment opportunities. Both investments cost $5,700 and will provide the following net cash flows: Year 1 2 3 4

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Investment A $ 3,850 3,850 3,850 3,850

Investment B $ 3,850 5,020 2,850 1,340

What is the total present value of Investment A's cash flows assuming an 12% minimum rate of return? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round your answer to the nearest whole dollar. A) $10,320. B) $13,097. C) $5,994. D) $3,850.

26) Jiminez Company has two investment opportunities. Both investments cost $5,000 and will provide the following net cash flows: Year 1 2 3 4

Investment A $ 3,000 3,000 3,000 3,000

Investment B $ 3,000 4,000 2,000 1,000

What is the total present value of Investment A's cash flows assuming an 8% minimum rate of return? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round your answer to the nearest whole dollar. A) $14,936. B) $4,936. C) $7,000. D) $12,000.

27) Harvey wants to determine the net present value for a proposed capital investment. He has determined the desired rate of return, the expected investment time period, a series of cash inflows of equal amount, the salvage value of the investment, and the required cash outflows. Which of the following tables would most likely be used to calculate the net present value of the investment?

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A) Present value of annuity. B) Future value of a lump sum. C) Present value of annuity and present value of a lump sum. D) Future value of annuity and future value of a lump sum.

28) Morrisey Company has two investment opportunities. Both investments cost $5,500 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below: Investment I

Investment II

Period 1 Period 2 Period 3 Period 4

$ 1,250 1,250 2,250 4,400

$ 1,250 2,300 3,350 2,250

Total

$ 9,150

What is the net present value of Investment II assuming an 9% minimum rate of return? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round your answer to the nearest whole dollar. A) $1,763 B) $7,263 C) $9,150 D) $(7,053)

29) Morrisey Company has two investment opportunities. Both investments cost $5,500 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below: Period 1 Period 2 Period 3 Period 4

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Investment I

Investment II

$ 1,000 1,000 2,000 4,000

$ 1,000 2,000 3,000 2,000

Total

$ 8,000

What is the net present value of Investment II assuming an 8% minimum rate of return? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round your answer to the nearest whole dollar. A) $6,492 B) $992 C) $5,880 D) $380

30) An investment that costs $38,000 will produce annual cash flows of $12,720 for a period of 4 years. Given a desired rate of return of 7%, what will the investment generate? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round your answer to the nearest whole dollar. A) A negative net present value of $5,085. B) A positive net present value of $43,085. C) A positive net present value of $5,085. D) A negative net present value of $43,085.

31) An investment that costs $40,000 will produce annual cash flows of $12,000 for a period of 4 years. Given a desired rate of return of 10%, what will the investment generate? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round your answer to the nearest whole dollar. A) A positive net present value of $38,038. B) A positive net present value of $1,962. C) A negative net present value of $38,038. D) A negative net present value of $1,962.

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32) An investment that costs $21,500 will produce annual cash flows of $4,300 for a period of 6 years. Further, the investment has an expected salvage value of $2,650. Given a desired rate of return of 9%, what will the investment generate? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round your answer to the nearest whole dollar. A) A positive net present value of $19,289. B) A positive net present value of $1,580. C) A positive net present value of $21,500. D) A negative net present value of $630.

33) An investment that costs $20,000 will produce annual cash flows of $5,000 for a period of 6 years. Further, the investment has an expected salvage value of $3,000. Given a desired rate of return of 12%, what will the investment generate? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round your answer to the nearest whole dollar. A) A positive net present value of $2,077. B) A negative net present value of $2,077. C) A positive net present value of $22,077. D) A positive net present value of $557.

34)

The rate of return that equates the present value of cash inflows and outflows is the:

A) minimum rate of return. B) internal rate of return. C) desired rate of return. D) hurdle rate.

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35) An investment that cost $47,000 provided annual cash inflows of $14,000 per year for five years. The desired rate of return is 11%. The internal rate of return from the investment is: (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. A) less than the desired rate of return. B) the answer cannot be determined from the information provided. C) greater than the desired rate of return. D) equal to the desired rate of return.

36) An investment that cost $30,000 provided annual cash inflows of $9,000 per year for five years. The desired rate of return is 10%. The internal rate of return from the investment is: (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. A) less than the desired rate of return. B) equal to the desired rate of return. C) greater than the desired rate of return. D) the answer cannot be determined from the information provided.

37) Select theincorrect statement concerning the internal rate of return (IRR) method of evaluating capital projects.

A) The higher the IRR the better. B) The internal rate of return is that rate that makes the present value of the initial outlay equal to zero. C) If a project has a positive net present value then its IRR will exceed the hurdle rate. D) A project whose IRR is less than the cost of capital should be rejected.

38) Which of the following is the approximate internal rate of return for an investment that costs $73,600 and provides a $10,000 annuity for 10 years? (PV of $1 and PVA of $1). Note: Use appropriate factor(s) from the tables provided.

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A) 8% B) 6% C) 4% D) 3%

39) Which of the following is the approximate internal rate of return for an investment that costs $33,550 and provides a $5,000 annuity for 10 years? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. A) 5% B) 6% C) 8% D) 10%

40) Theresa is considering starting a small business. She plans to purchase equipment costing $162,000. Rent on the building used by the business will be $27,700 per year while other operating costs will total $14,000 per year. A market research specialist estimates that Theresa's annual sales from the business will amount to $97,000. Theresa plans to operate the business for 6 years. Disregarding the effects of taxes, what will be the amount of annual net cash flow generated by the business?

A) $55,300 B) $41,700 C) $97,000 D) None of these choices are correct.

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41) Theresa is considering starting a small business. She plans to purchase equipment costing $145,000. Rent on the building used by the business will be $26,000 per year while other operating costs will total $30,000 per year. A market research specialist estimates that Theresa's annual sales from the business will amount to $80,000. Theresa plans to operate the business for 6 years. Disregarding the effects of taxes, what will be the amount of annual net cash flow generated by the business?

A) $24,000 B) $56,000 C) $80,000 D) None of these choices are correct.

42)

Cash outflows can be categorized into all of the following groupsexcept:

A) opportunity costs associated with selecting a specific capital project. B) outflows associated with the initial investment. C) working capital commitments. D) increases in operating expenses.

43) Which of the following would be considered a cash inflow in determining the value of a capital investment?

A) Incremental revenues from increased productivity B) Cost savings from a reduction in labor hours C) An increase in working capital commitments D) Both incremental revenues from increased productivity and cost savings from a reduction in labor hours are correct.

44)

A capital investment project may provide cash inflows from:

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A) incremental revenues. B) cost savings. C) the salvage value of the investment. D) All of these choices are correct.

45)

Cash outflows from a capital investment project include:

A) increases in operating expenses. B) the reduction in the amount of working capital. C) salvage value. D) All of these choices are correct.

46)

Select theincorrect statement concerning the present value index (PVI).

A) The PVI is computed by dividing the total present value of the cash inflows by the present value of the cash outflows. B) The PVI should be used to evaluate two or more projects whose initial investments differ. C) The lower the PVI, the better. D) A project whose PVI is positive will also have a positive net present value.

47) Garrison Company has two investment opportunities. A cash flow schedule for the investments is provided below: Year 0 1 2 3 4

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Investment A $(4,900) 1,960 1,960 1,960 1,960

Investment B $(5,850) 2,940 1,960 1,960 980

Considering the unequal investments, which of the following techniques would be most appropriate for choosing between Investment A and Investment B? A) Payback method B) Present value index C) Net present value method D) None of these choices are correct.

48) Garrison Company has two investment opportunities. A cash flow schedule for the investments is provided below: Year 0 1 2 3 4

Investment A $(5,000) 2,000 2,000 2,000 2,000

Investment B $(6,000) 3,000 2,000 2,000 1,000

49) Shenandoah Springs Company is considering two investment opportunities whose cash flows are provided below: Year 0 1 2 3 4

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Investment A $(16,750) 5,630 5,630 5,630 4,560

Investment B $(11,100) 5,630 4,560 3,770 1,840

The company's hurdle rate is 10%. What is the present value index of Investment B? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round your answer to two decimal points. A) 1.07 B) 1.00 C) 1.17 D) None of these choices are correct.

50) Shenandoah Springs Company is considering two investment opportunities whose cash flows are provided below: Year 0 1 2 3 4

Investment A $(15,000) 5,000 5,000 5,000 4,000

Investment B $(9,000) 5,000 4,000 3,000 1,000

The company's hurdle rate is 12%. What is the present value index of Investment B? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round your answer to two decimal points. A) 1.01 B) 1.16 C) 0.86 D) None of these choices are correct.

51) An investment that costs $5,900 will produce annual cash flows of $2,540 for a period of 4 years. Given a desired rate of return of 8%, what is the present value index? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Round your intermediate calculations to whole dollar. Round your answer to three decimal points.

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A) 2.323. B) 0.701. C) 1.426. D) 2.348.

52) An investment that costs $5,000 will produce annual cash flows of $2,000 for a period of 4 years. Given a desired rate of return of 8%, what is the present value index? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Round your intermediate calculations to whole dollar. Round your answer to three decimal points. A) 0.755. B) 1.600. C) 2.500. D) 1.325.

53) Weston Company is considering a capital project that delivers a $52,000 annual net cash flow before tax. The investment will result in annual depreciation expense of $10,800 over the project's four-year useful life. Assuming a tax rate of 40%, what amount of annual after-tax net cash flow will be provided by this project? A) $35,520 B) $24,720 C) $41,200 D) $16,480

54) Weston Company is considering a capital project that delivers a $50,000 annual net cash flow before tax. The investment will result in annual depreciation expense of $10,000 over the project's four-year useful life. Assuming a tax rate of 40%, what amount of annual after-tax net cash flow will be provided by this project?

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A) $40,000 B) $16,000 C) $34,000 D) $24,000

55) Southport Company is considering the purchase of a piece of equipment that costs $110,400. The equipment would be depreciated on a straight-line basis to its expected salvage value of $5,900 over its 10-year useful life. Assuming a tax rate of 40%, what is the annual amount of the depreciation tax shield provided by this investment? A) $10,450 B) $6,270 C) $4,180 D) None of these choices are correct.

56) Southport Company is considering the purchase of a piece of equipment that costs $100,000. The equipment would be depreciated on a straight-line basis to its expected salvage value of $10,000 over its 10-year useful life. Assuming a tax rate of 40%, what is the annual amount of the depreciation tax shield provided by this investment?

A) $4,000 B) $9,000 C) $3,600 D) None of these choices are correct.

57) Newton Company is considering the purchase of an asset that will provide a depreciation tax shield of $19,600 per year for 10 years. Assuming the company is subject to a 40% tax rate during the period and a zero salvage value, what is the depreciable cost of the new asset?

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A) $196,000 B) $784,000 C) $490,000 D) Can't be determined from the information provided

58) Newton Company is considering the purchase of an asset that will provide a depreciation tax shield of $10,000 per year for 10 years. Assuming the company is subject to a 40% tax rate during the period and a zero salvage value, what is the depreciable cost of the new asset?

A) $100,000 B) $250,000 C) $400,000 D) Can't be determined from the information provided

59) Mendez Company is considering a capital project that costs $22,000. The project will deliver the following cash flows: Year 1 $10,000

Year 2 $8,000

Year 3 $8,000

Year 4 $7,000

Year 5 $5,000

Using the incremental approach, the payback period for the investment is: A) 5 years. B) 2 years. C) 1.60 years. D) 2.5 years.

60) Mendez Company is considering a capital project that costs $16,000. The project will deliver the following cash flows: Year 1 $8,000

Year 2 $6,000

Year 3 $5,000

Year 4 $6,000

Year 5 $5,000

Using the incremental approach, the payback period for the investment is:

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A) 5 years. B) 2 years. C) 2.4 years. D) 1.66 years.

61) George Company has the opportunity to purchase an asset that costs $36,000. The asset is expected to increase net income by $18,000 per year. Depreciation expense will be $6,000 per year. Based on this information the payback period is:

A) 6 years. B) 1.50 years. C) .7 years. D) 2 years.

62) George Company has the opportunity to purchase an asset that costs $40,000. The asset is expected to increase net income by $10,000 per year. Depreciation expense will be $5,000 per year. Based on this information the payback period is:

A) 4 years. B) 2.5 years. C) 2.67 years. D) 8 years.

63) Mr. J's Bagels invested in a new oven for $31,000. The oven reduced the amount of time for baking which increased production and sales for five years by the following amounts of cash inflows: Year 1 $14,000

Year 2 $12,000

Year 3 $10,000

Year 4 $12,000

Year 5 $10,000

Using the averaging method, the payback period for the investment in the oven would be:

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A) 0.50 years. B) 2.00 years. C) 5.00 years. D) 2.67 years.

64) Mr. J's Bagels invested in a new oven for $14,000. The oven reduced the amount of time for baking which increased production and sales for five years by the following amounts of cash inflows: Year 1 $8,000

Year 2 $6,000

Year 3 $5,000

Year 4 $6,000

Year 5 $5,000

Using the averaging method, the payback period for the investment in the oven would be: A) 5.0 years. B) 2.3 years. C) 2.0 years. D) 0.5 years.

65)

Which of the following statements concerning payback analysis is true?

A) An investment with a shorter payback is preferable to an investment with a longer payback. B) The payback method ignores the time value of money concept. C) The payback method and the unadjusted rate of return are different approaches that will not consistently lead to the same conclusion. D) All of these choices are correct.

66) Which of the following doesnot represent an advantage of the unadjusted rate of return over the payback method for evaluating capital projects?

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A) The unadjusted rate of return method considers the investment's profitability. B) The unadjusted rate of return method considers the time value of money. C) The unadjusted rate of return is a percentage that can be compared to a stated hurdle rate. D) None of these choices are correct.

67)

Cash outflows generated by capital investments include all of the following except:

A) depreciation expense. B) transportation costs. C) increased operating expenses. D) increase in the required amount of working capital.

68) Which capital budgeting technique defines returns in terms of income instead of cash flows?

A) The unadjusted rate of return B) The internal rate of return method C) The net present value method D) The payback method

69) Nguyen Company has an opportunity to purchase an asset that will cost the company $40,000. The asset is expected to add $16,000 per year to the company's net income. Assuming the asset has a five-year useful life and zero salvage value, the unadjusted rate of return based on the average investment will be:

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A) 40%. B) 80.00%. C) 14%. D) None of these choices are correct.

70) Nguyen Company has an opportunity to purchase an asset that will cost the company $36,000. The asset is expected to add $12,000 per year to the company's net income. Assuming the asset has a five-year useful life and zero salvage value, the unadjusted rate of return based on the average investment will be:

A) 66.67%. B) 33%. C) 15%. D) None of these choices are correct.

71) Finnegan Company plans to invest in a new operating plant that is expected to cost $580,000. The projected incremental income from the investment is as follows: Year 1 2 3 4 5 6

Net Income After Tax $48,000 $63,000 $68,000 $73,000 $58,000 $38,000

The unadjusted rate of return on the initial investment would be approximately: A) 16.7%. B) 83%. C) 8.0%. D) 10.0%.

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72) Finnegan Company plans to invest in a new operating plant that is expected to cost $500,000. The projected incremental income from the investment is as follows: Year 1 2 3 4 5 6

Net Income After Tax $30,000 $45,000 $50,000 $55,000 $40,000 $20,000

The unadjusted rate of return on the initial investment would be approximately: A) 8.0%. B) 6.0%. C) 16.7%. D) 48.0%.

73)

Select theincorrect statement regarding postaudits of capital investment decisions.

A) A postaudit should be conducted at the end of the project. B) The postaudit helps management determine whether a project that had been accepted should have been rejected. C) A postaudit is only necessary for a capital investment selected using a technique that does not consider the time value of money. D) The goal of a postaudit is to provide feedback that can be used to improve the accuracy of future capital investment decisions.

74)

The purposes of the postaudit for capital investments include all of the followingexcept:

A) continuous improvement. B) rewarding managers for increasing idle cash. C) determining whether the project generated the results expected. D) encouraging managers to closely scrutinize capital investment decisions.

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75) The review of a capital budgeting decision to determine whether a project was accepted that should have been rejected is referred to as:

A) an audit. B) a preaudit. C) a postaudit. D) a capital review.

76) Six years ago, Neighborhood Hardware paid a contractor $70,000 to expand the store. At that time, the company calculated a net present value of about $8,500 for the expansion. Now, the company believes that the investment increased annual cash inflows by $10,500 per year for each of the six years. The company has a desired rate of return of 10%. Ignoring income tax considerations, what was the net present value actually achieved for this capital investment? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round your answer to the nearest dollar. A) $(14,342) B) $45,730 C) $(4,250) D) $(24,270)

77) Six years ago, Neighborhood Hardware paid a contractor $45,000 to expand the store. At that time, the company calculated a net present value of about $6,000 for the expansion. Now, the company believes that the investment increased annual cash inflows by $8,000 per year for each of the six years. The company has a desired rate of return of 10%. Ignoring income tax considerations, what was the net present value actually achieved for this capital investment? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round your answer to the nearest dollar.

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A) $(10,158) B) $(3,000) C) $34,842 D) $(9,207)

78) Langdon Company is considering purchasing a capital investment that is expected to provide annual cash inflows of $16,600 per year for 3 years. Assuming that Langdon's required rate of return is 9%, what is the present value of these cash inflows? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Round your final answer to the nearest dollar. A) $38,455 B) $42,019 C) $45,688 D) $41,916

79) 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? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Round your final answer to the nearest dollar. A) $24,018 B) $24,869 C) $33,121 D) $25,771

80) Paul Company is considering purchasing a capital investment that is expected to provide annual cash inflows of $11,300 per year for 3 years. Assuming that the required rate of return is 10%, what is the present value of these cash inflows? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Round your final answer to the nearest dollar. Version 1

A) $28,017 B) $28,101 C) $30,818 D) $25,470

81) 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? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Round your final answer to the nearest dollar. A) $9,016 B) $28,822 C) $29,842 D) $27,047

82) Saget Company is considering the purchase of equipment that would cost $40,000 and offer annual cash inflows of $11,000 over its useful life of 5 years. Assuming a required rate of return of 9%, what is the net present value of this investment opportunity? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. A) $2,786 B) $42,786 C) $19,000 D) $(2,786)

83) Saget Company is considering the purchase of equipment that would cost $35,000 and offer annual cash inflows of $10,500 over its useful life of 5 years. Assuming a required rate of return of 8%, what is the net present value of this investment opportunity? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Version 1

A) $(6,923) B) $17,500 C) $6,923 D) $41,923

84) Generro Company is considering the purchase of equipment that would cost $61,000 and offer annual cash inflows of $17,000 over its useful life of 5 years. Assuming a desired rate of return of 8%, is the project acceptable? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. A) The answer cannot be determined. B) No, since the negative net present value indicates the investment will yield a rate of return below the desired rate of return. C) Yes, since the investment will generate $85,000 in future cash flows, which is greater than the purchase cost of $61,000. D) Yes, since the positive net present value indicates the investment will earn a rate of return greater than 8%.

85) Generro Company is considering the purchase of equipment that would cost $36,000 and offer annual cash inflows of $10,500 over its useful life of 5 years. Assuming a desired rate of return of 12%, is the project acceptable? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. A) No, since the negative net present value indicates the investment will yield a rate of return below the desired rate of return. B) Yes, since the investment will generate $52,500 in future cash flows, which is greater than the purchase cost of $36,000. C) Yes, since the positive net present value indicates the investment will earn a rate of return greater than 12%. D) The answer cannot be determined.

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86) Kerwin Company is considering a purchase of equipment that costs $54,000. If the useful life is expected to be 5 years and Kerwin’s required rate of return is 12%, what is the minimum annual cash inflow that the equipment must offer for the investment to be acceptable? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Round your final answer to the nearest dollar. A) 14,980 B) 18,733 C) 10,039 D) 13,186

87) Kerwin Company is considering a purchase of equipment that costs $50,000. If the useful life is expected to be 5 years and Kerwin’s required rate of return is 12%, what is the minimum annual cash inflow that the equipment must offer for the investment to be acceptable? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Round your final answer to the nearest dollar. A) $8,929 B) $13,870 C) $12,076 D) $17,623

88) Grayson Company is considering a purchase of equipment that costs $53,000 and is expected to offer annual cash inflows of $14,500. Grayson's minimum required rate of return is 10%. How many years must the cash flows last for the investment to be acceptable? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round to the nearest whole year.

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A) 5 years B) 6 years C) 4 years D) 3 years

89) Grayson Company is considering a purchase of equipment that costs $49,000 and is expected to offer annual cash inflows of $13,000. Grayson's minimum required rate of return is 10%. How many years must the cash flows last for the investment to be acceptable? (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round to the nearest whole year. A) 4 years B) 5 years C) 3 years D) 6 years

90) Fenwick Company is considering a purchase of equipment that costs $73,000 and is expected to offer annual cash inflows of $20,252 for 5 years. Fenwick Company's required rate of return is 10%. The internal rate of return of this investment project is closest to: (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. A) 12%. B) 11%. C) 17%. D) 27%.

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91) Fenwick Company is considering a purchase of equipment that costs $60,000 and is expected to offer annual cash inflows of $16,645 for 5 years. Fenwick Company's required rate of return is 10%. The internal rate of return of this investment project is closest to: (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. A) 12%. B) 27%. C) 17%. D) 11%.

92) Benson Corporation is considering an investment in equipment that would cost $50,000 and provide annual cash inflows of $14,000. The company's required rate of return is 12%; the internal rate of return for the investment is 10.5%. Should the company make this investment?

A) No, since the internal rate of return is more than the company's required rate of return. B) Yes, since the internal rate of return is less than the company's required rate of return. C) No, since the internal rate of return is less than the company's required rate of return. D) The answer cannot be determined.

93) Findell Corporation is considering two projects, A and B, and it has gathered the following estimates for the projects: Project A Useful life Present value of cash inflows Present value of cash outflows

5 $84,300 $82,000

years

Project B 5 $57,600

years

$49,000

What is the net present value of cash flows for project B?

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A) $9,860 B) $8,600 C) $3,760 D) None of these choices are correct.

94) Findell Corporation is considering two projects, A and B, and it has gathered the following estimates for the projects: Project A Useful life Present value of cash inflows Present value of cash outflows

5 $84,360

years

$77,000

Project B 5 $55,100

years

$49,000

What is the net present value of cash flows for project B? A) $7,360 B) $6,100 C) $1,260 D) None of these choices are correct.

95) Findell Corporation is considering two projects, A and B, and it has gathered the following estimates for the projects Project A Useful life Present value of cash inflows Present value of cash outflows

5 $84,300 $82,000

years

Project B 5 $57,600

years

$49,000

What is the present value index for Project A?

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A) 0.845 B) 0.821 C) 1.056 D) 1.028

96) Findell Corporation is considering two projects, A and B, and it has gathered the following estimates for the projects Project A Useful life Present value of cash inflows Present value of cash outflows

5 $84,360 $77,000

years

Project B 5 $55,100

years

$49,000

What is the present value index for Project A? A) 1.096 B) 1.124 C) 0.889 D) 0.913

97) Young Corporation is considering purchasing equipment that costs $120,000 and is expected to provide the following cash inflows over its five-year useful life: Year 1 2 3 4 5

Cash Inflow $26,000 $30,000 $32,000 $32,000 $17,000

What is the payback period of this investment project? Note: Rounded to the nearest year.

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A) 2 years B) 6 years C) 3 years D) 4 years

98) Young Corporation is considering purchasing equipment that costs $80,000 and is expected to provide the following cash inflows over its five-year useful life: Year 1 2 3 4 5

Cash Inflow $18,000 $22,000 $24,000 $16,000 $9,000

What is the payback period of this investment project? Note: Rounded to the nearest year. A) 2 years B) 4 years C) 3 years D) 6 years

99)

Capital investment decisions involve all of the following,except:

A) the acquisition of short-term operational assets. B) projects requiring relatively long periods of time and large cash flows. C) the acquisition of long-term operational assets. D) None of these choices are correct.

100)

A series of equal cash flows at fixed intervals is termed a(n):

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A) net cash flow. B) lump sum. C) annuity. D) return on investment.

101) Which method for evaluating capital investment proposals reduces the present value of cash outflows from the present value of cash inflows?

A) Payback method B) Internal rate of return C) Net present value D) Unadjusted rate of return

102) Which of the following arenot present value methods of analyzing capital investment proposals?

A) Internal rate of return and payback B) Unadjusted rate of return and net present value C) Net present value and payback D) Payback and unadjusted rate of return

103) Which of the following isnot a criterion that is used to determine whether a project is acceptable under the net present value method?

A) If the net present value is equal to zero B) If the net present value is greater than zero C) If the net present value is equal to the required rate of return D) None of these choices are correct.

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104) Joan Osborne is evaluating a potential capital investment. She has calculated the net present value using a minimum rate of return of 10%. Using this rate, the net present value is negative. What does this tell her about the rate of return expected for the project?

A) If the net present value is negative, the expected rate of return for the project is greater than the 10% minimum or required rate of return. B) If the net present value is negative, the expected rate of return for the project is less than the 10% minimum or required rate of return. C) If the net present value is negative, the expected rate of return for the project is equal to the 10% minimum or required rate of return. D) None of these choices are correct.

105) Which method of evaluating capital investment decisions uses the concept of present value to compute a rate of return?

A) Internal rate of return B) Unadjusted rate of return C) Net present value D) Payback

106) Miller Manufacturing company is considering the purchase of equipment. The equipment would cost $62,097.94 and is expected to generate annual cash inflows of $10,000 over its 8-year useful life. Based on this information, the internal rate of return for this investment opportunity is (Use the PVA of $1 table) A) 6% B) 10% C) 4% D) 8%.

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107)

Cash inflows generated by capital investments include all of the followingexcept:

A) incremental revenues. B) cost savings. C) reduction in the amount of required working capital. D) increase in operating expenses.

108)

Cash outflows generated by capital investments include all of the followingexcept:

A) annual depreciation of the capital asset. B) initial investment in the capital asset. C) increase in operating expenses. D) increase in the amount of required working capital.

109) Cullman Transport Company is considering investing in a truck that is expected to generate cash inflows of $46,000 per year. The purchase price of the truck is $222,000. The expected life of the truck is 6 years and it has a salvage value of $56,000. Cullman has a required rate of return of 10 percent. Based on this information the net present value of this investment opportunity is (Use the PV of $1 and PVA of $1 tables) Note: Round intermediate and final answer to the nearest whole dollar. A) $9,953. B) $231,953. C) $31,611. D) $200,342.

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110) Glaze Manufacturing Company (GMC) is considering an opportunity to invest in a new piece of equipment. The equipment costs $61,000 with $41,000 due on the date of purchase and the remaining $20,000 due at the end of year two. The equipment is expected to have a 4-year useful life. GMC's accountant has developed the following cash flow information regarding the equipment. Purchase price of the equipment due up front Remaining balance due at end of year 2 Additional working capital required immediately upon purchase Salvage value Incremental income per year Working capital recovery at end of useful life

$41,000 20,000 6,100 15,500 20,500 6,100

Assuming a required (desired) rate of return of 8%, the net present value of this investment opportunity is (Use the PV of $1 and PVA of $1 tables) Note: Round intermediate and final answer to the nearest whole dollar. A) $216,427. B) $19,529. C) $83,776. D) $64,247.

111) Seth Morrison is considering alternative proposals that involve different amounts of investments. To compare different sizes of investment proposals, it may be helpful for Seth to prepare a relative ranking of the proposals by using a(n):

A) present value index. B) net present value. C) internal rate of return. D) None of these choices are correct.

112)

The present value index indicates the:

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A) time it will take to recover the initial cash outflow of an investment. B) additional cash inflows from operating activities. C) rate of return per dollar invested in a capital project. D) ratio of the net present value of an investment to the initial investment.

113) the:

The length of time required to recover the initial investment in a capital asset is known as

A) rate of return. B) investment period. C) present value period. D) payback period.

114) The time value of money concept recognizes that a dollar today is worth more than a dollar tomorrow. Which of the following isnot a factor in causing the present value of cash inflows to diminish over time?

A) Current expenses. B) Earning potential, such as interest. C) Risk of uncollectibility. D) Inflation reduces future purchasing power.

115)

The difference between an ordinary annuity and an annuity due is:

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A) an ordinary annuity represents a present value and an annuity due represents a future value. B) an ordinary annuity represents a future value and an annuity due represents a present value. C) an ordinary annuity assumes the cash flows occur at the beginning of the period and an annuity due assumes the cash flows occur at the end of the period. D) an ordinary annuity assumes the cash flows occur at the end of the period and an annuity due assumes the cash flows occur at the beginning of the period.

116) Butch's Barbecue thinks that offering delivery will increase their sales. Butch's is considering whether to purchase a used delivery truck costing $14,000. Additional net income from the delivery service will be $1,000 per year. The truck will last approximately 5 years. What is the unadjusted rate of return based on the average investment? A) About 14.3% B) About 49.3% C) About 2.7% D) About 848.1%

117) Butch's Barbecue thinks that offering delivery will increase their sales. Butch's is considering whether to purchase a used delivery truck costing $12,000. Additional net income from the delivery service will be $1,400 per year. The truck will last approximately 5 years. What is the unadjusted rate of return based on the average investment?

A) About 58.3% B) About 11.7% C) About 23.3% D) About 857.1%

118)

Which of the following statements isincorrect?

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A) The further into the future a cash receipt is expected to occur, the lower is its present value. B) The return on investment measures the compensation a company expects to receive from investing in capital assets. C) Most companies use their cost of capital to estimate the minimum return on investment required from capital investments. D) When a company invests in capital assets, it sacrifices future dollars for the opportunity to receive present dollars.

119) The process by which management evaluates long-term investment decisions involving long-term operational assets is called:

A) capital investment analysis. B) activity based-management. C) strategic business analysis. D) fixed cost analysis.

120) VestCo expects to collect $68,000 2 years from today. Assuming an 8% required rate of return the present value of the $68,000 future collection is (Use the PV of $1 table) Note: Round your answer to the nearest whole dollar. A) $68,000. B) $68,299. C) $58,299. D) the answer cannot be determined from the information provided

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121) The Wellington family has an offer to sell a plot of land to Land Developers, Incorporated (LDI) for $1,190,000. However, to allow LDI time to generate the required payment from its operations, the Wellingtons must agree to delay collection of the money for a 3-year period. The Wellingtons have an alternative offer to sell the land to Sunshine Properties. Sunshine has the cash available to make an immediate cash payment for the property. Assuming a 12% required rate of return, what price would Sunshine be required to pay in order to match LDI's offer? (Use the PV of $1 table) Note: Round your answer to the nearest whole dollar. A) $2,858,179. B) $941,315. C) $1,190,000. D) $847,018.

122) John Lang was injured in a car accident. As the result of his injuries, Mr. Lang won a legal case that allows him to collect $21,000 cash per year for four years. In order to pay his medical bills, Mr. Lang needs his money now. Assuming an ordinary annuity and a 7% required rate of return, which of the following represents the amount of cash a financing company would be willing to pay today to buy the annuity owed to Mr. Lang? (Use the PVA of $1 table) Note: Round your answer to the nearest whole dollar. A) $71,131. B) $84,000. C) $63,658. D) None of these choices are correct.

123) Mendez Gaming Company has an opportunity to purchase a pinball machine. The machine is expected to produce a net cash inflow of $2,700 per year for 4 years and to have a $2,300 salvage value at the end of the machine's useful life. Assuming an ordinary annuity and a 4% required rate of return, the present value of the machine is (Use the PV of $1 and PVA of $1 tables) Note: Round intermediate and final answer to the nearest whole dollar.

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A) $11,767. B) $9,801. C) $7,835. D) None of these choices are correct.

124)

Which of the following statements about postaudits is correct?

A) A postaudit should be conducted at the time a capital investment is purchased. B) The postaudit of a capital investment project should be made using the same analytical technique that was used in deciding to make the investment. C) The purpose of postaudits is to improve a company's cost-volume-profit analysis. D) The postaudit process uses expected cash flows and the company's cost of capital.

125) Property Associates (PA) is considering the purchase of an apartment complex. The company has the opportunity to purchase a complex at a cost of $6,600,000. PA also plans to incur $4,900,000 of renovation cost. The investment is expected to return a net cash inflow of $11,500,000 per year. The payback period for the investment in the complex is A) 0.6 years. B) 0.4 years. C) 1.0 years. D) The answer cannot be determined from the information provided.

126) Zeta Gaming Company has an opportunity to purchase a video game phone app that will cost $246,000. Zeta expects the demand for the app to start strong but to diminish as people tire of the game. The expected cash inflows are as follows: Year 1 $92,000

Year 2 $82,000

Year 3 $72,000

Year 4 $62,000

Year 5 $52,000

If Zeta uses the cumulative approach, the payback period for this investment is

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A) 2.00 years. B) 3.50 years. C) 3.00 years. D) 1.50 years.

127) Zeta Gaming Company has an opportunity to purchase a video game phone app that will cost $247,680. Zeta expects the demand for the app to start strong but to diminish as people tire of the game. The expected cash inflows are as follows: Year 1 $84,000

Year 2 $74,000

Year 3 $64,000

Year 4 $54,000

Year 5 $44,000

If Zeta uses the average approach, the payback period for this investment is A) 1.56 years. B) 4.37 years. C) 3.87 years. D) 1.91 years.

128) Rainbow Painting Company is considering whether to purchase a new spray paint machine that costs $14,000. The machine is expected reduce labor costs by $3,640 per year. The machine is expected to have a useful life of 10 years. The unadjusted rate of return for this investment is A) 36%. B) 26%. C) 52%. D) Some other amount.

129)

Capital investment decisions involve investments in current assets. ⊚ ⊚

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true false

130) Capital investments differ from stock and bond investments in that stock and bond investments can be sold in organized markets. ⊚ ⊚

true false

131) A capital investment decision is essentially a decision to exchange current cash outflows for future cash inflows. ⊚ ⊚

true false

132) The time value of money concept recognizes the fact that the present value of a dollar to be received in the future is worth more than a dollar. ⊚ ⊚

133)

true false

A dollar to be received in the future is subject to the effects of risk and inflation. ⊚ ⊚

true false

134) The compensation a company receives for investing in capital assets is referred to as a return on investment. ⊚ ⊚

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true false

135) The cost of capital represents the maximum acceptable rate of return that a capital investment should earn. ⊚ ⊚

136)

true false

The cost of capital is sometimes referred to as the hurdle or discount rate. ⊚ ⊚

true false

137) Mary needs to have $20,000 one year from today. The formula to compute the amount of money that must be invested today is future value ÷ (1 − interest rate). ⊚ ⊚

true false

138) The future value of $1 table should be used to discount lump sum cash flows expected to occur in the future. ⊚ ⊚

true false

139) Matt needs to compute the present value of $5,000 to be received four years from now. He should multiply $5,000 by the appropriate present value interest factor obtained from the present value of $1 table. ⊚ ⊚

true false

140) The present value of an annuity of $1 table could be constructed using the factors contained in the present value of $1 table.

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⊚ ⊚

true false

141) An annuity is a series of equal payments over equal time intervals that earn a constant rate of return. ⊚ ⊚

true false

142) The instantaneous computation power of spreadsheet software makes it ideal for answering "what-if" questions regarding present values. ⊚ ⊚

true false

143) The assumption regarding ordinary annuities is that cash flows occur at the end of each period. ⊚ ⊚

true false

144) In performing capital budgeting analysis that takes time value of money into account, cash flows generated by a capital project are assumed to be reinvested at the project's rate of return. ⊚ ⊚

true false

145) Because of the expense of applying multiple techniques, managers should use a single capital budgeting technique to analyze potential capital investments.

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⊚ ⊚

true false

146) A project's net present value can be found by subtracting the cost of the project from the total present value of the future cash flows generated by the project. ⊚ ⊚

true false

147) If a project has a positive net present value, its internal rate of return will exceed the firm's hurdle rate. ⊚ ⊚

true false

148) Investment projects A and B offer equal cash inflows over their lives, but the cash inflows for project A occur sooner than those for project B. The two projects are otherwise identical (the cost is the same, for example). Based on this information, the internal rate of return for A is lower than for B. ⊚ ⊚

true false

149) If the net present value for a capital investment is equal to zero, the internal rate of return for the investment is equal to the required rate of return. ⊚ ⊚

true false

150) A capital investment with an internal rate of return equal to or greater than the required rate of return is considered to be an acceptable investment.

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⊚ ⊚

true false

151) Sources of cash outflows from capital investments include incremental expenses and installation costs. ⊚ ⊚

true false

152) Cash inflows from a capital investment may include the salvage value of capital assets and increases in revenues. ⊚ ⊚

true false

153) When the effect of income taxes is considered in a capital budgeting analysis, the amount of depreciation expense must be added back to after-tax income to calculate the annual cash inflow. ⊚ ⊚

true false

154) Depreciation on a capital investment (such as equipment) has the effect of decreasing the amount of income taxes that the company owning the asset must pay. ⊚ ⊚

true false

155) The amount of the depreciation tax shield can be calculated by multiplying the amount of depreciation expense by the tax rate.

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⊚ ⊚

true false

156) Generally, a company should use the MACRS method to calculate depreciation on its income tax return, due to the effects of the time value of money. ⊚ ⊚

true false

157) If a company has to pay a given amount of income taxes over the life of a capital investment, managers of the company should seek to pay the taxes as early as possible in the investment's life. ⊚ ⊚

true false

158) The payback method shows how long will be required to recover the cost of an investment in a capital asset. ⊚ ⊚

true false

159) The payback method of evaluating capital investments measures the recovery of the investment, but it does not measure profitability. ⊚ ⊚

true false

160) When a capital investment is expected to provide unequal annual cash inflows, the payback period can be calculated by accumulating the incremental cash inflows until the sum equals the amount of the original investment.

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⊚ ⊚

true false

161) When a capital investment is expected to provide unequal annual cash inflows, the payback period cannot be calculated. ⊚ ⊚

true false

162) The unadjusted rate of return is found by dividing the average incremental increase in annual operating income by the cost of the investment. ⊚ ⊚

true false

163) Generally, the unadjusted rate of return should be calculated based on the average investment rather than the amount of the original investment in a depreciable asset such as equipment. ⊚ ⊚

true false

164) A postaudit should be performed at the end of a capital investment project to determine whether the expected results were actually achieved. ⊚ ⊚

Version 1

true false

Answer Key Test name: Chap 10_10e_Edmonds 1) C 2) A 3) D 4) A 5) D 6) B 7) C 8) D 9) B 10) D 11) C 12) A 13) A 14) D 15) C 16) C 17) A 18) C 19) A 20) A 21) B 22) B 23) D 24) A 25) C 26) B Version 1

27) C 28) A 29) B 30) C 31) D 32) D 33) A 34) B 35) C 36) C 37) B 38) B 39) C 40) A 41) A 42) A 43) D 44) D 45) A 46) C 47) B 48) B 49) C 50) B 51) C 52) D 53) A 54) C 55) C 56) C Version 1

57) C 58) B 59) D 60) C 61) B 62) C 63) D 64) B 65) D 66) B 67) A 68) A 69) B 70) A 71) D 72) A 73) C 74) B 75) C 76) D 77) A 78) B 79) D 80) B 81) C 82) A 83) C 84) D 85) C 86) A Version 1

87) B 88) A 89) B 90) A 91) A 92) C 93) B 94) B 95) D 96) A 97) D 98) B 99) A 100) C 101) C 102) D 103) C 104) B 105) A 106) A 107) D 108) A 109) A 110) B 111) A 112) C 113) D 114) A 115) D 116) A Version 1

117) C 118) D 119) A 120) C 121) D 122) A 123) A 124) B 125) C 126) C 127) C 128) C 129) FALSE 130) TRUE 131) TRUE 132) FALSE 133) TRUE 134) TRUE 135) FALSE 136) TRUE 137) FALSE 138) FALSE 139) TRUE 140) TRUE 141) TRUE 142) TRUE 143) TRUE 144) FALSE 145) FALSE 146) TRUE Version 1

147) TRUE 148) FALSE 149) TRUE 150) TRUE 151) TRUE 152) TRUE 153) TRUE 154) TRUE 155) TRUE 156) TRUE 157) FALSE 158) TRUE 159) TRUE 160) TRUE 161) FALSE 162) TRUE 163) TRUE 164) TRUE

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Chapter 11 Product Costing in Service and Manufacturing Entities 1)

Cost information for services or products produced by a company is needed for: A) determining the company’s selling prices. B) external reporting. C) managerial decisions. D) All of these answers are correct.

2) Which of the following is not an inventory account maintained by a manufacturing company? A) Finished goods inventory B) Work in process inventory C) Raw materials inventory D) Merchandise inventory

Product costs are expensed as cost of goods sold: A) when production is complete. B) at the start of production. C) when the related products are sold. D) when the related revenue is collected.

4) All of the following costs are accumulated in the Work in Process Inventory account except: A) depreciation on factory equipment. B) direct labor costs. C) manufacturing overhead costs. D) direct material costs.

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5) Select the response that indicates the correct sequence of product cost flows from production to sale. A) Raw materials, finished goods, and cost of goods sold B) Cost of goods sold, finished goods, work in process, and raw materials C) Work in process, finished goods, and cost of goods sold D) Raw materials, work in process, finished goods, and cost of goods sold

Select the incorrect statement regarding service companies.

A) Service companies do not maintain a Finished Goods Inventory account. B) Service companies accumulate their service costs in a Work in Process Inventory account similar to manufacturers. C) Service companies may have raw material costs. D) Understanding the cost of providing a service is just as important as knowing the cost of making a product.

The cost of direct materials purchased on account is expensed at the time the: A) goods made in the manufacturing process are sold. B) cash is paid to settle the associated accounts payable. C) manufacturing process is complete. D) materials are purchased.

8) Jones Manufacturing Company experienced an accounting event that affected its financial statements as indicated below: Assets + −

Liabilities NA

Equity NA

Revenue NA

−

Expenses NA

= Net Income NA

Which of the following accounting events could have caused the indicated effects on the firm's accounting equation? Version 1

A) Purchased raw materials on account. B) Recognized revenue from merchandise sold for cash. C) Transferred cost of goods manufactured from the Work in Process Inventory to the Finished Goods Inventory account. D) None of these answers are correct.

9) Orlando Company paid $620 cash to purchase raw materials. How would this transaction affect Orlando's financial statements? Assets

= Liabilities + Equity Revenue − Expenses =

Net Income

Cash + Raw Materials Inventory

A) Assets 620

= Liabilities + Equity

(620)

Revenue − Expenses = NA

−

Net Income = NA

B) Assets (620)

= Liabilities + Equity NA

(620)

Revenue − Expenses = NA

−

Net Income NA

C) Assets (620)

= Liabilities + Equity NA

(620)

Revenue − Expenses = NA

−

620

Net Income (620)

D) Assets (620)

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= Liabilities + Equity 620

Revenue − Expenses = NA

−

Net Income = NA

10) Orlando Company placed $142 of raw materials into production. How would this transaction affect the company's financial statements? Assets

= Liabilities + Equity Revenue − Expenses =

Net Income

Raw + Work in Materials Process Inventory Inventory

A) Assets (142)

= Liabilities + Equity 142

Revenue − Expenses = NA

−

Net Income NA

B) Assets 142

= Liabilities + Equity

(142)

Revenue − Expenses = NA

−

Net Income = NA

C) Assets (142)

= Liabilities + Equity NA

(142)

Revenue − Expenses = NA

−

142

Net Income (142)

D) Assets

= Liabilities + Equity Revenue − Expenses =

(142) + (142) =

−

Net Income = NA

11) Orlando Company paid $100 cash to purchase production supplies. How does this transaction affect the financial statements? Assets Cash +

= Liabilities + Equity Revenue − Expenses =

Net Income

Production Supplies

A) Assets

Version 1

= Liabilities + Equity

Revenue − Expenses =

Net

(100)

−

100

Income (100)

B) Assets NA

= Liabilities + Equity

100

Revenue − Expenses = NA

−

Net Income NA

C) Assets (100)

= Liabilities + Equity 100

Revenue − Expenses = NA

−

Net Income = NA

D) Assets (100)

12)

= Liabilities + Equity NA

(100)

Revenue − Expenses = NA

−

Net Income NA

Purchasing production supplies for cash is a(n): A) asset source transaction. B) asset exchange transaction. C) asset use transaction. D) claims exchange transaction.

13)

Paying for factory utilities used during the current month is a(n): A) asset exchange transaction. B) asset use transaction. C) asset source transaction. D) claims exchange transaction.

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14) Orlando Company paid $700 cash for production workers' wages. How does this transaction affect the financial statements? Assets Cash +

= Liabilities + Equity Revenue − Expenses =

Net Income

Work in Process Inventory

A) Assets (700)

= Liabilities + Equity 700

Revenue − Expenses = NA

−

Net Income NA

B) Assets (700)

= Liabilities + Equity NA

(700)

Revenue − Expenses = NA

−

Net Income = NA

C) Assets (700)

= Liabilities + Equity NA

(700)

Revenue − Expenses = NA

−

700

Net Income (700)

D) Assets NA

15)

700

= Liabilities + Equity =

700

Revenue − Expenses = NA

−

Net Income NA

Purchasing raw materials on account is a(n): A) asset source transaction. B) asset use transaction. C) asset exchange transaction. D) claims exchange transaction.

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16)

Which of the following statements is false?

A) Under variable costing, the income statement is prepared using a contribution margin approach. B) Variable costing is not allowed for external financial reporting, but many companies find it useful for internal managerial reports. C) Under variable costing, an increase in production increases the amount of profit reported on the income statement, even if the additional units are not sold. D) Under variable costing, fixed manufacturing costs are expensed in the period incurred.

17) Fortune Company had beginning raw materials inventory of $8,800. During the period, the company purchased $50,000 of raw materials on account. If the ending balance in raw materials was $5,800, the amount of raw materials transferred to work in process is: A) $50,000. B) $53,000. C) $55,800. D) $47,000.

18) Fortune Company had beginning raw materials inventory of $16,000. During the period, the company purchased $92,000 of raw materials on account. If the ending balance in raw materials was $10,000, the amount of raw materials transferred to work in process is: A) $86,000. B) $98,000. C) $102,000. D) $92,000.

19)

A credit to the Raw Materials Inventory account represents:

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A) raw materials added to production. B) raw materials purchased. C) raw materials available for use. D) None of these answers are correct.

20) Frost Corporation incurred the following transactions during its first year of operations. (Assume all transactions involve cash.) 1. 1) Acquired $1,500 of capital from the owners. 2. 2) Purchased $375 of direct raw materials. 3. 3) Used $250 of these direct raw materials in the production process. 4. 4) Paid production workers $450 cash. 5. 5) Paid $250 for manufacturing overhead (applied and actual overhead are the same). 6. 6) Started and completed 200 units of inventory. 7. 7) Sold 100 units at a price of $6 each. 8. 8) Paid $90 for selling and administrative expenses. The amount of raw material inventory on the balance sheet at the end of the accounting period would be: A) $125. B) $250. C) $375. D) $0.

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21) Frost Corporation incurred the following transactions during its first year of operations. (Assume all transactions involve cash.) 1. 1) Acquired $1,000 of capital from the owners. 2. 2) Purchased $300 of direct raw materials. 3. 3) Used $100 of these direct raw materials in the production process. 4. 4) Paid production workers $400 cash. 5. 5) Paid $200 for manufacturing overhead (applied and actual overhead are the same). 6. 6) Started and completed 200 units of inventory. 7. 7) Sold 50 units at a price of $6 each. 8. 8) Paid $40 for selling and administrative expenses. The amount of raw material inventory on the balance sheet at the end of the accounting period would be: A) $100. B) $200. C) $300. D) $0.

22)

Recognizing estimated manufacturing overhead costs at the end of a month is a(n): A) asset source transaction. B) asset use transaction. C) asset exchange transaction. D) claims exchange transaction.

23) Ferguson Company recognized $400 of estimated manufacturing overhead costs at the end of the month. How does this transaction affect the financial statements?

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Assets

= Liabilities + Equity Revenue − Expenses =

Net Income

Manufacturing + Work in Overhead Process Inventory

A) Assets (400)

= Liabilities + Equity NA

(400)

Revenue − Expenses = NA

−

400

Net Income = (400)

B) = Liabilities + Equity

Assets (400)

(400)

Revenue − Expenses = NA

−

Net Income = NA

C) Assets (400)

= Liabilities + Equity Revenue − Expenses = 400

−

Net Income = NA

D) Assets 400

(400)

Liabilities =

Equity Revenue +

Expenses −

Net Income = NA

24) Blair Company transferred the cost of units completed during the month to Finished Goods. The total cost was $1,100. How does this event affect the financial statements? Assets

= Liabilities + Equity Revenue − Expenses =

Net Income

= Liabilities + Equity Revenue − Expenses =

Net Income

Work in + Finished Process Goods Inventory Inventory

A) Assets

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1,100 + (1,100) =

−

B) Assets (1,100) +

= Liabilities + Equity Revenue − Expenses =

1,100

−

Net Income = NA

C) Assets (1,100) +

= Liabilities + Equity NA

Revenue − Expenses =

+ (1,100)

−

1,100

Net Income = (1,100)

D) Assets NA

= Liabilities + Equity

+ (1,100) =

Revenue − Expenses =

+ (1,100)

−

1,100

Net Income = (1,100)

25) Ferguson Company sold goods that had cost $950 to manufacture. How does this transaction affect the financial statements? Assets

Liabilities

Equity

Revenue

−

Expenses

= Net Income

Assets = (950) =

Liabilities NA

+ +

Equity 950

Revenue NA

− −

Expenses 950

= Net Income = 950

Liabilities NA

+ +

Equity (950)

Revenue NA

− −

Expenses 950

= Net Income = (950)

Liabilities NA

+ +

Equity (950)

Revenue NA

− −

Expenses 950

= Net Income = (950)

Liabilities

Equity

Revenue

−

Expenses

= Net Income

B) Assets = (950) =

C) Assets = 950 =

D) Assets =

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(950)

−

26) Oakland Company paid $200 cash for various manufacturing overhead costs, not before recorded. How does this transaction affect the financial statements? Assets Cash +

= Liabilities + Equity Revenue − Expenses =

Net Income

Manufacturing Overhead

A) Assets (200)

= Liabilities + Equity 200

Revenue − Expenses = NA

−

Net Income NA

B) Assets (200)

= Liabilities + Equity NA

(200)

Revenue − Expenses = NA

−

Net Income = NA

C) Assets (200)

= Liabilities + Equity NA

(200)

Revenue − Expenses = NA

−

200

Net Income (200)

D) Assets

= Liabilities + Equity Revenue − Expenses =

(200) + (200) =

27)

−

Net Income = NA

Recording depreciation on manufacturing equipment will: A) decrease total assets, total equity, and net income. B) not affect total assets or net income. C) decrease total assets, decrease net income, and increase total equity. D) not affect total assets, and decrease net income.

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28)

Which of the following costs would not increase the work in process inventory account? A) Cost of direct labor B) Cost of allocated overhead C) Cost of direct materials D) Cost of selling supplies

29)

The cost of direct materials flow through all of the following accounts except: A) Manufacturing Overhead. B) Work in Process Inventory. C) Finished Goods Inventory. D) Cost of Goods Sold.

30) Argus Company experienced an accounting event that affected its financial statements as indicated below: Assets + −

Liabilities NA

Equity NA

Revenue NA

−

Expenses NA

= Net Income NA

Which of the following accounting events could have caused the indicated effects on the company's accounting equation? A) Applied manufacturing overhead to work in process. B) Purchased raw materials for cash. C) Paid cash wages of production workers. D) All of these answers are correct.

31)

Which of the following correctly computes cost of goods manufactured?

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A) Beginning work in process + Direct materials used + Direct labor + Overhead − Ending work in process. B) Beginning work in process + Cost of goods sold − Ending finished goods C) Beginning work in process + Direct materials used + Direct labor + Overhead D) None of these answers are correct.

32) Travis Company had no beginning work in process or finished goods. Its total manufacturing costs for the year were $868,000. If cost of goods manufactured was $671,000 and cost of goods sold was $510,500, the amount of ending work in process would have been: A) $160,500. B) $197,000. C) $707,500. D) $357,500.

33) Travis Company had no beginning work in process or finished goods. Its total manufacturing costs for the year were $427,000. If cost of goods manufactured was $332,000 and cost of goods sold was $250,000, the amount of ending work in process would have been: A) $82,000. B) $105,000. C) $95,000. D) $127,000.

34) Ringgold Company had beginning finished goods of $18,900. During the period, the company produced goods that cost $79,500. If the ending balance in the Finished Goods Inventory account was $12,900, the amount of cost of goods sold was:

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A) $85,500. B) $79,500. C) $73,500. D) None of these answers are correct.

35) Ringgold Company had beginning finished goods of $36,000. During the period, the company produced goods that cost $150,000. If the ending balance in the Finished Goods Inventory account was $24,000, the amount of cost of goods sold was: A) $162,000. B) $150,000. C) $138,000. D) None of these answers are correct.

36)

All of the following are reasons to assign estimated overhead to inventory except:

A) managers need cost information as soon as possible after production. B) managers need to know if production costs are higher than expected as soon as possible. C) managers need to use estimated overhead to control earnings. D) management reduces the distortions that would come from actual monthly overhead.

37) Coleridge Company estimates that its production workers will work 134,000 direct labor hours during the upcoming period and that overhead costs will amount to $1,072,000. Assume overhead to be allocated on the basis of direct labor hours. What predetermined overhead rate would be used to apply overhead to production during the period? A) $0.87 per direct labor hour B) $0.87 per unit C) $8.00 per direct labor hour D) $8.00 per unit

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38) Coleridge Company estimates that its production workers will work 125,000 direct labor hours during the upcoming period and that overhead costs will amount to $750,000. Assume overhead to be allocated on the basis of direct labor hours. What predetermined overhead rate would be used to apply overhead to production during the period? A) $6.00 per direct labor hour B) $0.67 per direct labor hour C) $0.67 per unit D) $6.00 per unit

39) Lexington Company's predetermined overhead rate is $3.00 per direct labor hour. Which of the following equations correctly computes the amount of overhead cost that should be applied to work in process assuming a job required 100 hours but was estimated to require 90 hours? A) 100 hours × $3.00 = $300 B) 90 hours × $3.00 = $270 C) 1 job × $3.00 = $3 D) None of these answers are correct.

40) Lexington Company's predetermined overhead rate is $4.00 per direct labor hour. Which of the following equations correctly computes the amount of overhead cost that should be applied to work in process assuming a job required 100 hours but was estimated to require 90 hours? A) 100 hours × $4 = $400 B) 90 hours × $4 = $360 C) 1 job × $4 = $4 D) None of these answers are correct.

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41)

The cost of indirect labor will initially be charged to: A) Cost of Goods Sold. B) Finished Goods Inventory. C) Manufacturing Overhead. D) Wages Expense.

42) Washington Company made the following estimates for the current accounting period: Overhead costs: $360,000 Direct labor hours: 80,000 If 30,000 hours of labor are actually used in February, how much overhead cost would be allocated to work in process during the month? Assume Overhead to be allocated on the basis of direct labor hours. Note: Do not round your intermediate calculations. A) $30,000 B) $135,714 C) $135,000 D) $120,833

43) Washington Company made the following estimates for the current accounting period: Overhead costs: $250,000 Direct labor hours: 50,000 If 7,000 hours of labor are actually used in February, how much overhead cost would be allocated to work in process during the month? Assume overhead to be allocated on the basis of direct labor hours. A) $7,000 B) $35,714 C) $35,000 D) $20,833

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44) The Winchester Company estimates that its overhead costs will amount to $525,000 and the company’s manufacturing employees will work 75,000 direct labor hours during the current year. If actual overhead costs for the year amounted to $574,000 and actual labor hours amounted to 80,000, then overhead would be: A) overapplied by $14,000. B) underapplied by $49,000. C) overapplied by $49,000. D) underapplied by $14,000.

45) The Winchester Company estimates that its overhead costs will amount to $595,000 and the company’s manufacturing employees will work 85,000 direct labor hours during the current year. If actual overhead costs for the year amounted to $599,000 and actual labor hours amounted to 87,000, then overhead would be: A) overapplied by $10,000. B) underapplied by $10,000. C) overapplied by $14,000. D) underapplied by $4,000.

46) McDonnell Industries estimated manufacturing overhead for the year at $295,000. Manufacturing overhead for the year was underapplied by $12,500. The company applied $240,000 to work in process. The amount of actual overhead would have been: A) $252,500. B) $283,500. C) $228,500. D) None of these answers are correct.

47) McDonnell Industries estimated manufacturing overhead for the year at $290,000. Manufacturing overhead for the year was underapplied by $12,000. The company applied $235,000 to work in process. The amount of actual overhead would have been:

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A) $247,000. B) $278,000. C) $223,000. D) None of these answers are correct.

48) Jackson Company estimated that its manufacturing employees would work 80,000 direct labor hours during the current year. During the year, its manufacturing employees actually worked 75,000 direct labor hours. Actual manufacturing overhead costs amounted to $344,000. Jackson applies overhead cost on the basis of direct labor hours. The manufacturing overhead account was overapplied by $16,000 during the current year. Based on this information the predetermined overhead rate was: A) $4.80 per labor hour. B) $4.40 per labor hour. C) $4.89 per labor hour. D) $6.00 per labor hour.

49) Jackson Company estimated that its manufacturing employees would work 88,000 direct labor hours during the current year. During the year, its manufacturing employees actually worked 80,000 direct labor hours. Actual manufacturing overhead costs amounted to $344,000. Jackson applies overhead cost on the basis of direct labor hours. The manufacturing overhead account was overapplied by $16,000 during the current year. Based on this information the predetermined overhead rate was: A) $5.70 per labor hour. B) $4.10 per labor hour. C) $4.59 per labor hour. D) $4.50 per labor hour.

50) Which of the following statements is true assuming the manufacturing overhead account is underapplied?

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A) The predetermined overhead rate is too high. B) The amount of costs in work in process is more than actual production costs. C) Cost of goods sold will be debited at the end of the period when the manufacturing overhead account is adjusted. D) The manufacturing overhead applied must be less than the manufacturing overhead estimated.

51) Warren Company applies overhead based on direct labor cost. Warren Company estimated that it would incur $97,000 in manufacturing overhead costs and $63,500 of direct labor costs during the current year. Actual manufacturing overhead cost totaled $82,000 and actual direct labor costs totaled $62,000 during the current year. If total manufacturing costs were $167,000, what amount of direct materials was used during the year? A) $23,000 B) $11,500 C) $8,000 D) None of these answers are correct.

52) Warren Company applies overhead based on direct labor cost. Warren Company estimated that it would incur $180,000 in manufacturing overhead costs and $120,000 of direct labor costs during the current year. Actual manufacturing overhead cost totaled $150,000 and actual direct labor costs totaled $110,000 during the current year. If total manufacturing costs were $320,000, what amount of direct materials was used during the year? A) $60,000 B) $30,000 C) $45,000 D) None of these answers are correct.

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53) Johnson Company estimates that its production workers will work 86,900 direct labor hours to produce 7,940 units during the upcoming period and that overhead costs will amount to $873,400. During the year, its manufacturing employees actually worked 100,000 direct labor hours to produce 10,000 units and incurred $1,100,000 of overhead costs. Because the goods made by Johnson are homogeneous (that is, they are identical), the company has decided it makes sense to use number of units as the allocation base for overhead. Based on this information the predetermined overhead rate is: A) $110.00 per unit. B) $11.00 per direct labor hour. C) $120.00 per unit. D) $20.00 per direct labor hour.

54) Johnson Company estimates that its production workers will work 88,000 direct labor hours to produce 8,800 units during the upcoming period and that overhead costs will amount to $880,000. During the year, its manufacturing employees actually worked 100,000 direct labor hours to produce 10,000 units and incurred $1,100,000 of overhead costs. Because the goods made by Johnson are homogeneous (that is, they are identical), the company has decided it makes sense to use number of units as the allocation base for overhead. Based on this information the predetermined overhead rate is: A) $110.00 per unit. B) $10.00 per direct labor hour. C) $100.00 per unit. D) $11.00 per direct labor hour.

55) Select the response that best illustrates the point that product cost flows are cyclical and occur in a specific sequence. A) Acquire raw materials, convert raw materials, sell finished goods, collect cash B) Acquire finished goods, acquire raw materials, convert raw materials, collect cash C) Sell finished goods, collect cash, acquire raw materials D) Collect cash, acquire raw materials, sell finished goods

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56) Tucker Company's work in process account decreased by $3,600, while its Finished Goods Inventory account increased by $1,800. Assuming total manufacturing costs were $11,500, what was the company's cost of goods sold amount? A) $15,100 B) $12,300 C) $13,300 D) $11,300

57) Tucker Company's Work in Process account decreased by $1,000, while its Finished Goods Inventory account increased by $500. Assuming total manufacturing costs were $5,000, what was the company's cost of goods sold amount? A) $3,500 B) $4,500 C) $4,000 D) $5,500

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23) The Juarez Corporation incurred the following transactions during its first year of operations. (Assume all transactions involve cash). 1. 1) Acquired $3,000 of capital from the owners. 2. 2) Purchased $500 of direct raw materials. 3. 3) Used $410 of these direct raw materials in the production process. 4. 4) Paid production workers $600 cash. 5. 5) Paid $400 for manufacturing overhead (applied and actual overhead are the same). 6. 6) Started and completed 300 units of inventory. 7. 7) Sold 250 units at a price of $6 each. 8. 8) Paid $240 for selling and administrative expenses. The amount of cost of goods manufactured would be: A) $1,510. B) $1,310. C) $1,410. D) $1,110.

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24) The Juarez Corporation incurred the following transactions during its first year of operations. (Assume all transactions involve cash). 1. 1) Acquired $1,000 of capital from the owners. 2. 2) Purchased $400 of direct raw materials. 3. 3) Used $300 of these direct raw materials in the production process. 4. 4) Paid production workers $400 cash. 5. 5) Paid $200 for manufacturing overhead (applied and actual overhead are the same). 6. 6) Started and completed 200 units of inventory. 7. 7) Sold 50 units at a price of $6 each. 8. 8) Paid $40 for selling and administrative expenses. The amount of cost of goods manufactured would be: A) $1,000. B) $900. C) $800. D) $600.

60) Ting Company started the accounting period with the following beginning balances: Raw Materials Inventory, $44,000; Work in Process Inventory, $92,000; and Finished Goods Inventory, $22,000. During the accounting period, the company purchased $62,000 of raw materials and ended the period with $18,000 in raw material inventory. Direct labor costs for the period were $122,000 and $38,000 of manufacturing overhead costs were allocated to work in process. There was no over- or underapplied overhead. Ending work in process was $84,000 and ending finished goods was $37,000. Goods were sold during the period for $352,000. The amount of cost of goods manufactured (i.e., amount transferred from work in process to finished goods) would be:

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A) $256,000. B) $203,500. C) $252,000. D) $307,000.

61) Ting Company started the accounting period with the following beginning balances: Raw Materials Inventory, $21,000; Work in Process Inventory, $45,000; and Finished Goods Inventory, $10,000. During the accounting period, the company purchased $30,000 of raw materials and ended the period with $8,000 in raw material inventory. Direct labor costs for the period were $60,000, and $63,000 of manufacturing overhead costs were allocated to work in process. There was no over- or underapplied overhead. Ending work in process was $41,000 and ending finished goods was $17,500. Goods were sold during the period for $162,500. The amount of cost of goods manufactured (i.e., amount transferred from work in process to finished goods) would be: A) $117,500. B) $170,000. C) $221,000. D) $166,000.

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26) Newton Corporation entered into the following transactions during its first year of operations. (Assume all transactions involve cash.) 1. 1) Acquired $1,100 of capital from the owners. 2. 2) Purchased $310 of direct raw materials. 3. 3) Used $210 of these direct raw materials in the production process. 4. 4) Paid production workers $410 cash. 5. 5) Paid $210 for manufacturing overhead (applied and actual overhead are the same). 6. 6) Started and completed 200 units of inventory. 7. 7) Sold 60 units at a price of $6 each. 8. 8) Paid $50 for selling and administrative expenses. The amount of net income for the year was: A) $45.00. B) $61.00. C) $60.00. D) $70.00.

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27) Newton Corporation entered into the following transactions during its first year of operations. (Assume all transactions involve cash.) 1. 1) Acquired $2,000 of capital from the owners. 2. 2) Purchased $600 of direct raw materials. 3. 3) Used $400 of these direct raw materials in the production process. 4. 4) Paid production workers $800 cash. 5. 5) Paid $400 for manufacturing overhead (applied and actual overhead are the same). 6. 6) Started and completed 200 units of inventory. 7. 7) Sold 50 units at a price of $12 each. 8. 8) Paid $80 for selling and administrative expenses. The amount of net income for the year was: A) $100. B) $75. C) $50. D) $120.

64) Tisdale Company started the year with the following beginning account balances: Raw Materials Inventory, $47,000; Work in Process Inventory, $95,000; and Finished Goods Inventory, $25,000. During the year, the company purchased $65,000 of raw materials and ended the year with $21,000 of raw materials. Direct labor costs for the year were $125,000 and a total of $41,000 of manufacturing overhead costs were allocated to work in process. There was no over- or underapplied overhead. Ending work in process was $87,000 and ending finished goods was $40,000. Goods were sold to customers during the year for $355,000. How much gross margin would be reported for the year?

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A) $105,000 B) $151,000 C) $90,000 D) $125,000

65) Tisdale Company started the year with the following beginning account balances: Raw Materials Inventory, $42,000; Work in Process Inventory, $90,000; and Finished Goods Inventory, $20,000. During the year, the company purchased $60,000 of raw materials and ended the year with $16,000 of raw materials. Direct labor costs for the year were $120,000, and a total of $36,000 of manufacturing overhead costs were allocated to work in process. There was no over- or underapplied overhead. Ending work in process was $82,000 and ending finished goods was $35,000. Goods were sold to customers during the year for $360,000. How much gross margin would be reported for the year? A) $110,000 B) $145,000 C) $125,000 D) $171,000

66)

Which of the following is a valid reason for using variable costing?

A) Fixed production cost should be ignored when costing units of inventory since it is not essential to the production process. B) Absorption costing recognizes fixed costs as expense regardless of volume of production. C) Absorption costing may motivate managers to overproduce in order to increase profits. D) Under variable costing managers can increase profitability by increasing the volume of production.

67)

Which of the following statements is true for a company that uses variable costing?

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A) The manufacturing cost per unit decreases when the volume of production increases. B) Net income is not affected by fluctuations in production. C) Fixed manufacturing overhead is treated like a product cost. D) Fixed manufacturing overhead costs incurred in the current period may be recognized as expense in a later period.

68) Lewes Company produced 9,200 units of inventory and sold 7,200. The company incurred the following production costs: Variable manufacturing cost: $12.00 per unit Fixed manufacturing overhead cost: $120,000 Assuming the company sells its product at a price of $37 per unit, and incurred $34,000 in selling and administrative cost, what is the amount of net income under variable costing? A) $26,000 B) $125,000 C) $41,000 D) $86,000

69) Lewes Company produced 8,000 units of inventory and sold 6,000. The company incurred the following production costs: Variable manufacturing cost: $12.00 per unit Fixed manufacturing overhead cost: $60,000 Assuming the company sells its product at a price of $25 per unit, and incurred $10,000 in selling and administrative cost, what is the amount of net income under variable costing? A) $107,000 B) $68,000 C) $23,000 D) $8,000

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70) Burke Company produced 9,800 units of inventory and sold 7,800 of them. The company incurred the following production costs: Variable manufacturing cost: $6.90 per unit Fixed manufacturing overhead cost: $45,570 Assuming the company sells its product at a price of $34 per unit, and incurred $13,800 in selling and administrative costs, what is the amount of net income under absorption costing? A) $159,310 B) $161,310 C) $173,310 D) $149,310

71) Burke Company produced 8,000 units of inventory and sold 6,000 of them. The company incurred the following production costs: Variable manufacturing cost: $6.00 per unit Fixed manufacturing overhead cost: $24,000 Assuming the company sells its product at a price of $15 per unit, and incurred $10,000 in selling and administrative costs, what is the amount of net income under absorption costing? A) $38,000 B) $14,000 C) $24,000 D) $26,000

72) The accounting records for Eisner Manufacturing Company included the following cost information relating to its first year of operations: Direct materials Direct labor Fixed manufacturing overhead Variable manufacturing overhead

$ 61,000 $ 85,000 $ 105,000 $ 19,000

Assume the company produced 10,000 units of inventory and sold 6,000 of these units during the year for $199,000. The cost per unit under variable and absorption costing would be, respectively:

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A) $16.50 and $27.00. B) $14.50 and $11.00. C) $19.50 and $31.00. D) $5.50 and $12.00.

73) The accounting records for Eisner Manufacturing Company included the following cost information relating to its first year of operations: Direct materials Direct labor Fixed manufacturing overhead Variable manufacturing overhead

$ 60,000 $ 80,000 $ 100,000 $ 20,000

Assume the company produced 10,000 units of inventory and sold 6,000 of these units during the year for $192,000. The cost per unit under variable and absorption costing would be, respectively: A) $5.00 and $11.00. B) $16.00 and $26.00. C) $14.00 and $10.00. D) $19.00 and $30.00.

74) The accounting records for Poole Manufacturing Company included the following cost information relating to its first year of operations: Direct materials Direct labor Fixed manufacturing overhead Variable manufacturing overhead

$ 30,000 $ 40,000 $ 50,000 $ 10,000

Assume the company produced 10,000 units of inventory and sold 6,000 of these units for $98,000. What amount of finished goods will be reported on the balance sheet at the end of the year under absorption costing?

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A) $96,000 B) $52,000 C) $34,000 D) $208,000

75) The accounting records for Poole Manufacturing Company included the following cost information relating to its first year of operations: Direct materials Direct labor Fixed manufacturing overhead Variable manufacturing overhead

$ 60,000 $ 80,000 $ 100,000 $ 20,000

Assume the company produced 10,000 units of inventory and sold 6,000 of these units for $192,000. What amount of finished goods will be reported on the balance sheet at the end of the year under absorption costing? A) $104,000 B) $260,000 C) $96,000 D) $64,000

76) The accounting records for Grant Manufacturing Company included the following cost information relating to its first year of operations: Direct materials Direct labor Fixed manufacturing overhead Variable manufacturing overhead

$ 23,500 $ 53,000 $ 37,000 $ 23,000

Assume the company produced 10,000 units of inventory and sold 7,300 of these units during the year for $126,290. Under variable costing, what is the contribution margin for the year? (Ignore selling and administrative expenses.)

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A) $57,655. B) $3,500. C) $38,500. D) None of these answers are correct.

77) The accounting records for Grant Manufacturing Company included the following cost information relating to its first year of operations: Direct materials Direct labor Fixed manufacturing overhead Variable manufacturing overhead

$ 60,000 $ 80,000 $ 100,000 $ 20,000

Assume the company produced 10,000 units of inventory and sold 6,000 of these units during the year for $192,000. Under variable costing, what is the contribution margin for the year? (Ignore selling and administrative expenses.) A) $100,000. B) $40,000. C) $32,000. D) None of these answers are correct.

78) The accounting records for Moss Manufacturing Company included the following cost information relating to its first year of operations: Direct materials Direct labor Fixed manufacturing overhead Variable manufacturing overhead

$ 24,000 $ 52,000 $ 38,000 $ 22,000

Assume the company produced 10,000 units of inventory and sold 7,200 of these units for $123,840. What amount of finished goods will be reported on the balance sheet at the end of the year under variable costing?

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A) $63,440 B) $59,440 C) $27,440 D) None of these answers are correct.

79) The accounting records for Moss Manufacturing Company included the following cost information relating to its first year of operations: Direct materials Direct labor Fixed manufacturing overhead Variable manufacturing overhead

$ 60,000 $ 80,000 $ 100,000 $ 20,000

Assume the company produced 10,000 units of inventory and sold 6,000 of these units for $196,000. What amount of finished goods will be reported on the balance sheet at the end of the year under variable costing? A) $100,000 B) $96,000 C) $64,000 D) None of these answers are correct.

80)

Which of the following statements is true?

A) Under absorption costing some fixed manufacturing costs are deferred in ending inventory if production is lower than sales. B) When production and sales are equal, net income will be greater under variable costing than it will be under absorption costing. C) Under absorption costing only the fixed manufacturing costs associated with inventory produced are expensed. D) Under variable costing fixed manufacturing costs are expensed in the period in which they are incurred regardless of when the inventory is sold.

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81) Haas Company paid $48,000 cash to purchase raw materials. The recognition of this event will: A) not affect total assets, will decrease net income, and will decrease cash flow. B) decrease total assets, total equity, and net income. C) not affect total assets, total equity, or net income. D) decrease total assets, net income, and net cash flow from investing activities.

82) Carolina Company placed $26,500 of raw materials into production. The recognition of this event will: A) decrease net income. B) not affect total assets. C) increase revenue. D) decrease cash flow from investing activities.

83) will:

Herald Company paid $2,800 cash for production supplies. The recognition of this event

A) not impact total assets. B) increase expenses. C) decrease equity. D) None of these answers are correct.

84) as:

Hughes Company paid production workers $25,550 cash. These wages will be classified

A) manufacturing overhead. B) work in process. C) cost of goods sold. D) salary expense.

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85) Bates Company recognized $16,000 of estimated manufacturing overhead costs at the end of the month. As a result of this transaction the: A) temporary account manufacturing overhead increases and the work in process account decreases. B) temporary account manufacturing overhead decreases and the work in process account increases. C) temporary account manufacturing overhead decreases and the wages expense account increases. D) None of these answers are correct.

86) Pinkston Company completed 12,000 units of product at a total cost of $28,000. The recording of the product completed would include a decrease to: A) Manufacturing Overhead. B) Cost of Goods Manufactured. C) Finished Goods Inventory. D) Work in Process Inventory.

87) Grimes Company sold 2,500 units that had cost $12,000 to produce. The recording of the sale would include an increase to: A) Cost of Goods Sold. B) Finished Goods Inventory. C) Cost of Goods Manufactured. D) Manufacturing Overhead.

88) Virginia Company paid $7,500 cash for various manufacturing overhead costs. As a result of this transaction:

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A) total assets increase. B) total assets, total equity, and net income are not affected. C) total assets, total equity, and net income decrease. D) None of these answers are correct.

89)

For a manufacturing business, cost of indirect materials is first recorded in the: A) Raw Materials Inventory account. B) Supplies Inventory account. C) Work in Process Inventory account. D) Manufacturing Overhead account.

90) In a manufacturing business, the cost of direct materials being used is recorded as an increase in the: A) Supplies Inventory account. B) Work in Process Inventory account. C) Raw Materials Inventory account. D) Manufacturing Overhead account.

91) Furst Company pays production workers' salaries on account. The cost will be recognized as an expense when: A) the goods made by the production workers are sold. B) the manufacturing process is complete. C) the cash is paid to settle the associated account payable. D) None of these answers are correct.

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92) Company X manufactures 3-ring notebooks. All of the following are considered indirect costs except: A) cardboard used in production of the notebooks. B) depreciation on manufacturing equipment. C) factory utilities. D) salaries for production supervisors.

93) Which of the following statement(s) is/are correct? 1.A predetermined overhead rate is used to assign estimated overhead costs to work in process inventory. 2. The predetermined overhead rate is calculated by dividing estimated overhead cost by the estimated volume or level of activity. 3. The most common means of allocating overhead costs is to calculate a predetermined overhead rate at the end of the period. A) I B) I and III C) II D) I and II

94) In which account is the actual amount of costs such as factory utilities and maintenance initially recorded? A) Work in Process Inventory B) Manufacturing Overhead C) Raw Materials Inventory D) Supplies Inventory

95) Kelly Company's manufacturing overhead costs totaled $2,871,400 during the year. At the end of the year, manufacturing overhead had been underapplied by $5,310. As a result:

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A) cost of goods sold increases. B) manufacturing overhead increases. C) cost of goods sold decreases. D) None of these answers are correct.

96) The reporting method that includes in the cost of inventory (and cost of goods sold) all product costs, including both fixed and variable costs, is known as: A) variable costing. B) total costing. C) direct costing. D) absorption costing.

97) During its first year of operation Mazer Manufacturing Company produced 10,500 units of inventory and sold 2,650 units. Mazer incurred variable product cost of $2.30 per unit and $14,910 of fixed manufacturing overhead costs. The sales price of the products was $10.50 per unit. Determine the amount of gross margin Mazer would report if the company uses absorption costing. Note: Do not round intermediate calculations. A) $10,000 B) $17,967 C) $10,500 D) $3,763

98) During its first year of operation Mazer Manufacturing Company produced 10,500 units of inventory and sold 2,650 units. Mazer incurred variable product cost of $2.30 per unit and $14,910 of fixed manufacturing overhead costs. The sales price of the products was $10.50 per unit. Determine the amount of net income Mazer would report if the company uses variable costing. Note: Do not round intermediate calculations.

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A) $10,500. B) $6,820. C) $3,763. D) $21,147.

99) During its first year of operation Salon Manufacturing Company sold 800 units of inventory. Salon incurred variable product cost of $11.00 per unit and $1,750 of fixed manufacturing overhead costs. The sales price of the products was $14.00 per unit. Salon uses absorption costing. Based on this information Salon will report net income of: Note: Do not round intermediate calculations. A) $1,280 if the company made 1,250 units of product during the year. B) $1,467 if the company made 1,500 units of product during the year. C) $1,653 if the company made 1,875 units of product during the year. D) All of these answers are correct.

100) During its first year of operation Salon Manufacturing Company sold 1,000 units of inventory. Salon incurred variable product cost of $12.00 per unit and $2,000 of fixed manufacturing overhead costs. The sales price of the products was $15.50 per unit. Salon uses variable costing. Based on this information Salon will report net income of: A) $1,500 if the company made 1,250 units of product during the year. B) $1,500 if the company made 1,500 units of product during the year. C) $1,500 if the company made 1,875 units of product during the year. D) All of these answers are correct.

101) Guest Corporation estimated that total overhead cost would be $23,000 for the current year, but actual overhead costs were $25,500; as a result, Guest spent $2,500 more than expected for overhead cost. This type of variance is known as a(n):

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A) material variance. B) activity variance. C) volume variance. D) spending variance.

102)

The following annual amounts pertain to ABC Company:

Estimated Overhead Costs Estimated Direct Labor hours

$ 272,972 77,992

If actual direct labor worked in February was 5,429 hours, how much overhead cost would be applied to work-in-process for the month? A) $15,668 B) $0 C) $6,329 D) $19,002

103)

The following annual amounts pertain to the Wolf Company:

Estimated Overhead Costs Estimated Direct Labor hours

$ 244,774 76,492

If actual overhead costs for the year amounted to $253,900 and actual direct labor worked amounted to 78,500 hours, then overhead would be A) underapplied by $2,700. B) overapplied by $2,700. C) underapplied by $2,712. D) overapplied by $2,712.

104) Which of the following statements regarding the schedule of cost of goods manufactured and sold is correct?

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A) The schedule is an internal document that is not presented with the company's financial statements. B) The schedule of cost of goods manufactured and sold shows the amount of cash paid for raw materials. C) The schedule of cost of goods manufactured and sold reports the amount of direct raw materials used during the period. D) The schedule is an internal document that is not presented with the company's financial statements, and, in addition, the schedule of cost of goods manufactured and sold reports the amount of direct raw materials used during the period.

105)

Cost of goods sold is equal to the cost of goods: A) manufactured minus ending finished goods. B) available for sale minus beginning finished goods. C) available for sale minus ending finished goods. D) manufactured minus beginning finished goods.

106) Jack Manufacturing Company had beginning work in process inventory of $17,000. During the period, Jack transferred $43,000 of raw materials to work in process. Labor costs amounted to $50,000 and overhead amounted to $45,000. If the ending balance in work in process inventory was $21,000, what was the amount transferred to finished goods inventory? A) $134,000 B) $155,000 C) $176,000 D) None of these answers are correct

107) At the beginning of the current accounting period Blazer Company had a $57,000 balance in its Finished Goods Inventory account. During the period cost of goods manufactured amounted to $314,000. The ending balance in the Finished Goods Inventory account was $50,500. Based on this information the amount of cost of goods sold is:

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A) $297,000. B) $320,500. C) $299,000. D) The answer cannot be determined from the information provided.

108)

The following beginning and ending inventory balances apply to Holder Company: Beginning

Raw Materials Inventory Work in Process Inventory Finished Goods Inventory

$ 31,000 39,000 27,000

Ending $ 29,000 40,000 24,000

During the accounting period, the company purchased $241,000 of direct raw materials. It incurred $187,000 of direct labor costs for the year and allocated $267,000 of manufacturing overhead costs to work in process. There was no overapplied or underapplied overhead. Revenue from goods sold during the year was $807,000. The amount of cost of goods manufactured (amount transferred from WIP to finished goods) was: A) $696,000. B) $694,000. C) $700,000. D) None of these answers are correct.

109)

The following beginning and ending inventory balances apply to Holder Company: Beginning

Raw Materials Inventory Work in Process Inventory Finished Goods Inventory

$ 34,000 42,000 30,000

Ending $ 32,000 43,000 27,000

During the accounting period, the company purchased $244,000 of direct raw materials. It incurred $190,000 of direct labor costs for the year and allocated $270,000 of manufacturing overhead costs to work in process. There was no overapplied or underapplied overhead. Revenue from goods sold during the year was $810,000. What was Holder's gross margin?

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A) $102,000 B) $76,000 C) $106,000 D) $708,000

110) A product costing system is needed to determine the amount of product costs that should be reported on the income statement as selling and administrative expenses. ⊚ true ⊚ false

111) Companies need service and product cost information for both financial reporting and managerial accounting. ⊚ true ⊚ false

112) Product cost information for manufacturing companies affects the income statement but does not affect the balance sheet. ⊚ true ⊚ false

113) Product costs flow through the manufacturer's inventory accounts in the following order: raw materials, finished goods, and cost of goods sold. ⊚ true ⊚ false

114) Most companies initially record the cost of materials acquired in the Raw Materials Inventory account. ⊚ true ⊚ false Version 1

115) At the end of the period, the balance remaining in Work in Process is reported on the balance sheet. ⊚ true ⊚ false

116) The cost of goods completed during a period is transferred from the Finished Goods Inventory account to Cost of Goods Sold. ⊚ true ⊚ false

117) Burgess Company incurred product costs of $50,000 during the period when no units were sold. No product costs will be reported on the company's income statement for the period. ⊚ true ⊚ false

118) Service companies accumulate information about the cost of services provided, and they report those costs in an inventory account. ⊚ true ⊚ false

119) Service companies generally do not have Work in Process and Finished Goods inventory accounts. ⊚ true ⊚ false

120) The work in process inventory account increases when raw materials are placed into production.

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⊚ ⊚

true false

121)

The Work in Process account increases when production workers are paid. ⊚ true ⊚ false

122)

Actual overhead costs are charged to the Work in Process account as they occur. ⊚ true ⊚ false

123)

Service companies do not transform raw materials into finished goods. ⊚ true ⊚ false

124) The predetermined overhead rate is found by dividing total estimated overhead costs by the total estimated volume of the overhead allocation base. ⊚ true ⊚ false

125) For a manufacturer, direct costs include direct materials, direct labor, and manufacturing overhead. ⊚ true ⊚ false

126) Manufacturing companies use a predetermined overhead rate; such rates are not used by service companies.

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⊚ ⊚

127)

true false

Estimated overhead costs are applied to work in process at the time the goods are sold. ⊚ true ⊚ false

128) Applied overhead costs are recorded as decreases in the Manufacturing Overhead account. ⊚ true ⊚ false

129) If more overhead was applied than had been incurred, the balance in the Manufacturing Overhead account represents the amount of overapplied overhead. ⊚ true ⊚ false

130) During February, Benke Manufacturing Company paid $18,000 in property taxes on one of its factory buildings. This overhead cost should be allocated to units completed during the month it was paid. ⊚ true ⊚ false

131) Actual overhead costs are added to the Manufacturing Overhead account, while estimated overhead costs are added to the Work in Process account. ⊚ true ⊚ false

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132) By the end of the year, Shirley Company's Manufacturing Overhead account had a $1,500 credit balance. This means that overhead was underapplied during the year. ⊚ true ⊚ false

133) Debits in the work in process account consist of actual direct material costs, actual direct labor costs, and estimated manufacturing overhead costs. ⊚ true ⊚ false

134) The credit to the Finished Goods Inventory account represents the cost of goods manufactured. ⊚ true ⊚ false

135) Product cost flows are cyclical in that the set of transactions that records the acquisition of raw materials, the conversion of raw materials to finished goods, and the sale of finished goods and related collection of cash occur over and over again. ⊚ true ⊚ false

136) Hutton Company reported a $750 unfavorable overhead variance on a recent performance report. This means that factory overhead was underapplied during the period. ⊚ true ⊚ false

137) If actual volume is smaller than the budgeted or expected volume, then a favorable volume variance will occur. ⊚ true ⊚ false

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138) Information about all three manufacturing inventory accounts is required to prepare the cost of goods manufactured and sold schedule. ⊚ true ⊚ false

139)

Cost of goods sold must be determined prior to computing cost of goods manufactured. ⊚ true ⊚ false

140)

Product costs are reported on the income statement above gross margin. ⊚ true ⊚ false

141)

The absorption costing approach uses the contribution margin income statement format. ⊚ true ⊚ false

142) Generally accepted accounting principles require that a company use variable costing for financial reporting. ⊚ true ⊚ false

143) Use of absorption costing allows a company to increase its profits by increasing the level of production of its products. ⊚ true ⊚ false

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144)

Under variable costing, all variable production costs are expensed when incurred. ⊚ true ⊚ false

145) Absorption costing provides incentives for a company to hold excess inventory, which may increase the company's costs. ⊚ true ⊚ false

146)

Many companies use variable costing for internal reporting and evaluation of managers. ⊚ true ⊚ false

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Answer Key Test name: Chap 11_10e_Edmonds 1) D 2) D 3) C 4) A 5) D 6) B 7) A 8) C 9) D 10) A 11) C 12) B 13) A 14) A 15) A 16) C 17) B 18) B 19) A 20) A 21) B 22) C 23) C 24) B 25) B 26) A Version 1

27) B 28) D 29) A 30) D 31) A 32) B 33) C 34) A 35) A 36) C 37) C 38) A 39) A 40) A 41) C 42) C 43) C 44) D 45) A 46) A 47) A 48) A 49) D 50) C 51) A 52) A 53) A 54) C 55) A 56) C Version 1

57) D 58) C 59) B 60) A 61) B 62) B 63) D 64) A 65) C 66) C 67) B 68) A 69) D 70) B 71) D 72) A 73) B 74) B 75) A 76) D 77) D 78) C 79) C 80) D 81) C 82) B 83) A 84) B 85) B 86) D Version 1

87) A 88) B 89) A 90) B 91) A 92) A 93) D 94) B 95) A 96) D 97) B 98) B 99) D 100) D 101) D 102) D 103) A 104) D 105) C 106) A 107) B 108) A 109) A 110) FALSE 111) TRUE 112) FALSE 113) FALSE 114) TRUE 115) TRUE 116) FALSE Version 1

117) TRUE 118) FALSE 119) TRUE 120) TRUE 121) TRUE 122) FALSE 123) FALSE 124) TRUE 125) FALSE 126) FALSE 127) FALSE 128) TRUE 129) TRUE 130) FALSE 131) TRUE 132) FALSE 133) TRUE 134) FALSE 135) TRUE 136) TRUE 137) FALSE 138) TRUE 139) FALSE 140) TRUE 141) FALSE 142) FALSE 143) TRUE 144) FALSE 145) TRUE 146) TRUE Version 1

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Chapter 12 Job-Order, Process, and Hybrid Costing Systems 1)

Which product costing system distributes costs evenly across total production? A) Process costing system B) Job-order costing system C) Standard costing system D) Variable costing system

A process costing system would be appropriate for all of the following except: A) Production of gasoline. B) Manufacture of smartphones. C) Services provided by a public accounting firm. D) Manufacture of granola bars.

Which of the following is incorrect regarding a job-order costing system?

A) Unit cost is determined for each product or job. B) Source documents are used to assign costs to the subsidiary accounts. C) Costs are accumulated for homogenous products that are produced through a continuous process. D) Costs may be accumulated for a batch of work that contains many units of a product.

4) In which of the following industries would a job-order costing system most likely be used? A) Oil refinery B) Small appliances manufacturer C) Construction of cell towers D) Beverage manufacturer

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A process costing system is used when: A) Homogeneous items are produced in a continuous-flow production process. B) Batches of identical inventory items are produced. C) A company produces unique, one-of-a-kind inventory items. D) All of these choices are correct.

6) An example of a product or service that would most likely be accounted for using a process costing system would be: A) Vitamin manufacturer. B) Printing services. C) Manufacturer of motor homes. D) Auto repair services.

Select the incorrect statement regarding cost flows through a job-order costing system.

A) Product costs are accumulated separately by job. B) The job-order costing system is patterned after the physical flow of products as they move through the production process. C) The three inventory accounts used are maintained on a perpetual basis. D) Costs are averaged for all jobs produced within a department.

8) In a job-order costing system, as goods are produced, product costs (direct material, direct labor, and overhead) are accumulated in the: A) Work in Process Inventory account. B) Raw Materials Inventory account. C) Finished Goods Inventory account. D) Cost of Goods Sold account.

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Which of the following accounts is reported on the balance sheet? A) Raw Materials Inventory. B) Work in Process Inventory. C) Finished Goods Inventory. D) All of these choices are correct.

10)

Select the incorrect statement regarding cost flows through a process costing system.

A) The process costing system is patterned after the physical flow of products as they move through the production process. B) The three inventory accounts used are maintained on a perpetual basis. C) Product costs are accumulated separately by job. D) A separate Work in Process account is maintained for each department or process.

11)

A hybrid costing system contains: A) Features of a job-order costing system. B) Features of a process costing system. C) Features of both variable and absorption costing systems. D) Features of both job-order and process costing systems.

12) In a job-order costing system, the subsidiary accounts for the Work in Process Inventory account are the: A) Standard cost cards. B) Job cost sheets. C) Individual Accounts Payable accounts. D) Cost of production report.

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13)

A materials requisition in a job-order costing system is used as a: A) Source document for assigning costs to individual departments. B) Subsidiary account for recording the materials used on each job. C) Request form for getting the necessary materials from the materials storeroom. D) Means of ordering materials from outside suppliers.

14) The source document used to record the amount of time worked by an employee on a job is called the: A) Requisition sheet. B) Pay stub. C) Job cost sheet. D) Work ticket.

15)

All of the following transactions lead to an entry on the job cost sheet except: A) Indirect material used on the job. B) A materials requisition for material used on a job. C) Work ticket for direct labor incurred on the job. D) Application of estimated overhead to the job.

16)

All of the following are source documents used in job-order costing systems except: A) Time card. B) Standard cost card. C) Work ticket. D) Materials requisition.

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17)

At the time indirect materials are issued to production, the balance in the: A) Manufacturing Overhead account will decrease. B) Work in Process Inventory account will increase. C) Raw Materials Inventory account will increase. D) Manufacturing Overhead account will increase.

18)

All of the following are asset exchange events except: A) Purchase of raw materials with cash. B) Use of raw materials in production. C) Cost of shipping goods to customers. D) Payment of production wages.

19)

The application of estimated manufacturing overhead to jobs is: A) An asset exchange transaction. B) An asset source transaction. C) An asset use transaction. D) A claims exchange transaction.

20)

The use of raw materials in production is: A) An asset source transaction. B) An asset use transaction. C) An asset exchange transaction. D) A claims exchange transaction.

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21)

The purchase of raw materials for cash is: A) An asset source transaction. B) An asset exchange transaction. C) An asset use transaction. D) A claims exchange transaction.

22)

The purchase of raw materials on account is: A) An asset use transaction. B) An asset exchange transaction. C) An asset source transaction. D) A claims exchange transaction.

23)

Payment of cash for production workers' wages is: A) An asset exchange transaction. B) An asset source transaction. C) An asset use transaction. D) A claims exchange transaction.

24)

Recognition of revenue from sale of finished goods is: A) An asset use transaction. B) An asset exchange transaction. C) An asset source transaction. D) A claims exchange transaction.

25)

An indirect material:

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A) Is an overhead cost. B) Is a product cost. C) Does not need to be accounted for using the perpetual method. D) All of these choices are correct.

26) If overhead was overapplied during the accounting period by an insignificant amount, the entry to close the Manufacturing Overhead account will include a: A) Debit to Cost of Goods Sold and a credit to Manufacturing Overhead. B) Debit to Cost of Goods Sold and a credit to Finished Goods Inventory. C) Debit to Manufacturing Overhead and a credit to Cost of Goods Sold. D) Debit to Finished Goods Inventory and a credit to Manufacturing Overhead.

27) Which event results in the transfer of product costs from the balance sheet to the income statement? A) Purchase of materials B) Sale of goods C) Production of goods D) Application of estimated manufacturing overhead to job

28) Which source document provides information for the journal entry to transfer costs from the Work in Process Inventory account to the Finished Goods Inventory account? A) Job cost sheet B) Work ticket C) Standard cost card D) Materials requisition

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29) When manufacturing overhead is applied to production in a job-order costing system, the accounting records would reflect an increase in which of the following accounts? A) Work in Process Inventory B) Cost of Goods Sold C) Finished Goods Inventory D) Raw Materials Inventory

30)

The entry to record the completion of a job in a job-order costing system would cause: A) An increase to the Cost of Goods Manufactured account. B) An increase in net income. C) An increase to the Cost of Goods Sold account. D) A decrease to the Work in Process Inventory account.

31) Ringgold Company experienced an event that affected its financial statements as indicated below: Assets

= Liabilities + Equity Revenue − Expenses =

Manufacturing + Work in = overhead process inventory (1,200)

−

Net income

1,200

Which of the following accounting events caused the indicated effects on the company's accounting equation? A) Actual overhead cost was incurred B) Underapplied overhead was written off C) Estimated overhead was charged to production D) None of these choices are correct.

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32) Frank Company experienced an event that affected its financial statements as indicated below: Assets

5,000

Liabilities

Equity

Revenue

−

5,000

−

Expenses

= Net income =

5,000

Which of the following transactions caused the indicated effects? A) Completed units were sold. B) Units were completed and moved to finished goods. C) The cost of units sold was recorded. D) None of these choices are correct.

33) Langdon Company experienced an accounting event that affected its financial statements as indicated below: Assets

(250)

Liabilities

Equity

(250)

Revenue

−

Expenses

−

250

= Net income =

(250)

Which of the following transactions could have caused the indicated effects on the company's accounting equation? A) Goods transferred from work in process to finished goods. B) Allocation of underapplied overhead to cost of goods sold. C) Collection of account receivable. D) Allocation of overapplied overhead to cost of goods sold.

34) Cooper Manufacturing is currently working on two jobs. The job order cost sheets for Job 101 and Job 102 showed the following information: Job 101 Direct Materials Direct labor

$21,500 33,500

Job 102 $24,500 54,500

If overhead is applied to jobs at $0.35 per direct labor dollar, the overhead applied to the two jobs would be:

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A) $180,900. B) $30,800. C) $164,800. D) $134,000.

35) Cooper Manufacturing is currently working on two jobs. The job order cost sheets for Job 101 and Job 102 showed the following information: Job 101 Direct Materials Direct labor

$12,000 24,000

Job 102 $15,000 45,000

If overhead is applied to jobs at $0.80 per direct labor dollar, the overhead applied to the two jobs would be: A) $96,000. B) $55,200. C) $151,200. D) $162,000.

36) The Work in Process account for Chambers Company contained the following entries: Debit of $94,000 for direct raw materials Debit of $134,000 for direct labor Debit of $74,000 for manufacturing overhead Ending balance, $98,000, associated with Job Number 2 The company uses a job-order costing system. Work was only performed on two jobs during the period. The beginning balance in Work in Process was zero. What was the cost of Job Number 1, which was started and completed during the period? A) $170,400 B) $204,000 C) $208,000 D) $151,600

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37) The Work in Process account for Chambers Company contained the following entries: Debit of $80,000 for direct raw materials Debit of $120,000 for direct labor Debit of $60,000 for manufacturing overhead Ending balance, $84,000, associated with Job Number 2 The company uses a job-order costing system. Work was only performed on two jobs during the period. The beginning balance in Work in Process was zero. What was the cost of Job Number 1, which was started and completed during the period? A) $180,000 B) $148,000 C) $132,000 D) $176,000

38) Needham Company uses a job-order costing system. During the month of September, the company worked on three jobs. The job-order cost sheets for the three jobs contained the following information at the end of September: Job A Beginning Balances Direct Materials Direct Labor

$5,400 2,400 3,800

Job B $4,400 3,000 6,000

Job C $7,400 3,400 3,200

The company applies overhead at 100% of direct labor cost. During September Job B was completed, and it was sold in October. At the end of September the total cost in Work in Process was: A) $52,000. B) $32,600. C) $39,000. D) None of these choices are correct.

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39) Needham Company uses a job-order costing system. During the month of September, the company worked on three jobs. The job-order cost sheets for the three jobs contained the following information at the end of September: Job A Beginning Balances Direct Materials Direct Labor

$4,000 1,000 2,400

Job B $3,000 1,600 4,600

Job C $6,000 2,000 1,800

The company applies overhead at 120% of direct labor cost. During September Job B was completed, and it was sold in October. At the end of September the total cost in Work in Process was: A) $36,960. B) $22,240. C) $26,400. D) None of these choices are correct.

40) Needham Company uses a job-order costing system. During the month of September, the company worked on three jobs. The job-order cost sheets for the three jobs contained the following information at the end of September: Job A Beginning Balances Direct Materials Direct Labor

$6,000 3,000 4,400

Job B $5,000 3,600 6,600

Job C $8,000 4,000 3,800

The company applies overhead at 100% of direct labor cost. The total cost of Job A at the end of September was: A) $25,800. B) $17,800. C) $19,240. D) $11,800.

41) Needham Company uses a job-order costing system. During the month of September, the company worked on three jobs. The job-order cost sheets for the three jobs contained the following information at the end of September: Version 1

Job A Beginning Balances Direct Materials Direct Labor

$4,000 1,000 2,400

Job B $3,000 1,600 4,600

Job C $6,000 2,000 1,800

The company applies overhead at 120% of direct labor cost. The total cost of Job A at the end of September was: A) $6,280. B) $10,280. C) $16,280. D) $11,720.

42) Needham Company uses a job-order costing system. During the month of September, the company worked on three jobs. The job-order cost sheets for the three jobs contained the following information at the end of September: Job A Beginning Balances Direct Materials Direct Labor

$5,100 2,100 3,500

Job B $4,100 2,700 5,700

Job C $7,100 3,100 2,900

The company applies overhead at 100% of direct labor cost. If Job B was sold for $27,000, what was the amount of gross margin for this job? (Ignore any consideration of underapplied or overapplied overhead.) A) $14,500 B) $15,600 C) $8,800 D) $18,200

43) Needham Company uses a job-order costing system. During the month of September, the company worked on three jobs. The job-order cost sheets for the three jobs contained the following information at the end of September: Job A Beginning Balances

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$4,000

Job B $3,000

Job C $6,000

Direct Materials Direct Labor

1,000 2,400

1,600 4,600

2,000 1,800

The company applies overhead at 120% of direct labor cost. If Job B was sold for $16,000, what was the amount of gross margin for this job? (Ignore any consideration of underapplied or overapplied overhead.) A) $6,800 B) $5,880 C) $1,280 D) $14,720

44) Preston Manufacturing is working on two housing projects. Overhead is applied on the basis of direct labor hours. At the beginning of the year, the company estimated that overhead would be $71,000 and 10,000 direct labor hours would be worked. Both projects were started and completed in the current accounting period. The following transactions were completed during the period: (a) Used $10,700 of direct material on Project I and $7,500 of direct material on Project II. (b) Labor costs for the two jobs amounted to the following: Project I, $27,500 (2,350 hours); Project II, $47,500 (6,700 hours). (c) Project II was sold during the period for $127,000. The amount of estimated overhead applied to Work in Process Inventory for the period equals: Note: Do not round your intermediate calculation. A) $47,500. B) $64,255. C) $67,455. D) $71,000.

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45) Preston Manufacturing is working on two housing projects. Overhead is applied on the basis of direct labor hours. At the beginning of the year, the company estimated that overhead would be $64,000 and 10,000 direct labor hours would be worked. Both projects were started and completed in the current accounting period. The following transactions were completed during the period: (a) Used $10,000 of direct material on Project I and $6,800 of direct material on Project II. (b) Labor costs for the two jobs amounted to the following: Project I, $24,000 (2,000 hours); Project II, $44,000 (6,000 hours). (c) Project II was sold during the period for $120,000. The amount of estimated overhead applied to Work in Process Inventory for the period equals: Note: Do not round your intermediate calculation. A) $51,200. B) $64,000. C) $54,400. D) $44,000.

46) Garst Manufacturing is working on two jobs. Cost is accumulated under a job-order costing system, and overhead is applied on the basis of direct labor hours. The company estimated that overhead would be $76,000 and 10,000 direct labor hours would be worked. Both projects were started during the period, and Project II was completed during the period. The following transactions were completed during the period: (a) Used $11,200 of direct material on Project I and $8,000 of direct material on Project II. (b) Labor costs for the two jobs amounted to the following: Project I, $30,000 (2,600 hours); Project II, $50,000 (7,200 hours). (c) Project II was sold during the period for $132,000. The ending balance in Work in Process was: A) $41,200. B) $149,200. C) $0. D) $60,960.

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47) Garst Manufacturing is working on two jobs. Cost is accumulated under a job-order costing system, and overhead is applied on the basis of direct labor hours. The company estimated that overhead would be $64,000 and 10,000 direct labor hours would be worked. Both projects were started during the period, and Project II was completed during the period. The following transactions were completed during the period: (a) Used $10,000 of direct material on Project I and $6,800 of direct material on Project II. (b) Labor costs for the two jobs amounted to the following: Project I, $24,000 (2,000 hours); Project II, $44,000 (6,000 hours). (c) Project II was sold during the period for $120,000. The ending balance in Work in Process was: A) $34,000. B) $0. C) $46,800. D) $136,000.

48) Bates Manufacturing uses a job-order costing system, and overhead is applied on the basis of direct labor hours. At the beginning of the period, the company estimated that overhead would be $66,000 and 10,000 direct labor hours would be worked. Both projects were started during the period, and Project II was completed during the period. The following transactions were completed during the period: (a) Used $10,200 of direct material on Project I and $7,000 of direct material on Project II. (b) Labor costs for the two jobs amounted to the following: Project I, $25,000 (2,100 hours); Project II, $45,000 (6,200 hours). (c) Project II was sold during the period for $122,000. The company's gross margin for the period was: Note: Do not round your intermediate calculation. A) $92,920. B) $72,720. C) $18,300. D) $29,080.

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49) Bates Manufacturing uses a job-order costing system, and overhead is applied on the basis of direct labor hours. At the beginning of the period, the company estimated that overhead would be $64,000 and 10,000 direct labor hours would be worked. Both projects were started during the period, and Project II was completed during the period. The following transactions were completed during the period: (a) Used $10,000 of direct material on Project I and $6,800 of direct material on Project II. (b) Labor costs for the two jobs amounted to the following: Project I, $24,000 (2,000 hours); Project II, $44,000 (6,000 hours). (c) Project II was sold during the period for $120,000. The company's gross margin for the period was: Note: Do not round your intermediate calculation. A) $30,800. B) $18,000. C) $89,200. D) $69,200.

50) Select the incorrect statement regarding the recognition of depreciation on manufacturing equipment. A) Recognizing depreciation on manufacturing equipment is an asset exchange event. B) Depreciation on manufacturing equipment is an indirect product cost. C) Recognizing depreciation on manufacturing equipment decreases the equipment's book value and increases the Manufacturing Overhead account. D) If the equipment was used to work on a job, the amount of depreciation must be entered on the appropriate job cost sheet.

51)

Which of the following statements regarding a process costing system is false?

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A) Use of a process costing system would be appropriate for a company that manufactures luxury yachts. B) Unit costs are computed for each department. C) The number of equivalent units for a period takes into account the stage of completion of ending work in process inventory. D) Unit cost is determined for a designated period of time.

52) Bruce Company experienced an event that affected its financial statements as indicated below: Assets

= Liabilities + Equity Revenue − Expense =

Work in + Work in = process-- Process-Mixing Packing (10,500) +

10,500

−

Net income

What type of product costing system is being used by this company? A) Job-order costing system B) Hybrid costing system C) Process costing system D) None of these choices are correct.

53) Gaither Company uses a process costing system and the weighted average method. The following data applies to January. Units Beginning Work in Process Started during the period Ending Work in Process

3,300 33,000 1,800

The ending work in process inventory is 90% complete. The total number of equivalent units processed during January was:

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A) 32,880. B) 36,120. C) 34,500. D) 36,300.

54) Gaither Company uses a process costing system and the weighted average method. The following data applies to January. Units Beginning Work in Process Started during the period Ending Work in Process

2,500 25,000 1,000

The ending work in process inventory is 90% complete. The total number of equivalent units processed during January was: A) 25,600. B) 26,500. C) 27,500. D) 27,400.

55) Gibbons Company uses a process costing system and the weighted average method. The company had 440 units of product in its work in process inventory at the beginning of the period. During the period 1,900 additional units of product were started. At the end of the period there were 950 units of product in the Work in Process account. The ending work in process inventory was estimated to be 40% complete. The beginning work in process inventory had a cost of $4,000. Product costs totaling $46,000 were added to work in process during the period. The number of equivalent units in ending work in process is: A) 760. B) 1,520. C) 950. D) 380.

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56) Gibbons Company uses a process costing system and the weighted average method. The company had 400 units of product in its work in process inventory at the beginning of the period. During the period 1,500 additional units of product were started. At the end of the period there were 750 units of product in the Work in Process account. The ending work in process inventory was estimated to be 30% complete. The beginning work in process inventory had a cost of $2,000. Product costs totaling $42,000 were added to work in process during the period. The number of equivalent units in ending work in process is: A) 450. B) 750. C) 1,275. D) 225.

57) Kidd Company uses a process costing system and the weighted average method. The company had 1,350 units of product in its work in process inventory at the beginning of the period. During the period 4,100 additional units of product were started. At the end of the period there were 2,050 units of product in the Work in Process account. The ending work in process inventory was estimated to be 40% complete. The beginning work in process inventory had a balance of $6,200. Product costs totaling $106,000 were added to work in process during the period. The amount of cost in ending work in process inventory is: Note: Round cost per equivalent unit to the nearest whole dollar. A) $22,140. B) $55,350. C) $33,210. D) $16,140.

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58) Kidd Company uses a process costing system and the weighted average method. The company had 800 units of product in its work in process inventory at the beginning of the period. During the period 3,000 additional units of product were started. At the end of the period there were 1,500 units of product in the Work in Process account. The ending work in process inventory was estimated to be 30% complete. The beginning work in process inventory had a balance of $4,000. Product costs totaling $84,000 were added to work in process during the period. The amount of cost in ending work in process inventory is: A) $33,600. B) $48,000. C) $14,400. D) $8,400.

59)

Equivalent units of production would best be defined as:

A) The number of whole units that could have been completed with direct material, direct labor, and overhead used during the period. B) Completed units that are produced through the same process. C) Number of units transferred out during the period, regardless of when the units were started into production. D) Units of production that are the same kind of product.

60) The Neptune Corporation uses a process costing system and the weighted average method. The company started March with 2,700 units in work in process--Department A. During the month 4,400 units were started. At the end of the month there were 3,600 units in ending work in process--Department A inventory that were 30% complete. The beginning work in process--Department A balance was $120,670 and product costs totaling $367,100 were added during the period. Based on this information, the amount of cost transferred from work in process--Department A to work in process--Department B was: Note: Do not round intermediate calculations.

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A) 115,430 B) 312,591 C) 147,260 D) 372,750

61) The Neptune Corporation uses a process costing system and the weighted average method. The company started March with 2,300 units in work in process--Department A. During the month 4,000 units were started. At the end of the month there were 3,200 units in ending work in process--Department A inventory that were 30% complete. The beginning work in process--Department A balance was $102,270, and product costs totaling $304,000 were added during the period. Based on this information, the amount of cost transferred from work in process--Department A to work in process--Department B was: Note: Do not round intermediate calculations. A) $323,950. B) $127,281. C) $271,667. D) $100,320.

62) Link Company uses a process costing system and the weighted average method. During the year the company completed 2,300 units of product. Ending inventory consisted of 900 units that were 50% complete. The total dollar cost associated with production of inventory was $104,000 The cost per equivalent unit would be which of the following? A) $45.21 B) $59.81 C) $31.82 D) $37.82

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63) Link Company uses a process costing system and the weighted average method. During the year the company completed 1,300 units of product. Ending inventory consisted of 400 units that were 50% complete. The total dollar cost associated with production of inventory was $90,000. The cost per equivalent unit would be which of the following? A) $54.00 B) $69.22 C) $60.00 D) $83.82

64) Marion Company uses process costing and the weighted average method. The following information was available for April: Units Work in Process, April 1 Work in Process, April 30

1,011 675

Costs $12,500 (A)

During April, 810 units were started, and costs incurred during the month were $75,000. Ending inventory was 50% complete. Based on the information given, (A) above would equal what amount? Note: Do not round your intermediate calculations. Round your final answer to the nearest dollar. A) $19,906 B) $14,186 C) $39,812 D) $12,500

65) Marion Company uses process costing and the weighted average method. The following information was available for April: Units Work in Process, April 1 Work in Process, April 30

100 200

Costs $3,000 (A)

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? Version 1

A) $8,000 B) $3,000 C) $4,000 D) $3,300

66) Cameron Company uses a process costing system and the weighted average method to account for its production. The following information was available for August: Units Work in Process, August 1 Work in Process, August 30

190 650

Costs $7,490 (A)

During the month, 1,700 units were started into production, and $9,500 in costs were incurred. Ending inventory was 50% complete. The cost of ending inventory would be: Note: Do not round your intermediate calculations. Round your final answer to the nearest dollar. A) $9,500. B) $3,528. C) $9,585. D) $13,462.

67) Cameron Company uses a process costing system and the weighted average method to account for its production. The following information was available for August: Units Work in Process, August 1 Work in Process, August 30

100 200

Costs $2,990 (A)

During the month, 800 units were started into production, and $5,000 in costs were incurred. Ending inventory was 50% complete. The cost of ending inventory would be: Note: Do not round intermediate calculations.

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A) $6,991. B) $5,000. C) $5,085. D) $999.

68)

Which of the following is not a component of process costing systems? A) Multiple Work in Process accounts. B) Cost of production report. C) Job cost sheet. D) None of these choices are correct.

69) Select the correct formula for computing the cost to be assigned to ending inventory in a process costing system. A) Ending inventory equivalent units × cost per equivalent unit B) Ending inventory units × cost per equivalent unit C) Beginning inventory cost + transferred-in costs D) Beginning inventory units + units transferred in − units transferred out

70)

Select the incorrect statement regarding the cost of production report. A) The report consists of two sections, a units section and a costs section. B) The report is produced monthly by job or batch. C) The cost inputs on the report come from the Work in Process account. D) The report indicates the cost of units transferred out.

71) Select the correct formula for computing equivalent units for the period under the weighted average approach. Version 1

A) Equivalent units = Units transferred B) Equivalent units = Units transferred + (Ending inventory units × Percentage complete) C) Equivalent units = Units transferred + Ending inventory units D) Equivalent units = (Units transferred + Ending inventory units) × Percentage complete

72)

Which of the following is not an approach to compute equivalent units? A) Weighted average. B) Last-in, first-out. C) First-in, first-out. D) All of these approaches can be used.

73) O'Hare Company is a manufacturing firm that uses a job-order costing system to determine the costs of its products. On January 1, O'Hare purchased $3,000 of raw materials with cash. The entry to record the purchase of raw materials would: A) Increase total assets. B) Decrease total assets. C) Have no impact on total assets. D) Decrease net income.

74) O'Hare Company is a manufacturing firm that uses a job-order costing system to determine the costs of its products. During the current accounting period, O'Hare used $1,200 of direct raw materials for Job Number 132. The recognition of this event would reflect an increase in which of the following accounts? A) Work in Process Inventory B) Finished Goods Inventory C) Raw Materials Inventory D) Cost of Goods Sold

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75) O'Hare Company is a manufacturing firm that uses a job-order costing system to determine the costs of its products. During the current accounting period, O'Hare paid $2,100 to production employees who worked on Job Number 132. The entry to record these wages would include an increase to which of the following accounts? A) Cost of Goods Sold. B) Work in Process Inventory. C) Finished Goods Inventory. D) Wage Expense.

76) O'Hare Company is a manufacturing firm that uses a job-order costing system to determine the costs of its products. During the current accounting period, O'Hare applied estimated manufacturing overhead costs of $1,550 to Job Number 132. Which of the following statements regarding this transaction is correct? A) Work in process inventory decreases. B) Net income decreases. C) Manufacturing overhead decreases. D) Total equity increases.

77) O'Hare Company is a manufacturing firm that uses a job-order costing system to determine the costs of its products. During the current accounting period, O'Hare transferred total product costs for Job Number 132 to finished goods. The recognition of this event would: A) Increase total assets. B) Decrease total assets. C) Reduce net income. D) Have no impact on total assets.

78) During the current accounting period, O'Hare Company paid $2,300 for selling and administrative expenses. Payment of cash for selling and administrative expenses is: Version 1

A) An asset exchange transaction. B) An asset source transaction. C) An asset use transaction. D) A claims exchange transaction.

79) O'Hare Company is a manufacturing firm that uses a job-order costing system to determine the costs of its products. During the current accounting period, O'Hare paid $700 for equipment rental and other indirect costs. The recognition of this event would: A) Decrease total assets. B) Increase total assets. C) Reduce net income. D) Have no impact on total assets.

80) O'Hare Company is a manufacturing firm that uses a job-order costing system to determine the costs of its products. During the current accounting period, O'Hare recognized depreciation of $600 on manufacturing equipment. Which of the following describes the effect of this event on the accounting equation? A) Total assets and total equity are unaffected. B) Both total assets and total equities increase. C) Total assets and net income decrease. D) Total assets increase and net income increase.

81) O'Hare Company is a manufacturing firm that uses a job-order costing system to determine the costs of its products. O'Hare Company counted the production supplies on hand at year-end and determined that the amount used was $125. The recognition of this event on the financial statements would include an increase to which of the following accounts?

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A) Supply Expense B) Work in Process Inventory C) Manufacturing Overhead D) Finished Goods Inventory

82) O'Hare Company is a manufacturing firm that uses a job-order costing system to determine the costs of its products. O'Hare Company sold Job Number 132 for $8,200 cash. The job cost sheet for that job reported total manufacturing costs of $5,900. The recognition of this event on the financial statements would include a(n): A) Decrease to total assets and total equity. B) Decrease to total liabilities. C) Increase to total assets, total equity, and net income. D) Decrease to net income.

83) O'Hare Company is a manufacturing firm that uses a job-order costing system to determine the costs of its products. During the current accounting period, O'Hare recognized cost of goods sold of $4,850 for Job Number 132. The recognition of this event will include a decrease to which of the following accounts? A) Cost of Goods Sold. B) Production Supplies. C) Work in Process Inventory. D) Finished Goods Inventory.

84) During the current accounting period, O'Hare applied $14,500 of estimated overhead cost to production. Actual overhead costs were $14,325. Assuming that the balance in the Manufacturing Overhead is insignificant, the recognition of the transaction to close that account will:

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A) Decrease cost of goods sold and increase stockholders’ equity. B) Increase cost of goods sold. C) Decrease stockholders' equity. D) Decrease total assets and total liabilities.

85)

A laundry detergent manufacturer would most likely use: A) Process costing. B) Job-order costing. C) Hybrid costing. D) Batch-order costing.

86)

The two most common types of costing systems are: A) Process and transfer costing systems. B) Job-order and process costing systems. C) Job-order and direct costing systems. D) Process and standard costing systems.

87) Drummond Company provides customized computer training to employees of large corporations. What kind of costing system should Drummond use? A) Standard costing B) Process costing C) Job-order costing D) None of these choices are correct.

88)

Which of the following items is provided on a work ticket?

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A) Job number B) Employee identification C) Work description D) All of these choices are correct.

89) Beta Company determined that its manufacturing overhead for the current accounting period was overapplied by $1,400. It closed the amount to cost of goods sold. The recognition of this transaction will: A) Decrease cost of goods sold. B) Increase cost of goods sold. C) Have no impact on cost of goods sold. D) None of these choices are correct.

90) Gardner Architects is in the process of developing house plans for six custom homes. Work tickets show that during the month of January 300 hours of labor were used on plans for custom home Project Number 3 and 200 hours of labor were used on plans for custom home Project Number 5. Labor costs average $100 per hour and are paid with cash. The entry to record these labor costs would A) increase total assets by $50,000. B) increase total liabilities by $30,000. C) increase equity by $20,000. D) have no effect on total assets, liabilities, or equity.

91) Southern Industries uses job order costing. The following information was drawn from the company’s monthly accounting reports: Job 1 Direct Materials Direct Labor

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$150 $120

Job 2 $160 $130

Job 3 $70 $53

Southern applies overhead at the rate of 200% of direct labor costs. By the end of the month, both Job 1 and Job 2 had been completed and sold. Job 3 was still in process. At month-end, what was the balance in the Work in Process inventory? A) $912 B) $229 C) $480 D) $123

92) ABC Manufacturing Company is currently working on two jobs. The job order cost sheets for Job 101 and Job 102 provide the following information: Direct Materials Direct Labor

Job 101

Job 102

$21,000 $33,000

$24,000 $54,000

ABC applies overhead to jobs at 60% of direct labor cost. Job 102 is finished and has been sold for $280,000. ABC’s gross margin on Job 102 is: A) $110,400. B) $169,600. C) $32,400. D) $202,000.

93) Bob’s Boat Manufacturing Company (BBMC) builds custom sailboats. BBMC accumulates cost using a job order cost system and applies overhead based on direct labor hours. At the beginning of the year, the company estimated that it would incur $1,201,750 of overhead costs and use 126,500 direct labor hours during the year. BBMC started and completed two sailboats during the current month. The following materials and labor costs were incurred during the month: Direct materials: $50,200 for Boat 1 and $33,700 for Boat 2. Direct labor: $65,200 (7,750 hours) for Boat 1 and $30,100 (3,850 hours) for Boat 2. If actual overhead costs were $110,300, overhead would have been: Note: Do not round your intermediate calculations.

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A) overapplied by $30,300. B) underapplied by $100. C) underapplied by $30,300. D) overapplied by $100.

94) Which of the following statement(s) is (are) correct? 1.It is easy to distinguish the balance sheet of a company that uses a process costing system from that of a company that uses job-order costing 2.A process costing system requires a Work in Process account for each processing department, while a job-order costing system uses a single Work in Process account 3. Process costing systems use multiple Finished Goods Inventory accounts A) I only B) II only C) II and III D) I, II, and III

95) The cost of goods for Mandy Manufacturing Company flow through an assembly and a finishing department before being transferred to Finished Goods Inventory. The Work in Process accounts in the assembly and finishing departments had beginning balances of $6,800 and $5,800, respectively. During the period, the following costs were added to each department. Direct Materials Direct Labor Overhead

Assembly

Finishing

$13,800 25,800 17,800

$16,800 47,800 23,800

Also, $48,800 of cost was transferred from the assembly department to the finishing department. Finally, the ending balance in the Work in Process account in the finishing department was $7,800. Based on this information, the cost of goods transferred to the Finished Goods Inventory account was:

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A) $143,000. B) $150,800. C) $135,200. D) $86,400.

96) Steele Manufacturing Company reported the following Work in Process Inventory account activity measured in units. The ending inventory was estimated to be 70% complete. Beginning inventory Started Ending inventory

48,000 118,000 43,000

What is the number of equivalent units in Steele's ending work in process inventory? A) 42,000 B) 43,000 C) 30,100 D) None of these choices are correct.

97) Steele Manufacturing Company reported the following Work in Process Inventory account activity measured in units. The ending inventory was estimated to be 70% complete. Beginning inventory Started Ending inventory

20,000 90,000 15,000

What is the number of equivalent units in Steele's ending work in process inventory? A) 14,000 B) 15,000 C) 10,500 D) None of these choices are correct.

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98) Photo Frame Company had beginning Work in Process inventory of 1,450 units. There were 3,800 units of product started during the period. Ending Work in Process inventory consisted of 1,750 units that were 30% complete. The total dollar cost associated with production of inventory was $90,500. The cost per equivalent whole unit would be which of the following? Note: Round your answer to the nearest whole dollar. A) $26 B) $22 C) $20 D) $17

99) Cantor Company had 1,100 units of product in its Work in Process inventory at the beginning of the period. During the period Cantor started 5,300 additional units of product. At the end of the period Cantor had 1,000 units of product in the Work in Process inventory. Cantor estimated the ending Work in Process inventory was 20% complete. The beginning Work in Process inventory cost was $2,540. Cantor added $351,000 of product costs to Work in Process during the period. What is the cost per equivalent unit? Note: Round your answer to the nearest whole dollar. A) $63 B) $69 C) $74 D) None of these choices are correct.

100) Cantor Company had 1,400 units of product in its Work in Process inventory at the beginning of the period. During the period Cantor started 5,900 additional units of product. At the end of the period Cantor had 1,300 units of product in the Work in Process inventory. Cantor estimated the ending Work in Process inventory was 20% complete. The beginning Work in Process inventory cost was $2,840. Cantor added $446,000 of product costs to Work in Process during the period. What is the amount of cost that should be transferred out of Work in Process? Note: Round cost per equivalent unit to the nearest whole dollar.

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A) $432,000. B) $93,600. C) $237,600. D) $18,720.

101) Cantor Company had 1,200 units of product in its Work in Process inventory at the beginning of the period. During the period Cantor started 5,500 additional units of product. At the end of the period Cantor had 1,100 units of product in the Work in Process inventory. Cantor estimated the ending Work in Process inventory was 30% complete. The beginning Work in Process inventory cost was $2,640. Cantor added $386,000 of product costs to Work in Process during the period. What is the ending balance in the Work in Process account? Note: Round cost per equivalent unit to the nearest whole dollar. A) $217,800 B) $21,780 C) $369,600 D) $72,600

102) Job-order and process costing systems are two different costing systems that a company chooses between based on the preference of management. ⊚ true ⊚ false

103) Job-order costing systems are used by many service businesses; process costing systems are not applicable to service businesses. ⊚ true ⊚ false

104)

Job-order and process costing systems are used only in the United States.

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⊚ ⊚

105)

true false

Both job-order and process costing systems require cost averaging procedures. ⊚ true ⊚ false

106) The Purina Company would use a job-order costing system to account for the costs of making its premium dog food. ⊚ true ⊚ false

107) Process costing is used for products produced in mass quantities through a continuous process that provides similar inputs to each unit produced. ⊚ true ⊚ false

108) In a job-order costing system, the inventory accounts generally are maintained on a perpetual basis. ⊚ true ⊚ false

109)

In a job-order costing system, each department has a Work in Process account. ⊚ true ⊚ false

110)

In a process costing system, costs are accumulated by department.

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⊚ ⊚

111)

true false

In a process costing system, a transferred-in cost is the same thing as raw materials cost. ⊚ true ⊚ false

112) Trenton Company is a manufacturing company with several processing departments. The company uses a process costing system. When goods are complete, the product cost transferred to finished goods inventory includes the sum of product costs from all the processing departments. ⊚ true ⊚ false

113) For a company using a process costing system, as units are transferred from one department to the next, their costs are transferred along as well. ⊚ true ⊚ false

114) Generally accepted accounting principles (GAAP) prohibit the use of a hybrid costing system. ⊚ true ⊚ false

115) A hybrid costing system is one that combines features of both process and job-order costing systems. ⊚ true ⊚ false

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116) In a job-order costing system, a separate job cost sheet is maintained for each job in order to facilitate costing. ⊚ true ⊚ false

117) A materials requisition is sent to the purchasing agent by the materials storeroom clerk to request that additional materials be purchased. ⊚ true ⊚ false

118) A job's budgeted costs for materials, labor, and overhead are inserted on the job cost sheet when production is completed. ⊚ true ⊚ false

119) Under job-order costing, the actual direct materials, actual direct labor, and estimated overhead costs are recorded on the job cost sheet. ⊚ true ⊚ false

120)

The costs of shipping a job to the buyer are recorded on the job's job cost sheet. ⊚ true ⊚ false

121) Pepperdine Company paid factory rent of $10,000. At the time this transaction occurred, it did not affect total assets or net income.

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⊚ ⊚

122)

true false

Payment of cash for sales staff salaries is an asset exchange transaction. ⊚ true ⊚ false

123) Payment of cash for production department employee wages is an asset exchange transaction. ⊚ true ⊚ false

124)

Factory insurance is an indirect product cost and part of overhead. ⊚ true ⊚ false

125) A process costing system uses just two inventory accounts, Raw Materials Inventory and Work in Process Inventory. ⊚ true ⊚ false

126) In process costing systems, product costs flow through the same accounts as in a joborder costing system. ⊚ true ⊚ false

127)

Process costing systems do not distinguish the cost of one unit of product from another.

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⊚ ⊚

true false

128) A process costing system and a job-order costing system both use a predetermined overhead rate to apply estimated manufacturing overhead costs to work in process. ⊚ true ⊚ false

129) The primary advantage of process costing systems is that there is no underapplied or overapplied overhead to account for. ⊚ true ⊚ false

130) Under process costing, a cost of production report is prepared to determine the amount of costs that should be transferred to the next department or to finished goods. ⊚ true ⊚ false

131) The weighted average method of process costing does not account for the state of completion of units in beginning inventory. ⊚ true ⊚ false

132) Two methods of computing equivalent units are the LIFO and the weighted average methods. ⊚ true ⊚ false

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133) The 10,000 units in Department B that are 30% complete are equivalent to 3,000 whole units. ⊚ true ⊚ false

134) A company that uses a process costing system would calculate the cost per equivalent unit and then use that amount to allocate costs between the goods transferred out and the beginning work in process inventory. ⊚ true ⊚ false

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Answer Key Test name: Chap 12_10e_Edmonds 1) A 2) C 3) C 4) C 5) A 6) A 7) D 8) A 9) D 10) C 11) D 12) B 13) C 14) D 15) A 16) B 17) D 18) C 19) A 20) C 21) B 22) C 23) A 24) C 25) D 26) C Version 1

27) B 28) A 29) A 30) D 31) C 32) A 33) B 34) B 35) B 36) B 37) D 38) B 39) B 40) B 41) B 42) C 43) C 44) B 45) A 46) D 47) C 48) D 49) A 50) D 51) A 52) C 53) B 54) D 55) D 56) D Version 1

57) A 58) C 59) A 60) D 61) A 62) D 63) C 64) A 65) C 66) B 67) D 68) C 69) A 70) B 71) B 72) B 73) C 74) A 75) B 76) C 77) D 78) C 79) D 80) A 81) C 82) C 83) D 84) A 85) A 86) B Version 1

87) C 88) D 89) A 90) D 91) B 92) B 93) B 94) B 95) C 96) C 97) C 98) B 99) A 100) A 101) B 102) FALSE 103) FALSE 104) FALSE 105) TRUE 106) FALSE 107) TRUE 108) TRUE 109) FALSE 110) TRUE 111) TRUE 112) TRUE 113) TRUE 114) FALSE 115) TRUE 116) TRUE Version 1

117) FALSE 118) FALSE 119) TRUE 120) FALSE 121) TRUE 122) FALSE 123) TRUE 124) TRUE 125) FALSE 126) TRUE 127) TRUE 128) TRUE 129) FALSE 130) TRUE 131) TRUE 132) FALSE 133) TRUE 134) FALSE

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Chapter 13 Financial Statement Analysis 1)

Factors involved in communicating useful information are:

A) Attributes of the users B) Purposes for which the information will be used C) Processes by which the information is analyzed D) All of these answers are correct.

Current financial reporting standards assume that users of accounting information:

A) Have an expert's understanding of economic and financial events and conditions. B) Have a reasonably informed knowledge of business. C) Have widely differing levels of knowledge about business, and that financial reporting must meet these differing needs. D) Have only minimal knowledge of business.

3) Which of the following statements regarding the information disclosed in financial statements isincorrect?

A) The costs of providing all possible information about a firm would be prohibitively high for the business. B) Some information disclosed in financial statements may be irrelevant to some users. C) Financial statements should be detailed enough to answer any financial-related question an investor might have. D) When too much information is presented, users may suffer from information overload.

Common methods of financial statement analysis include all of the followingexcept:

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A) Incremental analysis. B) Horizontal analysis. C) Vertical analysis. D) Ratio analysis.

Financial statement analysis involves forms of comparison including:

A) Comparing changes in the same item over a number of periods. B) Comparing key relationships within the same year. C) Comparing key items to industry averages. D) All of these answers are correct.

6) The study of an individual financial statement item over several accounting periods is called:

A) Horizontal analysis. B) Vertical analysis. C) Ratio analysis. D) Time and motion analysis.

7) Which of the following statements regarding the analysis of absolute amounts of various accounts reported on the financial statements isincorrect?

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A) Financial statement users with expertise in particular industries can look at absolute amounts and assess a company's performance in a certain area. B) To correctly evaluate an absolute amount, the analyst must consider its relative importance. C) Economic statistics such as the gross national product are built upon totals of absolute amounts reported by businesses. D) Using absolute amounts eliminates the problem of varying materiality levels.

Which of the following statements regarding horizontal analysis isincorrect?

A) Percentage analysis involves establishing the relationship of one amount to another. B) A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue. C) Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes. D) In doing horizontal analysis, an account is expressed as a percentage of the previous balance of the same account.

9) An analysis procedure that uses percentages to compare each of the parts of an individual statement to a key dollar amount from the financial statements is:

A) Ratio analysis. B) Contribution analysis. C) Horizontal analysis. D) Vertical analysis.

10)

Select thecorrect statement regarding vertical analysis.

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A) Vertical analysis of the income statement involves showing each item as a percentage of sales. B) Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets. C) Vertical analysis examines two or more items from the financial statements of one accounting period. D) All of these answers are correct.

11)

Which of the following statements regarding ratio analysis is incorrect?

A) Ratio analysis is a specific form of horizontal analysis. B) There are many different ratios available for evaluating a firm's performance. C) Some ratios involve an account from the balance sheet and one from the income statement. D) Ratio analysis involves making comparisons between different accounts in the same set of financial statements.

12)

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.

13) Financial ratios can be used to assess which of the following aspects of a firm's performance?

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A) Liquidity B) Solvency C) Profitability D) All of these answers are correct.

14) All of the following are considered to be measures of a company's short-term debt-paying abilityexcept:

A) Current ratio. B) Earnings per share. C) Inventory turnover. D) Average collection period.

15) Rialto Company collected $5,000 on account. What impact will this transaction have on the firm's current ratio?

A) No impact B) Increase it C) Decrease it D) Not enough information is provided to answer the question.

16) Knoell Company paid its sales employees $15,000 in sales commissions. What impact will this transaction have on the firm's working capital?

A) No impact B) Increase it C) Decrease it D) Not enough information is provided to answer the question.

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17)

Working capital is defined as:

A) Current assets divided by current liabilities. B) Total assets minus total liabilities. C) Current assets less current liabilities. D) Current liabilities divided by total liabilities.

18)

Which of the following statements regarding the quick ratio isincorrect?

A) The quick ratio is also known as the acid-test ratio. B) The quick ratio ignores some current assets that are less liquid than others. C) The quick ratio is a conservative variation of the current ratio. D) The quick ratio equals quick assets divided by total liabilities.

19) Darden Company has cash of $27,000, accounts receivable of $37,000, inventory of $19,500, and equipment of $57,000. Assuming current liabilities of $27,500, this company's working capital is: A) $86,000. B) $36,500. C) $56,000. D) $9,500.

20) Darden Company has cash of $40,000, accounts receivable of $60,000, inventory of $32,000, and equipment of $100,000. Assuming current liabilities of $48,000, this company's working capital is:

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A) $12,000. B) $52,000. C) $144,000. D) $84,000.

21) Milton Company has total current assets of $49,000, including inventory of $12,000, and current liabilities of $25,000. The company's current ratio is: A) 1.48. B) 1.96. C) 0.51. D) 2.44.

22) Milton Company has total current assets of $46,000, including inventory of $10,000, and current liabilities of $20,000. The company's current ratio is:

A) 0.4. B) 1.8. C) 2.8. D) 2.3.

23)

The following balance sheet information is provided for Greene Company for Year 2:

Assets Cash Accounts receivable Inventory Prepaid expenses Plant and equipment, net of depreciation Land Total assets

Version 1

$ 6,200 12,350 15,100 1,900 19,800 13,700 $ 69,050

Liabilities and stockholders' equity Accounts payable Salaries payable Bonds payable (due in ten years) Common stock, no par Retained earnings Total liabilities and stockholders' equity

$ 2,970 7,930 13,500 15,000 29,650 $ 69,050

What is the company's quick (acid-test) ratio? A) 3.26 B) 1.70 C) 0.76 D) 1.38

24)

The following balance sheet information is provided for Greene Company for Year 2:

Assets Cash Accounts receivable Inventory Prepaid expenses Plant and equipment, net of depreciation Land Total assets

$ 5,400 15,500 18,000 1,600 20,200 19,950 $ 80,650

Liabilities and Stockholders' Equity Accounts payable Salaries payable Bonds payable (due in ten years) Common stock, no par Retained earnings Total liabilities and stockholders' equity

$ 4,500 11,500 19,000 30,000 15,650 $ 80,650

What is the company's quick (acid-test) ratio?

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A) 0.7 B) 1.4 C) 1.3 D) 3.8

25)

The following balance sheet information is provided for Duke Company for Year 2:

Assets Cash Accounts receivable Inventory Prepaid expenses Plant and equipment, net of depreciation Land Total assets

$ 5,400 11,550 14,700 1,500 19,400 13,300 $ 65,850

Liabilities and stockholders' equity Accounts payable Salaries payable Bonds payable (due in ten years) Common stock, no par Retained earnings Total liabilities and stockholders' equity

$ 2,730 8,330 11,500 17,000 26,290 $ 65,850

What is the company's current ratio? Note: Round your answer to 2 decimal places. A) 1.40 B) 1.53 C) 3.00 D) 0.75

26)

The following balance sheet information is provided for Duke Company for Year 2:

Assets Cash

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$ 5,400

Accounts receivable Inventory Prepaid expenses Plant and equipment, net of depreciation Land Total assets

15,500 18,000 1,600 20,200 19,950 $ 80,650

Liabilities and Stockholders' Equity Accounts payable Salaries payable Bonds payable (due in ten years) Common stock, no par Retained earnings Total liabilities and stockholders' equity

$ 4,500 11,500 19,000 30,000 15,650 $ 80,650

What is the company's current ratio? Note: Round your answer to 2 decimal places. A) 1.16 B) 1.31 C) 2.53 D) 3.79

27)

The following balance sheet information is provided for Apex Company for Year 2:

Assets Cash Accounts receivable Inventory Prepaid expenses Plant and equipment, net of depreciation Land Total assets

$ 7,200 13,350 15,600 2,400 20,300 14,200 $ 73,050

Liabilities and stockholders' equity Accounts payable Salaries payable Bonds payable (due in ten years) Common stock, no par

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$ 3,270 7,430 16,000 12,500

Retained earnings

33,850

Total liabilities and stockholders' equity

$ 73,050

What is the company's working capital? A) $27,850 B) $6,700 C) $23,000 D) $20,400

28)

The following balance sheet information is provided for Apex Company for Year 2:

Assets Cash Accounts receivable Inventory Prepaid expenses Plant and equipment, net of depreciation Land Total assets

$ 5,400 15,500 18,000 1,600 20,200 19,950 $ 80,650

Liabilities and Stockholders' Equity Accounts payable Salaries payable Bonds payable (due in ten years) Common stock, no par Retained earnings Total liabilities and stockholders' equity

$ 4,500 11,500 19,000 30,000 15,650 $ 80,650

What is the company's working capital? A) $20,300 B) $4,900 C) $22,900 D) $24,500

29)

The following balance sheet information was provided by O'Connor Company:

Version 1

Assets Cash Accounts receivable Inventory

Year 2 $ 2,600 7,600 $ 26,000

Year 1 $ 1,600 5,600 $ 27,000

Assuming that net credit sales for Year 2 totaled $151,000, what is the company's most recent accounts receivable turnover? A) 26.96 times B) 11.44 times C) 19.87 times D) 22.88 times

30)

The following balance sheet information was provided by O'Connor Company:

Assets Cash Accounts receivable Inventory

Year 2 $ 4,000 15,000 $ 35,000

Year 1 $ 2,000 12,000 $ 38,000

Assuming that net credit sales for Year 2 totaled $270,000, what is the company's most recent accounts receivable turnover? A) 18 times B) 20 times C) 22.5 times D) 7.7 times

31)

The following balance sheet information was provided by Western Company:

Assets Cash Accounts receivable Inventory

Year 2 $ 3,200 21,000 $ 36,000

Year 1 $ 2,700 19,000 $ 42,000

Assuming Year 2 net credit sales totaled $132,000, what was the company's average days to collect receivables? Note: Use 365 days in a year. Do not round your intermediate calculations.

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A) 58.1 days B) 55.3 days C) 52.5 days D) 110.6 days

32)

The following balance sheet information was provided by Western Company:

Assets Cash Accounts receivable Inventory

Year 2 $ 4,000 15,000 $ 35,000

Year 1 $ 2,000 12,000 $ 38,000

Assuming Year 2 net credit sales totaled $270,000, what was the company's average days to collect receivables? Note: Use 365 days in a year. Do not round your intermediate calculations. A) 18.25 days B) 47.31 days C) 16.22 days D) 20.28 days

33)

The following balance sheet information is provided for Gaynor Company:

Assets Cash Accounts receivable Inventory

Year 2 $ 2,350 15,100 $ 25,500

Year 1 $ 1,600 13,100 $ 33,000

Assuming Year 2 cost of goods sold is $111,000, what is the company's inventory turnover? A) 3.36 times B) 3.79 times C) 4.35 times D) None of these answers are correct.

34)

The following balance sheet information is provided for Gaynor Company:

Version 1

Assets Cash Accounts receivable Inventory

Year 2 $ 4,000 15,000 $ 35,000

Year 1 $ 2,000 12,000 $ 38,000

Assuming Year 2 cost of goods sold is $153,300, what is the company's inventory turnover? A) 4.0 times B) 4.4 times C) 4.2 times D) None of these answers are correct.

35)

The following balance sheet information is provided for Patton Company:

Assets Cash Accounts receivable Inventory

Year 2 $ 2,900 12,400 $ 25,500

Year 1 $ 2,500 14,400 $ 32,500

Assuming Year 2 cost of goods sold is $369,000, what is the company's average days to sell inventory? Note: Use 365 days in a year. Do not round your intermediate calculations. A) 32.15 days B) 28.69 days C) 25.22 days D) 12.72 days

36)

The following balance sheet information is provided for Patton Company:

Assets Cash Accounts receivable Inventory

Year 2 $ 4,000 15,000 $ 35,000

Year 1 $ 2,000 12,000 $ 38,000

Assuming Year 2 cost of goods sold is $730,000, what is the company's average days to sell inventory? Note: Use 365 days in a year. Do not round your intermediate calculations.

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A) 17.5 days B) 18.25 days C) 19 days D) 20.86 days

37) You are considering an investment in Apple stock and wish to assess the firm's shortterm debt-paying ability. All of the following ratios are used to assess liquidityexcept:

A) Debt to equity ratio. B) Inventory turnover. C) Quick ratio. D) Accounts receivable turnover.

38) You are considering an investment in IBM stock and wish to assess the firm's long-term debt-paying ability and its use of debt financing. All of the following ratios can be used to assess solvencyexcept:

A) Number of times interest is earned. B) Debt to assets ratio. C) Debt to equity ratio. D) Net margin.

39)

Solvency ratios are used to assess a company's:

A) Long-term debt-paying ability. B) Profitability. C) Short-term debt-paying ability. D) Efficiency in use of its assets.

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40)

The following balance sheet information is provided for Santana Company for Year 2:

Assets Cash Accounts receivable Inventory Prepaid expenses Plant and equipment, net of depreciation Land Total assets

$ 6,600 12,750 15,300 2,100 20,000 13,900 $ 70,650

Liabilities and stockholders' equity Accounts payable Salaries payable Bonds payable (due in ten years) Common stock, no par Retained earnings Total liabilities and stockholders' equity

$ 3,090 7,730 14,500 14,000 31,330 $ 70,650

What is the company's debt to equity ratio? A) 32.21% B) 55.86% C) 44.32% D) 130.66%

41)

The following balance sheet information is provided for Santana Company for Year 2:

Assets Cash Accounts receivable Inventory Prepaid expenses Plant and equipment, net of depreciation Land Total assets

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$ 5,400 15,500 18,000 1,600 20,200 19,950 $ 80,650

Liabilities and Stockholders' Equity Accounts payable Salaries payable Bonds payable (due in ten years) Common stock, no par Retained earnings Total liabilities and stockholders' equity

$ 4,500 11,500 19,000 30,000 15,650 $ 80,650

What is the company's debt to equity ratio? Note: Rounded to nearest whole percent. A) 42% B) 130% C) 43% D) 77%

42)

The following partial balance sheet is provided for Groome Company:

Liabilities and Stockholders' Equity Accounts payable Salaries payable Bonds payable (due in ten years) Common stock, no par Retained earnings Total liabilities and stockholders' equity

$ 9,600 13,500 22,000 30,600 54,600 $ 130,300

What is the company's debt to assets ratio? Note: Rounded to nearest whole percent. A) 51% B) 17% C) 35% D) Cannot be determined with the information given.

43)

The following partial balance sheet is provided for Groome Company:

Version 1

Liabilities and Stockholders' Equity Accounts payable Salaries payable Bonds payable (due in ten years) Common stock, no par Retained earnings Total liabilities and stockholders' equity

$ 9,000 12,000 20,000 30,000 54,000 $ 125,000

What is the company's debt to assets ratio? Note: Rounded to nearest whole percent. A) 49% B) 16% C) 33% D) Cannot be determined with the information given.

44)

The Fortune Company reported the following income for Year 2:

Sales Cost of goods sold

$ 150,000 90,000

Gross margin Selling and administrative expense

$ 60,000 35,000

Operating income Interest expense

$ 25,000 7,000

Income before taxes Income tax expense

$ 18,000 5,400

Net income

$ 12,600

What is the company's number of times interest is earned ratio? A) 3.6 times B) 2.6 times C) 1.8 times D) None of these answers are correct.

45)

The Fortune Company reported the following income for Year 2:

Sales

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$ 130,000

Cost of goods sold

80,000

Gross margin Selling and administrative expense

$ 50,000 15,000

Operating income Interest expense

$ 35,000 5,000

Income before taxes Income tax expense

$ 30,000 10,000

Net income

$ 20,000

What is the company's number of times interest is earned ratio? A) 7 times B) 6 times C) 4 times D) None of these answers are correct.

46)

Alpha Company provided the following balance sheet for Year 2:

Assets Cash Accounts receivable Inventory Prepaid expenses Plant and equipment, net of depreciation Total assets

$ 5,600 15,900 18,400 21,750 29,000 $ 90,650

Liabilities and stockholders' equity Accounts payable Salaries payable Bonds payable (due in ten years) Common stock, no par Retained earnings Total liabilities and stockholders' equity

$ 4,900 11,900 10,000 34,000 29,850 $ 90,650

What is the company's plant assets to long-term liabilities ratio?

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A) 2.90 B) 4.90 C) 2.10 D) None of these answers are correct.

47)

Alpha Company provided the following balance sheet for Year 2:

Assets Cash Accounts receivable Inventory Prepaid expenses Plant and equipment, net of depreciation Total assets

$ 5,400 15,500 18,000 21,550 25,000 $ 85,450

Liabilities and Stockholders' Equity Accounts payable Salaries payable Bonds payable (due in ten years) Common stock, no par Retained earnings Total liabilities and stockholders' equity

$ 4,500 11,500 10,000 30,000 29,450 $ 85,450

What is the company's plant assets to long-term liabilities ratio? A) 2.5 B) 4.5 C) 1.7 D) None of these answers are correct.

48) You are considering an investment in Frontier Airlines stock and wish to assess the firm's earnings performance. All of the following ratios can be used to assess profitabilityexcept:

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A) Average days to collect receivables. B) Asset turnover. C) Return on investment. D) Net margin.

49)

The Poole Company reported the following income for Year 2:

Sales Cost of goods sold

$ 30,500 8,100

Gross margin Selling and administrative expense

$ 22,400 10,100

Operating income Interest expense

$ 12,300 4,100

Income before taxes Income tax expense

$ 8,200 2,460

Net income

$ 5,740

What is the company's net margin? A) 40.33% B) 18.82% C) 26.89% D) 73.44%

50)

The Poole Company reported the following income for Year 2:

Sales Cost of goods sold

$ 30,000 8,000

Gross margin Selling and administrative expense

$ 22,000 10,000

Operating income Interest expense

$ 12,000 4,000

Income before taxes income tax expense

$ 8,000 2,500

Net income

$ 5,500

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What is the company's net margin? Note: Rounded to the nearest whole percent. A) 73% B) 40% C) 18% D) 27%

51)

Which of the following statements regarding net margin isincorrect?

A) Net margin refers to the average amount of each sales dollar remaining after all expenses are subtracted. B) Net margin is calculated by dividing net income by net sales. C) The amount of net margin is affected by a company's choices of accounting principles. D) The smaller the net margin the better.

52) The Miller Company reported gross sales of $830,000, sales returns and allowances of $6,200, and sales discounts of $6,200. The company has average total assets of $480,000, of which $240,000 is property, plant, and equipment. What is the company's asset turnover ratio? Note: Round your answer to 2 decimal places. A) 1.70 times B) 0.59 times C) 1.73 times D) 1.76 times

53) The Miller Company reported gross sales of $850,000, sales returns and allowances of $15,000, and sales discounts of $5,000. The company has average total assets of $500,000, of which $250,000 is property, plant, and equipment. What is the company's asset turnover ratio? Note: Round your answer to 2 decimal places.

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A) 3.32 times B) 1.67 times C) 1.66 times D) 1.70 times

54) The Martin Company reported net income of $15,900 on gross sales of $87,500. The company has average total assets of $122,700, of which $107,500 is property, plant, and equipment. What is the company's return on investment? A) 12.96% B) 18.17% C) 71.31% D) 14.79%

55) The Martin Company reported net income of $15,000 on gross sales of $80,000. The company has average total assets of $135,000, of which $102,000 is property, plant, and equipment. What is the company's return on investment? Note: Rounded to the nearest decimal point. A) 18.8% B) 11.1% C) 14.7% D) 12.5%

56) Which of the following statements regarding the return on equity (ROE) measure is incorrect?

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A) ROE is used to measure the profitability of the firm in relation to the amount invested by stockholders. B) ROE equals net income divided by average total stockholders' equity. C) ROE is affected by a company's use of leverage. D) A company's ROE is lower than its return on investment because ROE does not consider that part of the business that is financed by debt.

57) The Dennis Company reported net income of $63,000 on sales of $430,000. The company has average total assets of $695,000 and average total liabilities of $230,000. What is the company's return on equity ratio? A) 14.65% B) 27.39% C) 13.55% D) 9.06%

58) The Dennis Company reported net income of $50,000 on sales of $300,000. The company has average total assets of $500,000 and average total liabilities of $100,000. What is the company's return on equity ratio?

A) 10.0% B) 16.7% C) 12.5% D) 50.0%

59)

The return on investment measure is also referred to as:

Version 1

A) Net margin. B) Return on equity. C) Return on debt. D) Return on assets.

60) You are considering an investment in Facebook stock and wish to assess the company's position in the stock market. All of the following ratios can be usedexcept:

A) Dividend yield. B) Earnings per share. C) Working capital. D) Price-earnings ratio.

61)

The Abel Company provided the following information from its financial records:

Net income

$ 200,000

Common stock dividends

$ 10,000

Preferred stock dividends Sales

$ 20,000 $ 800,000

Common shares outstanding 1/1 Common shares outstanding 12/31

200,000

Preferred shares outstanding 1/1 Preferred shares outstanding 12/31

10,000

300,000

6,000

What is the amount of the company's earnings per share? A) $0.72 B) $0.80 C) $25.00 D) $0.77

62)

The Abel Company provided the following information from its financial records:

Net income

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$ 250,000

Common shares outstanding

200,000

1/1 Common stock dividends Preferred stock dividends Sales

$ 20,000 $ 25,000 $ 1,000,000

Common shares outstanding 12/31 Preferred shares outstanding 1/1 Preferred shares outstanding 12/31

300,000 10,000 6,000

What is the amount of the company's earnings per share? A) $0.82 B) $1.00 C) $0.90 D) $0.75

63)

The Bernard Company provided the following information from its financial records:

Net income Common dividends

$ 200,000 $ 10,000

Preferred rights

$ 150,000

Total stockholders' equity Common shares outstanding 12/31

$ 800,000 120,000

What is the company's book value per share? A) $5.42 B) $1.67 C) $1.58 D) $6.67

64)

The Bernard Company provided the following information from its financial records:

Net income Common dividends

$ 250,000 $ 15,000

Preferred rights

$ 175,000

Total stockholders' equity Common shares outstanding, 12/31

$ 1,000,000 150,000

What is the company's book value per share?

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A) $0.50 B) $5.50 C) $6.67 D) $1.67

65) The Crestar Company reported net income of $150,400 on 27,000 average outstanding common shares. Preferred dividends total $12,700. On the most recent trading day, the preferred shares sold at $57 and the common shares sold at $87. What is this company's current priceearnings ratio? Note: Do not round your intermediate calculations. A) 15.62 B) 17.06 C) 17.95 D) None of these answers are correct.

66) The Crestar Company reported net income of $112,000 on 20,000 average outstanding common shares. Preferred dividends total $12,000. On the most recent trading day, the preferred shares sold at $50 and the common shares sold at $95. What is this company's current priceearnings ratio?

A) 19 B) 17 C) 20 D) None of these answers are correct.

67) The Phibbs Company paid total cash dividends of $59,400 on 18,000 outstanding common shares. On the most recent trading day, the common shares sold at $73. What is this company's dividend yield? Note: Do not round your intermediate calculations.

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A) 22.20% B) 4.52% C) 30.30% D) 2.72%

68) The Phibbs Company paid total cash dividends of $200,000 on 25,000 outstanding common shares. On the most recent trading day, the common shares sold at $80. What is this company's dividend yield?

A) 25% B) 6.4% C) 16.9% D) 10%

69)

Which of the following statements is generallyincorrect from an investor's perspective?

A) A 1:1 current ratio is generally preferred over a 1.5:1 current ratio. B) A 20-day average collection period for accounts receivable is generally preferred over a 30-day average collection period. C) A 5% dividend yield is generally preferred over a 3% dividend yield. D) A 10% net margin is generally preferred over an 8% net margin.

70)

Which of the following is a potential limitation of financial statement analysis?

A) Lack of comparability of firms in different industries B) The impact of changing economic conditions C) The impact of having more than one acceptable alternative accounting principle for accounting for a given transaction or economic event D) All of these answers are correct.

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71)

Accrual accounting requires the use of many estimates, including:

A) Uncollectible accounts expense. B) Warranty costs. C) Assets' useful lives. D) All of these answers are correct.

72) The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:

A) Matching principle. B) Conservatism concept. C) Historic cost principle. D) Time value of money concept.

73) As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant issued common stock at par value for $10,000 cash. Which of the following statements iscorrect?

A) Gant's current ratio will decrease. B) Gant's current ratio will increase. C) Gant's quick ratio will decrease. D) Gant's working capital will decrease.

74) As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant sold inventory on account for $6,000. Which of the following statements isincorrect? Version 1

A) Gant's current ratio will decrease. B) Gant's quick ratio will increase. C) Gant's working capital will increase. D) None of these answers are correct.

75) As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant recorded cost of goods sold of $4,100. As a result of this transaction, Gant's quick ratio will:

A) Decrease. B) Increase. C) Remain the same. D) Cannot be determined.

76) As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant collected $5,200 of accounts receivable. As a result of this transaction, Gant's working capital will:

A) Increase. B) Decrease. C) Remain the same. D) Cannot be determined.

77) As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant purchased merchandise on account for $4,000. Which of the following statements iscorrect?

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A) Gant's current ratio will decrease. B) Gant's quick ratio will increase. C) Gant's working capital will increase. D) Gant's quick ratio will increase and its current ratio will decrease.

78) As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant paid $3,600 on accounts payable. Which of the following statements isincorrect?

A) Gant's quick ratio will increase and its current ratio will decrease. B) Gant's quick ratio will increase. C) Gant's working capital will remain the same. D) Gant's current ratio will increase.

79) As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant paid $250 for transportation in cost on merchandise it had received. Which of the following statements isincorrect?

A) Gant's current ratio will remain the same B) Gant's quick ratio will increase C) Gant's working capital will remain the same D) Gant's quick ratio will increase and its current ratio will remain the same

80) Benson Company declared and paid a cash dividend totaling $500,000 on its common stock. As a result of this transaction, the company's debt to assets ratio will:

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A) Decrease. B) Increase. C) Remain the same. D) Cannot be determined.

81) Benson Company received cash of $1,000,000 from issuing common stock at par value. As a result of this transaction, the company's debt to equity ratio will:

A) Decrease. B) Increase. C) Remain the same. D) Cannot be determined.

82) Benson Company received cash of $5,000,000 by issuing 20-year bonds payable. As a result of this transaction, the company's current ratio will:

A) Remain the same. B) Increase. C) Decrease. D) Cannot be determined.

83)

Horizontal analysis is also known as:

A) Liquidity analysis. B) Trend analysis. C) Revenue analysis. D) Variance analysis.

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84) The study of an individual item or account over several periods in the same financial year or over many years is known as:

A) Liquidity analysis B) Ratio analysis C) Vertical analysis D) Horizontal analysis

85) Which type of approach should be used when evaluating corporate results using horizontal analysis?

A) Study of absolute amounts. B) Percentages. C) Trends. D) All of these answers are correct.

86)

In vertical analysis, each item is expressed as a percentage of:

A) Total expenses on the income statement. B) Net income on the income statement. C) Sales on the income statement. D) None of these answers are correct.

87)

In vertical analysis, each item is expressed as a percentage of:

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A) Total assets on the balance sheet. B) Total cash on the balance sheet. C) Total current assets on the balance sheet. D) None of these answers are correct.

88)

Short-term creditors are usually most interested in assessing:

A) Liquidity. B) Solvency. C) Managerial effectiveness. D) Profitability.

89) Which ratio would you use to examine a company's ability to pay its debts in the short term?

A) Earnings per share B) Acid-test ratio C) Debt to assets ratio D) Return on equity

90)

Long-term creditors are usually most interested in evaluating:

A) Liquidity. B) Managerial effectiveness. C) Solvency. D) Profitability.

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91) Lilly Corporation has working capital of $620,000, and Harmon Corporation has working capital of $840,000. Which of the following statements isincorrect?

A) Since working capital is an absolute amount, other factors such as size of the company and materiality will help to determine the liquidity of these two companies. B) Since Harmon's working capital exceeds Lilly's working capital, it is safe to conclude that Harmon is more liquid than Lilly. C) If Lilly Corporation is smaller than Harmon or has lower current liabilities, Lilly could be more liquid than Harmon. D) None of these answers are correct.

92)

Which of the following statements iscorrect regarding the quick ratio?

A) The numerator for the quick ratio is current assets minus inventory minus accounts receivable. B) The numerator for the quick ratio is current assets. C) The quick ratio is also called the working capital ratio. D) The quick ratio is a more conservative variation of the current ratio.

93) are:

Two ratios that provide insight on the relationship between credit sales and receivables

A) Current ratio and inventory turnover ratio. B) Accounts receivable turnover and average days to collect receivables. C) Average days to collect receivables and asset turnover. D) Accounts receivable turnover and current ratio.

94) Cost of goods sold divided by average inventory is the formula for which of these analytical measures?

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A) Number of day's sales in inventory B) Return on investment C) Inventory turnover D) Debt to assets ratio

95) Which ratios measure a company's long-term debt-paying ability and its financing structure?

A) Solvency B) Liquidity C) Profitability D) None of these answers are correct.

96) Assume that you are considering purchasing some of a company's long-term bonds as an investment. Which of the company's financial statement ratios would you probably be most interested in?

A) Debt to assets ratio B) Debt to equity C) Plant assets to long-term liabilities D) All of these answers are correct.

97) Starwood Corporation has current assets of $400,000, total current liabilities of $950,000, net credit sales of $1,500,000, beginning accounts receivable of $85,000, and ending accounts receivable of $89,000. What is Starwood's accounts receivable turnover?

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A) 17.2 times B) 21.8 times C) 5.6 times D) 21.5 times

98) Starwood Corporation has current assets of $200,000, total current liabilities of $750,000, net credit sales of $1,300,000, beginning accounts receivable of $65,000, and ending accounts receivable of $69,000. What is Starwood's accounts receivable turnover?

A) 21.8 times B) 19.4 times C) 22.4 times D) 5.8 times

99) Earnings before interest and taxes divided by interest expense is the formula for which of these analytical measures?

A) Debt to assets ratio B) Earnings per share C) Return on investment D) Number of times interest is earned

100)

Net income divided by sales is the formula for which of these analytical measures?

A) Return on assets B) Return on equity C) Earnings per share D) Net margin

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101) If the company purchased a $60,000 piece of equipment by paying $30,000 and having the rest financed with a short-term note from the bank, then immediately after this transaction what is the expected impact on the components of the current ratio?

A) Current assets decrease and current liabilities increase by the same amount. B) Current liabilities decrease. C) Current assets and current liabilities decrease by the same amount. D) Current assets increase.

102)

Which ratio measures how effectively a company is using assets to generate revenue?

A) Net margin B) Plant assets to long-term liabilities C) Asset turnover D) Inventory turnover

103)

Which ratio measures the percentage of a company's assets that are financed by debt?

A) Debt to assets ratio B) Asset turnover C) Debt to equity D) Return on investment

104)

Which of the following statements about financial statement analysis isincorrect?

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A) In horizontal percentage analysis, an item from the financial statements is expressed as a percentage of the same item from a previous year's financial statements. B) Vertical analysis compares two or more financial statement items within the same time period. C) Horizontal analysis for several years can be done by choosing one year as a base year and calculating increases or decreases in relation to that year. D) The reason behind a financial statement ratio or percentage analysis result is usually self-evident and does not require further study or analysis.

105)

The following data were drawn from the accounting records of Fox Company.

Revenue Operating Expenses Net Income

Year 2

Year 1

$ 234,000 127,400 106,600

$195,000 98,000 97,000

If the year-to-year trends shown in these data continue: Note: Do not round intermediate calculations. A) revenue for Year 3 will be $280,800. B) operating expenses for Year 3 will be $165,620. C) net income for Year 3 will be $115,180. D) All of these answers are correct.

106)

Which of the following statements iscorrect?

A) Investors need to understand that the value of a company's earnings per share is affected by its choices of accounting principles and assumptions. B) Earnings per share is calculated for a company's preferred stock. C) The most widely quoted measure of a company's earnings performance is return on equity. D) The book value per share measures the market value of a corporation's stock.

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107)

The following information was drawn from the accounting records of Jones Company.

Net sales Net income Average total assets Average total liabilities Average total stockholders' equity

$ 298,039 76,000 695,000 430,000 265,000

Based on this information, the company's net margin (also known as return on sales) is: A) 10.9%. B) 17.7% C) 25.5%. D) None of these choices is correct.

108)

The following information was drawn from the accounting records of Jones Company.

Net sales Net income Average total assets Average total liabilities Average total stockholders' equity

$ 281,967 86,000 770,000 480,000 290,000

Based on this information, the company's asset turnover is: Note: Round your answer to 2 decimal places. A) $0.37 of sales dollars per $1 of assets. B) $3.05 of sales dollars per $1 of assets. C) $1.12 of sales dollars per $1 of assets. D) None of these choices is correct.

109)

The following information was drawn from the accounting records of Jones Company.

Net sales Net income Average total assets Average total liabilities Average total stockholders' equity

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$ 279,365 88,000 785,000 490,000 295,000

Based on this information, the company's return on investment (also known as return on assets) is Note: Round the percentage to 1 decimal place. A) 11.2%. B) 31.5%. C) 26.2%. D) The answer cannot be determined from the information provided.

110)

The following information was drawn from the accounting records of Jones Company.

Net sales Net income Average total assets Average total liabilities Average total stockholders' equity

$ 298,039 76,000 695,000 430,000 265,000

Based on this information the company's return on equity is Note: Round the percentage to 1 decimal place. A) 10.9%. B) 28.7%. C) The answer cannot be determined from the information provided. D) 25.5%.

111)

Which of the following statements about financial statements isincorrect?

A) The net margin ratio is a profitability ratio. B) The current ratio is a liquidity ratio. C) The debt to assets ratio is a liquidity ratio. D) The dividend yield is a stock market ratio.

112)

The following information was drawn from the accounting records of Woo Company.

Current assets

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$ 84,000

Long-term assets Current liabilities Long-term liabilities Stockholders' Equity Net Income

715,000 57,000 328,000 414,000 77,000

Based on this information, the company's debt to assets ratio is Note: Round your answer to the nearest whole percentage. A) 67%. B) 48%. C) 78%. D) 36%.

113)

The following information was drawn from the accounting records of Woo Company.

Current assets Long-term assets (Plant assets) Current liabilities Long-term liabilities Stockholders' Equity Earnings before interest and taxes Interest expense

$ 84,000 715,000 57,000 328,000 414,000 77,000 32,000

Based on this information, the company's debt to equity ratio is Note: Round your answer to two decimal places. A) 0.36 to 1. B) 0.78 to 1. C) 0.93 to 1. D) 0.48 to 1.

114)

The following information was drawn from the accounting records of Woo Company.

Current assets Long-term assets (Plant assets) Current liabilities Long-term liabilities Stockholders' Equity

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$ 84,000 715,000 57,000 328,000 414,000

Earnings before interest and taxes Interest expense

77,000 32,000

Based on this information, the company's times interest earned measure is: Note: Round your answer to two decimal places. A) 2.74 times. B) 5.07 times. C) 2.41 times. D) 0.91 times.

115)

Which of the following isnot included in the computation of the quick ratio?

A) Cash B) Prepaid expenses C) Accounts receivable D) Marketable securities

116) Senath Company's annual report reveals net credit sales of $274,000 and average accounts receivable of $54,000. The report also shows an average inventory balance of $18,500 and cost of goods of $285,000. Based on this information: (treat any partial day as a whole day) Note: Do not round intermediate calculations. A) the average number of days to collect receivables is 5. B) the accounts receivable turnover is 15. C) the accounts receivable turnover is 14. D) the average number of days to collect receivables is 72.

117) Firth Company's annual report shows an average inventory balance of $46,500 and cost of goods of $330,000. Total assets amount to $530,000 and liabilities amount to $113,000. Based on this information: (treat any partial day as a whole day) Note: Do not round intermediate calculations.

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A) the average number of days to sell inventory is 52. B) the average number of days to sell inventory is 47. C) the inventory turnover is 3.5. D) the inventory turnover is 11.

118) Which ratio compares the earnings per share of a company to the market price for a share of the company's stock?

A) Price-earnings ratio B) Dividend yield C) Book value per share D) Return on equity

119) The following information was drawn from the accounting records of Silverburg Company. Net income

$ 240,000

Preferred stock outstanding, 15% cumulative

$ 80,000

Market price per share of common stock Common Stock outstanding Average number of common shares outstanding Number of common shares outstanding at end of the accounting period Dividends per share on common stock

$ 15 $ 1,440,000 140,000 shares 160,000 shares $ 2.50 per share

Based on this information, the company’s earnings per share is Note: Round your answer to 2 decimal places. A) The answer cannot be determined from the information provided. B) $1.63. C) $1.71. D) $1.75.

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120)

The following information was drawn from the accounting records of Comcat Company.

Net income

$ 230,000

Preferred stock outstanding, 10% cumulative

$ 70,000

Market price per share of common stock

$ 10.00

Total Stockholders' Equity Average number of common shares outstanding Number of common shares outstanding at end of the accounting period Dividends per share on common stock

$ 1,390,000 130,000 shares 150,000 shares $ 2.00 per share

Based on this information, the company's book value per share is A) $8.80. B) $9.75. C) $10.69. D) $10.15.

121)

The following information was drawn from the accounting records of Suzuki Company.

Net income

$ 211,400

Preferred stock outstanding, 10% cumulative

$ 89,000

$ 15.00 $ 1,420,000 426,000 shares 300,000 shares $ 9.50 per share

Based on this information the company's price-earnings ratio

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A) 30 to 1. B) 25 to 1. C) 2 to 1. D) 32 to 1.

122)

The following information was drawn from the accounting records of Kerry Company.

Net income

$ 236,000

Preferred stock outstanding, 5% cumulative

$ 76,000

Market price per share of common stock Common Stock outstanding Average number of common shares outstanding Dividends per share on common stock

$ 10.00 $ 1,420,000 136,000 shares $ 2.30 per share

Based on this information the company's dividend yield on its common stock is Note: Round your answer to one decimal place. A) 1.7%. B) 10.0%. C) 11.5%. D) 23.0%.

123) Grove Corporation had sales of $3,030,000, cost of sales of $2,300,000, and average inventory of $530,000. What was Grove's inventory turnover ratio for the period? A) 22.0 times B) 4.3 times C) 1.6 times D) 5.7 times

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124) Grove Corporation had sales of $3,000,000, cost of goods sold of $2,250,000, and average inventory of $500,000. What was Grove's inventory turnover ratio for the period?

A) 1.6 times B) 6 times C) 4.5 times D) 23 times

125) The only requirement involved in communicating useful information is that the information be accurate. ⊚ ⊚

true false

126) The accounting profession assumes that financial statement users have an expert knowledge of business. ⊚ ⊚

true false

127) A company has an obligation to provide highly detailed information on its financial statements. ⊚ ⊚

true false

128) A vertical analysis uses percentages to compare each of the parts of an individual statement to a key statement figure. For example, on an income statement each item would be shown as a percentage of net sales. ⊚ ⊚

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true false

129) Vertical analysis always involves comparing financial statement elements over a span of time. ⊚ ⊚

true false

130) Financial analysis typically involves some form of comparison, such as changes in the same item over a number of years. ⊚ ⊚

true false

131) The drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels. ⊚ ⊚

true false

132) While horizontal analysis examines one item over many time periods, vertical analysis examines many items in the same interval of time. ⊚ ⊚

true false

133) Financial ratio analysis is a form of horizontal analysis in that comparisons are made between different accounts in the same set of financial statements. ⊚ ⊚

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true false

134) A banker may perform a financial ratio analysis to assess a firm's ability to repay debt in a timely manner. ⊚ ⊚

135)

The current ratio is one of the most common measures of solvency. ⊚ ⊚

136)

true false

Working capital is current assets minus current liabilities. ⊚ ⊚

true false

137) 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. ⊚ ⊚

138)

true false

The quick ratio, although similar to the current ratio, is more conservative. ⊚ ⊚

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true false

139) Solvency ratios are used to analyze the long-term debt-paying ability and the composition of the financing structure of the firm. ⊚ ⊚

140)

The accounts receivable turnover ratio can be used to asses a firm's solvency. ⊚ ⊚

141)

true false

In terms of solvency, the higher the number of times interest is earned, the better. ⊚ ⊚

true false

142) When debt is used to finance the purchase of assets, the term or time span of the debt should always be shorter than the life span of the assets. ⊚ ⊚

143)

true false

Profitability ratios attempt to assess the company's ability to generate earnings. ⊚ ⊚

true false

144) The most frequently quoted measure of earnings performance is the stockholders' equity ratio. ⊚ ⊚

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true false

145) A limitation of financial statement analysis stems from the discretion of management to choose accounting procedures that cast the best light on the firm's performance. ⊚ ⊚

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true false

Answer Key Test name: Chap 13_10e_Edmonds 1) D 2) B 3) C 4) A 5) D 6) A 7) D 8) B 9) D 10) D 11) A 12) D 13) D 14) B 15) A 16) C 17) C 18) D 19) C 20) D 21) B 22) D 23) B 24) C 25) C 26) C Version 1

27) A 28) D 29) D 30) B 31) B 32) A 33) B 34) C 35) B 36) B 37) A 38) D 39) A 40) B 41) D 42) C 43) C 44) A 45) A 46) A 47) A 48) A 49) B 50) C 51) D 52) A 53) C 54) A 55) B 56) D Version 1

57) C 58) C 59) D 60) C 61) A 62) C 63) A 64) B 65) B 66) A 67) B 68) D 69) A 70) D 71) D 72) C 73) B 74) B 75) B 76) C 77) A 78) A 79) B 80) B 81) A 82) B 83) B 84) D 85) D 86) C Version 1

87) A 88) A 89) B 90) C 91) B 92) D 93) B 94) C 95) A 96) D 97) A 98) B 99) D 100) D 101) A 102) C 103) A 104) D 105) D 106) A 107) C 108) A 109) A 110) B 111) C 112) B 113) C 114) C 115) B 116) D Version 1

117) A 118) A 119) B 120) A 121) D 122) D 123) B 124) C 125) FALSE 126) FALSE 127) FALSE 128) TRUE 129) FALSE 130) TRUE 131) TRUE 132) TRUE 133) FALSE 134) TRUE 135) FALSE 136) TRUE 137) FALSE 138) TRUE 139) TRUE 140) FALSE 141) TRUE 142) FALSE 143) TRUE 144) FALSE 145) TRUE

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Chapter 14 Statement of Cash Flows 1) Pierce Corporation reported a $3,900 balance in accounts receivable on January 1, Year 2. During the year, sales on account in the amount of $33,400 were made. If the ending balance of accounts receivable is $3,100, what is the amount of cash received from customers? A) $31,100 B) $37,300 C) $34,200 D) $32,600

2) Pierce Corporation reported a $3,600 balance in accounts receivable on January 1, Year 2. During the year, sales on account in the amount of $24,800 were made. If the ending balance of accounts receivable is $3,700, what is the amount of cash received from customers? A) $21,200 B) $21,500 C) $28,400 D) $24,700

3) Bates Company pays cash for all inventory purchases. Bates reports that it had a beginning inventory of $2,150 and an ending inventory of $1,350. Its cost of goods sold equaled $4,550. Based on this information, the amount of cash paid for inventory purchases was: A) $5,350 B) $3,750 C) $1,600 D) $8,550

4) Bates Company pays cash for all inventory purchases. Bates reports that it had a beginning inventory of $2,500 and an ending inventory of $900. Its cost of goods sold equaled $5,500. Based on this information, the amount of cash paid for inventory purchases was:

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A) $3,900 B) $7,100 C) $1,400 D) $9,100

5) The following beginning and ending balances were drawn from the records of Grimes Company: Beginning Equipment Accumulated Depreciation

$ 2,700 $ 3,300

Ending $ 3,700 $ 1,700

If Grimes Company sold equipment that had an original cost of $1,900 and accumulated depreciation of $1,600 for $2,850, how much did Grimes pay for new equipment? A) $2,855 B) $2,800 C) $2,900 D) $5,750

6) The following beginning and ending balances were drawn from the records of Grimes Company: Beginning Equipment Accumulated Depreciation

$ 1,400 $ 700

Ending $ 1,100 $ 400

If Grimes Company sold equipment that had an original cost of $600 and accumulated depreciation of $300 for $250, how much did Grimes pay for new equipment? A) $255 B) $300 C) $200 D) $550

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7) The Upton Company reported a beginning balance of $600 and an ending balance of $900 in its Unearned Revenue account for Year 2. During the year, $5,100 of revenue was recognized. Based on this information, how much cash was received from customers? A) $5,100 B) $3,300 C) $7,500 D) $5,400

8) The Upton Company reported a beginning balance of $1,600 and an ending balance of $2,200 in its Unearned Revenue account for Year 2. During the year, $8,000 of revenue was recognized. Based on this information, how much cash was received from customers? A) $8,000 B) $8,600 C) $8,200 D) $9,000

9) Bertram, Incorporated had beginning and ending accounts payable balances of $1,300 and $1,400, respectively. Inventory had beginning and ending balances of $1,400 and $1,350, respectively. All inventory purchases are made on account. If cost of goods sold equaled $1,200, how much cash was spent to purchase inventory? A) $1,050 B) $1,200 C) $1,000 D) $1,300

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10) Bertram, Incorporated had beginning and ending accounts payable balances of $400 and $450, respectively. Inventory had beginning and ending balances of $450 and $425, respectively. All inventory purchases are made on account. If cost of goods sold equaled $350, how much cash was spent to purchase inventory? A) $275 B) $250 C) $400 D) $350

11) On January 1, the balance of Fink Corporation's accounts receivable was $8,000. Sales on account amounted to $60,000 during the year. The ending balance of accounts receivable was $11,000. What is the amount of cash collected from customers? A) $63,000 B) $49,000 C) $57,000 D) $68,000

12) On January 1, the balance of Fink Corporation's accounts receivable was $10,000. Sales on account amounted to $80,000 during the year. The ending balance of accounts receivable was $16,000. What is the amount of cash collected from customers? A) $64,000 B) $90,000 C) $86,000 D) $74,000

13) The Ling Corporation reported a beginning balance of $1,800 in its Prepaid Insurance account. During the year, a total of $20,000 was recognized as insurance expense and the Prepaid Insurance account had an ending balance of $2,000. How much cash did Ling pay for insurance during the year?

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A) $20,200 B) $20,000 C) $18,200 D) $21,800

14) The Ling Corporation reported a beginning balance of $1,200 in its Prepaid Insurance account. During the year, a total of $16,000 was recognized as insurance expense and the Prepaid Insurance account had an ending balance of $1,600. How much cash did Ling pay for insurance during the year? A) $17,200 B) $16,000 C) $16,400 D) $14,800

15) The Valz Corporation had a balance in its Equipment account at the beginning of the year of $545,000. During the year, equipment that originally cost $107,000 and had accumulated depreciation of $42,000 was sold for $89,000. The ending balance of the Equipment account was $495,000. What was the cost of the additional equipment purchased during the year? A) $107,000 B) $57,000 C) $131,000 D) $42,000

16) The Valz Corporation had a balance in its Equipment account at the beginning of the year of $650,000. During the year, equipment that originally cost $170,000 and had accumulated depreciation of $40,000 was sold for $134,000. The ending balance of the Equipment account was $550,000. What was the cost of the additional equipment purchased during the year?

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A) $70,000 B) $40,000 C) $170,000 D) $174,000

17) The Knott Company reported depreciation expense of $5,000 and net income of $13,000 on its income statement. During the year, the company's accounts receivable balance decreased by $2,000. Based on this information, what was the net cash flow from operating activities? A) $13,000. B) $26,000. C) $11,000. D) $20,000.

18) The Knott Company reported depreciation expense of $10,000 and net income of $16,000 on its income statement. During the year, the company's accounts receivable balance decreased by $4,000. Based on this information, what was the net cash flow from operating activities? A) $12,000. B) $16,000. C) $32,000. D) $30,000.

19) Shaw Associates uses the indirect method for preparing the statement of cash flows. The following accounts and balances were drawn from the company's accounting records: Account Title Accounts receivable Prepaid insurance Accounts payable Unearned revenue

Beginning $ 33,200 $ 11,000 $ 27,200 $ 12,800

Ending $ 46,400 $ 4,200 $ 32,200 $ 7,000

Net income for the period was $74,000. The net cash flows from operating activities equal:

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A) $69,200. B) $66,800. C) $81,200. D) $72,000.

20) Shaw Associates uses the indirect method for preparing the statement of cash flows. The following accounts and balances were drawn from the company's accounting records: Account Title Accounts receivable Prepaid insurance Accounts payable Unearned revenue

Beginning $ 30,000 $ 4,600 $ 24,000 $ 6,400

Ending $ 40,000 $ 1,000 $ 25,800 $ 3,800

Net income for the period was $42,000. The net cash flows from operating activities equal: A) $37,200. B) $34,800. C) $49,200. D) $40,000.

21) The Duke Company rents out a portion of its office space to another company. At the beginning of the year, the balance in the Unearned Rent Revenue account was $2,800. During the year, Duke recognized $5,600 of rent revenue. If the ending balance of unearned rent revenue is $1,450, how much cash was received from the tenant for rent during the year? A) $4,250 B) $7,050 C) $5,600 D) $6,950

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22) The Duke Company rents out a portion of its office space to another company. At the beginning of the year, the balance in the unearned rent revenue account was $1,200. During the year, Duke recognized $6,800 of rent revenue. If the ending balance of unearned rent revenue is $700, how much cash was received from the tenant for rent during the year? A) $7,300 B) $6,800 C) $6,300 D) $7,500

23) Under the indirect method, which of the following items would be subtracted from net income to determine the cash flow from operating activities? A) Loss on the sale of equipment. B) Increase in the balance of accounts receivable. C) Increase in accrued interest payable. D) Depreciation expense.

24) When using the indirect method to complete the cash flows from operating activities section, what is the proper treatment of depreciation expense? A) Subtract depreciation expense from net income. B) Add depreciation expense to net income. C) Disregard depreciation expense because it relates to an investing activity. D) Disregard depreciation expense because it is a noncash expense.

25) Which method is used by the majority of U.S. companies to report cash flows from operating activities?

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A) Accrual method B) Direct method C) Indirect method D) Computational method

26) When using the indirect method, a decrease in a current asset (other than cash or cash equivalents) is: A) subtracted from current liabilities in the cash flows from financing activities section. B) subtracted from net income in the cash flows from operating activities section. C) added to net income in the cash flows from operating activities section. D) added in the cash flows from investing activities section.

27)

When using the indirect method, an increase in current liabilities is: A) subtracted in the cash flows from financing activities section. B) subtracted from net income in the cash flows from operating activities section. C) added to net income in the cash flows from operating activities section. D) added in the cash flows from investing activities section.

28) In preparing the statement of cash flows by the indirect method, which of the following is a correct statement of one of the general rules to convert net income to a cash-basis equivalent? A) Losses on the sale of long-term assets are subtracted from net income. B) All noncash expenses and losses are subtracted from net income. C) Increases in current assets are subtracted from net income. D) Decreases in current liabilities are added to net income.

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29) In preparing the statement of cash flows by the indirect method, which of the following is an incorrect statement of one of the general rules to convert net income to a cash-basis equivalent? A) Increases in current assets are subtracted from net income. B) Noncash revenue and gains are subtracted from net income. C) Decreases in current assets are added to net income. D) Increases in current liabilities are subtracted from net income.

30) Which of the following statements best explains the correct handling of depreciation on the statement of cash flows when using the indirect method? A) Depreciation is subtracted from net income because it causes a loss when the related plant asset is sold. B) Depreciation expense is a noncash expense that was subtracted to derive the accrualbasis net income, hence it is added to net income in the cash flows from operating activities section. C) Depreciation is subtracted in the cash flows from investing activities section because it reduces the book value of the corresponding plant asset. D) Depreciation adds to the company's cash account to help pay for new equipment.

31) What is the proper treatment of a loss on disposal of equipment when using the indirect method to complete the cash flows from operating activities section? A) Disregard the loss because it relates to an investing activity. B) Disregard the loss because it relates to a financing activity. C) Add the loss to net income. D) Subtract the loss from net income.

32) Arch Associates reports the following comparative balance sheets and income statement information. Arch Associates Comparative Balance Sheets

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12/31/Year 1

12/31/Year 2

Cash Accounts receivable Prepaid insurance Inventory Property, plant and equipment

$ 13,000 5,000 11,000 7,000 13,000

$ 23,000 9,000 9,000 3,000 11,000

Total assets

$ 49,000

$ 55,000

Accounts payable Salaries payable Long-term notes payable Stockholders' equity

$ 9,000 11,000 10,000 19,000

$ 13,000 5,000 8,000 29,000

Total liabilities and equity

$ 49,000

$ 55,000

Income Statement Year Ended 12/31/Year 2 Revenue Cost of goods sold Gross margin Operating expenses Net income

$ 90,000 45,000 45,000 25,000 $ 20,000

Assuming all sales were made on account, the amount of cash collected from customers during Year 2 was: A) $86,000. B) $82,000. C) $94,000. D) $90,000.

33) Arch Associates reports the following comparative balance sheets and income statement information. Arch Associates Comparative Balance Sheets 12/31/Year 1 Cash Accounts receivable Prepaid insurance Inventory

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$ 12,000 4,000 10,000 6,000

12/31/Year 2 $ 22,000 8,000 8,000 2,000

Property, plant and equipment Total assets

12,000 $ 44,000

10,000 $ 50,000

Accounts payable Salaries payable Long-term notes payable Stockholders' equity

$ 8,000 10,000 8,000 18,000

$ 12,000 4,000 6,000 28,000

Total liabilities and equity

$ 44,000

$ 50,000

Income Statement Year Ended 12/31/Year 2 Revenue Cost of goods sold Gross margin Operating expenses Net income

$ 70,000 40,000 30,000 20,000 $ 10,000

Assuming all sales were made on account, the amount of cash collected from customers during Year 2 was: A) $66,000. B) $62,000. C) $74,000. D) $70,000.

34) Arch Associates reports the following comparative balance sheets and income statement information. Arch Associates Comparative Balance Sheets 12/31/Year 1

12/31/Year 2

Cash Accounts receivable Prepaid insurance Inventory Property, plant and equipment

$ 12,200 4,200 10,200 6,200 12,200

$ 22,200 8,200 8,200 2,200 10,200

Total assets

$ 45,000

$ 51,000

Accounts payable Salaries payable Long-term notes payable

$ 8,200 10,200 8,400

$ 12,200 4,200 6,400

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Stockholders' equity Total liabilities and equity

18,200

28,200

$ 45,000

$ 51,000

Income Statement Year Ended 12/31/Year 2 Revenue Cost of goods sold Gross margin Operating expenses Net income

$ 74,000 41,000 33,000 21,000 $ 12,000

All inventory purchases are made on account. The amount of cash paid for inventory purchases during Year 2 was: A) $41,000. B) $33,000. C) $23,000. D) $37,000.

35) Arch Associates reports the following comparative balance sheets and income statement information. Arch Associates Comparative Balance Sheets 12/31/Year 1

12/31/Year 2

Cash Accounts receivable Prepaid insurance Inventory Property, plant and equipment

$ 12,000 4,000 10,000 6,000 12,000

$ 22,000 8,000 8,000 2,000 10,000

Total assets

$ 44,000

$ 50,000

Accounts payable Salaries payable Long-term notes payable Stockholders' equity

$ 8,000 10,000 8,000 18,000

$ 12,000 4,000 6,000 28,000

Total liabilities and equity

$ 44,000

$ 50,000

Income Statement Year Ended 12/31/Year 2 Revenue

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$ 70,000

Cost of goods sold

40,000

Gross margin Operating expenses

30,000 20,000

Net income

$ 10,000

All inventory purchases are made on account. The amount of cash paid for inventory purchases during Year 2 was: A) $40,000. B) $32,000. C) $22,000. D) $36,000.

36) Which of the following cash flows would be included under the operating activities section of the cash flow statement? (Assume the direct method is used.) A) Cash received from issuing bonds payable. B) Cash paid to purchase equipment. C) Cash receipts from dividends. D) None of these answers are correct.

37) Which of the following cash flows would be included under the operating activities section of the cash flow statement? (Assume the direct method is used.) A) Cash received from issuing bonds payable. B) Cash paid to purchase equipment. C) Cash receipts from dividends. D) None of these answers are correct.

38)

The following account balances are for Curran Company:

Accounts receivable Prepaid rent

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12/31/Year 1

12/31/Year 2

$ 85,400 9,400

$ 61,400 5,400 14

Long-term marketable securities Dividends payable Salaries payable Notes payable

81,400 7,400 9,400 45,400

71,400 3,400 3,400 35,400

Additional data for Year 2: 1. (1) Sales on account for the period totaled $135,000. 2. (2) Salary expense was $28,000. 3. (3) Rent expense was $26,000. Based on this information, what was the net cash inflow from operating activities for Year 2? A) $99,000. B) $85,400. C) $81,000. D) $103,000.

39)

The following account balances are for Curran Company: 12/31/Year 1

Accounts receivable Prepaid rent Long-term marketable securities Dividends payable Salaries payable Notes payable

$ 84,000 8,000 80,000 6,000 8,000 44,000

12/31/Year 2 $ 60,000 4,000 70,000 2,000 $ 2,000 34,000

Additional data for Year 2: 1. (1) Sales on account for the period totaled $100,000. 2. (2) Salary expense was $14,000. 3. (3) Rent expense was $12,000. Based on this information, what was the net cash inflow from operating activities for Year 2?

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A) $88,000. B) $84,000. C) $96,000. D) $74,000.

40) Erie Company began the accounting period with $13,900 in accounts receivable. The ending balance in accounts receivable was $5,400. If the credit sales during the period were $26,000, what is the amount of cash received from customers? A) $45,300 B) $26,000 C) $34,500 D) $17,500

41) Erie Company began the accounting period with $27,000 in accounts receivable. The ending balance in accounts receivable was $10,000. If the credit sales during the period were $44,000, what is the amount of cash received from customers? A) $27,000 B) $44,000 C) $81,000 D) $61,000

42) The following data were drawn from the income statement of Gibbons Company for its first year of operations: Cash revenue Depreciation expense Accrued interest expense Cash operating expenses Operating income Gain on the sale of equipment

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$ 66,000 21,200 7,200 25,200 12,400 2,400

Net income

$ 14,800

Using the direct method, the net cash flow from operating activities equals: A) $26,000. B) $43,200. C) $40,800. D) $28,400.

43) The following data were drawn from the income statement of Gibbons Company for its first year of operations: Cash revenue Depreciation expense Accrued interest expense Cash operating expenses Operating income Gain on the sale of equipment Net income

$ 60,000 20,000 6,000 24,000 10,000 1,200 $ 11,200

Using the direct method, the net cash flow from operating activities equals: A) $37,200. B) $26,000. C) $36,000. D) $24,800.

44) Pace Associates, a small consulting firm, charges all of its expenses on accounts payable. Pace's accounts payable balance was $7,000 at the beginning of the year. During the year, expenses were incurred on account in the amount of $43,000. The ending accounts payable balance was $10,000. What is the amount of cash paid for expenses during the year? A) $46,000 B) $40,000 C) $53,000 D) $29,000

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45) Pace Associates, a small consulting firm, charges all of its expenses on accounts payable. Pace's accounts payable balance was $1,500 at the beginning of the year. During the year, expenses were incurred on account in the amount of $13,500. The ending accounts payable balance was $3,500. What is the amount of cash paid for expenses during the year? A) $17,000 B) $11,500 C) $10,500 D) $15,500

46) The income statement for Year 2 of Winter Corporation reported wages expense of $60,000. At December 31, Year 1, the balance sheet showed a balance in wages payable of $4,000. At December 31, Year 2, the balance sheet showed a balance in wages payable of $9,000. What amount of cash was paid for wages during the year? A) $55,000 B) $65,000 C) $64,000 D) $56,000

47) The income statement for Year 2 of Winter Corporation reported wages expense of $160,000. At December 31, Year 1, the balance sheet showed a balance in wages payable of $16,000. At December 31, Year 2, the balance sheet showed a balance in wages payable of $22,000. What amount of cash was paid for wages during the year? A) $176,000 B) $166,000 C) $154,000 D) $144,000

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48) Which section of the statement of cash flows may be prepared using either the direct method or the indirect method? A) Operating activities B) Investing activities C) Financing activities D) All of these answers are correct.

49) The income statement of Collins Company reported total sales revenue of $380,000 during the current year. Assume that all sales are credit sales. The company's comparative balance sheets reported a balance in accounts receivable of $50,000 at the beginning of the year and $65,000 at the end of the year. The cash inflow from customers during the current year equals: A) $395,000. B) $430,000. C) $380,000. D) $365,000.

50) The income statement of Collins Company reported total sales revenue of $115,000 during the current year. Assume that all sales are credit sales. The company's comparative balance sheets reported a balance in accounts receivable of $17,500 at the beginning of the year and $25,000 at the end of the year. The cash inflow from customers during the current year equals: A) $107,500. B) $132,500. C) $115,000. D) $122,500.

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51) During the year, Burton Company had cash collections from customers of $70,000, cash paid to employees of $4,000, cash paid to suppliers of $31,000, cash used to retire long-term bonds of $4,000, and cash payments for dividends of $9,000. The net cash flow from operating activities during the year was: A) $22,000. B) $31,000. C) $39,000. D) $35,000.

52) During the year, Burton Company had cash collections from customers of $100,000, cash paid to employees of $16,000, cash paid to suppliers of $50,000, cash used to retire long-term bonds of $16,000, and cash payments for dividends of $10,000. The net cash flow from operating activities during the year was: A) $8,000. B) $34,000. C) $18,000. D) $50,000.

53) The only difference between the cash flow statement prepared under the indirect method as opposed to the direct method is the manner in which the: A) cash flows from financing activities are presented. B) schedule of noncash items is presented. C) cash flows from investing activities are presented. D) cash flows from operating activities are presented.

54) Winkler Company sold equipment for $25,000 cash. The equipment had cost $40,000 and had accumulated depreciation of $22,000 at the time of the sale. Based on this information alone, which of the following statements is correct?

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A) Cash flow from investing activities would be less if the statement of cash flows is prepared by the direct method than if it is prepared under the indirect method. B) Cash flow from investing activities would be the same regardless of whether the statement of cash flows is prepared by the direct method or the indirect method. C) Cash flow from investing activities would be greater if the sale of equipment is reported on the statement of cash flows under the direct method than if it is reported under the indirect method. D) The answer cannot be determined because the amount of the salvage value is unknown.

55) Which of the following would not be reported as an investing activity on the statement of cash flows? A) Cash dividends received from an investment in marketable securities. B) Cash loaned to another company. C) Cash received from the sale of equipment. D) Cash paid to purchase production equipment.

56) During the year, the Equipment account increased by $50,000 and the Accumulated Depreciation account increased by $7,000. In addition, the company sold equipment that originally cost $28,000 and had $26,000 of accumulated depreciation for $12,000. What was the cash outflow to purchase equipment? A) $62,000 B) $78,000 C) $22,000 D) $50,000

57) During the year, the Equipment account increased by $25,000 and the Accumulated Depreciation account increased by $2,000. In addition, the company sold equipment that originally cost $12,000 and had $9,000 of accumulated depreciation for $4,500. What was the cash outflow to purchase equipment? Version 1

A) $25,000 B) $37,000 C) $29,500 D) $13,000

58) During the year, the Property, Plant, and Equipment account increased by $40,000 and the Accumulated Depreciation account increased by $7,000. In addition, the company sold equipment that originally cost $27,000 and had $21,000 of accumulated depreciation for $12,000. What was the cash inflow from the sale of property, plant, and equipment? A) $12,000 B) $6,000 C) $27,000 D) $40,000

59) During the year, the Property, Plant, and Equipment account increased by $25,000 and the Accumulated Depreciation account increased by $2,000. In addition, the company sold equipment that originally cost $12,000 and had $9,000 of accumulated depreciation for $4,500. What was the cash inflow from the sale of property, plant, and equipment? A) $1,500 B) $4,500 C) $15,500 D) $12,000

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23) During the year, the Abbot Company had the following changes in account balances: 1. 1) The Accumulated Depreciation account had a beginning balance of $25,600 and an ending balance of $36,200. The increase was due to depreciation expense. 2. 2) The long-term Notes Payable account had a beginning balance of $41,200 and an ending balance of $15,600. The decrease was due to repayment of debt. 3. 3) The Accounts Receivable account had a beginning balance of $60,600 and an ending balance of $50,600. 4. 4) The Equipment account had a beginning balance of $26,200 and an ending balance of $95,500. The increase was due to the purchase of equipment for cash. 5. 5) The Long-Term Investments account (marketable securities) had a beginning balance of $20,400 and an ending balance of $13,700. The decrease was due to the sale of investments at cost. 6. 6) The amount of cash dividends declared and paid during the year was $34,000. 7. 7) The Interest Payable account had a beginning balance of $3,450 and an ending balance of $2,450. What is the net cash flow from investing activities? A) $73,200 inflow B) $62,600 inflow C) $73,200 outflow D) $62,600 outflow

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24) During the year, the Abbot Company had the following changes in account balances: 1. 1) The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000. The increase was due to depreciation expense. 2. 2) The long-term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000. The decrease was due to repayment of debt. 3. 3) The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000. 4. 4) The Equipment account had a beginning balance of $25,000 and an ending balance of $92,500. The increase was due to the purchase of equipment for cash. 5. 5) The Long-Term Investments account (marketable securities) had a beginning balance of $18,000 and an ending balance of $12,500. The decrease was due to the sale of investments at cost. 6. 6) The amount of cash dividends declared and paid during the year was $22,000. 7. 7) The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250. What is the net cash flow from investing activities? A) $62,000 outflow B) $62,000 inflow C) $72,000 inflow D) $72,000 outflow

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25) During the year, the Abbot Company had the following changes in account balances: 1. 1) The Accumulated Depreciation account had a beginning balance of $27,000 and an ending balance of $39,000. The increase was due to depreciation expense. 2. 2) The long-term Notes Payable account had a beginning balance of $44,000 and an ending balance of $17,000. The decrease was due to repayment of debt. 3. 3) The Accounts Receivable account had a beginning balance of $62,000 and an ending balance of $52,000. 4. 4) The Equipment account had a beginning balance of $29,000 and an ending balance of $102,500. The increase was due to the purchase of equipment for cash. 5. 5) The Long-Term Investments account (marketable securities) had a beginning balance of $26,000 and an ending balance of $16,500. The decrease was due to the sale of investments at cost. 6. 6) The amount of cash dividends declared and paid during the year was $62,000. 7. 7) The Interest Payable account had a beginning balance of $6,250 and an ending balance of $5,250. What is the net cash flow from financing activities? A) $62,000 inflow B) $27,000 outflow C) $27,000 inflow D) $89,000 outflow

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26) During the year, the Abbot Company had the following changes in account balances: 1. 1) The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000. The increase was due to depreciation expense. 2. 2) The long-term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000. The decrease was due to repayment of debt. 3. 3) The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000. 4. 4) The Equipment account had a beginning balance of $25,000 and an ending balance of $92,500. The increase was due to the purchase of equipment for cash. 5. 5) The Long-Term Investments account (marketable securities) had a beginning balance of $18,000 and an ending balance of $12,500. The decrease was due to the sale of investments at cost. 6. 6) The amount of cash dividends declared and paid during the year was $22,000. 7. 7) The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250. What is the net cash flow from financing activities? A) $22,000 inflow B) $25,000 inflow C) $25,000 outflow D) $47,000 outflow

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27) During the year, the Abbot Company had the following changes in account balances: 1. 1) The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000. The increase was due to depreciation expense. 2. 2) The long-term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000. The decrease was due to repayment of debt. 3. 3) The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000. 4. 4) The Equipment account had a beginning balance of $25,000 and an ending balance of $92,500. The increase was due to the purchase of equipment for cash. 5. 5) The Long-Term Investments account (marketable securities) had a beginning balance of $18,000 and an ending balance of $12,500. The decrease was due to the sale of investments at cost. 6. 6) The amount of cash dividends declared and paid during the year was $22,000. 7. 7) The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250. Assume that a statement of cash flows has been prepared. The combination of the three major components (operating activities, investing activities, financing activities) equals the: A) Net income for the period. B) Change in the cash account balance between the beginning and end of the period. C) Ending cash balance. D) Amount of cash inflow for the period.

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65) During the year, the Abbot Company had cash flow from operating activities of $138,000 and the following changes in account balances: 1. 1) The Accumulated Depreciation account had a beginning balance of $27,500 and an ending balance of $40,000. The increase was due to depreciation expense. 2. 2) The long-term Notes Payable account had a beginning balance of $45,000 and an ending balance of $17,500. The decrease was due to repayment of debt. 3. 3) The Accounts Receivable account had a beginning balance of $65,000 and an ending balance of $52,500. 4. 4) The Equipment account had a beginning balance of $27,500 and an ending balance of $97,500. The increase was due to the purchase of equipment for cash. 5. 5) The Long-Term Investments account (marketable securities) had a beginning balance of $20,500 and an ending balance of $13,500. The decrease was due to the sale of investments at cost. 6. 6) The amount of cash dividends declared and paid during the year was $27,000. 7. 7) The Interest Payable account had a beginning balance of $2,750 and an ending balance of $1,500. What was the net change in cash? A) $(20,500) B) $8,000 C) $12,500 D) $20,500

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66) During the year, the Abbot Company had cash flow from operating activities of $133,000 and the following changes in account balances: 1. 1) The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000. The increase was due to depreciation expense. 2. 2) The long-term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000. The decrease was due to repayment of debt. 3. 3) The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000. 4. 4) The Equipment account had a beginning balance of $25,000 and an ending balance of $92,500. The increase was due to the purchase of equipment for cash. 5. 5) The Long-Term Investments account (marketable securities) had a beginning balance of $18,000 and an ending balance of $12,500. The decrease was due to the sale of investments at cost. 6. 6) The amount of cash dividends declared and paid during the year was $22,000. 7. 7) The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250. What was the net change in cash? A) $24,000 B) $12,000 C) $10,000 D) $(24,000)

67) Which of the following would be reported as a financing activity on the statement of cash flows? A) Dividends collected from an investment in marketable securities. B) Note payable issued to purchase equipment. C) Purchase of investment securities. D) Cash paid for the purchase of treasury stock.

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68) Wade Company reported wages expense of $38,000 during the year. The beginning balance in wages payable was $1,800, and at the end of the year, the balance in wages payable was $1,950. What was the amount of cash paid for employee wages during the year? A) $34,250 B) $38,150 C) $37,850 D) $41,600

69) Wade Company reported wages expense of $32,000 during the year. The beginning balance in wages payable was $1,200, and at the end of the year, the balance in wages payable was $1,700. What was the amount of cash paid for employee wages during the year? A) $29,100 B) $31,500 C) $34,400 D) $32,500

70) Pingry Company's accounts receivable balance increased by $28,000 during the year. The company's income statement reports sales revenue of $875,000, all on account. How much cash was collected from customers during the year? A) $847,000 B) $903,000 C) $875,000 D) None of these answers are correct.

71) Pingry Company's accounts receivable balance increased by $14,000 during the year. The company's income statement reports sales revenue of $437,500, all on account. How much cash was collected from customers during the year?

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A) $437,500 B) $451,500 C) $423,500 D) None of these answers are correct.

72)

What are the two methods used to prepare the statement of cash flows? A) Indirect and direct B) Inflow and outflow C) Sources and uses D) Cash and noncash

73) The difference between the direct and the indirect methods applies only to cash from what type of activity? A) Operating B) Investing C) Financing D) All of these answers are correct.

74) Under the indirect method, which of the following is not an item that is added back to net income in determining net cash flow from operating activities? A) Decrease in accounts receivable B) Decrease in inventory C) Depreciation expense D) Gain on sale of store fixtures

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75) When the indirect method is used to prepare the statement of cash flows, what is the starting point of the operating activities section? A) Net income as reported on the income statement B) Total assets as reported on the balance sheet C) Sales as reported on the income statement D) Cash collections from customers

76) Depreciation for the year was $54,000 and net income was $172,500. Assume the rest of the company's transactions were cash transactions. How much was the net cash flow from operating activities? A) $118,500 B) $172,500 C) $226,500 D) None of these answers are correct.

77) Depreciation for the year was $80,000 and net income was $323,000. Assume the rest of the company's transactions were cash transactions. How much was the net cash flow from operating activities? A) $243,000 B) $403,000 C) $323,000 D) None of these answers are correct.

78) Which of the following statements is incorrect regarding preparing a statement of cash flows using the direct method?

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A) The direct method shows adjustments to net income. B) The direct method shows the specific sources and uses of cash that are associated with operating activities. C) Noncash expenses, gains, and losses are not used in the determination of net cash flow from operating activities. D) A majority of companies use the indirect method rather than the direct method.

79) Which of the following is not an adjustment when arriving at net cash flow from operating activities under the indirect method? A) Noncash expenses, such as depreciation expense B) Gains and losses on the sale of long-term assets C) Changes in a company's long-term assets D) Changes in noncash current assets and current liability accounts

80) Under the direct method, which of the following would not be included in the operating activities section of the cash flow statement? A) Cash payments for income taxes B) Cash payments to purchase insurance C) Cash payments to purchase long-term equipment D) Cash receipts from customers

81) When using the indirect method to complete the cash flows from operating activities section, what is the proper treatment for an increase in the accounts receivable balance? A) Add the increase to net income B) Add the increase to cash collections from customers C) Deduct the increase from net income D) Add the increase to cash payments to suppliers

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82) When using the indirect method to complete the cash flows from operating activities section, what is the proper treatment for an increase in the Inventory account? A) Deduct the increase to cash payments to suppliers B) Add the increase to net income C) Add the increase to cash collections from customers D) Deduct the increase from net income

83) Which of the following would be shown as a deduction from net income when calculating net cash flow from operating activities using the indirect method? A) Decrease in accounts payable for inventory purchases B) Loss on the sale of equipment C) Decrease in accounts receivable D) Increase in salaries payable

84) Equipment with an original cost of $50,000 and accumulated depreciation of $15,000 was sold at a loss of $10,000. As a result of this transaction, cash would: A) decrease by $25,000. B) increase by $50,000. C) increase by $25,000. D) decrease by $15,000.

85) Equipment with an original cost of $20,000 and accumulated depreciation of $7,500 was sold at a loss of $2,500. As a result of this transaction, cash would:

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A) increase by $10,000. B) decrease by $7,500. C) increase by $20,000. D) decrease by $10,000.

86) Which of the following statements is incorrect regarding the use of the indirect method when preparing the operating activities section of the statement of cash flows? A) A decrease in accounts payable is deducted from net income B) A decrease in prepaid insurance is added to net income C) Gain on the retirement of bonds is deducted from net income D) Depreciation expense is subtracted from net income

87) All of the following are deducted from net income when preparing the statement of cash flows under the indirect method except: A) an increase in accounts payable. B) a decrease in accrued liabilities. C) an increase in accounts receivable. D) an increase in inventory.

88) All of the following are additions to net income when preparing the statement of cash flows under the indirect method except: A) losses on sales of long-term assets. B) a decrease in accounts payable. C) a decrease in prepaid insurance. D) a decrease in accounts receivable.

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89) The gain resulting from the sale of equipment shown when using the indirect method to prepare the statement of cash flows is reported in the: A) operating section as a deduction. B) investing section as a deduction. C) operating section as an addition. D) investing section as an addition.

90) Which of the following statements is incorrect regarding the investing activities section of the statement of cash flows? A) Investing activities deal with long-term liabilities (debt) and equity accounts. B) Increases in long-term asset balances suggest cash outflows to purchase assets. C) Decreases in long-term asset balances suggest cash inflows from selling assets. D) Investing activities involve cash purchases and cash disposals of long-term assets.

91)

Dennis Corporation prepared the following data (in dollars) for the current year:

Increase in accounts receivable Decrease in inventory Increase in prepaid expenses Depreciation expense, equipment Loss on sale of equipment Net income

$ 6,400 2,800 2,000 7,400 1,900 140,000

Using the indirect method, what is the net cash flow from operating activities? A) $158,400 B) $143,700 C) $127,200 D) $109,200

92)

Dennis Corporation prepared the following data (in dollars) for the current year:

Increase in accounts receivable Decrease in inventory

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$ 6,000 2,400 36

Increase in prepaid expenses Depreciation expense, equipment Loss on sale of equipment Net income

1,600 7,000 1,500 130,000

Using the indirect method, what is the net cash flow from operating activities? A) $146,800 B) $133,300 C) $101,200 D) $118,000

93) Leo Company reported sales of $240,000 during Year 2. Assume that all sales are credit sales. Leo's balance sheets for Year 2 and Year 1 showed the following: Accounts receivable Accounts payable

Year 2

Year 1

$ 106,000 80,000

$ 96,000 76,000

Based on this information, how much cash did Leo collect from sales during Year 2? A) $250,000 B) $244,000 C) $230,000 D) $346,000

94) Leo Company reported sales of $200,000 during Year 2. Assume that all sales are credit sales. Leo's balance sheets for Year 2 and Year 1 showed the following: Accounts receivable Accounts payable

Year 2

Year 1

$ 90,000 64,000

$ 80,000 60,000

Based on this information, how much cash did Leo collect from sales during Year 2?

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A) $204,000 B) $210,000 C) $290,000 D) $190,000

95) Which of the following would be reported as an investing activity on the statement of cash flows? A) Cash receipts from issuing common stock B) Cash payments to purchase treasury stock C) Cash payments to purchase investment securities D) Cash payments for inventory purchases

96) Which of the following would not be reported as a financing activity on the statement of cash flows? A) Cash receipts from issuing common stock B) Cash payments for interest C) Cash payments to purchase treasury stock D) Cash payments for dividends

97) On January 1, Steigel Company had a balance of $745,000 in its Land account. During the year, Steigel sold land that had cost $250,000 for $445,000 cash. The balance in the Land account was $1,005,000 on December 31. What is the net cash outflow from investing activities? A) $195,000 B) $300,000 C) $130,000 D) $65,000

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98) On January 1, Steigel Company had a balance of $720,000 in its Land account. During the year, Steigel sold land that had cost $240,000 for $440,000 cash. The balance in the Land account was $980,000 on December 31. What is the net cash outflow from investing activities? A) $60,000 B) $120,000 C) $200,000 D) $280,000

99) The following information was drawn from Empire's Year 2 and Year 1 year-end balance sheets. Investment Securities

Year 2

Year 1

$ 115,000

$ 127,500

Empire incurred a $1,700 loss on the sale of investment securities during Year 2. No investment securities were purchased during Year 2. Based on this information alone, what is the amount of cash that was collected from the sale of securities? A) $12,500 B) $1,700 C) $14,200 D) $10,800

100) The following information was drawn from Empire's Year 2 and Year 1 year-end balance sheets. Investment Securities

Year 2

Year 1

$ 105,000

$ 112,500

Empire incurred a $1,500 loss on the sale of investment securities during Year 2. No investment securities were purchased during Year 2. Based on this information alone, what is the amount of cash that was collected from the sale of securities?

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A) $7,500 B) $6,000 C) $9,000 D) $1,500

101)

Phibbs Company prepared the following data for the year.

Outflow to purchase treasury stock Inflow from sale of machinery Inflow from sale of marketable securities Outflow to purchase building Outflow to purchase land Outflow to pay dividends Outflow to pay interest

$ 62,000 23,500 7,750 95,500 20,500 15,500 45,500

What is the net cash flow from investing activities? A) $84,750 outflow B) $200,500 outflow C) $169,250 outflow D) $53,250 outflow

102)

Phibbs Company prepared the following data for the year.

$ 30,000 7,500 3,750 87,500 12,500 7,500 37,500

What is the net cash flow from investing activities?

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A) $88,750 outflow B) $141,250 outflow C) $152,500 outflow D) $41,250 outflow

103) The following information was drawn from Eckerd Company's balance sheets at the end of Year 2 and Year 1. Bonds payable

Year 2

Year 1

$ 208,000

$ 169,000

New bonds in the amount of $97,500 were issued at face value during Year 2. What is the amount of cash flow associated with the repayment of bond liabilities? A) $169,000 B) $110,500 C) Cannot be determined D) $58,500

104) The following information was drawn from Eckerd Company's balance sheets at the end of Year 2 and Year 1. Bonds payable

Year 2

Year 1

$ 170,000

$ 150,000

New bonds in the amount of $50,000 were issued at face value during Year 2. What is the amount of cash flow associated with the repayment of bond liabilities? A) $120,000 B) $150,000 C) $30,000 D) Cannot be determined

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105) The following information was drawn from the year-end balance sheets of White, Incorporated Bonds payable Common stock Treasury stock Retained earnings

Year 2

Year 1

$ 212,000 139,500 32,500 53,000

$ 293,000 102,500 27,500 42,500

White, Incorporated, issued $48,000 in bonds during Year 2. The bonds were issued at face value. All bonds were retired at face value. What is the amount of cash outflow for the payment of bond liabilities? A) $97,000 B) $37,000 C) $129,000 D) $81,000

106) The following information was drawn from the year-end balance sheets of White, Incorporated Bonds payable Common stock Treasury stock Retained earnings

Year 2

Year 1

$ 200,000 112,500 17,500 35,000

$ 275,000 87,500 12,500 27,500

White, Incorporated, issued $30,000 in bonds during Year 2. The bonds were issued at face value. All bonds were retired at face value. What is the amount of cash outflow for the payment of bond liabilities? A) $75,000 B) $25,000 C) $55,000 D) $105,000

107) The following information was drawn from the year-end balance sheets of White, Incorporated Version 1

Bonds payable Common stock Treasury stock Retained earnings

Year 2

Year 1

$ 228,000 175,500 80,500 77,000

$ 317,000 122,500 47,500 62,500

White, Incorporated, uses the cost method to account for treasury stock. No treasury stock was sold during the year. What is the amount of cash outflows for the purchase of treasury stock? A) $14,500 B) $80,500 C) $88,000 D) None of these answers are correct.

108) The following information was drawn from the year-end balance sheets of White, Incorporated Bonds payable Common stock Treasury stock Retained earnings

Year 2

Year 1

$ 200,000 112,500 17,500 35,000

$ 275,000 87,500 12,500 27,500

White, Incorporated, uses the cost method to account for treasury stock. No treasury stock was sold during the year. What is the amount of cash outflows for the purchase of treasury stock? A) $7,500 B) $17,500 C) $25,000 D) None of these answers are correct.

109) The following information was drawn from the year-end balance sheets of White, Incorporated Bonds payable Common stock

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Year 2

Year 1

$ 220,000 157,500

$ 305,000 112,500

Treasury stock Retained earnings

62,500 65,000

37,500 52,500

The amount of net income shown on the Year 2 income statement was $42,500. There was no beginning or ending balance in the Dividends Payable account. What is the amount of cash outflows for dividends? A) $62,500 B) $70,000 C) $30,000 D) $12,500

110) The following information was drawn from the year-end balance sheets of White, Incorporated Bonds payable Common stock Treasury stock Retained earnings

Year 2

Year 1

$ 200,000 112,500 17,500 35,000

$ 275,000 87,500 12,500 27,500

The amount of net income shown on the Year 2 income statement was $17,500. There was no beginning or ending balance in the Dividends Payable account. What is the amount of cash outflows for dividends? A) $7,500 B) $25,000 C) $17,500 D) $10,000

111) Style Monthly magazine reported $652,000 of revenue for the month. At the beginning of the month, its Unearned Revenue account had a balance of $191,000. At the end of the month, the account had a balance at $158,500. Based on this information, what is the amount of cash received from customers?

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A) $652,000 B) $461,000 C) $619,500 D) $684,500

112) Style Monthly magazine reported $650,000 of revenue for the month. At the beginning of the month, its Unearned Revenue account had a balance of $190,000. At the end of the month, the account had a balance at $156,000. Based on this information, what is the amount of cash received from customers? A) $460,000 B) $650,000 C) $684,000 D) $616,000

113) Hansen Corporation reported net income of $330,000 for the current year. In addition, accounts payable increased $25,000 during the year, inventory increased by $17,500, and accounts receivable decreased by $22,000. Using the indirect method, what is the net cash flow from operating activities? A) $394,500 B) $359,500 C) $315,500 D) $330,000

114) Hansen Corporation reported net income of $328,000 for the current year. In addition, accounts payable increased $24,000 during the year, inventory increased by $15,000, and accounts receivable decreased by $20,000. Using the indirect method, what is the net cash flow from operating activities?

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A) $387,000 B) $357,000 C) $328,000 D) $317,000

115)

The following information was prepared for Standard Corporation:

Net income Gain on sale of equipment Dividends paid Decrease in prepaid expenses Increase in accounts receivable

$ 688,000 49,000 127,500 54,000 46,000

Net cash flow from operating activities equals: A) $734,000 B) $647,000 C) $691,000 D) $557,500

116)

The following information was prepared for Standard Corporation:

Net income Gain on sale of equipment Dividends paid Decrease in prepaid expenses Increase in accounts receivable

$ 650,000 30,000 80,000 16,000 8,000

Net cash flow from operating activities equals: A) $672,000 B) $628,000 C) $658,000 D) $548,000

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117) Which of the following is incorrect regarding the financing activities section of a statement of cash flows? A) Increases in Contributed Capital accounts suggest cash inflows occurred from issuing equity instruments. B) Decreases in Long-Term Debt accounts suggest cash outflows occurred for payment of debt. C) Increases in Short-Term Notes Payable accounts suggest cash outflows occurred from issuing notes or bonds. D) Decreases in retained earnings suggest cash outflows occurred to pay dividends.

118) Income tax expense was $155,500 for the year. The balance of the Income Tax Payable account was $16,500 at the beginning of the year and $32,500 at the end of the year. Cash payments for income tax reported on the cash flow statement using the direct method equal: A) $139,500. B) $188,000. C) $155,500. D) $138,800.

119) Income tax expense was $137,500 for the year. The balance of the Income Tax Payable account was $7,500 at the beginning of the year and $10,000 at the end of the year. Cash payments for income tax reported on the cash flow statement using the direct method equal: A) $130,000. B) $137,500. C) $147,500. D) $135,000.

120) Street Corporation reported net income of $400,000 and a net cash flow from operating activities of $550,000 during the year. Which of the following could not have been a reason why Street's net cash flows from operating activities were greater than its net income?

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A) Increase in accrued liabilities from the beginning of the year to the end of the year B) Increase in accounts payable from the beginning of the year to the end of the year C) Loss on the sale of equipment D) Increase in accounts receivable

121) Shamoo Incorporated presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from the company's year-end balance sheets: Account Title Accounts receivable Accounts payable

Year 2 $ 30,000 21,000

Year 1 $ 28,000 18,000

The Year 2 income statement showed net income of $51,000. Based on this information, the amount of the cash flow from operating activities shown on the Year 2 statement of cash flows is: A) $53,000. B) $52,000. C) $50,000. D) $51,000.

122) The Club, Incorporated (TCI) presents its statement of cash flows using the indirect method. For the current year, the company reported net income of $240,500. All sales are on account and the balance in the Accounts Receivable account increased by $23,500. The balance in the Unearned Revenue account decreased by $22,500. Also, the company reported depreciation expense of $44,500 and a gain on the sale of equipment of $25,500. Based on this information alone, the amount of the cash flow from operating activities shown on statement of cash flows is: A) $213,500. B) $251,000. C) $171,500. D) $240,500.

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123) Bowden Company presents its statement of cash flows using the direct method. The following accounts and corresponding balances were drawn from the company’s year-end balance sheets: Account Title Accounts receivable Operating expenses

Year 2 $ 26,500 17,500

Year 1 $ 24,500 14,500

The Year 2 income statement showed revenue of $95,500 and operating expenses of $58,500. Assume all revenue and expense transactions are made on account. Based on this information, the amount of the cash flow from operating activities shown on the Year 2 statement of cash flows is: A) $38,000. B) $149,000. C) $93,500. D) $36,000.

124) Chavez Company presents its statement of cash flows using the direct method. The following accounts and corresponding balances were drawn from the company's year-end balance sheets: Account Title Accounts receivable Operating expenses

Year 2 $ 26,000 16,000

Year 1 $ 28,000 19,000

The Year 2 income statement showed revenue of $100,000 and operating expenses of $60,000. Assume all revenue and expense transactions are made on account. Based on this information, the amount of the cash flow from operating activities shown on the Year 2 statement of cash flows is: A) $39,000. B) $63,000. C) $41,000. D) $102,000.

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125) Parkinson Company (PC) had a beginning balance of $91,500 and an ending balance of $95,500 in its long-term marketable securities account. During the period, the company paid $15,500 to purchase marketable securities. If the company reported a gain on the sale of marketable securities of $1,550, the amount of the cash inflow from the sale of securities is: A) $13,050. B) $11,500. C) $9,950. D) None of the answers is correct.

126) The following account balances were drawn from the year-end balance sheets of Gordon Company. Account Title Office Furniture Accumulated Depreciation

Year 2 $ 80,200 44,500

Year 1 $ 86,500 42,500

During Year 2, the company purchased office furniture that cost $15,500. The Year 2 income statement shows depreciation expense of $10,400 and a loss on the sale of office furniture of $7,500. Based on this information alone, the amount of the cash inflow from sale of office furniture is: A) $21,800. B) $13,400. C) $5,900. D) $2,900.

127) The following is apartial list of transactions completed by the Ryan Company during its fifth year of operations.● Sold land for $66,000 cash. ● Issued common stock for $36,000. ● Paid $35,000 cash to purchase delivery equipment. ● Issued a $23,000 note to a bank for cash. ● Paid a $18,000 cash dividend. ● Earned $76,000 of cash revenue. ● Paid $50,000 of cash expenses. Based on these events alone, the net cash flow from financing activities is:

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A) $41,000. B) $77,000. C) $59,000. D) $36,000.

128) The following account balances were drawn from the year-end balance sheets of Carrick Company. Account Title Note payable Common stock Retained earnings

Year 2 $ 48,000 61,000 32,000

Year 1 $ 58,000 40,000 29,000

During Year 2, the company reported $8,600 of net income. Based on this information alone, the amount of the net cash flow from financing activities is: A) $2,400 outflow. B) $5,400 inflow. C) $10,000 outflow. D) $21,000 inflow.

129) Under the indirect method, depreciation expense would be subtracted from net income when determining the net cash flow from operating activities. ⊚ true ⊚ false

130) Under the indirect method, losses would be added to net income when determining the net cash flow from operating activities. ⊚ true ⊚ false

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131) Under the indirect method, the net cash flow from financing activities would be the same as if the direct method had been used. ⊚ true ⊚ false

132) When using the indirect method, the amount of net cash flow from operating activities will be higher than it would be if the direct method were used. ⊚ true ⊚ false

133) When using the indirect method, the amount of net cash flow from operating activities will be the same as it would be if the direct method were used. ⊚ true ⊚ false

134) Cash payments for interest expense on a bond payable would be classified as a financing activity. ⊚ true ⊚ false

135)

Cash receipts from the sale of investments would be classified as a financing activity. ⊚ true ⊚ false

136) There are two methods, direct and indirect, for preparing and presenting the statement of cash flows. ⊚ true ⊚ false

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137)

Cash from the sale of treasury stock would be classified as an investing cash flow. ⊚ true ⊚ false

138) The cash proceeds from the sale of a building will be the book value plus any loss or minus any gain. ⊚ true ⊚ false

139) Both the indirect and direct methods of preparing a statement of cash flows begin with net income. ⊚ true ⊚ false

140)

A decrease in retained earnings may indicate a cash outflow occurred to pay a dividend. ⊚ true ⊚ false

141) Under the indirect method, losses are added and gains are subtracted when computing net cash flow from operating activities. ⊚ true ⊚ false

142) Under the direct method, depreciation expense is added back to net income when computing net cash flow from operating activities. ⊚ true ⊚ false

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143) The direct method shows the specific sources and uses of cash that are associated with operating activities. ⊚ true ⊚ false

144) The investing section of the statement of cash flows is the same regardless of whether the direct or indirect method is used. ⊚ true ⊚ false

145) In preparing the statement of cash flows by the indirect method, a decrease in prepaid expenses would be added to net income. ⊚ true ⊚ false

146) In preparing the statement of cash flows by the indirect method, an increase in inventory would be added to net income. ⊚ true ⊚ false

147) In preparing the statement of cash flows by the indirect method, an increase in accounts payable would be subtracted from net income. ⊚ true ⊚ false

148) In preparing the statement of cash flows by the indirect method, a decrease in a long-term investment account would be added to net income.

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⊚ ⊚

true false

149) Cash flows from investing activities are related to the acquisition and disposition of assets other than inventory and supplies. ⊚ true ⊚ false

150) Companies must include with the statement of cash flows a separate schedule of any noncash investing and financing activities. ⊚ ⊚

true false

151) The indirect method adjusts for the differences between the accrual-based income statement and "cash flows from operating activities." ⊚ true ⊚ false

152)

Under the direct method, there is no adjustment for noncash items or gains or losses. ⊚ true ⊚ false

153) Under the indirect method, the increase or decrease in long-term assets is handled in the investing section of a cash flow statement. ⊚ true ⊚ false

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154) Under the indirect method, the increase or decrease in current liabilities is handled in the operating section of a cash flow statement. ⊚ true ⊚ false

155) Under the indirect method, the increase or decrease in stockholders' equity is handled in the investing section of a cash flow statement. ⊚ true ⊚ false

156) A net decrease in the Equipment account indicates that equipment must have been sold at a loss during the year. ⊚ true ⊚ false

157) The amount of revenue a company recognizes on the income statement normally differs from the amount of cash collected from customers. ⊚ true ⊚ false

158) The indirect method for preparing the statement of cash flows begins with the amount of sales revenue reported on the income statement. ⊚ true ⊚ false

159) In preparing the statement of cash flows by the indirect method, an increase in a current asset is subtracted from net income. ⊚ true ⊚ false

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160) In preparing the statement of cash flows by the indirect method, a decrease in a current liability is deducted from net income. ⊚ true ⊚ false

161) In preparing the statement of cash flows by the indirect method, noncash revenues and gains are added to net income. ⊚ true ⊚ false

162) Bowman Corporation's sales were $300,000, and the balance in its Accounts Receivable account increased by $8,000 during the year. Bowman collected $308,000 in cash from its customers. ⊚ true ⊚ false

163) Gates Corporation reported utilities expense of $112,800 on its income statement. The beginning balance in utilities payable was $8,000 and the ending balance was $4,000. The amount of cash that Gates paid for utilities during the year was $116,800. ⊚ true ⊚ false

164) Baltimore Company reported revenue of $124,000 on its income statement. The balance in its Unearned Revenue account was $6,000 at the beginning of the year and $2,000 at the end of the year. Based on this information alone, the amount of cash that Baltimore collected from customers was $120,000 during the year. ⊚ true ⊚ false

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165) The indirect method of preparing the statement of cash flows is recommended by the Financial Accounting Standards Board. ⊚ true ⊚ false

166) Dividends received from investments in marketable securities are reported as investing activities in the statement of cash flows. ⊚ true ⊚ false

167) All cash exchanges between a company and its owners are reported as investing activities in the statement of cash flows. ⊚ true ⊚ false

168) Jennings Company issued a $250,000 note to purchase a building. Jennings would report the event as a noncash investing and financing activity. ⊚ true ⊚ false

169) Frost Company reported a $4,000 increase in dividends payable, a $60,000 increase in retained earnings, and $64,000 in net income during the year. Based on this information, the company must have paid dividends equal to $4,000 during the year. ⊚ true ⊚ false

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170) Only the principal portion of a mortgage payment is considered to be a cash outflow for financing activities. ⊚ true ⊚ false

171) Under the indirect method, an increase in wages payable would be added back to net income when calculating net cash flow from operating activities. ⊚ true ⊚ false

172)

Increases in long-term asset balances indicate cash outflows to purchase assets. ⊚ true ⊚ false

173) Under the direct method, cash payments to suppliers would be reported in the operating section of a cash flow statement. ⊚ true ⊚ false

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Answer Key Test name: Chap 14_10e_Edmonds 1) C 2) D 3) B 4) A 5) C 6) B 7) D 8) B 9) A 10) A 11) C 12) D 13) A 14) C 15) B 16) A 17) D 18) D 19) B 20) B 21) A 22) C 23) B 24) B 25) C 26) C Version 1

27) C 28) C 29) D 30) B 31) C 32) A 33) A 34) B 35) B 36) C 37) C 38) D 39) C 40) C 41) D 42) C 43) C 44) B 45) B 46) A 47) C 48) A 49) D 50) A 51) D 52) B 53) D 54) B 55) A 56) B Version 1

57) B 58) A 59) B 60) D 61) A 62) D 63) D 64) B 65) D 66) A 67) D 68) C 69) B 70) A 71) C 72) A 73) A 74) D 75) A 76) C 77) B 78) A 79) C 80) C 81) C 82) D 83) A 84) C 85) A 86) D Version 1

87) A 88) B 89) A 90) A 91) B 92) B 93) C 94) D 95) C 96) B 97) D 98) A 99) D 100) B 101) A 102) A 103) D 104) C 105) C 106) D 107) D 108) D 109) C 110) D 111) C 112) D 113) B 114) B 115) B 116) B Version 1

117) C 118) A 119) D 120) D 121) B 122) A 123) A 124) A 125) A 126) C 127) A 128) B 129) FALSE 130) TRUE 131) TRUE 132) FALSE 133) TRUE 134) FALSE 135) FALSE 136) TRUE 137) FALSE 138) FALSE 139) FALSE 140) TRUE 141) TRUE 142) FALSE 143) TRUE 144) TRUE 145) TRUE 146) FALSE Version 1

147) FALSE 148) FALSE 149) TRUE 150) TRUE 151) TRUE 152) TRUE 153) TRUE 154) TRUE 155) FALSE 156) FALSE 157) TRUE 158) FALSE 159) TRUE 160) TRUE 161) FALSE 162) FALSE 163) TRUE 164) TRUE 165) FALSE 166) FALSE 167) FALSE 168) TRUE 169) FALSE 170) TRUE 171) TRUE 172) TRUE 173) TRUE

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