ACC 202 (Ch. 7-12)

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:

2.5

The entry to record the completion of a job in a job costing system would cause:

A decrease to the work in process inventory account

Select the correct equation format for the purchases budget. -Beginning inventory + expected sales = required purchases. -Cost of budgeted sales + beginning inventory - desired ending inventory = required purchases. -Beginning inventory + expected sales - desired ending inventory = required purchases. -Cost of budgeted sales + desired ending inventory - beginning inventory = required purchases.

Cost of budgeted sales + desired ending inventory - beginning inventory = required purchases.

The entry to record cost of selling a particular job in a job-order costing system would include a:

Debit to cost of goods sold and a credit to finished goods inventory.

The practice of delegating authority and responsibility is referred to as:

Decentralization

Which of the following would increase residual income? (Assume all other things are equal)

Decrease in investment

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 Wholesale DivisionOperating income$2,500,000 $6,000,000 Operating assets$16,000,000 $36,000,000 Terra Company has set a target return on investment (ROI) of 15% for both divisionsWhich of the following statements is accurate?

Residual income for the wholesale sales division was $600,000

To avoid suboptimization, many companies prefer to evaluate their investment centers using:

Residual income instead of return on investment.

Which event results in the transfer of product costs from the balance sheet to the income statement?

Sale of goods

Which of the following accounts would appear on the sales budget and the pro forma income statement?

Sales Revenue

Which of the following income statement formats is most commonly used with flexible budgeting?

Sales − Variable costs = Contribution margin; Contribution margin − Fixed costs = Net income

A process cost system would be appropriate for all of the following except:

Services provided by public accounting firm

A budget prepared at a single volume of activity is referred to as a:

Static budget

In a job-order cost system, as goods are produced, product costs (direct material, direct labor, and overhead) are accumulated in the:

Work in Process Inventory account

A major benefit of a decentralized organization is that:

managers are more motivated to improve productivity

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$30,000 February$36,000 March$45,000 April$48,000 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:

$39,600

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 Wholesale Division Operating income $ 2,500,000 $ 6,000,000 Operating assets $ 16,000,000 $ 36,000,000 Assuming that these are the only divisions of Terra Company, what is the ROI for the company as a whole?

16.3%

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?

18.0%

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 Year 2 Year 3 Year 4 Year 5 $8,000 $6,000 $5,000 $6,000 $5,000 Using the averaging method, the payback period for the investment in the oven would be:

2.3 years

Mendez Company is considering a capital project that costs $16,000. The project will deliver the following cash flows: ` Year 1 Year 2 Year 3 Year 4 Year 5 $8,000 $6,000 $5,000 $6,000 $5,000 Using the incremental approach, the payback period for the investment is:

2.4 years

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 budget baed on 49,000 units

Select the correct statement regarding the selling and administrative (S&A) expense budget: -The S&A budget is prepared after the sales budget. -The S&A budget is prepared before the cash budget. -The S&A budget is prepared before the pro forma income statement. -All of the answers are correct

All of the answers are correct

Which of the following accounts is reported on the balance sheet? Raw materials inventory. Work in process inventory. Finished goods inventory. All of these

All of these

A capital investment project may provide cash inflows from: -incremental revenues. -cost savings. -the salvage value of the investment. -All of these answers are correct

All of these answers are correct

Which of the following factors should be considered in establishing standards for use with a standard costing system? -Historical data -Current and planned technology, plant layout, and operating procedures -behavioral implications -all of these are correct

All of these answers are correct

Which of the following statements concerning payback analysis is true? -An investment with a shorter payback is preferable to an investment with a longer payback. -The payback method ignores the time value of money concept. -The payback method and the unadjusted rate of return are different approaches that will not consistently lead to the same conclusion. -All of these answers are correct.

All of these answers are correct

Which of the following would be considered a cash inflow in determining the value of a capital investment?

Both incremental revenues from increased productivity and cost savings from a reduction in labor hours are correct.

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 material68,000gallons@$5.90per gallonDirect labor45,500hours@$9.75per hour The direct labor price variance was:

$11,375 favorable

Compton Company expects the following total sales: Month Sales March$30,000 April$20,000 May$30,000 June$25,000 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:

$12,600

Payne Company reported the following information for the current year: Sales $ 1,600,000 Average Operating Assets $ 500,000 Desired ROI 14 % Net Income $ 85,000 The company's residual income was:

$15,000

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 material68,000gallons@$5.90per gallonDirect labor45,500hours@$9.75per hour The direct labor usage variance was:

$15,000 unfavorable

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 #2 The company uses a job-order cost 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 #1, which was started and completed during the period?

$176,000

Payne Company provided the following information relevant to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: Dec. Year 1 Jan. Year 2 Feb. Year 2 Mar. Year 2 (Actual) (Budgeted) (Budgeted) (Budgeted)Cost of goods sold$80,000 $140,000 $180,000 $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:

$159,000

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 5% of salesAdvertising 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:

$232,500

Scranton Company expects to begin operating on July 1, Year 1. The company's master budget contained the following operating expense budget: July August SeptemberSalary expense$36,000 $36,000 $36,000 Sales commissions, 5% of sales 30,000 32,000 24,000 Utilities 2,800 2,800 2,800 Depreciation on store equipment 1,000 1,000 1,000 Rent 7,200 7,200 7,200 Miscellaneous 1,800 1,800 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:

$24,000

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?

$24,000

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:

$46,500

Dobson Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: January February MarchSalary expense$40,000 $36,000 $36,000 Sales commissions, 5% of sales 24,000 30,000 28,000 Utilities 2,800 2,800 2,800 Depreciation on store equipment 1,800 1,800 1,800 Rent 7,200 7,200 7,200 Miscellaneous 1,800 1,800 1,800 Total operating expenses$77,600 $79,600 $77,600 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:

$51,800

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:

$660 unfavorable

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 material68,000gallons@$5.90per gallonDirect labor45,500hours@$9.75per hour The direct material price variance was:

$6800 favorable

Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2: Dec. Year 1 Jan. Year 2 Feb. Year 2 Mar. Year 2 (Actual) (Budgeted) (Budgeted) (Budgeted)Credit sales$120,000 $280,000 $310,000 $220,000 Cash sales$20,000 $50,000 $60,000 $24,000 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:

$69,600

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:

Continuous Budgeting

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?

Controllable cost

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?

Coordination

Which of the following is incorrect regarding a job-order cost system?

Costs are accumulated for homogenous products that are produced through a continuous process.

Assuming actual volume is 10,000 units and planned volume is 12,000 units, the sales volume variance in units:

Equals 2,000 units unfavorable

Ringgold Company experienced an event that affected its financial statements as indicated below: Assets = Liabilities + Equity Revenue - Expense = Net income Manufacturing overhead + Work in process inventory (1,200) + 1,200 = n/a + n/a n/a - n/a = n/a Which of the following accounting events caused the indicated effects on the company's accounting equation?

Estimated overhead was charged to production

Which of the following formats is typically used in year-to-date income statements prepared for internal use under a responsibility accounting system? -Sales - Cost of Goods Sold = Gross Margin; Gross Margin - Operating Expenses = Net Income -Sales - Manufacturing Costs = Manufacturing Margin; Manufacturing Margin - Selling and Administrative Costs = Net Income -Sales - Variable Costs = Contribution Margin; Contribution Margin - Fixed Costs = Net Income -none of these

INCORRECT: none of these

In a job-order cost system, the subsidiary accounts for the Work in Process Inventory account are the:

Job cost sheets

At the time indirect materials are issued to production, the balance in the:

Manufacturing Overhead account will increase

Select the correct statement: -The four advantages of budgeting include planning, coordination, performance measurement, and reporting. -In a participative budgeting system, budget information flows in one direction only, from bottom to top. -The three major categories of the master budget are operating budgets, capital budgets, and pro forma financial statements. -The accounting department normally coordinates the development of the sales forecast.

The three major categories of the master budget are operating budgets, capital budgets, and pro forma financial statements.

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:

Variance

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. In this company, the maintenance department is likely organized as:

a profit center

All of the following are capital investment decisions except:

acquiring $100,000 of common stock

A cash flow that only occurs in equal amounts each year is referred to as:

an annuity

The kind of responsibility center that would be evaluated by comparing income on assets to the amount of assets invested is:

an investment center

Frank Company experienced an event that affected its financial statements as indicated below: Assets = Liabilities + Equity Revenue - Expense = Net income 5,000 = n/a + 5,000 5,000 - n/a = 5,000 Which of the following transactions caused the indicated effects?

completed units were sold

All of the following are asset exchange events except: Multiple Choice Purchase of raw materials with cash. Use of raw materials in production. Cost of shipping goods to customers. Payment of production wages.

cost of shipping goods to customer

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%. What is the internal rate of return from the investment? Use Appendix Table 2.

greater than the desired rate of return

Which of the following is not a major cash inflow from a capital investment?

increase in working capital

Sometimes the sales staff will deliberately underestimate the amount of expected sales. This practice is known as:

lowballing