Accounting Final Practice Exam Part 2

A job was budgeted to require 3 hours of labor per unit at $8.00 per hour. The job consisted of 8,000 units and was completed in 22,000 hours at a total labor cost of $198,000. What is the direct labor efficiency variance? Answers: $22,000 unfavorable. $22,000 favorable. $16.000 unfavorable. $16,000 favorable. $6,000 unfavorable.

$16,000 favorable.

Zhang Industries sells a product for $700. Unit sales for May were 400 and each month's sales are expected to exceed the prior month's results by 3%. Compute the total sales dollars to be reported on the sales budget for month ended June 30. Answers: $280,000. $297,000. $271.600. $288,400. $364,000.

$288,400.

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The * contribution margin expected if the company produces and sells 16,000 units is: Answers: $48,000. $64,000. $40,000. $24.000 $18.000.

$40,000.

Southland Company is preparing a cash budget for August. The company has $17,000 cash at the beginning of August and anticipates $120,800 in cash receipts and $134,500 in cash disbursements during August. Southland Company wants to maintain a minimum cash balance of $10,000. To maintain the minimum cash balance of $10,000, the company must borrow: Answers: $10.000. $6,700 $7,000. $27,700.

$6,700

Flagstaff Company has budgeted production units of 7,900 for July and 8,100 for August. The direct labor requirement per unit is 0.50 hours. Labor is paid at the rate of $21 per hour. The total cost of direct labor for the month of August is: Answers: $82.950. ＄4.050. $85,050. $3.950. $168.000

$85,050.

FasTrac can purchase a new machine for $90,000 and receive $15,000 in return for trading in an old machine with a market value of $15,000. * The new machine will reduce manufacturing costs by $18,000 per year for 4 years. What are the cash inflows for this investment? Answers: $15.000 $18,000 $90.000 $87,000 $72.000

$87,000

All of the following are expensed under variable costing except: Answers: A)variable manufacturing overhead. B)fixed manufacturing overhead. C)variable selling and administrative costs. D)fixed selling and administrative costs. items "C" and "D" above.

A)variable manufacturing overhead.

Costs that the manager has the power to determine or at least strongly influence are called: Answers: Uncontrollable costs. Controllable costs. Joint costs. Direct costs. Indirect costs.

Controllable costs.

An accounting system that provides information that management can use to evaluate the profitability and/or cost effectiveness of a department's activities is a: Answers: Departmental accounting system. Cost accounting system. Service accounting system. Revenue accounting system. Standard accounting system.

Departmental accounting system.

When preparing the cash budget, all the following should be considered except: Answers: Cash receipts from customers. Cash payments for merchandise. Depreciation expense. Cash payments for income taxes. Cash payments for capital expenditures.

Depreciation expense.

Which of the following are NOT part of the four steps to setting a product price? Answers: Determine total cost by combining production and non production cost. Determine cost per unit by dividing manufactruing cost by units produced. Determine dollar markup per unit. Determine the selling price by adding markup per unit to total cost per unit All are part of the steps to set product price on a cost-plus basis.

Determine cost per unit by dividing manufactruing cost by units produced.

The process of restating future cash flows in terms of their present values is called: Answers: Discounting. Capital budgeting. Payback period. Risk uncertainty. Accounting rate of return.

Discounting.

Which of the following are not true in regards to relevant costs? Answers: Costs that are applicable to a particular decision. Costs that should have a bearing on which alternative a manager selects. Costs that are avoidable. Future costs that are the same between alternatives All are true in regards to relevant costs

Future costs that are the same between alternatives

Expenses that are not easily associated with a specific department, and which are incurred for the benefit of more than one department, are: Answers: Fixed expenses. Indirect expenses. Direct expenses. Uncontrollable expenses. Variable expenses.

Indirect expenses.

An opportunity cost: Answers: Is an unavoidable cost. Requires a current outlay of cash. Results from past managerial decisions. Is the lost benefit of choosing an alternative course of action. Is irrelevant in decision making.

Is the lost benefit of choosing an alternative course of action.

A cost center is a unit of a business that incurs costs without directly generating revenues. All of the following are considered cost centers except: Answers: Accounting department at Warner Bros. Purchasing department at Best Buy. Research department at Microsoft. Advertising department at Hertz. Juice division selling juice at Coca Cola.

Juice division selling juice at Coca Cola.

Capital budgeting decisions usually involve analysis of: Answers: Cash outflows only. Short-term investments only. Long-term investments only. Investments with certain outcomes only. Operating revenues.

Long-term investments only.

Capital budgeting is the process of analyzing: Answers: Cash outflows only. Short-term investments. Long-term investments. Investments with certain outcomes only. Operating revenues.

Long-term investments.

Sales analysis is useful for: Answers: Planning purposes only. Budgeting purposes only. Control purposes only. Planning and control purposes. Planning and budgeting purposes.

Planning and control purposes.

Standard costs are used to measure: Answers: Price and quantity variances Price variances only. Quantity variances only. Price, quantity, and sales variances. Quantity and sales variances.

Price and quantity variances

A plan showing the units of goods to be sold and the revenue to be derived from sales, that is the usual starting point in the budgeting process, is called the: Answers: Operating budget Business plan Income statement budget Merchandise purchases budget Sales budget

Sales budget

A cost that cannot be avoided or changed because it arises from a past decision, and is irrelevant to future decisions, is called a(n): Answers: Uncontrollable cost. Incremental cost. Opportunity cost. Out-of-pocket cost. Sunk cost.

Sunk cost.

The accounting rate of return is calculated as: Answers: The after-tax income divided by the total investment. The after-tax income divided by the annual average investment. The cash flows divided by the annual average investment. The cash flows divided by the total investment. The annual average investment divided by the after-tax income.

The after-tax income divided by the annual average investment.

The master budget process usually ends with: Answers: The production budget. The sales budget. The selling expense budget. The budgeted balance sheet. The overhead budget.

The budgeted balance sheet.

Differences in income between variable and absorption costing will be small when certain requirements are met. Which of the following statements is NOT true regarding those differences? Answers: Fixed overhead is a small percentage of total manufacturing costs Inventory levels are low. Inventory turnover is rapid. The period of analysis is short.

The period of analysis is short.

Under which of the following conditions is a market-based transfer price likely to be used? Answers: There is no excess capacity. No market price exists. Excess capacity exists. Excess capacity exists and the market price covers fixed costs. There is only an internal market for the item in question.

There is no excess capacity.

Capital budgeting decisions are risky because all of the following are true except: Answers: The outcome is uncertain. Large amounts of money are usually involved. The investment involves a long-term commitment. The decision could be difficult or impossible to reverse. They rarely produce net cash flows.

They rarely produce net cash flows.

Assume markup percentage equals desired profit divided by total costs. What is the correct calculation to determine the dollar amount of the markup per unit? Answers: Total cost times markup percentage. Total cost per unit times markup percentage per unit. Total cost per unit divided by markup percentage per unit. Markup percentage per unit divided by total cost per unit. Markup percentage divided by total cost.

Total cost per unit times markup percentage per unit.

To determine a product selling price based on the total cost method, management should include: Answers: Total production and nonproduction costs plus a markup. Total production and nonproduction costs only. Total production costs plus a markup. Total nonproduction costs plus a markup. Only a markup.

Total production and nonproduction costs plus a markup.

Regarding overhead costs, as volume increases: Answers: Unit fixed cost increases, unit variable cost decreases. Unit fixed cost decreases, unit variable cost increases. Unit variable cost decreases, unit fixed cost remains constant. Unit fixed cost decreases, unit variable cost remains constant. Both unit fixed cost and unit variable cost remain constant.

Unit fixed cost decreases, unit variable cost remains constant.

Which of the situations below will result in variable costing income being equal to absorption costing income? Answers: Units produced equals units sold Units produced is greater than units sold Units produced is less than units sold Net income under variable costing will never equal net income under absorption costing

Units produced equals units sold

Which of the following is not true regarding use of variable costing by Service Firms? Answers: Variable costing cannot be used by service companies. Focus on variable costs useful in managerial decisions. Special order pricing may be used to deeply discount a service Discounted prices greater than variable costs will increase contribution margin and net income

Variable costing cannot be used by service companies.

Concerning variable costing, which of the following is most the accurate? Answers: Variable costing is most often used for internal management purposes Variable costing is used for external reporting purposes. Variable costing is never used for the evaluation of special orders Variable costing is used to prepare gross margin types of financial statements Variable costing is used to set compensation of top management

Variable costing is most often used for internal management purposes

If the labor efficiency variance is unfavorable, then Answers: actual hours exceeded standard hours allowed for the actual output. standard hours allowed for the actual output exceeded actual hours. the standard rate exceeded the actual rate. the actual rate exceeded the standard rate.

actual hours exceeded standard hours allowed for the actual output.

A favorable labor rate variance is created when: Answers: actual labor hours worked exceed standard hours allowed. actual hours worked are less than standard hours allowed. actual wages paid are less than amounts that should have been paid for the number of hours worked. actual units produced exceed budgeted production levels. actual units produced exceed standard hours allowed.

actual wages paid are less than amounts that should have been paid for the number of hours worked.

The underlying difference between absorption costing and variable costing lies in the treatment of: Answers: direct labor. variable manufacturing overhead. fixed manufacturing overhead. variable selling and administrative expenses. fixed selling and administrative expenses.

fixed manufacturing overhead.

Elliot Company can sell all of its products A and Z that it can produce, but it has limited production capacity. It can produce 8 units of A per hour or 10 units of Z per hour, and it has 20,000 production hours available. Contribution margin per unit is $12 for A and $10 for Z. What is the most profitable sales mix for Elliot Company? Answers: 84,000 units of A and 60,000 units of Z. 48,000 units of A and 80.000 units of Z. 60.000 units of A and 100.000 units of Z. 120,000 units of A and O units of Z. 0 units of A and 200,000 units of Z.

0 units of A and 200,000 units of Z.

Carter Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000. Compute the division's return on investment: Answers: 30.3%. 23.6%. 13.3%. 10.4%. 14.7%.

14.7%.

A company is considering the purchase of a new piece of equipment for $90,000. Predicted annual cash inflows from this investment are $36,000 (year 1), $30,000 (year 2), $18,000 (year 3), $12,000 (year 4) and $6,000 (year 5). The payback period is: Answers: 4.50 years. 4.25 years. 3.50 years. 3.00 years. 2.50 years.

3.50 years.

Select the incorrect statement regarding flexible budgets. Answers: Flexible budgets often show the estimated revenues and costs at multiple volume levels. A flexible budget is used to compare actual to budgeted amounts. A flexible budget is also known as a master budget. Standard prices and costs are used in preparing a flexible budget.

A flexible budget is also known as a master budget.

A budget is best described as: Answers: A formal statement of a company's future plans usually expressed in monetary terms. A master control device. An informal statement of company future plans usually expressed in monetary terms. The most crucial component of a company evaluation process. The minimum acceptable performance level.

A formal statement of a company's future plans usually expressed in monetary terms.

Which of the following statements is true? Answers: A per unit cost that is constant at all production levels is a variable cost per unit. Reported income under variable costing is affected by production level changes. A per unit cost that is constant at all production levels is a fixed cost per unit. Reported income under absorption costing is not affected by production level changes. A cost that is constant over all levels of production is a variable cost.

A per unit cost that is constant at all production levels is a variable cost per unit.

Which of the following accounts would appear on a budgeted balance sheet? Answers: Income tax expense. Accounts receivable. Sales commissions. Depreciation expense. All of the choices are correct.

Accounts receivable.

A challenge in calculating the total costs and expenses of a department is: Answers: Determining the gross profit ratio. Assigning direct costs to the department. Allocating indirect expenses to the department. Determining the amount of sales of the department. Determining the direct expenses of the department.

Allocating indirect expenses to the department.

The difference between a profit center and an investment center is Answers: An investment center incurs costs, but does not directly generate revenues. An investment center incurs no costs but does generate revenues. An investment center is responsible for investments made in operating assets. An investment center provides services to profit centers. There is no difference; investment center and profit center are synonymous

An investment center is responsible for investments made in operating assets.

A responsibility accounting performance report documents: Answers: Only actual costs. Only budgeted costs Both actual costs and budgeted costs. Only direct costs. Only indirect costs.

Both actual costs and budgeted costs.

Which budget must be completed after a cash budget is prepared? Answers: Capital expenditures budget Sales budget Merchandise purchases budget General and administrative expense budget Budgeted income statement

Budgeted income statement

Which of the following budgets is not completed before a cash budget is prepared? Answers: Capital expenditures budget. Sales budget. Merchandise purchases budget. General and administrative expense budget. Budgeted income statement.

Budgeted income statement.

Which of the following is a benefit derived from budgeting? Answers: Budgeting focuses management's attention on past performance. Budgeting avoids needing industry and economic factors in decision making. Budgeting provides a basis for evaluating performance. Budgeting avoids the need for incentives to improve employee performance. Budgeting eliminates the need for coordination across departments.

Budgeting provides a basis for evaluating performance.

Which of the following is not true with regards to determining the best sales mix of a particular product? Answers: 2 out of 2 points When a company sells a variety of products, some are likely to be more profitable than others. Management should concentrate sales efforts equally on all profitable products. If production facilities or other factors are limited, producing more of one product usually means producing less of others. Management must identify the most profitable sales mix of products. Management focuses on the contribution margin per unit of scarce resource

Management should concentrate sales efforts equally on all profitable products.

A comprehensive or overall formal plan for a business that includes specific plans for expected sales, the units of product to be produced, the merchandise or materials to be purchased, the expense to be incurred, the long-term assets to be purchased, and the amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet, is called a: Answers: Master budget. Cash budget. Capital expenditures budget. Rolling budget. Production budget.

Master budget.

A plan that reports the units or costs of merchandise to be purchased by a merchandising company during the budget period is called a: Answers: Selling expenses budget Merchandise purchases budget Sales budget Cash budget Capital expenditures budget

Merchandise purchases budget

Which one of the following methods considers the time value of money in evaluating alternative capital expenditures? Answers: Accounting rate of return. Net present value. Payback period. Cash flow method. Return on average investment.

Net present value.

The potential benefit of one alternative that is lost by choosing another is known as a(n): Answers: Alternative cost. Sunk cost. Out-of-pocket cost. Differential cost. Opportunity cost.

Opportunity cost.

The break-even time (BET) method is a variation of the: Answers: Payback method. Internal rate of return method. Accounting rate of return method. Net present value method. Present value method.

Payback method.

Which methods of evaluating a capital investment project use cash flows as a measurement basis? Answers: Net present value, accounting rate of return, and internal rate of return. Internal rate of return, payback period, and accounting rate of return Accounting rate of return, net present value, and payback period. Payback period, internal rate of return, and net present value. Net present value, payback period, accounting rate of return, and internal rate of return.

Payback period, internal rate of return, and net present value.

The expected amount of time to recover the initial amount of an investment is called the: Answers: Amortization period. Payback period. Interest period. Budgeting period. Discounted cash flow period.

Payback period.

An internal report that compares actual cost and sales amounts with budgeted amounts and identifies the differences between them as favorable or unfavorable variances is called a: Answers: Performance report. Production report. Budget report. Variance report. Standard report.

Performance report.

Using a traditional costing approach, which of the following manufacturing costs are assigned to products? Answers: Direct materials and direct labor. Direct labor and variable manufacturing overhead. Fixed manufacturing overhead, direct materials, and direct labor. Variable manufacturing overhead, direct materials, and direct labor. Variable manufacturing overhead, direct materials, direct labor, and fixed manufacturing overhead.

Variable manufacturing overhead, direct materials, direct labor, and fixed manufacturing overhead.

Minor Electric has received a special one-time order for 1,500 light fixtures (units) at $5 per unit. Minor currently produces and sells 7,500 units X at $6.00 each. This level represents 75% of its capacity. Production costs for these units are $4.50 per unit, which includes $3.00 variable cost and $1.50 fixed cost. To produce the special order, a new machine needs to be purchased at a cost of $1,000 with a zero salvage value. Management expects no other changes in costs as a result of the additional production. Should the company accept the special order? Answers: No, because net income would decrease by $1,500. No, because net income would decrease by $2,000. Yes, because net income would increase by $7,500. Yes, because net income would increase by $2,000. No, because net income would decrease by $5,500.

Yes, because net income would increase by $2,000.