Question

1. A transaction involving a gain on the sale of equipment affects cash provided (used) by

i. operating and financing activities.

ii. operating and investing activities.

iii. operating, financing, and investing activities.

iv. financing and investing activities.

2. Which of the following would be subtracted from net income using the indirect method?

i. A decrease in prepaid expenses.

ii. An increase in accounts receivable.

iii. Depreciation expense.

iv. An increase in accounts payable.

3. Using the indirect method, if equipment is sold at a gain, the

i. sale proceeds received are added in the operating activities section.

ii. amount of the gain is added in the operating activities section.

iii. sale proceeds received are deducted in the operating activities section.

iv. amount of the gain is deducted in the operating activities section.

4. The best way to study the relationship of the components within a financial statement is to prepare

i. ratio analysis.

ii. common size statements.

iii. profitability analysis.

iv. a trend analysis.

5. Comparative balance sheets

i. do not show both dollar amount and percentage changes.

ii. are usually prepared for at least one year.

iii. are usually prepared for at least two years.

iv. do not show a comparison of total stockholders’ equity.

6. The following information pertains to Unique Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.

Assets

Cash and short-term investments $ 40,000

Accounts receivable (net) 30,000

Inventory 20,000

Property, plant and equipment 210,000

Total Assets $300,000

Liabilities and Stockholders’ Equity

Current liabilities $ 60,000

Long-term liabilities 90,000

Stockholders’ equity – common 150,000

Total Liabilities and Stockholders’ Equity $300,000

Income Statement

Sales revenue $ 90,000

Cost of goods sold 45,000

Gross profit 45,000

Operating expenses 20,000

Net income $ 25,000

Number of shares of common stock 6,000

Market price of common stock $20

Dividends per share on common stock 0.90

Cash provided by operations $30,000

What is the profit margin for this company?

i. 27.8%

ii. 8.3%

iii. 33.3%

iv. 55.6%

7. For the work of factory employees to be considered as direct labor, the work must be conveniently and

i. promptly associated with raw materials conversion.

ii. materially associated with raw materials conversion.

iii. periodically associated with raw materials conversion.

iv. physically associated with raw materials conversion.

8. A manufacturing company reports cost of goods manufactured as a(n)

i. component in the calculation of cost of goods sold on the income statement.

ii. administrative expense on the income statement.

iii. component of the raw materials inventory on the balance sheet.

iv. current asset on the balance sheet.

9. On the costs of goods manufactured schedule, depreciation on factory equipment

i. is not listed because it is not a product cost.

ii. is not an inventoriable cost.

iii. is not listed because it is included with Depreciation Expense on the income statement.

iv. appears in the manufacturing overhead section.

10. Which one of the following is an example of a period cost?

i. A manager’s salary for work that is done in the corporate head office

ii. A box cost associated with computers

iii. A change in benefits for the union workers who work in the New York plant of a Fortune 1000 manufacturer

iv. Workers’ compensation insurance on factory workers’ wages allocated to the factory

11. If actual overhead is less than applied manufacturing overhead, then manufacturing overhead is:

i. a loss on the income statement under “Other Expenses and Losses.”

ii. considered a miscellaneous expense.

iii. underapplied.

iv. overapplied.

12. Which of the following is not viewed as part of assigning manufacturing costs in a job order cost system?

i. Manufacturing overhead is applied

ii. Manufacturing overhead is incurred

iii. Raw materials are used

iv. Completed goods are recognized

13. The predetermined overhead rate is based on the relationship between

i. estimated monthly costs and actual monthly activity.

ii. estimated annual costs and actual activity.

iii. actual monthly costs and actual annual activity.

iv. estimated annual costs and expected annual activity.

14. Factory Labor is a(n)

i. control account.

ii. subsidiary account.

iii. temporary account.

iv. expense account.

15. Which of the following would not appear as a debit in the Work in Process account of a second department in a two stage production process?

i. Labor assigned.

ii. Overhead applied.

iii. Cost of products transferred out.

iv. Materials used.

16. Total physical units to be accounted for are equal to the units

i. started (or transferred) into production plus the units in beginning work in process.

ii. started (or transferred) into production less the units in beginning work in process.

iii. started (or transferred) into production.

iv. completed and transferred out.

17. The total units to be accounted for is computed by adding

i. ending units in process to total units accounted for.

ii. ending units in process to units started into production.

iii. beginning units in process to units started into production.

iv. beginning units in process to units transferred out.

18. The total units accounted for equals units in

i. ending work in process + units transferred out.

ii. beginning work in process + ending work in process.

iii. ending work in process – units started into production.

iv. beginning work in process – units transferred out.

19. Which of these best reflects a distinguishing factor between a job order cost system and a process cost system?

i. The manufacturing cost elements included.

ii. The time period each covers.

iii. The number of work in process accounts.

iv. The detail at which costs are calculated.

20. A well-designed activity-based costing system starts with

i. identifying the activity-cost pools.

ii. computing the activity-based overhead rate.

iii. analyzing the activities performed to manufacture a product.

iv. assigning overhead costs to products.

21. Which would be an appropriate cost driver for the machining activity cost pool?

i. Machine hours

ii. Inspections

iii. Machine setups

iv. Purchase orders

22. Use of activity-based costing will result in the development of

vi. no overhead rates; overhead rates are not used in activity-based costing.

vii. one overhead rate based on direct labor hours.

viii. multiple activity-based overhead rates.

ix. one plant wide activity-based overhead rate.

23. As compared to a low-volume product, a high-volume product

i. usually requires less special handling.

ii. is usually responsible for more overhead costs per unit.

iii. requires relatively more machine setups.

iv. requires use of direct labor hours as the primary cost driver to ensure proper allocation of overhead.

24. Advances in computerized systems, technological innovation, global competition, and automation have changed the manufacturing environment drastically by

i. decreasing direct labor costs and increasing overhead costs.

ii. decreasing direct labor costs and decreasing overhead costs.

iii. increasing direct labor costs and increasing overhead costs.

iv. increasing direct labor costs and decreasing overhead costs.

25. Contribution margin is

i. unit selling price less unit fixed costs.

ii. the amount of revenue remaining after deducting fixed costs.

iii. available to cover fixed costs and contribute to income for the company.

iv. sales less fixed costs.

26. An activity index might be referred to as a cost

i. multiplier.

ii. element.

iii. correlation.

iv. driver.

27. Required sales in dollars to meet a target net income is computed by dividing

i. total costs plus target net income by contribution margin ratio.

ii. fixed costs plus target net income by contribution margin per unit.

iii. variable costs plus target net income by contribution margin per unit.

iv. fixed costs plus target net income by contribution margin ratio.

28. In a CVP income statement, a selling expense is generally

i. neither a variable cost nor a fixed cost.

ii. completely a variable cost.

iii. partly a variable cost and partly a fixed cost.

iv. completely a fixed cost.

29. Select the correct statement concerning the cost-volume-profit graph below:

i. At point B, profits equal total costs.

ii. The point identified by “B” is the break-even point.

iii. Line F is the variable cost line.

iv. Line E is the total cost line.

30. The decision rule on whether to sell or process further

i. varies from situation to situation.

ii. is process further as long as total revenue exceeds present revenues.

iii. is process further if incremental revenue from such processing exceeds the incremental processing costs.

iv. is process further if incremental revenue from such processing exceeds incremental fixed costs.

31. Each of the following is a disadvantage of buying rather than making a component of a company’s product except that

i. the supplier may not deliver on time.

ii. the outside supplier could increase prices significantly in the future.

iii. quality control specifications may not be met.

iv. profitable product lines may be dropped.

32. A company is considering eliminating a product line. The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. If the product line is discontinued,

i. total net income will increase by the amount of the product line’s fixed costs.

ii. total net income will decrease by the amount of the product line’s fixed costs.

iii. the contribution margin of the product line will indicate the net income increase or decrease.

iv. the company’s total fixed costs will decrease.

33. What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?

i. It is relevant since it increases the cost of the new equipment.

ii. It is not relevant since it reduces the cost of the old equipment.

iii. It is not relevant to the decision since it does not impact the cost of the new equipment.

iv. It is relevant since it reduces the cost of the new equipment.

34. If a company must expand capacity to accept a special order, it is likely that there will be

i. an increase in fixed costs.

ii. an increase in unit variable costs.

iii. no increase in fixed costs.

iv. an increase in variable and fixed costs per unit.

35. The projection of financial position at the end of the budget period is found on the

i. budgeted income statement.

ii. cash budget.

iii. budgeted balance sheet.

iv. sales budget.

36. Which of the following does not appear as a separate section on the cash budget?

i. Cash disbursements

ii. Cash receipts

iii. Capital expenditures

iv. Financing

37. A master budget consists of

i. financial budgets and a long-term plan.

ii. interrelated financial budgets and operating budgets.

iii. all the accounting journals and ledgers used by a company.

iv. an interrelated long-term plan and operating budgets.

38. The financial budgets include the

i. cash budget and the selling and administrative expense budget.

ii. budgeted balance sheet and the budgeted income statement.

iii. cash budget and the production budget.

iv. cash budget and the budgeted balance sheet.

39. The total direct labor hours required in preparing a direct labor budget are calculated using the

i. production budget.

ii. direct materials budget.

iii. sales budget.

iv. sales forecast.

40. All of the following statements are correct about management by exception except it

i. means that top management’s review of a budget report is focused primarily on differences between actual results and planned objectives.

ii. enables top management to focus on problem areas that need attention.

iii. means that management has to investigate every budget difference.

iv. requires that there must be some guidelines for identifying an exception.

41. Under management by exception, which differences between planned and actual results should be investigated?

i. Material and noncontrollable

ii. Controllable and noncontrollable

iii. All differences should be investigated

iv. Material and controllable

42. Which department is usually responsible for a labor price variance attributable to misallocation of workers?

i. Engineering

ii. Quality control

iii. Purchasing

iv. Production

43. The difference between the actual labor rate multiplied by the actual labor hours worked and the standard labor rate multiplied by the standard labor hours is the

i. total labor variance.

ii. labor price variance.

iii. labor quantity variance.

iv. labor efficiency variance.

44. The total overhead variance is the difference between the

i. actual overhead costs and overhead costs applied based on standard hours allowed.

ii. overhead costs applied based on actual hours and overhead costs applied based on standard hours allowed.

iii. actual overhead costs and overhead costs applied based on actual hours.

iv. the actual overhead costs and the standard direct labor costs.