Multiple choice Questions -
Q1. The goal of managerial accounting is to provide information that managers need for
A. planning, control, and financial reporting.
B. control, evaluation, and financial reporting.
C. planning, control, and decision making.
D. preparing reports for external users.
Q2. Which of the following costs will change when the level of production activity changes?
A. Total fixed costs
B. Variable cost per unit
C. A company's total costs
D. Sunk cost
Q3. Which of the following is considered a period cost?
A. Depreciation on a factory machine
B. Maintenance on production equipment
C. Manufacturing overhead
D. Product marketing and delivery costs
Q4. Which type of analysis would highlight the dollar change and percentage change in sales from one year to the next?
A. Horizontal analysis
B. Vertical analysis
C. Current ratio analysis
D. Comprehensive analysis
Q5. Which of the following lists presents the accounts in the order in which product costs flow?
A. Work in Process Inventory, Raw Materials Inventory, Finished Goods Inventory, Cost of Goods Sold
B. Raw Materials Inventory, Work in Process Inventory, Cost of Goods Sold, Finished Goods Inventory
C. Raw Materials Inventory, Work in Process Inventory, Finished Goods Inventory, Cost of Goods Sold
D. Raw Materials Inventory, Finished Goods Inventory, Work in Process Inventory, Cost of Goods Sold
Q6. RedBricks manufactures custom brick and applies job-order costing.
The following information relates to the fiscal year ending December 31, 2016.
Beginning balance in Raw Materials Inventory - $13,600
Purchases of raw material - $211,000
Ending balance in Raw Materials Inventory - $15,100
How much was the cost of direct raw materials transferred into production (WIP)?
A. 224,600
B. 195,900
C. 209,500
D. 239,700
Q7. Kamins Company uses a predetermined overhead rate of $6.00 per labor hour. Overhead was underapplied by $40,000 for the year, and actual labor hours totaled 70,000. How much was the actual overhead cost?
A. $460,000
B. $380,000
C. $420,000
D. $360,000
Q8. When the level of activity (units produced) increases, the fixed cost per unit
A. decreases.
B. remains the same.
C. increases.
D. fluctuates, depending on the amount of the increase in activity
Q9. If the contribution margin is greater than zero,
A. the selling price of each product is less than the variable cost per unit.
B. total variable costs are less than sales revenue.
C. the company will be profitable.
D. the fixed costs are greater than variable cost.
Q10. Holding all other factors constant, the break-even point will decline if
A. fixed costs increase.
B. the contribution margin per unit increases.
C. the selling price declines.
D. the number of units sold decreases.
Q11. What is the product, service, or department that is to receive the cost allocation called?
A. Direct cost
B. Cost objective
C. Cost driver
D. Cost pool
Q12. The incremental profit generated by the sale of one additional unit is equal to the
A. margin of safety.
B. selling price per unit
C. contribution margin per unit.
D. incremental cost per unit
Q13. Oak Hill Furniture has a contribution margin ratio of 20%, and a contribution margin per unit of $12. If fixed costs are $156,000, how much sales revenue must the company generate in order to reach its break-even point?
A. $936,000
B. $187,200
C. $156,000
D. $780,000
Q14. Indirect (allocated) costs occur when
A. resources are shared by more than one product or service.
B. costs are directly traced to products or services.
C. controllable (direct) costs are incurred by cost objectives.
D. None of the above are correct
Q15. Which of the following is a grouping of individual costs whose total is allocated using one allocation base?
A. Cost objective
B. Opportunity costs
C. Direct cost
D. Cost pool
Q16. What should be maximized when setting the price for a product?
A. Total sales or revenue
B. Price per unit
C. Net income (profit)
D. The number of units of product sold
Q17. Which of the following is a cost that was incurred in the past that will never be incremental?
A. Sunk costs
B. Opportunity costs
C. Avoidable costs
D. Relevant costs
Q18. Which one of the following is the preferred alternative when deciding between two alternatives?
A. No opportunity or sunk costs exist.
B. Revenues are greater than under the other alternatives.
C. Expenses are less than under the other alternatives.
D. Incremental profit is greater than under the other alternatives.
Q19. The formal documents that quantify a company's plans for achieving its goals are called
A. variance reports.
B. budgets.
C. balance sheets.
D. cost objectives.
Q20. Which of the following budgets is prepared first?
A. Cash budget
B. Production budget
C. Sales budget
D. Budgeted balance sheet
Q21. Which of the following is generally unfavorable for ratio changes?
A. An increase in inventory turnover
B. A decrease in operating expenses
C. A decrease in the asset turnover
D. An increase in the price-earnings ratio
Q22. Chua Company has current liabilities totaling $1,500,000 and the following assets on December 31 .
Cash - 300,000
Accounts receivable - 600,000
Inventory - 960,000
Equipment, net - 2,200,000
Total assets - 4,060,000
How much is Chua's acid-test ratio on December 31?
A. 0.20
B. 0.60
C. 0.22
D. 1.24
Q23. The higher the amount of a company's accounts receivable turnover,
A. the shorter time period it takes to collect a receivable.
B. the more assets a company has tied up in receivables.
C. the longer it takes a company to collect its receivables.
D. the more likely a company will experience cash flow problems.
Q24. Which of the following is not a component of a time value of money calculation?
A. The amount of cash to be received
B. The time (# years) until the cash will be received
C. The opportunity costs of the alternative actions
D. The required rate of return percentage
Q25. What is IRR?
A. The rate of return that causes the investment to exactly breakeven
B. The rate of return that is the minimum acceptable by the company
C. The rate of return that would result in zero net present value of the investment
D. The rate of return that is equal to the company's hurdle rate
Q26. Which one of the following is a possible cause of an unfavorable labor rate variance?
A. The company used attainable standards rather than ideal standards.
B. The company hired new, inexperienced (lower paid) employees.
C. The company produced fewer units than had been planned.
D. The company used more experienced (higher paid) workers than planned.
Q27. When deciding to accept or reject a special order, which of the following costs is most likely to be irrelevant?
A. The wages of direct labor to make the order
B. Depreciation on the machinery used to make the order
C. The direct raw material used to make the order
D. The sales commission paid as a percent of the order price.
Q28. DT Company uses cost-plus pricing and has $30 per unit in variable costs and $800,000 per year in fixed costs. Demand is estimated to be 200,000 units annually. What is the price if a markup of 30% on total cost is used to determine the price?
A. $34.00
B. $39.00
C. $44.20
D. $45.22
Q29. A product line should be dropped when:
A. it has a positive contribution margin.
B. it has unavoidable fixed costs larger than the product's net income.
C. there will be a positive change in total income if the product line is dropped.
D. All of the above choices are true or correct.
Q30. A subunit that has responsibility for controlling costs, but does not have responsibility for generating revenue is a(n)
A. cost center.
B. investment center.
C. profit center.
D. value added center.
Q31. Which of the following is most likely relevant to consider in a make-or-buy decision?
A. Unavoidable fixed costs
B. Sunk costs
C. Incremental revenues
D. Opportunity costs
Q32. The income amount that is used in the calculation of return on investment is usually
A. earnings before interest and taxes (EBIT).
B. total net income as defined by GAAP.
C. operating cash flows only.
D. net operating profit after taxes (NOPAT).
Q33. Which of the following items appears on a variable costing income statement but not on a normal "full-costing" income statement?
A. Sales
B. Gross Margin
C. Net Income
D. Contribution Margin
Q34. Which of the following is not an advantage of decentralization of a company?
A. Subunit managers have better product and customer information.
B. Subunit managers will act more to benefit the organization as a whole.
C. Subunit managers can respond quicker to changing circumstances.
D. Subunit managers receive training helpful for future transition into top-level positions.
Problems -
Q35. Testor Paints sells varnish with a variable cost of $6.50 per gallon. The company is unsure which price to charge in order to maximize profits. The price charged will also affect the demand. If fixed costs are $80,000 and the table below represents the demand at various prices, what price should be charged in order to maximize profits? (Complete the table below, add column titles, to show the analysis)
|
Unit Price Per Gallon
|
Gallons Demanded
|
|
$11
|
20,000
|
|
$10
|
30,000
|
|
$9
|
40,000
|
|
$8
|
50,000
|
Q36. Jackson, Inc. uses a job-order costing system. It reported the following amounts for March:
|
Raw materials, March 1
|
12,300
|
|
Raw materials, March 31
|
12,000
|
|
Work in process, March 1
|
38,000
|
|
Work in process, March 31
|
35,000
|
|
Cost of goods manufactured
|
169,000
|
|
Direct labor used
|
64,000
|
|
Direct materials used
|
63,000
|
|
Finished goods, March 1
|
14,000
|
|
Finished goods, March 31
|
17,500
|
How much of the above amounts will the company report on its balance sheet at the end of March?
Q37. The building maintenance department for Advantage Toys budgets annual costs of $4,200,000 based on the expected operating level for the coming year. The costs are allocated to two production departments (A & B). The following data relate to the allocation bases:
|
Base
|
Dept. A
|
Dept. B
|
Total
|
|
|
Square footage
|
15,000
|
45,000
|
60,000
|
Sq Ft.
|
|
Direct labor hours
|
25,000
|
50,000
|
75,000
|
Hours
|
a. If Advantage assigns the costs to departments based just on square footage, how much annual maintenance cost will be allocated to A and B?
b. If Advantage assigns the costs to departments based on just Diect labor hours, how much annual maintenance cost will be allocated to A and B? And what is the difference from above?
Q38. Bright Sports has three product lines: football, basketball, and soccer. Common costs are allocated based on relative sales. A product line income statement for the year ended December 31, 2016 follows:
|
Football
|
Basketball
|
Soccer
|
Total
|
|
Sales
|
$600,000
|
$800,000
|
$400,000
|
$1,800,000
|
|
Cost of goods sold
|
260,000
|
400,000
|
230,000
|
890,000
|
|
Gross margin
|
340,000
|
400,000
|
170,000
|
910,000
|
|
Less other variable costs
|
85,000
|
120,000
|
80,000
|
285,000
|
|
Contribution margin
|
255,000
|
280,000
|
90,000
|
625,000
|
|
Less direct salaries
|
50,000
|
60,000
|
45,000
|
155,000
|
|
Less common fixed costs
|
85,000
|
100,000
|
55,000
|
240,000
|
|
Net income
|
$120,000
|
$120,000
|
-$10,000
|
$230,000
|
Since the profit for soccer is relatively low, the company is considering dropping this product line. What is the incremental effect on net income of dropping soccer?
Q39. For ABC company, variable cost per unit is budgeted to be $8.00 and fixed cost per unit is budgeted to be $5.00 in a period when 4,000 units are to be produced. If production is actually 5,100 units, what is the expected total cost of the units produced? Complete the following table:
|
Number of Units:
|
4,000
|
5,100
|
|
Total Variable Costs
|
|
|
|
Total Fixed Costs
|
|
|
|
Total Costs
|
|
|
Q40. Boston Rx and Health, Inc. are two companies in the pharmaceutical industry. Boston Rx does little research and development. Instead, the company pays for the right to produce and market drugs that have been developed by other companies. The amount paid is a percent of sales. Information for the current year follows:
|
Boston Rx
|
Health, Inc.
|
|
Sales
|
$180,000
|
$116,000
|
|
Less variable costs
|
74,000
|
62,000
|
|
Contribution margin
|
106,000
|
54,000
|
|
Less fixed costs
|
40,000
|
36,000
|
|
Profit total
|
$66,000
|
$18,000
|
a. Calculate the expected percentage change in profit for a 25 percent decrease in sales for each company.
b. Which company has the higher operating leverage?
Q41. The 2016 income statement for the West Division of Big Company is as follows:
|
Sales
|
$1,800,000
|
|
Operating expenses
|
1,380,000
|
|
Net operating income
|
420,000
|
|
Interest expense
|
120,000
|
|
Earnings before taxes
|
300,000
|
|
Income tax expense (40%)
|
120,000
|
|
Net income
|
$180,000
|
This division's invested capital is $4,000,000. (based on its Assets - NIBCL)
How much is the West Division's NOPAT for 2016?
Q42. How much is the West Division's return on investment (ROI) for 2016?
Q43. Sports & More is considering the development of an e-commerce business. The company knows that development will require an initial outlay of $360,000. The estimated annual cash flows (additional expenses and revenue) for years 1-4 are shown below. Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the business plan assuming a 6% required rate.
|
Cash flow
|
PV Factor
|
PV Amount
|
|
Year 0
|
|
|
|
|
Year 1
|
-$60,000
|
|
|
|
Year 2
|
$140,000
|
|
|
|
Year 3
|
$210,000
|
|
|
|
Year 4
|
$130,000
|
|
|
Total NPV
And is this a good investment (yes or no)?
Q44. Match each of the following terms (1 - 9) with the phrase below (A - J) that most closely describes it. Each answer may be used only once. First one completed as an example.
1. Statement of Cash Flows
2. Financial leverage
3. Gross margin
4. Horizontal analysis
5. Income statement
6. Investing activity for PP&E
7. Balance sheet
8. Operating income
9. Vertical analysis
A. Determines the amount and % change for each line item of financial statements from one year to the next
B. Activities that impact long-term assets
C. A report that explains the GAAP rules used to prepare the Financial Statements.
D. Using debt to increase returns to stockholders
E. Sales less cost of goods sold
F. Contains assets, liabilities, and stockholders' equity at the end of the period
G. Reports the revenues and expenses for the period
H. Reports the sources and uses of cash and cash equivalents
I. Analysis of financial statements based on a percentage of total assets or net sales
J. Indicates the income generated by the ongoing activities of the business
Attachment:- Assignment File.rar