1) Preparing budgets is an example of the management function of:
A. controlling. B. decision-making.
C. directing. D. planning.
2) Which of the following groups are external users of financial information?
A. Customers of the company B. Vendors of the company
C. Potential investors of the company D. All of the above
3) Which of the following is TRUE?
A. Managerial accounting reports are audited by CPAs.
B. Managerial accounting reports provide detailed internal information.
C. Managerial accounting reports aid potential investors.
D. Managerial accounting reports must follow GAAP.
7) The main goal of financial accounting is to provide information for
A. potential investors. B. creditors.
C. governmental regulators. D. all of the above.
3) Which of the following is an example of overhead in a factory?
A. Wages of machine operators
B. Wages of factory maintenance personnel
C. Wages of administrators in the corporate office
D. Salaries of salespersons
Use the following information for the next three questions:
Comfy Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs from the past year include:
Depreciation on sales office $ 11,000
Depreciation on factory equipment $ 16,000
Factory supervisor salary $ 52,500
Sales commissions $ 23,000
Lubricants used in factory equipment $ 3,000
Insurance costs for factory $ 21,000
Wages paid to maintenance workers $ 115,000
Fabric used to upholster furniture $ 7,000
Costs of delivery to customers $ 9,000
Wages paid to assembly-line workers $ 132,500
Lumber used to build product $ 72,000
Utilities in factory $ 44,500
Utilities in sales office $ 26,500
5) MOH costs for Comfy Furniture Company totaled:
A. $ 324,000. B. $ 122,000.
C. $ 228,000. D. $ 252,000.
8) When manufacturing products, which of the following is an example of an inventoriable product cost?
A. Depreciation on office equipment B. Depreciation on building
C. Depreciation on factory equipment D. Sales salaries expenses
10) Active Apparel Company reports the following data for its first year of operation (000s omitted).
Cost of goods manufactured $500,000
Work in process inventory, beginning 0
Work in process inventory, ending 120,000
Direct materials used 85,000
Manufacturing overhead 100,000
Finished goods inventory, ending 72,000
What is the cost of goods sold?
A. $500,000 B. $428,000
C. $685,000 D. $548,000
15) A Company mistakenly treated a $20,000 product cost as a period cost. They produced 2,000 units of product & sold 1,000 of them during the year. In the year in which the mistake was made
A. net income will be too high. B. net income will be too low.
C. net income will be correct.
17) When manufacturing products, DL & DM are classified as:
A. period costs & expensed when incurred.
B. period costs & expensed when the goods are sold.
C. product costs & expensed when incurred.
D. product costs & expensed when the goods are sold.
18) Which of the following statements is true regarding the salary of the manager of a fast food hamburger restaurant?
A. The salary is a fixed cost that is directly traceable to the cost of making hamburgers.
B. The salary is a fixed 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 above.
1) Manufacturing overhead would include:
A. indirect labor costs only.
B. all manufacturing costs except direct materials & direct labor.
C. all manufacturing costs. D. indirect materials only.
2) Which of the following is most likely NOT to use process costing?
A. DuPont Chemical B. Ashley Custom Furnishings
C. Exxon-Mobile (gasoline) D. General Mills (cereal)
3) Which costing system would a manufacturer of plywood use?
A. Job costing B. Process costing
C. Either job or process D. Both job & process
Before the year began, a company estimated that manufacturing overhead for the year would be $160,000 & that 12,000 direct labor hours would be worked. Actual results for the year included the following:
Actual MOH $175,000
Actual direct labor hours 15,000
4) The predetermined manufacturing overhead rate per direct labor hour is closest to:
A. $13.33. B. $10.67.
C. $11.67. D. $14.58.
5) The amount of manufacturing overhead allocated for the year based on direct labor hours would have been:
A. $160,000. B. $167,500.
C. $175,000. D. $200,000.
Use the following data to answer the next three questions:
Data below pertains to Garrett Company’s most recently completed fiscal year before any adjustments for over or underapplied overhead were made:
Estimated manufacturing overhead $ 240,000 Factory utilities $ 29,100
Estimated labor hours 35,000 Indirect labor $ 23,500
Actual direct labor hours 36,000 Sales commissions $ 53,700
Estimated direct labor cost $ 300,000 Factory rent $ 49,200
Actual direct labor cost $ 320,000 Factory property taxes $ 28,100
Factory depreciation $ 67,200 Indirect materials $ 33,000
6) If the company allocates manufacturing overhead based on direct labor cost, what are the allocated manufacturing overhead costs?
A. $240,000 B. $256,000
C. $230,100 D. $400,000
7) Actual overhead incurred during the year totaled
A. $230,100 B. $300,000
C. $283,800 D. $240,000
10) Mountain Made quilts had a predetermined overhead allocation rate of $5.00 per direct labor hour. If 5 direct laborers worked 1 ½ hours each to make a batch of 10 quilts, how much total overhead would be allocated to the batch of quilts?
A) $7.50 B) $37.50
C) $30.00 D) $75.00
11) Assume that the total cost for the batch of 10 quilts made above in #10 was $400. If Mountain Made wants to earn a gross profit of 40% on each quilt, what price should be charged for each quilt?
A) $160 B) $16 C) $56 D) $560
12) Job 2301 requires $12,000 of direct materials, $5,000 of direct labor, 500 direct labor hours, & 300 machine hours. Manufacturing overhead is computed at $15 per direct labor hour used & $12 per machine hour used. The total cost of Job 1547 is:
A. $28,100. B. $11,100.
C. $17,000. D. $24,500.
15) The requisition of direct & indirect materials into production reduces:
A. finished goods inventory. B. manufacturing overhead.
C. raw materials inventory. D. work in process inventory.
16) Which of the following represents the flow of costs in a manufacturing firm?
A. Raw materials inventory, finished goods inventory, COGS
B. Raw materials inventory, WIP, finished goods inventory
C. Finished goods inventory, work in process inventory, COGS
D. Work in process inventory, COGS, finished goods inventory
1. Cost distortion results in the:
A. over costing of all products.
B. under costing of all products.
C. over costing of some products & under costing of other products.
D. accurate costing of all products.
2. What is the first step in developing an ABC system?
A. Identify the primary activities & estimate a total cost pool for each.
B. Allocate the costs to the cost object using the activity cost allocation rates.
C. Select an allocation base for each activity.
D. Calculate an activity cost allocation rate for each activity.
4. Which of the following describes how, in ABC, the activity allocation rate is computed?
A. The total estimated activity cost pool is divided by the total estimated activity allocation base.
B. The total estimated activity allocation base is divided by the total estimated activity cost pool.
C. The total estimated activity allocation base is multiplied by the total estimated activity cost pool.
D. You take the total estimated activity allocation base & subtract the total estimated total activity cost pool.
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT TWO QUESTIONS: a Company manufactures clocks & uses an activity-based costing system. Each clock consists of 10 separate parts totaling $120 in direct materials, & requires 2.0 hours of machine time to produce.
Activity Allocation Base Cost Allocation Rate
Materials handling Number of parts $1.25 per part
Machining Machine hours $2.50 per machine hour
Assembling Number of parts $0.50 per part
Packaging Number of finished units $1.50 per finished unit
5. What is the cost of materials handling per cuckoo clock?
A. $3.00 B. $5.00
C. $4.50 D. $12.50
6. What is the total manufacturing cost per cuckoo clock?
A. $142.50 B. $ 24.00
C. $144.00 D. $ 25.00
10. Four basic steps are used in an ABC system. List the proper order of these steps, which are currently scrambled below:
a. Identify the primary activities & estimate a total cost pool for each.
b. Allocate the costs to the cost object using the activity cost allocation rates.
c. Select an allocation base for each activity.
d. Calculate an activity cost allocation rate for each activity.
A. a, c, d, b B. c, a, b, d
C. b, a, c, d D. a, d, c, b
1. Which of the following statements is TRUE with respect to total variable costs?
A. They will remain the same as production levels change within the relevant rang
B. They will decrease as production increases within the relevant range.
C. They will decrease as production decreases within the relevant range.
D. They will increase as production decreases within the relevant range.
2. Which of the following equations represents the total mixed cost?
A. y = vx + f B. y = vx
C. y = f D. y = v + f
3. YouCall offers a calling plan that charges $2.00 per month plus $0.05 per minute of call time. Under this plan, what is your monthly cost if you talk for a total of 100 minutes?
A. $7.00 B. $5.00
C. $3.00 D. $2.00
4. The following graph indicates which type of cost behavior?
A. Fixed B. Mixed C. Step D. Variable
5. Total costs for Watson & Company at 100,000 units are $350,000, while total fixed costs are $150,000. The total variable costs at a level of 200,000 units would be:
A. $700,000. B. $175,000.
C. $400,000. D. $300,000.
6. Harbor Manufacturing is trying to predict the cost associated with producing its anchors. At a production level of 4,000 anchors, Harbor Manufacturing’s average cost per anchor is $50.00. If $20,000 of the costs are fixed, & the plant manager uses the cost equation to predict total costs, her forecast for 5,000 anchors will be:
A. $ 50,000. B. $245,000.
C. $250,000. D. $200,000.
7. Using account analysis, what type of cost is the rental of a space at $2,000 per month?
A. Fixed B. Mixed
C. Step D. Variable
10. Traditional income statements organize costs by:
A. function. B. behavior.
C. discretionary vs. committed. D. no particular manner.
11. The contribution margin is equal to:
A. sales minus cost of goods sold.
B. sales minus variable expenses.
C. sales minus fixed expenses.
D. sales minus operating expenses.
12. A Store buys portable generators for $500 & sells them for $800. He pays a sales commission of 5% of sales revenue to his sales staff. Toby pays $2,000 a month rent for his store, & also pays $1,800 a month to his staff in addition to the commissions. Toby sold 200 generators in June. If Toby prepares a contribution margin income statement for the month of June, what would be his contribution margin?
A. $268,000 B. $160,000
C. $52,000 D. $108,000
1. To compute the unit contribution margin, __________ should be subtracted from the sales price per unit.
A. only variable period costs
B. only variable inventoriable product costs
C. all variable costs
D. all fixed costs
2. Managers can quickly forecast the total contribution margin by multiplying the projected:
A sales rev. by the CM ratio. B.sales units by the CM ratio.
C. sales revenue by the unit CM. D.sales units by the VC ratio.
3. Anthony Office Supplies sells refills on printer ink cartridges for $16 per refill. Variable costs are $4 per refill. Fixed costs are $2,000 per month. What is the contribution margin ratio for the printer ink cartridge refills?
A. 133% B. 12%
C. 25% D. 75%
4. If the sale price per unit is $38, variable expenses per unit are $21, & total fixed expenses are $56,950, what will the breakeven sales in units be?
A. 1,499 B. 968,150
C. 2,712 D. 3,350
5. If the contribution margin ratio is 32%, target operating income is $60,000, & the sales revenue needed to achieve the target operating income is $400,000, what are total fixed expenses?
A. $ 68,000 B. $128,000
C. $ 19,200 D. $188,000
6. Healthy Greetings Corporation produces & sells fruit baskets for special events. The unit selling price is $60, unit variable costs are $45, & total fixed costs are $2,670. What are breakeven sales in dollars?
A. $ 8,010 B. $ 1,526
C. $ 178 D. $ 10,680
7. Which of the following statements is TRUE if the fixed costs increase while the sales price per unit & variable costs per unit remain constant?
A. The CM increases & the breakeven point decreases.
B. The CM decreases & the breakeven point increases.
C. CM stays the same & the breakeven point decreases.
D. The CM stays the same & the breakeven point increases.
8. Which of the following will decrease the breakeven point in units assuming no other changes in the cost-volume-profit relationship?
A. An Increase in the sale price per unit
B. A decrease in the sale price per unit
C. An increase in total fixed costs
D. An increase in the variable costs per unit
10. Julia’s Catering has a monthly target operating income of $6,000. Variable expenses are 40% of sales & monthly fixed expenses are $3,600. What is the monthly margin of safety in dollars if the business achieves its operating income goal?
A. $ 10,000 B. $ 22,000
C. $ 16,000 D. $ 4,000
11. The higher the operating leverage factor, the:
A. greater the impact of volume on operating income.
B. lesser the impact of volume on operating income.
C. more likely operating income is to stay constant.
D. greater the chance that none of the above occur.
1. Which of the following describes a sunk cost?
A. One that is relevant to a decision because it changes depending on the alternative course of action selected
B. An outlay expected to be incurred in the future
C. A historical cost that is always irrelevant
D. A historical cost that may be relevant
3. Which would be a consideration for making special orders?
A. Available capacity to fill the order
B. If price will cover incremental costs of filling the order
C. If the order will affect regular sales in the long run
D. All of the above
4. Clear Sky Sailmakers manufactures sails for sailboats. The company has the capacity to produce 15,000 sails per year, but is currently producing & selling 10,000 sails per year. The following information relates to current production:
Sale price per unit $250
Variable costs per unit:
Marketing & administrative $50
Total fixed costs:
Marketing & administrative $200,000
If a special sales order is accepted for 2,500 sails at a price of $205 per unit, fixed costs increase by $14,000, & variable marketing & administrative costs for that order are $25 per unit, how would operating income be affected? (Assume regular sales are not affected by the special order.)
A. Increase by $23,500 B. Decrease by $23,500
C. Increase by $37,500 D. Increase by $86,000
7. A Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 5,000 units, are as follows:
Direct materials $2.00
Direct labor $4.00
Variable manufacturing overhead $3.00
Fixed manufacturing overhead $1.00
Total cost $10.00
The fixed overhead costs are unavoidable.
Assuming no other use for its facilities, what is the highest price per unit that the Company should be willing to pay for the part?
A. $10 B. $6 C. $3 D. $9
8. A Corporation has in its inventory 4,000 damaged radios that cost $50,000. The radios can be sold in their present condition for $32,000, or repaired at a cost of $43,000 & sold for $66,000. What is the opportunity cost of selling the radios in their present condition?
A. $23,000 B. $109,000
C. $82,000 D. $75,000
9. When deciding whether to outsource a product or service, managers should consider which of the following?
A. Quality of the product or service
B. Delivery schedule of the product or service
C. Cost charged for the product or service
D. All of the above
1. The ____________ budget is a major part of the master budget & focuses on the income statement & its supporting schedules.
A. operating B. cash
C. capital expenditures D. financial
2. Which of following budgets is part of the financial budgets?
A. Production budget B. Budgeted balance sheet
C. Budgeted income statement D. Sales budget
3. A Company expects cash sales for July of $15,000, & a 20% monthly increase during August & September. Credit sales of $10,000 in July should be followed by 25% increases during August & September. What are budgeted cash sales & budgeted credit sales for September respectively?
A. $18,000 & $12,500 B. $21,600 & $15,376
C. $23,438 & $14,400 D. $18,750 & $12,000
4. Kayla’s Toys budgeted sales of $300,000 for the month of November & cost of goods sold equal of 70% of sales. Beginning inventory for November was $50,000 & ending inventory for November is estimated at $55,000. How much are the budgeted purchases for November?
A. $205,000 B. $ 95,000
C. $215,000 D. $105,000
5. A Company manufactures stuffed bears. The number of bears to be produced in the upcoming three months follows:
Number of teddy bears to be produced in July 12,000
Number of teddy bears to be produced in August 15,000
Number of teddy bears to be produced in September 10,000
Each bear requires 2 pounds of the plastic pellets used as stuffing. The company has a policy that the ending inventory of plastic pellets each month must be equal to 20% of the following month’s expected production needs. How many pounds of plastic pellets does The Teddy Bear Company need to purchase in August?
A. 20,000 B. 24,000 C. 28,000 D. 40,000
6. Latimer Corporation collects 35% of a month’s sales in the month of sale, 50% in the month following sale, & 10% in the second month following sale. The company has found that 5% of their sales are uncollectible. Budgeted sales for the upcoming four months are:
August budgeted sales $300,000
September budgeted sales $280,000
October budgeted sales $330,000
November budgeted sales $260,000
The amount of cash that will be collected in Nov is budgeted to be:
A. $ 91,000. B. $284,000.
C. $285,500. D. $289,000.
7. Newton Company is preparing its cash budget for the upcoming month. The beginning cash balance for the month is expected to be $12,000. Budgeted cash receipts are $84,000, while budgeted cash disbursements are $72,000. Newton Company wants to have an ending cash balance of $40,000. The excess (deficiency) of cash available over disbursements for the month would be:
A. $24,000 B. $(24,000)
C. $112,000 D. $168,000
8. Thomario’s Powder Coatings makes payments on its inventory purchases as follows: 25% in the month of purchase, 60% in the following month, & 15% in the second month following purchase. Budgeted inventory purchases for June, July, & August are $15,000, $19,000 & $24,000, respectively. At what amount are cash payments for inventory in August budgeted?
A. $18,750 B. $19,650
C. $8,700 D. $7,650
12. A Company is preparing its cash budget for the upcoming month. The budgeted beginning cash balance is expected to be $30,000. Budgeted cash receipts are $101,000, while budgeted cash disbursements are $123,000. The Company wants to have an ending cash balance of $45,000. How much would the Company need to borrow to achieve its desired ending cash balance?
A. $ 8,000 B. $23,000
C. $37,000 D. $53,000
1. Which of the following statements regarding static budgets is TRUE?
A. They are designed to estimate revenues only.
B. Managers use them to help plan for uncertainties.
C. They are prepared for a range of activity levels.
D. They are prepared for one level of sales volume.
3. A flexible budget variance is the difference between:
A. actual results & amounts in the static budget.
B. amounts in the flexible budget & the actual results.
C. amounts in the flexible budget & the static budget.
D. the budgeted amounts for each level of sales in the flexible budget.
4. Which term below is best paired with “a budget for a single unit”?
A. Static budget B. Standard cost
C. OH flexible budget variance D. Production volume variance
Use the following information for the next three questions.
Zany Brainy projected current year sales of 50,000 units at a unit sale price of $20.00. Actual current year sales were 55,000 units at $22.00 per unit. Actual variable costs, budgeted at $14.00 per unit, totaled $15.00 per unit. Budgeted fixed costs totaled $400,000, while actual fixed costs amounted to $420,000.
5. What is the sales volume variance for total revenue?
A. $110,000 favorable B. $100,000 unfavorable
C. $110,000 unfavorable D. $100,000 favorable
6. What is the flexible budget variance for variable expenses?
. $55,000 favorable B. $50,000 favorable
C. $55,000 unfavorable D. $50,000 unfavorable
7. What is the flexible budget variance for total expenses?
A. $55,000 unfavorable B. $75,000 unfavorable
C. $55,000 favorable D. $75,000 favorable
8. If a worker drops the raw material during production & the raw material must be discarded, which variance is directly impacted?
A. Materials price variance B. Materials efficiency variance
C. Labor price variance D. Labor efficiency variance
9. A company’s purchasing department negotiates all of the purchasing contracts for raw materials. Which variance is most useful in assessing the performance of the purchasing department?
A. Materials price variance B. Materials efficiency variance
C. Labor price variance D. Labor efficiency variance
10. An unfavorable direct labor price variance & a favorable direct labor efficiency variance might indicate which of the following?
A. Unskilled workers using more actual hours than standard, paid at a higher rate per hour than the standard rate.
B. Unskilled workers using less actual hours than standard, paid a lesser rate per hour than the standard rate.
C. Skilled workers using more actual hours than standard, paid at a higher rate per hour than the standard rate.
D. Skilled workers using less actual hours than standard, paid at a higher rate per hour than the standard rate.
Use the following information to answer the next four questions.
Dazzle Toy Company gathered the following actual results for the current month:
Units produced 4,000
Direct materials purchased & used (5,000 lbs.) $22,500
Direct labor cost (4,500 hours) $51,750
Manufacturing overhead costs incurred $24,000
Budgeted production & standard costs were:
Budgeted production 3,500 units
Direct materials 2 lbs./unit at $4.25/lb.
Direct labor 1.5 hrs./unit at $12.00/hr.
Variable manufacturing overhead $5 per unit
Fixed manufacturing overhead $21,000
11. What is the direct materials price variance?
A. $1,250 unfavorable B. $2,000 favorable
C. $1,250 favorable D. $2,000 unfavorable
12. What is the direct materials efficiency variance?
A. $12,750 unfavorable B. $13,500 unfavorable
C. $13,500 favorable D. $12,750 favorable
13. What is the direct labor price variance?
A. $3,000 unfavorable B. $3,000 favorable
C. $2,250 unfavorable D. $2,250 favorable
14. What is the direct labor efficiency variance?
A. $18,000 favorable B. $17,250 favorable
C. $18,000 unfavorable D. $17,250 unfavorable
3. How does depreciation affect the calculation of a project’s accounting rate of return (ARR)?
A. Depreciation is deducted from the annual cash inflows.
B. Depreciation is added to the annual cash inflows.
C. Depreciation does not affect ARR.
D. Depreciation is only deducted if the ARR is less than the minimum required rate of return.
4. A Corporation is adding a new product line that will require an investment of $120,000. The line is estimated to generate cash inflows of $25,000 the first year, $23,000 the second year, & $18,000 each year thereafter for ten more years. What’s the payback period?
A. 4.80 years B. 6.00 years
C. 6.32 years D. 6.67 years
7. If you invest $1,000 at the end of every year for five years at an interest rate of 10%, the balance of your investment in 5 years will be closest to:
A. $1,611. B. $3,791. C. $5,000. D. $6,105.
8. You win the lottery & must decide how to take the payout. Use an 8% discount rate. What is the present value of $10,000 a year received at the end of each of the next six years?
A. $ 6,300 B. $46,230
C. $49,928 D. $60,000
10. Which of the following is another name for the rate of return?
A. Discount rate B. Required rate of return
C. Hurdle rate D. All of the above
Use the following information for the next two questions:
(Present value tables are needed.) Miami Marine Enterprises is evaluating the purchase of an hydraulic lift system for all of its locations to use for the boats brought in for repair. The company has narrowed their choices down to two—the B14 Model & the F54 Model. Financial data about the two choices follows.
B14 Model F54 Model
Investment $ 320,000 $ 240,000
Useful life (years) 8 8
Estimated annual net cash inflows for useful life $ 75,000 $ 40,000
Residual value $ 30,000 $ 10,000
Depreciation method Straight-line Straight-line
Required rate of return 14% 10%
11. What is the net present value of the B14 Model?
A. $17,395 positive B. $21,930 negative
C. $38,455 positive D. $358,455 positive
12. What is the net present value of the F54 Model?
A. $21,930 negative B. $38,455 positive
C. $178,070 positive D. $218,070 positive