Accounting Exam 3

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) A profit center. B) A revenue center. C) A cost center. D) An investment center.

A) A profit center.

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.

A) An investment center.

Jones Company developed the following static budget at the beginning of the company's accounting period: Revenue (10,100 units) $ 20,200 Variable costs 5,050 Contribution margin $ 15,150 Fixed costs 5,050Net income $ 10,100 If actual production totals 10,500 units, the flexible budget would show total costs of: A) $5,250. B) $10,300. C) $5,150. D) None of these is correct.

B) $10,300.

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.

A) outsourcing decision.

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 statement13

A) selling, general, and administrative budget and pro forma income statement

The following static budget is provided: Units 23,000 Units Sales $ 230,000 Less variable costs: Manufacturing costs $ 80,500 Selling and administrative costs $ 55,200 Contribution margin $ 94,300 Less fixed costs: Manufacturing costs $ 32,200 Selling and administrative costs $ 17,250 Net income $ 44,850 What will budgeted net income equal if 21,000 units are produced and sold? (Do not round intermediate calculations.) A) $21,850 B) $36,650 C) $207,000 D) $210,000

B) $36,650

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

B) $360,000

The master budget normally covers: A) 3 months. B) 1 year. C) 1-5 years. D) 5-10 years.

B) 1 year.

The research and development department of Apple Computers would likely be organized as: A) A profit center. B) A cost center. C) A revenue center. D) An investment center

B) A cost center.

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.

C) Cash budget.

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 answers are correct.

C) Choices between continuing to operate existing equipment or replacing it with new equipment.

Select the correct 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

C) Direct labor is an example of a unit-level cost.

An organizational unit of a business that incurs costs and generates revenues is known as a(n): A) Cost center. B) Sales center. C) Profit center. D) Investment center

C) Profit center.

Select the correct 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 answers are corre

C) Relevant revenues must differ among the alternatives.

Which of the following would be prepared first when a merchandising company uses a master budget? A) Selling and administrative expense budget B) Budgeted income statement C) Sales forecast D) Inventory purchases budget

C) Sales forecast

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

C) Static budget.

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

D) $140,000

Purchases on account are given below: October November December 30,000 40,000 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

A) $35,500

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 $ 31,000 February $ 37,000 March $ 46,000 April $ 49,000 The company's past records show collection of credit sales as follows: 31% 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) $32,860. C) $43,210. D) $39,790

D) $39,790

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 price variance was: A) $5,000 favorable. B) $5,000 unfavorable. C) $5,250 favorable. D) $5,250 unfavorable.

D) $5,250 unfavorable.

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

D) All of the answers are correct

Which costs are relevant for equipment replacement decisions? A) Unit-level costs B) Batch-level costs C) Product-level costs D) All of these answers are correct

D) All of these answers are correct

Stephenson Company is trying to decide which one of two contracts it will accept. The costs and revenues associated with each are listed below: x Contract X Contract Z Contract Revenue $200,000 $260,000 Materials 10,000 10,000 Labor 88,000 120,000 Dep. on Equip. 8,000 10,000 Cost Incurred x Consulting Advice500 1,500 Allocated Portion x Overhead 5,000 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) Con

A) Contract revenue and labor costs

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 co

A) Controllable cost

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 is correct

A) Equals 2,000 units unfavorable.

Which of the following items is not 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.

A) Expected purchase price of each product.

Which of the following items is not 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

A) Expected unit selling price

Which section is not included on the cash budget? A) Investing B) Cash payments C) Cash receipts D) Financing

A) Investing

Which of the following is not 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

A) Provides assurance that accounting records are in accordance with generally accepted accounting principles

When evaluating alternatives, what type of costs should be considered? A) Relevant costs B) Sunk costs C) Prevention costs D) Fixed costs

A) Relevant costs

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

A) Relevant information requires a high degree of precision.

Which of the following is not considered a pro forma financial statement? A) Sales budget B) Balance sheet C) Cash flow statement D) Income statement

A) Sales budget

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 is correct

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

What budget is generally not included in a master budget? A) Strategic budget B) Capital budget C) Operating budget D) All of the answers are correct

A) Strategic budget

ServicePro provides two kinds of services. During the most recent accounting period, the two service lines produced the following operating results: x Service 1 Service 2 Service revenue $ 80,000 $20,000 Unit-level materials $(20,000 ) $(2,000 ) Unit-level labor $(30,000 ) $(14,000 ) Product-level selling & administrative costs $(10,000 ) $(2,500 ) Company-wide facility-level costs $(5,000 ) $(5,000 ) Net income (loss) $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.

A) The company's income will decrease by $1,500 per year.

Select the correct 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.

A) To be relevant, qualitative data need not be quantified.

The cost that is avoided when a company eliminates a single item of a product or service is a: A) Unit-level cost. B) Facility-level cost. C) Product-level cost. D) Batch-level cost.

A) Unit-level cost.

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

A) When actual costs are less than standard costs

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 is correct.

A) When actual sales exceed budgeted or expected sales

Sunk costs: A) are not considered when evaluating new proposals. B) differ among the alternatives. C) impact the future. D) are relevant

A) are not considered when evaluating new proposals.

White Company budgeted fixed overhead costs of $200,000 and volume of 40,000 units.During the year, the company produced and sold 39,000 units and spent $210,000 on fixedoverhead.The spending variance relating to the fixed overhead cost is: A) $10,000 favorable. B) $10,000 unfavorable. C) $5,000 favorable. D) $5,000 unfavorab

B) $10,000 unfavorable.

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: x Retail Division Wholesale Division Operating 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 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.

B ) Wholesale division.

Which of the following statements regarding cost centers is incorrect? 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.

B) Cost centers tend to be found at upper levels on a company's organization chart.

Which of the following would appear on a selling and administrative expense budget, but would not 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

B) Depreciation expense

Which of the following is not a possible alternate term for costs that can be eliminated by taking a specified course of action? A) Avoidable costs B) Opportunity costs C) Relevant costs D) Differential costs

B) Opportunity costs

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

B) Opportunity costs.

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.

B) Sales budget

Which of the following accounts would appear on the sales budget and 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

B) Sales revenue

Select the correct statement about budgeting and human behavior. 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.

B) The attitudes of upper managers significantly impact budget effectiveness.

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 is not 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

B) The book value of equipment used in making the component

Select the correct 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 proforma financial statements. C) The budgeting process usually begins with preparing the strategic budgets. D) Preparing the master budget begins with the cash budget

B) The master budget usually includes operating budgets and capital budgets and proforma financial statements.

Expressing plans for a business in financial terms is commonly called: A) master planning. B) budgeting. C) strategic planning. D) operational planning

B) budgeting.

All of the following are examples of product-level costs except: A) product inspection costs. B) property and real estate taxes costs. C) engineering design costs. D) patent costs

B) property and real estate taxes costs.

Payne Company reported the following information for the current year: Sales $870,000 Average operating assets $370,000 Desired ROI 15 % Operating income $57,000 The company's residual income was: A) $18,000. B) $55,500. C) $1,500. D) $19,500.

C) $1,500.

Hilliard Company budgeted the following transactions for April Year 2:Sales (75% collected in month of sale) $ 200,000Cash operating expenses 105,000Cash purchases of investments 75,000Cash payment of debt 15,000Depreciation on operating assets 12,000The 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

C) $20,000 shortage.

Max bought a ticket to the championship baseball game for $135. Someone approaches him outside the stadium and offers him $295 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) $160 B) $135 C) $295 D) None of the above

C) $295

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: x Eastern Tour Western Tour Projected revenue $11,000 $12,000 Variable costs 1,000 7,000 Fixed costs 4,000 4,000 Profit $6,000 $1,000 What are the incremental (differential) costs of the Western Tour? A) $1,000 B) $4,000 C) $6,000 D) None of these answers are correct.

C) $6,000

Ann is trying to decide which one of two job offers she will accept. Several items are presented below: Job Offer A Job Offer B (1) Base salary $ 50,000 $ 50,000 (2) Overtime compensation Comp. time Hourly rate (3) Moving allowance $3,000 $3,000 (4) Signing bonus $2,000 $ 0 (5) Job search costs incurred $ 300 $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)

C) (1), (3), (5)

Huang Company reported the following information for the current year: Sales $ 920,000 Average operating assets $ 620,000 Margin 10 % The company's return on investment was: (Do not round intermediate calculations. Round your final answer to 2 decimal places.) A) 10.00%. B) 13.15%. C) 14.84%. D) Cannot be ascertained from the information provided

C) 14.84%.

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.

C) A flexible budget is also known as a master budget.

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.

C) A flexible budget shows expected revenues and costs at a variety of activity levels.

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 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.

C) A manager of a profit center is evaluated on his/her ability to control costs and generate revenues.

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 answers are correct.

C) An offer from a customer to buy goods at a lower-than-normal selling price.

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 single estimate of volume, whereas flexible budgets show estimated costs and revenues at a variety of activity levels. D) None of these answers is correct

C) Static budgets are based on single estimate of volume, whereas flexible budgets show estimated costs and revenues at a variety of activity levels.

Ethan paid $3 for a bottle of ThirstAid. Later, while on a hiking trip, he was offered $8 for the ThirstAid. Select the correct statement from the following: A) The $8 offer is not relevant if Ethan refuses to sell the Thirst Aid. B) If Ethan drinks the Thirst Aid, 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 answers are correct

C) The $3 original purchase price is irrelevant to his decision to sell the ThirstAid.

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 facility-level cost? A) Inspection costs B) Shipping and handling C) Materials cost D) Company president's salary

D) Company president's salary

Select the correct 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

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

The practice of delegating authority and responsibility is referred to as: A) Centralization of authority. B) Standard costing. C) Management by exception. D) Decentralization

D) Decentralization

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.

D) Differential revenues.

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 is correct

D) None of these answers is correct

Engineering design costs are generally referred to as: A) Batch-level costs. B) Facility-level costs. C) Unit-level costs. D) Product-level costs.

D) Product-level costs.

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.

D) Responsibility center.

Which of the following would represent the order in which most master budgets areprepared? A) Sales, Income Statement, Cash, Purchases B) Purchases, Cash, Sales, Income Statement C) Purchases, Sales, Cash, Income Statement D) Sales, Purchases, Cash, Income Statement

D) Sales, Purchases, Cash, Income Statement

Select the incorrect 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

D) The total cash available is calculated by adding cash receipts and the ending cash balance

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.

D) master budget.