Mega Accounting

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Which one of the following budgets should be prepared first? A. production budget B. sales budget C. direct materials budget D. cash budget

An organization in which decision-making authority is spread throughout the organization is

decentralized

When a product line is eliminated, total variable cost should _____ in direct proportion to the reduction in production and sales of that product line

decrease

The adjustment for overapplied overhead ________.

decreases cost of goods sold and increases net operating income.

_____ _____ _____ is a fixed cost that can be attributed to specific business segment

direct fixed cost

simple interest:

doesn't build upon.

True or false: An advantage of the accounting rate of return (ARR) is that it uses net income to evaluate capital investments.

false

True or false: Cost centers have no impact on revenue.

false

Sales price per unit - manufacturing cost per unit = ______ per unit.

gross profit per unit

Which of the following statements is false?

To be relevant, a cost must be an opportunity cost.

In activity-based costing, what is calculated by dividing the total cost of each activity by its total cost driver?

activity rate

The formula to apply overhead to products is ______

activity rate times activity

Appraisal or inspection costs are costs that:

are incurred to identify defective products before products are shipped to the custome

The minimum acceptable transfer price using the cost-based method is ______.

variable cost

A company is considering whether to continue to make a component or buy it from an outside supplier. If they buy the component the manufacturing facility currently being used will be idle. If the company has no alternative use of the facility, the opportunity cost associated with this decision is:

zero

At the break-even point, the margin of safety will be:

zero

The internal rate of return is the discount rate that results in a net present value of _____ for the investment.

zero

Blanchard, Inc., is considering introducing a new product and wants to earn a 15% return on sales. If the market price is estimated to be $200, the most the company can spend and still achieve the goal (the target cost) is

170

Monthly utility costs are estimated to be $1,200 regardless of the course of action; in this case the utility costs are considered a/an _____ _____

irrelevant cost

Companies can improve job cost accuracy by using ________.

multiple predetermined overhead rates

The accounting rate of return equals ______.

net income/ initial investment

When a department has limited capacity and is asked to make a sale to another department, the selling manager will ______.

not be likely to set a transfer price less than market price

A(n) Blank 1 of 1 income statement is broken down by product line, region, or other area of a business.

segmented

Costs that have already been incurred are _____ _____

sunk costs

If production volume does not equal sales volume:

the conclusions we draw from a CVP analysis will not be as sound as they would be if we assumed production equaled sales.

If the hurdle rate is greater than the internal rate of return, the net present value will be negative. T/F

true

What's multiplied by the budgeted unit sales to obtain total sales on the sales budget? A. budgeted units to be produced B. number of units budgeted to be sold C. budgeted gross margin % D. budgeted sales price per unit

Budgets are used for 2 distinct purposes: _____ and _____. The first of these purposes relates to developing goals and preparing various budgets, while the second involves comparing actual results to the budget A. directing; planning B. planning; controlling C. leading; controlling D. directing; leading

Common fixed costs A. are included in the calculation of segment margin B. will be incurred even if a segment is eliminated C. should be included in a keep or drop analysis D. can be assigned to specific company segments

How much will you have in a savings account in ten years, if you deposit $1000 in the account at the end of each year and the account earns 6% interest, compounded annually? A. $10,000 B. $10,600 C. $13,181 D. $17,906

C. $13,181

Overhead costs are overapplied if the amount applied to Work in Process is:

greater than actual overhead incurred.

A top-down approach to budgeting is one that is participative. motivational. imposed. tight.

imposed

a top-down approach to budgeting is one that is

imposed

Activity-based management focuses on ______.

improving operations increasing efficiency

When calculating Return on Investment (ROI), net operating income ______.

includes income from normal operations does not include interest expense

The current manufacturing costs include ______ direct labor, ______ direct materials, and _______ manufacturing overhead.

actual; actual; applied

When making a capital budgeting decision, it is most useful to calculate the payback period ______.

as part of the screening process

There are many variances of ROI, including return on ______.

assets equity capital employed

The purpose of Stage 1 allocations is to:

assign indirect manufacturing costs to activity cost pools.

The final step in activity-based costing is ______

assigning indirect costs to products or services

The final step in activity-based costing is ______.

assigning indirect costs to products or services

Costs that can be avoided by choosing one option over another is an _____ _____

avoidable cost

If you invest $10,000 today in a savings account that earns 5% interest, compounded annually, how much would be in the account at the end of ten years? a. $6,139 b. $16,289 c. $77,217 d. $125,779

b. $16,289

Backing out interest to find the equivalent value in today's present dollars is called ___________

discounting

Backing out interest to find the equivalent value in today's present dollars is called______.

discounting

_____ _____ occurs when a company has more than enough resources to satisfy demand

excess capacity

Measuring the value provided to shareholders is the ______ perspective of the balanced scorecard.

financial

The budgeted balance sheet is prepared using info from the _____ budgets

financial

forward-looking phase of planning and control cycle

planning

Managers are required to evaluate and compare more than one capital investment alternative when making a(n) _______________ decision

preference

Activities incurred for each product produced and not dependent on the number of units or batches are ________ -level activities.

product

Activities performed to design a new type of service to be offered are ______-level activities.

product

_____ ______ ______ _____ _____ budget of selling and administration expenses required for the planned level of sales

selling and administrative expense budget

which budget does NOT provide info for the budgeted balance sheet

selling and administrative expense budget

The budget that shows the budgeted expenses for areas other than manufacturing is the _____ and _____ expense budget

selling, administrative

In the _____ run, constrained resources impacts management decisions by maximizing the amount of contribution margin generated by the most limited resources

short

The discount rate ______.

should reflect the company's cost of capital

Management decision in which fixed manufacturing overhead is ignored as long as there's enough excess capacity to meet the order is _____ _____ _____

special order decision

Short term management decision made using differential analysis is _____ _____ _____, _____ _____ _____ _____, and _____ _____ _____ _____

special order decision, make or buy decisions, and keep or drop decision

_____ _____ _____ appellation of incremental analysis that requires managers to decide whether to accept or reject an order that's outside the scope of normal sales

special order decisions

In decentralized organizations, decision-making authority is ______.

spread throughout the organization

When all of a company's job cost sheets are viewed collectively they form what is known as a ________.

subsidiary ledger

Costs that are relevant to short term decision making are _____ _____

sunk costs

When a department has enough idle capacity to supply a part to another division within the company without interrupting current sales, ______.

the department is likely to accept a relatively low transfer price

The time value of money is:

the principle that money is more valuable today than it will be in the future.

The net present value method is a discounted cash flow method. T/F

true

The payback period method ignores the time value of money. T/F

true

True or false: For capital budgeting purposes, capital assets includes item research and development projects.

true

Installing parts on an automobile is a(n) ______ -level activity.

unit

_____ _____ _____ is a specific goal that management wants to achieve over a long term horizon, typically 5-10 years

long term objective

Which of the following is NOT a volume-based cost driver?

machine setups

The number of units included in the production budget:

may differ from the number of units in the sales budget, depending on ending inventory goals.

Inspection costs ______.

may lead to internal failure costs

Managers of cost centers are expected to ______.

minimize costs and maximize cost-effectiveness

The hurdle rate is the ______ rate of return on an investment.

minimum acceptable

When managers are evaluated on residual income, rather than on return on investment (ROI), they will be _______ (more/less) likely to pursue projects that will benefit the entire company.

If the total activity cost were unknown, it could be calculated by:

multiplying the total activity driver by the activity rate.

Deciding whether to purchase or lease a vehicle is an example of a(n) ______ project decision.

mutually exclusive

A transfer price developed using the ______cost , method should fall somewhere between the variable cost and the wholesale price.

negotiation

Methods commonly used for transfer pricing are ______.

negotiation, cost-based, market-price

earnings per share (eps)=

net income/average number of common shares outstanding

annual rate of return:

net income/initial investment or net income/average annual investment ((beg of year-end of year)/2)

net profit margin=

net income/total revenue x 100

Capital investment methods that ignore the time value of money are referred to as __________ methods.

non-discounting

The overall difference between the actual and applied manufacturing overhead is the:

over- or underapplied overhead.

Indirect costs are also referred to as ___ costs

overhead

What's added to the budgeted unit sales on a production budget to obtain the total number of units to be produced? A. budgeted ending inventory B. actual ending inventory C. budgeted beginning inventory D. actual beginning inventory

Which budget shows all costs of production other than direct materials and direct labor? A. manufacturing overhead budget B. cash budget C. merchandise purchases budget D. ending finished goods inventory budget

Which of the following is NOT considered an operating budget? A. cash budget B. budgeted income statement C. selling and administrative expense budget D. raw materials purchase budget

Which of the following is NOT included on a budgeted cash payments budget? A. production in units B. depreciation C. cash paid for selling and administrative expenses D. payments for raw materials

Anders Inc. assigns overhead using activity proportions and has a machine setup cost pool. Last year there were 27,500 setups at a total cost of $550,000. Product R3D used a total of 8,250 of those setups and should be assigned ___% of the total setup cost.

30 %

Tilly's Travels purchased a new tour bus at a cost of $320,000. The bus is expected to increase cash inflows over the next 5 years as follows: $98,000 in year 1; $87,500 in year 2; $74,500 in year 3; $60,000 in year 4; and $59,000 in year 5. The payback period for the new bus is ______ years.

Jackson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Product 5 uses 20% of total machine hours and 75% of total batches. What is the total Machining cost assigned to Product 5?

$100,000

Pastoria Enterprises has scheduled raw material purchases of $100,000 in January, $130,000 in February and $150,000 in March. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of February

$122,500 ((130,000 X 75%) 97,500 + Jan. purchases (100,000 X 25%) 25,000)

Crystal, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and raw materials inventory will stay constant. Direct Materials $4.00 per unit Direct Labor $7.20 per unit Manufacturing Overhead $10.00 per unit Selling and Administrative expense $8.00 per unit What is budgeted cost of goods sold for March? $20,367 $21,200 $25,440 $35,040

$25,440

Harney, Inc. has prepared the following budgets for March. In March, budgeted production equals budgeted sales, and raw materials inventory will stay constant. Direct Materials-$5200 Direct Labor- $9,360 Manufacturing Overhead-$13,000 Selling and Administrative expense $10,400 What is budgeted cost of goods sold for March? $14,560 $24,960 $27,560 $37,960

$27,560

Using the tables from the Appendix, and an interest rate of 8% compounded annually, $5,000 to be received four years from today is equal to ______ today.

$3,675 Rationale: $5,000 x 0.7350 (PV of a dollar for 4 years at 8%) = $3,675.

Pima, Inc. manufactures calculators that sell for $40 each. Each calculator uses $15 in direct materials and $5 in direct labor per unit. Pima has two activities: Machining, which is applied at the rate of $4 per machine hour, and Finishing, which is applied at the rate of $20 per batch. This month, Pima made 400 calculators, using 1000 machine hours in 40 batches. What is the total manufacturing cost for one calculator?

$32

Crystal, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and raw materials inventory unit costs will stay constant. Direct Materials $6.00 per unit Direct Labor $10.80 per unit Variable Manufacturing overhead $7.50 per unit Fixed Manufacturing Overhead $7,500 What is budgeted cost of goods sold for March? $30,551 $31,800 $36,660 $38,160

$38160

Hadley, Inc. manufactures a product that uses $15 in direct materials and $5 in direct labor per unit. Under the traditional costing system Hadley uses, manufacturing overhead applied to each unit is $12. However, Hadley is considering switching to an ABC system. Under the ABC system, the total activity cost would be $25. What is the total manufacturing cost per unit for Hadley under the ABC system?

$45

Culver, Inc. produces two different products (Product V3 and Product G8) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity drivers are used as follows: Product V3 Product G8 Total Machine hours 1,000 3,000 4,000 Number of batches 45 15 60 The activity rate for Inspection is $750 per batch. What is the total cost of Inspection?

$45,000

Plaster Company expects to have a total cost of $400,000 in its activity cost pool. The total expected activity is 800 machine setups. The activity rate is $___ per setup.

$500

Walnut has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Walnut's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Selling and administrative costs are budgeted to be $15,000 per month plus $5 per unit sold. What are budgeted selling and administrative expenses for September? $30,000 $67,500 $32,500 $52,500

$52,500

Dane Inc has forecast purchases on account to be $465,000 in March, 555,000 in April, $630,000 in May, and $735,000 in June. Seventy percent of purchases are paid for in the month of purchase, the remaining 30% are paid in the following month. What are budgeted cash payments for April? $528,000 $577,500 $388,500 $189,000

$528,000

A company's activity rate for the general factory is $2.00 per machine hour. Product A used 3,000 machine hours and 1,000 labor hours. General factory overhead assigned to Product A is ______

$6,000 $2 × 3,000 = $6,000

Irwin Corp. has fixed costs of $20,000 and a contribution margin ratio of 40%. Currently, margin of safety is $35,000. What are Irwin's current sales?

$85,000

Jaybird Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Jaybird Inc.'s ending finished goods inventory policy is 10% of the following month's sales. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How much is total labor cost during the three months July through September? $69,300 $327,670 $846,300 $859,320

$859,320

Using the tables in Appendix 11.A, how much interest will an investment of $10,000 today at 12% interest compounded annually earn over 20 years (rounded to the nearest dollar)?

$86,463 Reason: $10,000 × 9.6463 (FV of a dollar for 20 years at 12%) - $10,000 investment = $86,463.

Largo, Inc., which uses a volume-based cost system, produces cat condos, and has a gross profit margin of 50%. Direct materials cost $15 per unit, and direct labor costs $10 per unit. Manufacturing overhead is applied at a rate of 200% of direct labor cost. Nonmanufacturing costs are $27 per unit. How much does each cat condo sell for?

$90

Under the weighted average method of process costing, which of the following formulas is used to calculate the cost per equivalent unit? (Ending Inventory + Current Costs)/Physical Units (Beginning Inventory + Current Costs)/Physical Units (Ending Inventory + Current Costs)/Equivalent Units (Beginning Inventory + Current Costs)/Equivalent Units

(Beginning Inventory + Current Costs)/Equivalent Units

The formula for target units is:

(Total variable costs + Total fixed costs)/Unit contribution margin

The profit equation is:

(Unit price × Q) - (Unit variable costs × Q) - Total fixed costs = Profit

average invested assets:

(beginning total assets + ending total assets)/2

gross profit percentage=

(sales revenue-cogs)/sales revenue x 100

Which of the following statements are true?

- Differential costs change in response to alternative courses of action. - Sunk costs are never differential

Which of the following statements are true?

- Some opportunity costs are not readily quantified - Determining opportunity costs involves subjectively

Which of the following statements are true?

- the theory of constraints focuses on bottlenecks. - cost minimization is an important aspect of the theory of constraints. - the theory of constraints assumes few variable costs

Which of the following statements are true? -Any capital budgeting technique can be used for screening decisions. -Capital budgeting techniques that use time value of money are superior to those that don't. -The payback method is best used for preference decisions. -The IRR method is best for evaluating mutually exclusive projects.

-Any capital budgeting technique can be used for screening decisions. -Capital budgeting techniques that use time value of money are superior to those that don't.

Which of the following statements about employee motivation is true? A budget that is too easy to achieve is more likely to motivate than a budget that is too difficult or that is tight but attainable. A budget that is too difficult to achieve is more likely to motivate than a budget that is too easy or that is tight but attainable. A budget that is tight but attainable is more likely to motivate than a budget that is too easy or too difficult to achieve. Budgets are difficult to use for motivation.

A budget that is tight but attainable is more likely to motivate than a budget that is too easy or too difficult to achieve.

Nelson Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $400,000 and have a 5-year life. If the salvage value of the equipment is estimated to be $75,000, what is the payback period? Ignore income taxes.

4.00 years

Carlos, Inc. requires a minimum rate of return of 10% on its average operating assets. The housewares department currently has average invested assets of $200,000 and a net operating income of $24,000. The department's residual income is $

4000 rationale: 24000-(200000*.1)

Tom Ellis recently bought a plasma tv and has since stated that he wouldn't recommend it to others. This indicates that Tom has completed which step of the decision making process?

Put the steps in the decision making process in order 1. make the decision 2. review the results 3. determine the decision alternatives 4. evaluate the costs and benefits 5. identify the decision problem

5, 3, 4, 1, 2

Farm Central is considering the purchase of a larger combine to increase productivity. Combine A costs $210,000 and has a useful life of 10 years. The combine will reduce labor costs by $25,000 per year. The payback period of the combine is ______ years.

8.4 Reason: $210,000 ÷ $25,000 = 8.4 years

Jefferson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. The activity drivers are used as follows: product 5 . product z total machine hours . 1200 . 4800 6000 number of batches 60 20 . 80 What proportion of Machining activity is used by Product Z?

80%

Capital budgeting decisions include ______.

-purchasing new equipment to reduce cost -acquiring a new facility to increase capacity -deciding to replace old equipment -determining which equipment to purchase among available alternatives -choosing to lease or buy new equipment

Non-volume-based cost drivers may be more appropriate for activities ___ -that are performed for each unit -that are performed for each batch -related to individual products -related to the entire facility

-that are performed for each batch -related to individual products

Indirect costs can be assigned to products or services using ______. -activity-based management -total quality management -the activity rate method -the activity proportion method -target costing

-the activity rate method -the activity proportion method

Net present value is ______.

-used to determine if a project is an acceptable capital investment -the difference between the present value of cash inflows and present value of cash outflows for a project

residual income formula:

=net operating income - (average invested assets x hurdle rate)

Jefferson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Usage of the activity drivers are as follows: What proportion of Machining activity is used by Product 5?

1,200/6,000 = 20%.

the solvency ratios you need to know:

1. debt-to-assets ratio

the profitability ratios you need to know:

1. net profit margin 2. gross profit percentage 3. assets turnover 4. earnings per share 5. price/earnings

An investment offers you $750 per year for 20 years starting at the end of this year. At an interest rate of 3.75%, the investment is worth $

10422

A company assigns overhead based on direct labor costs. The predetermined overhead rate is $3.00 per direct labor dollar. A job that used a total of 20 direct labor hours ($400 in total direct labor costs) would be assigned $ ___ in total overhead.

1200

ABC Company expects to sell 100,000 units of its primary product in January. Expected beginning and ending finished goods inventory for January are 20,000 and 45,000 units, respectively. How many units should ABC produce?

125,000

Marlow Company produces hand tools. A production budget for the next four months is as follows: March 10,300 units, April 13,300, May 16,500, and June 21,800. Marlow Company's ending finished goods inventory policy is 10% of the following month's sales. Marlow plans to sell 16,000 units in May. What is budgeted ending inventory for March? 1,030 1,300 1,330 1,650

1300

Marlow Company produces hand tools. A production budget for the next four months is as follows: March 10,300 units, April 13,300, May 16,500, and June 21,800. Marlow Company's ending finished goods inventory policy is 10% of the following month's sales. Meadow plans to sell 16,000 units in May. How many units will be sold in April? 12,380 13,000 13,570 13,620

13000

SPL Enterprises assigns overhead based on number of machine hours. For the upcoming year, they plan to use a total of 250,000 machine hours and 50,000 direct labor hours. Total overhead cost is expected to be $500,000. The predetermined overhead rate per machine hour is $

Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. What will leather purchases be in July? 2,300 square meters 2,550 square meters 2,700 square meters 3,575 square meters

2550 square meters

Which step in the management decision making process: evaluate the costs and benefits of the decision alternatives that were identified in the previous step

Which of the following functions of management involves providing motivation to achieve results?

Implementing

Which of the following statements are true?

In some companies, dropping a product line is equivalent to closing a business unit

How can a company increase its return on investment (ROI)?

Increase sales Reduce operating expenses

Which of the following statements is true?

Informal or unspoken agreements to fix prices may be considered illegal.

examples of cash outflows:

Initial Investment Repairs and Maintenance Increased Operating Costs Overhaul of Equipment

When cash flows are equal each year, the payback period is calculated as:

Initial investment/Annual net cash flow

Which of the following should a manager using activity-based management attempt to reduce or eliminate?

Insurance division to process liability insurance payments

Which of the following is not a step in the managerial decision-making process?

Choose the appropriate hurdle rate.

Which of the following types of decisions involves deciding whether to eliminate a particular division or segment of the business?

Continue-or-discontinue

Which of the following is a mixed cost?

Correct A cost that is $32.00 per unit when production is 80,000, and $26.00 per unit when production is 128,000.

Which of the following is not a way to reduce the dysfunctional behaviors associated with budgeting? Create budget slack. Use different budgets for planning and for performance evaluation. Use a continuous or rolling budget approach. Use a zero-based budgeting approach.

Create Budget Slack

Raya Company is calculating its expected cash receipts for the month of June. This should NOT include A. cash sales made during June B. credit sales made during May C. credit sales made during June D. credit sales made during July

The decision making approach in which a manager considers only costs and benefits that differ for alternatives is called A. incremental analysis B. outsourcing C. differential analysis D. either A or C

The entire budget must be created from scratch every period when using A. participative budgeting B. top down budgeting C. continuous budgeting D. zero based budgeting

What determines the difference between a product and period cost? a) Whether it changes when activity levels change. b) Whether it is relevant to a particular decision. c) Whether it can be traced to a specific cost object. d) When the cost will be matched against revenue.

Which of the following budgets shows how many units will be produced each period? A) Direct Materials budget B) Direct labor budget C) Sales Budget D) Production Budget

Which of the following could be a constrained resource? A. machine hours B. direct materials C. factory space D. all of the above

Which of the following is not a characteristic of managerial accounting? a) Information is used by internal parties b) Information is subjective, relevant, future-oriented c) Reports are prepared as needed d) Reports are prepared according to GAAP

Which of the following refers to the costs that ALWAYS differ between alternatives? A. irrelevant costs B. variable costs C. sunk costs D. relevant costs

Which of the following would be used to apply manufacturing overhead to production for the period? A. Credit to Raw Materials Inventory B. Credit to Work in Process Inventory C. Debit to Manufacturing Overhead D. Credit to Manufacturing Overhead

D. Credit to Manufacturing Overhead When manufacturing overhead is applied to production, Work in Process Inventory is debited and the Manufacturing Overhead account is credited.

Cost of goods manufactured is the amount of cost transferred A. out of Finished Goods Inventory and into Cost of Goods Sold. B. out of Finished Goods Inventory and into Work in Process Inventory. C. out of Work in Process Inventory and into Manufacturing Overhead. D. out of Work in Process Inventory and into Finished Goods Inventory.

D. out of Work in Process Inventory and into Finished Goods Inventory. The total cost that is transferred out of Work in Process Inventory and into Finished Goods Inventory is called the cost of goods manufactured.

Which of the following is not a characteristic of decentralization?

Decentralization reduces how accountable lower-level managers are for the outcomes of their decisions.

In what type of organization is decision-making authority spread throughout the organization?

Decentralized organization In a decentralized organization, decision-making authority is spread throughout the organization, and managers are given a great deal of autonomy to decide how to manage their individual units.

Which of the following is not a component of the cash budget? Budgeted cash collections Budgeted cash payments Depreciation expense Cash borrowed or repaid

Depreciation Expense

Which of the following is not a type of quality cost?

Development costs

Which of the following is a characteristic of a manufacturing environment that would use job order costing?

Differentiated products

Which of the following is a characteristic of a manufacturing environment that would use job order costing? Standardized production process Continuous manufacturing Homogenous products Differentiated products

Differentiated products

Which of the following is the correct formula to compute an activity rate?

Divide the total activity cost by the total activity driver

Which of the following statements is not correct about the methods managers use to model the relationship between revenues, costs, profit, and volume?

Each method provides a different way to express the CVP relationships, yet answers the same basic question. Each method yields a different final answer to be used in analysis. Choice of method depends, in part, on the available information.

Which component of the cash budget is shown as a line item on the budgeted balance sheet? Budgeted cash collections Budgeted cash payments Cash repaid Ending cash balance

Ending Cash Balance

Which type of quality cost would a firm most want to eliminate or reduce as much as possible?

External failure costs

Both variable and fixed manufacturing overhead costs are included in the selling and administrative expense budget. T/F

FALSE

The budgeted income statement is not one of the key schedules in the budget process. T/F

FALSE

he first step in the budgeting process is the preparation of the cash budget, which is a detailed schedule showing the expected sales for the budget period. T/F

FALSE

An activity that is performed to benefit the organization as a whole is a(n)

Facility or companywide activities are performed to benefit the organization as a whole.

True or false: A balanced scorecard includes leading indicators but NOT lagging indicators.

False

Which of the following costs is not relevant in a special-order decision?

Fixed Overhead Fixed overhead costs will be incurred whether or not the order is accepted so they are not relevant to the special-order decision.

Which of the following costs is not relevant in a special-order decision?

Fixed overhead

Which of the following is not a step in the managerial decision-making process?

Forecast the potential sales.

A performance evaluation system can create ________ or a conflict of interest between what is best for a division and best for the company as a whole.

Goal Incongruence

Which of the following terms is generally not used to describe the forward-oriented nature of the budgeting process?

Hoped for

Which of the following are facility-level activities?

Human resource hiring fairs Paying factory insurance

Which of the following is the best example of a facility-level activity?

Human resources

Which of the following statement is correct about the functions that fall within various responsibility centers?

A revenue center manager is responsible for fewer functions than a profit center manager is.

Morie Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.75 direct labor-hours. The direct labor rate is $8.10 per direct labor-hour. The production budget calls for producing 2,000 units in March and 2,300 units in April. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 1,760 hours in total each month even if there is not enough work to keep them busy. What would be the total combined direct labor cost for the two months? A) $28,512.00 B) $26,406.00 C) $28,228.50 D) $26,122.50

A) $28,512.00

Acmal Manufacturing Company is estimating the following raw material purchases for the last four months of the year: September: $850000 October: $900000 November: $810000 December: $780000 At Acmal, 25% of raw materials purchases are normally paid for in the month of purchase. The remaining 75% is paid for in the month following the purchase. In Acmal's budgeted balance sheet at December 31, at what amount will accounts payable be shown? A) $585,000 B) $607,500 C) $780,000 D) $802,500

A) $585,000

Parsons Corporation plans to sell 18,000 units during August. If the company has 5,500 units on hand at the start of the month, and plans to have 6,000 units on hand at the end of the month, how many units must be produced during the month? A) 18500 B) 17500 C) 24000 D) 19500

A) 18500

A continuous or rolling budget (check all that apply) A. keeps managers in continuous planning mode B. adds one period to the end of the budget as each period comes to a close C. helps avoid games at the end of a budget period D. is also known as a zero based budget

A, B, C

When considering a make or buy decision managers should consider (check all that apply) A. qualitative factors B. opportunity costs C. all variable production costs D. all fixed production costs

A, B, C

When making a decision either to go to a movie or rent a DVD, choosing the movie instead of the DVD means that the cost of the DVD would be eliminated. This is an example of which type of cost? (check all that apply) A. avoidable cost B. sunk cost C. relevant cost D. future cost

A, C

Which of the following budgets are NOT needed in service firms (check all that apply) A. production B. selling and administrative C. manufacturing overhead D. cash

A, C

Financial budgets (check all that apply) A. include the cash budget B. impact the budgeted income statement C. include the capital expenditures budget D. impact the budgeted balance sheet

A, C, D

Which of the following are advantages of budgeting? (check all that apply) A. budgets force managers to think about and plan for the future B. budgeting provides each department with the same amount of money to spend, so that all departments are treated fairly C. budgets provide benchmarks for evaluating performance D. the budgeting process provides lead time to solve potential problems E. budgets promote cooperation and coordination between different areas within an organization

A, C, D, E

When an organization uses a top down approach to budgeting (check all that apply) A. top management sets the budget B. budgetary slack is often a problem C. employees are highly motivated to meet goals D. the budget is imposed on lower levels of the organization

A, D

When preparing a raw materials purchases budget, which of the following is needed to calculate the raw materials to be purchases (Check all that apply) A. raw materials per unit B. budgeted unit sales C. ending finished goods inventory D. beginning inventory of raw materials

A, D

When trying to decide if a particular cost is avoidable, how does a manager categorize irrelevant costs? (check all that apply) A. sunk costs B. future costs that differ between alternatives C. fixed costs D. future costs that do not differ between alternatives

A, D

Manufacturing overhead was estimated to be $200,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $215,000, actual labor hours were 21,000. The predetermined overhead rate would be A. $10.00 B. $1.05 C. $10.75 D. $10.24

A. $10.00 $200,000/20,000 = $10.00

How much would you need to deposit in a savings account that earns 7%, compounded annually, to withdraw $20,000 eight years from now? A. $11,640 B. $18,600 C. $18,692 D. $34,364

A. $11,640

Byron Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. The salvage value of the equipment is estimated to be $75,000. If the hurdle rate is 10%, what is the approximate net present value? Ignore income taxes. A. $25,648 B. $100,000 C. $175,000 D. ($20,291)

A. $25,648

How much would you need to deposit now in a savings account that earns 5% interest, compounded annually, in order to withdraw $5,000 at the end of every year for ten years? A. $38,609 B. $47,500 C. $47,619 D. $50,000

A. $38,609

A. $528,000

Larken has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Larken's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for August? A. $56,600 B. $17,000 C. $53,000 D. $38,600

A. $56,600

Skylark has forecast production for the next three months as follows: July 4,900 units, August 6,600 units, September 7,500 units. Monthly manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for August? A. $56,600 B. $17,000 C. $39,600 D. $62,000

A. $56,600

Wright Corp is considering the purchase of a new piece of equipment, which would have an initial cost of $1,000,000 and a 5 year life. There is no salvage value for the equipment. The increase in net income each year of the equipment's life would be as follows: What is the payback period? A. 1.77 years B. 2.06 years C. 2.96 years D. 3.51 years

A. 1.77 years

Palmer Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $100,000. The equipment will have an initial cost of $400,000 and have a 7 year life. If the salvage value of the equipment is estimated to be $75,000, what is the payback period? A. 2.73 years B. 4.00 years C. 4.75 years D. 7.00 years

A. 2.73 years

Newport Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and have a 6 year life. There is no salvage value for the equipment. What is the accounting rate of return? Ignore income taxes. A. 5.56% B. 16.67% C. 22.22% D. 44.44%

A. 5.56%

Clare purchases a single product for $15 and sells it for $30. Forecasted sales for the next three months are July 4,000 units, August 6,000 units, September 7,500 units. Clare's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. What are budgeted purchases in units for August? A. 6,600 units B. 10,400 units C. 5,400 units D. 600 units

A. 6,600 units

You have $10,000 that you can invest in a savings account that earns 7% interest, compounded annually. If you want to withdraw at least $18,000 at some point in the future, how long will you need to keep the money invested? A. 9 years B. 10 years C. 11 years D. 12 years

A. 9 years

Manufacturing overhead is applied to each job using which formula? A. Predetermined overhead rate x actual value of the allocation base for the job B. Predetermined overhead rate x estimated value of the allocation base for the job C. Actual overhead rate x estimated value of the allocation base for the job D. Predetermined overhead rate/actual value of the allocation base for the job

A. Predetermined overhead rate x actual value of the allocation base for the job This is the formula for applied manufacturing overhead.

When direct materials are used in production, which of the following accounts is credited? A. Raw Materials Inventory B. Work in Process Inventory C. Finished Goods Inventory D. Cost of Goods Sold

A. Raw Materials Inventory When direct materials are used in production, the cost is transferred from Raw Materials Inventory (with a credit) to Work in Process Inventory (with a debit).

Cost of goods sold is the amount of cost transferred A. out of Finished Goods Inventory and into Cost of Goods Sold. B. out of Work in Process Inventory and into Cost of Goods Sold. C. out of Work in Process Inventory and into Manufacturing Overhead. D. out of Work in Process Inventory and into Finished Goods Inventory.

A. out of Finished Goods Inventory and into Cost of Goods Sold. When goods are sold, their cost is transferred out of Finished Goods Inventory and into Cost of Goods Sold.

Which of the following best defines a batch-level activity?

An activity that is performed for a group of units all at once

Which of the following best defines a product-level activity?

An activity that is performed to support a specific product line

Which of the following methods is not commonly used to set transfer prices?

Arbitration-cost

When is it profitable to continue processing a product instead of selling it as is? A. it's never profitable B. it's profitable when the incremental revenue exceeds the incremental manufacturing cost C. it's profitable when the incremental processing cost exceeds the incremental revenue D. it's always profitable

Davey Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable factory overhead rate is $3.00 per direct labor-hour; the budgeted fixed factory overhead is $66,000 per month, of which $10,000 is factory depreciation. If the budgeted direct labor time for December is 4000 hours, then the predetermined overhead per direct labor-hour for December would be: A) $3.00 B) $19.50 C) $5.50 D) $17.00

B) $19.50

Davey Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable factory overhead rate is $3.00 per direct labor-hour; the budgeted fixed factory overhead is $66,000 per month, of which $10,000 is factory depreciation. If the budgeted direct labor time for November is 9000 hours then the total budgeted cash disbursements for November must be: A) $56000 B) $83000 C) $37000 D) $93000

B) $83000

In the long term, companies can manage constraints by (check all that apply) A. prioritize products based on contribution margin B. increasing capacity C. hiring more workers D. eliminating value added activities

B, C

Overhead was estimated to be $250,000 for the year along with 20,000 direct labor hours. Actual overhead was $225,000, and actual direct labor hours were 19,000. The amount debited to the manufacturing overhead account would be A. $250,000 B. $225,000 C. $213,750 D. $237,500

B. $225,000 Actual manufacturing overhead costs of $225,000 are debited to the Manufacturing Overhead account.

Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How much will be paid to skilled labor during the three months July through September? A. $742,500 B. $643,500 C. $4,387,500 D. $292,500

B. $643,500

B. 1,300

Nelson Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. If the salvage value of the equipment is estimated to be $75,000, what is the payback period? Ignore income taxes. A. 3.25 years B. 4.00 years C. 4.75 years D. 7.00 years

B. 4.00 years

Patterson Corp is considering the purchase of a new piece of equipment, which would have an initial cost of $500,000, a 7 year life, and $150,000 salvage value. The increase in cash flow each year of the equipment's life would be as follows: What is the payback period? A. 5.51 years B. 5.97 years C. 6.00 years D. 6.18 years

B. 5.97 years

Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How many unskilled labor hours will be budgeted for August? A. 7,000 B. 9,100 C. 15,400 D. 24,500

B. 9,100

All the costs assigned to an individual job are summarized on a A. Cost driver sheet. B. Job cost sheet. C. Materials requisition form. D. Labor time ticket.

B. Job cost sheet. The job cost sheet is a document that summarizes all of the costs incurred on a specific job.

The cost of materials used on a specific job is first captured on which source document? A. Cost driver sheet B. Materials requisition form C. Labor time ticket D. Process cost sheet

B. Materials requisition form The materials requisition form lists the quantity and cost of the direct materials used on a specific job.

Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. Leather is expected to cost $5.00 per square meter in June, but go up to $6.00 per square meter in July. What is the expected cost of leather purchases in July? A.13,800 B.15,300 C.16,200 D.16,300

B.15,300

Which of the following statements is true about the use of managerial accounting information in nonprofit organizations?

Because managers of nonprofit organizations need timely and relevant information to make decisions, managerial accounting is vital to these organizations

Which of the following statements are true?

Before implementing ABC, a company should weigh the benefits against the costs. The support of upper management is required for successful ABC implementation.

The basic form of the cash budget is: Budgeted cash collections - Budgeted cash payments +/- Cash borrowed or repaid = Ending cash balance Beginning cash balance + Budgeted cash collections - Budgeted cash payments +/- Cash borrowed or repaid = Ending cash balance Beginning cash balance - Budgeted cash collections + Budgeted cash payments +/- Cash borrowed or repaid = Ending cash balance Beginning cash balance + Budgeted cash collections - Budgeted cash payments = Cash borrowed or repaid

Beginning cash balance + Budgeted cash collections - Budgeted cash payments +/- Cash borrowed or repaid = Ending cash balance

Which of the following relationships is correct? Beginning units in inventory + units started = units completed + ending units in inventory Units started = beginning units in inventory + units completed + ending units in inventory Units started - beginning units in inventory = units completed + ending units in inventory Ending units in inventory + beginning units in inventory = units started - units completed

Beginning units in inventory + units started = units completed + ending units in inventory

A detailed plan that translates the company's objectives into financial terms, identifying the resources and expenditures that will be required over the planning horizon is a Strategic plan Budget Tactic Long-term objective

Budget

Which of the following is the primary tool used by cost centers to manage costs?

Budgetary control system The budget is a primary tool used by cost centers to manage costs.

Which of the following is correct about budgetary slack?

Budgetary slack is a bit of cushion built into a budget, making it more likely budgetary goals will be met.

Which of the following is not included in the operating budget? Budgeted balance sheet Sales budget Selling and administrative budget Raw materials purchases budget

Budgeted Balance Sheet

Budgeted direct labor hours are calculated as Budgeted production units × Direct labor requirements per unit + Ending inventory - Beginning inventory. Budgeted production units × Direct labor requirements per unit + Beginning inventory - Ending inventory. Budgeted production units × Direct labor requirements per unit. Budgeted sales units × Direct labor requirements per unit.

Budgeted production units x Direct Labor requirements per unit

Budgeted direct labor hours are calculated as:

Budgeted production units × Direct labor requirements per unit

A _____ decision is a decision to carry out an activity internally or buy externally from a supplier A. product line B. sell or process C. make or buy D. special order

A business segment should only be dropped if a company can save more in fixed costs than it gives up in A. variable costs B. net income C. contribution margin D. segment sales

A(n) _____ order is a one time order that is NOT considered part of the company's normal ongoing business A. relevant B. supplier C. special D. standard

Ajax uses the high-low method of estimating costs. Ajax had total costs of $50,000 at its lowest level of activity, when 5,000 units were sold. When, at its highest level of activity, sales equaled 12,000 units, total costs were $78,000. Ajax would estimate variable cost per unit as a) $10.00 b) $6.50 c) $4.00 d) $7.53

Determining decision alternatives A. is an important part of the feedback portion of decision making B. is done using incremental analysis C. is a critical step in the decision making process D. happens throughout the decision making process

If a company uses a predetermined overhead rate, which of the following statements is correct? a) Manufacturing Overhead will be debited for estimated overhead b) Manufacturing Overhead will be credited for estimated overhead c) Manufacturing Overhead will be debited for actual overhead d) Manufacturing Overhead will be credited for actual overhead

Product costs are reported a) only on the balance sheet. b) only on the income statement. c) on the balance sheet before goods are sold, and on the income statement after goods are sold. d) on the income statement before goods are sold, and on the balance sheet after goods are sold.

The Formula for budgeted raw materials purchases is A) Budgeted production units + Ending raw materials inventory - beginning raw materials inventory B) Budgeted production units + Beginning raw materials inventory - Ending raw materials inventory C) Materials needed for production + Ending raw materials inventory - Beginning raw materials inventory D) Materials needed for production + beginning raw materials inventory - Ending raw materials inventory

The final step in the master budgeting process is to prepare the A. sales budget B. cash budget C. budgeted balance sheet D. budgeted income statement

The purpose of the cash budget is to A) Be used as a basis for the operating budgets B) Provide external users with an estimate of future cash flows C) help managers plan ahead to make certain they will have enough cash on hand to meet their operating needs D) Summarize the cash flowing into and out of the business during the past period

To calculate the cash balance before financing on the cash budget A. add the beginning cash to the budgeted cash payments and subtract the budgeted cash receipts B. add the budgeted cash receipts to the budgeted cash payments and subtract the beginning cash balance C. add the beginning cash balance to the budgeted cash receipts and deduct budgeted cash payments D. add the cash borrowed or repaid to the ending cash balance

What are the decision alternatives in a special order decision? A) To make or buy the product B) To continue or discontinue the product C) To accept or reject the offer D) To sell-or-process further

When calculating raw materials purchases, the starting point should be A) Actual materials purchases from the previous year B) Budgeted sales C) Budgeted Production D) Budgeted cost of raw materials

When calculating the direct labor budget, the starting point should be A) Actual direct labor hours from the previous year B) Budgeted sales C) Budgeted Production D) Budgeted cost of direct labor

When making a decision A. neither quantitative nor qualitative data should be considered B. only quantitative data should be considered C. both quantitative and qualitative data should be considered D. only qualitative data should be considered

When units are completed, the cost associated with the job is debited to which account? a) Raw Materials Inventory b) Work in Process Inventory c) Finished Goods Inventory d) Cost of Goods Sold

When units are sold, the cost associated with the units is credited to which account? a) Raw Materials Inventory b) Work in Process Inventory c) Finished Goods Inventory d) Cost of Goods Sold

Which of the following costs is not likely to be completely eliminated by a decision to drop a product line? A. the variable overhead traced to that product line B. the cost of direct materials used to make the product C. the common fixed costs allocated to that product line D. all of the above will be completely eliminated

Which of the following is NOT an important qualitative factor? A. employee morale B. customer loyalty C. cost per unit D. quality considerations

Which of the following is NOT considered a direct benefit of budgeting? A. better communication B. motivating employees C. developing new product lines D. forcing managers to think ahead

Which of the following is a cost that can be eliminated in whole or in part by choosing one alternative over another? A. variable cost B. sunk cost C. avoidable cost D. irrelevant cost

Which of the following is not a component of the cash budget? A) Budgeted cash collections B) Budgeted cash payments C) Depreciation Expense D) Cash borrowed or repaid

Which of the following statements about employee motivation is true? A) A budget that is too easy to achieve is more likely to motivate than a budget that is too difficult or that is tight but attainable B) A budget that is too difficult to achieve is more likely to motivate than a budget that is too easy or that is tight but attainable C) A budget that is tight but attainable is more likely to motivate than a budget that is too easy or too difficult to achieve D) Budgets are difficult to use for motivation

Ironwood Inc, which has a hurdle rate of 12%, is considering three different independent investment opportunities. Each project has a five-year life. The annual cash flows and initial investment for each of the projects are as follows: Annual CF - $131,470 / $120,520 / $109,560 Initial Investment - 320k / 300k / 230k In what order should Ironwood prioritize investment in the projects?

C, A, B

You are saving for a car that you plan to purchase in five years. You plan to put $3,000 in savings (which earns 8%, compounded annually) at the end of each year until then. How much will you have saved for the car at the end of the five years? A. $15,000 B. $16,200 C. $17,600 D. $22,040

C. $17,600

C. $35,000

Which of the following would be used to record the depreciation of manufacturing equipment? A. Raw Materials Inventory would be debited B. Work in Process Inventory would be debited C. Manufacturing Overhead would be debited D. Manufacturing Overhead would be credited

C. Manufacturing Overhead would be debited Actual indirect manufacturing costs are accumulated in the Manufacturing Overhead account on the debit side of the account.

Which of the following would be used to record the factory supervisor's salary? A. Raw Materials Inventory would be debited B. Work in Process Inventory would be debited C. Manufacturing Overhead would be debited D. Manufacturing Overhead would be credited

C. Manufacturing Overhead would be debited Actual indirect manufacturing costs are accumulated in the Manufacturing Overhead account on the debit side of the account.

a. $25,648

Wright Corp is considering the purchase of a new piece of equipment, which would have an initial cost of $1,000,000 and a 5 year life. There is no salvage value for the equipment. The increase in net income each year of the equipment's life would be as follows: year 1 $375,000 year 2 $350,000 year 3 $285,000 year 4 $230,000 year 5 $185,000 What is the payback period? a. 1.77 years b. 2.06 years c. 2.96 years d. 3.51 years

a. 1.77 years

a. 9 years

Revenue center managers are evaluated primarily on their ______.

ability to meet sales goals

How much net income a potential project is expected to generate as a relative percentage of required investment is told by the ______ of return.

accounting rate

How much net income a potential project is expected to generate as a relative percentage of required investment is told by the __________________ _________________ of return

accounting rate

Net cash flow differs from net income because of ______.

accrual-based accounting

A method that attempts to assign overhead costs based on what is required to produce products is ______ costing.

activity based

A technique that attempts to assign overhead costs to products based on the actions they require is called

activity based costing

In a traditional volume-based cost system, total manufacturing costs are calculated by:

adding manufacturing overhead cost, direct materials cost, and direct labor cost.

Budgeted cost of goods manufactured reflects:

all the costs required to manufacture the product, but not to sell it

Portland, Inc. has formed four activity cost pools: Product Design, Machining and Production, Machine Setup, and Inspection. Gina Taylor, Production Manager at Portland, oversees processes that are considered part of Machining and Production, Machine Setup, and Inspection. Taylor's salary should be:

allocated among Machining and Production, Machine Setup, and Inspection.

A stream of cash flows that occur uniformly over time is a(n) ______.

annuity

Equal interest rates, interest periods, and dollar amounts each interest period are all characteristics of ______.

annuity

Costs incurred to identify defective products before they get to the customer are called ______ costs.

appraisal

Return on investment, residual income, and economic value added ______.

are all lagging measures of performance

At a minimum, an ABC system should have ______

at least one non-unit-level activity cost pool

The balanced scorecard includes both leading and lagging indicators. Which of the following correctly places each indicator on the spectrum of most leading to most lagging?

Learning and growth → Internal business process → Customer → Financial

The approach to cost management that calls for setting cost reduction goals across numerous stages such as product introduction, growth, maturity, and decline is:

Life cycle cost management.

______are the specific goals that managers want to achieve over a 5 to 10 year horizon. Strategic plans Long-term objectives Short-term objectives Tactics

Long-Term Objectives

_____________ are the specific goals that managers want to achieve over a 5- to 10-year horizon.

Long-term objectives

Which of the following is considered a disadvantage of decentralization?

Lower-level managers may have an opportunity to make decisions in their own best interest without considering the overall health of the company.

Which of the following types of decisions involves deciding whether to perform a particular activity in-house or purchase it from an outside supplier?

Make-or-buy

Which of the following is a requirement under the Sarbanes-Oxley Act?

Management must conduct a review of the company's internal control system.

Of the following groups, which is the primary user of managerial accounting information?

Managers

Which of the following would be used to record the labor cost that is not traceable to a specific job? Raw Materials Inventory would be debited. Work in Process Inventory would be debited. Manufacturing Overhead would be debited. Manufacturing Overhead would be credited.

Manufacturing Overhead would be debited.

Assigning manufacturing overhead to a specific job is complicated by all of the below except:

Manufacturing overhead is incurred only to support some jobs.

Which of the following sets just-in-time systems apart from traditional manufacturing systems?

Materials are purchased only as they are needed to manufacture goods.

The cost of materials used on a specific job is first captured on which source document?

Materials requisition form

If the total activity cost were unknown, it could be calculated by:

Multiplying the total activity driver by the activity rate.

If the total activity cost were unknown, it could be calculated by: Dividing the total activity driver by the activity rate. Multiplying the total activity driver by the activity rate. Adding the total activity driver to the activity rate. Subtracting the activity rate from the total activity driver.

Multiplying the total activity driver by the activity rate.

internal rate of return:

NPV of zero. Mathematically, it is computed as the discount rate that would make the present value of the cash inflows equal to the cash outflows.

the discounted cash flow methods:

Net present value Internal rate of return Profitability index

Which of the following statements regarding the balanced scorecard are true?

Objectives and measures in each category should be linked so that performance in one area leads to performance in another. The learning and growth perspective typically contains leading indicators of future performance.

Residual income can be calculated as:

Operating income - (hurdle rate × average invested assets) The formula for residual income is operating income minus the result of the hurdle rate multiplied by average invested assets.

Which of the following is true of a firm that has reached the limit on its resources?

Opportunity costs are now relevant. A firm that has reached the limit on its resources must give up regular production to fill special orders, and therefore opportunity costs become relevant.

Which of the following is not a true statement about capacity?

Opportunity costs are relevant when capacity of a critical resource is unlimited.

Overhead is overapplied by $5,000.

Calverton, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Standard is assigned $150,000 in Machining cost, and $22,500 in Inspection cost. What proportion of Machining activity is used by Standard?

P × $500,000 = $150,000; P = 30%.

Which of the following is the best example of a unit-level activity?

Painting a final product

Which of the following is the correct sequencing of the functions within the managerial cycle?

Plan - Implement - Control

Creating a budget is an important part of which phase of the planning and control process?

Planning

Which of the following functions of management involves setting short and long-term objectives and the tactics to achieve them?

Planning

Which of the following is the forward-looking phase of the planning and control cycle? Planning Directing/Leading Organizing Control

Planning

Creating a budget is an important part of which phase of the planning and control process?

Planning Controlling Executing

Which of the following statements is true about variances?

Positive variances (i.e., those with a positive sign) are always unfavorable. Negative variances (i.e., those with a negative sign) are always favorable. There is not necessarily any correlation between the sign of the result (positive or negative) and whether the variance is positive or negative.

Which of the following is a disadvantage of decentralization?

Potential duplication of resources

Which of the following is not an advantage of decentralization?

Potential duplication of resources

Spartan Corporation estimates that it will incur $200,000 of total manufacturing overhead cost at an estimated activity level of 10,000 direct labor-hours. What is the amount of manufacturing overhead that would be applied to a job that required 200 direct labor-hours?

Predetermined overhead rate = $200,000 ÷ 10,000 DLHs = $20 per DLH For 200 DLHs, the manufacturing overhead that would be applied is = $20 per DLH × 200 DLHs = $4,000

Standard cost systems depend on which two types of standards?

Quantity and price standards

Which of the following is not a limitation of return on investment?

ROI is a commonly used measure for financial performance.

Which of the following statements contrasting residual income with return on investment is correct?

ROI may lead to goal incongruence while residual income does not.

How can a company increase its return on investment (ROI)?

Reduce operating expenses Increase sales

Which of the following business segments would not be considered a cost center?

Retail outlet

The starting point for preparing the master budget is the inventory policy. sales budget. production budget. budgeted balance sheet.

Sales Budget

Which of the following is NOT part of the manufacturing cost per unit?

Sales commission

Which of the following types of decisions involves deciding whether to sell a product as is or continue to refine it so that it can be sold at a higher price?

Sell-or-process further

Which of the following budgets do not provide information needed for the budgeted balance sheet? Materials purchases budget Production budget Selling and administrative expense budget Cash budget

Selling and Administrative expense budget

A____ is the vision of what management wants the organization to achieve over the long term. Strategic plan Long-term objective Short-term objective Tactic

Strategic Plan

A _____________ is the vision of what management wants the organization to achieve over the long term.

Strategic plan

Which of the following is not something that should be compiled for each dimension of the balanced scorecard?

Strategic vision

A master budget consists of a number of seperate but independent budgets that formally lay out the company's sales, production, and financial goals. T/F

TRUE

Budgets are used to plan and to control operations. T/F

TRUE

The manufacturing overhead budget provides a schedule of all costs of production other than direct materials and direct labor. T/F

TRUE

The number of units to be produced in a period can be determined by adding the expected sales to the desired ending inventory and then deducting the beginning inventory. T/F

TRUE

The sales budget is usually prepared before the production budget. T/F

TRUE

The sales budget often includes a schedule of expected cash collections. T/F

TRUE

_________are the specific actions managers use to achieve their objectives. Strategic plans Long-term objectives Short-term objectives Tactics

Tactics

What is the term for the most constrained resource?

The Bottleneck

Which of the following might you find in a job description for a managerial accountant in a manufacturing company?

The Managerial Accountant will conduct internal analysis on the health of the company, suggest variances to emphasize in evaluations, and review unusual results.

Which of the following is not a method used to determine transfer prices?

The balanced scorecard method There are three different ways to determine transfer prices: the market price method, the cost-based method, and negotiation.

Which of the following is not relevant to a sell-or-process further decision?

The cost of processing the product "as is."

Which of the following is an example of a variable cost for a manufacturing firm?

The cost of raw materials

Which of the following is an indirect cost of manufacturing a table made of wood and glass for a firm that manufactures furniture?

The cost of rent on the factory where the table is manufactured.

Which of the following costs is not relevant to the decision whether to replace an old computer with a new one?

The cost of the old computer.

Which of the following statements is correct about the high-low method?

The high-low method is complicated to apply. Generally, managers use the high-low method because it has no drawbacks or limitations. Generally, managers can obtain more accurate information from other methods of cost analysis that use a larger number of data points.

Which of the following statements are true?

The net present value and internal rate of return methods provide consistent information when making screening decisions. The internal rate of return method makes an assumption about reinvesting cash flows that may not be realistic. The net present value method is generally preferred over the internal rate of return method when making preference decisions.

Which of the following would not be directly related to a volume-based allocation measure?

The number of activities.

Who would typically be responsible for the direct material quantity variance?

The production manager

Which of the following responsibility centers will use a segmented income statement as an evaluation tool?

The profit center

Which of the following statements is correct about relevant range?

The relevant range helps managers make decisions based on normal operations, but the relevant range is not prescriptive beyond the range.

The manager of Hampton, Inc. is trying to decide whether to make or buy a component of the product it sells. Which of the following costs and benefits is not relevant to the decision?

The selling price of the product

The manager of Hampton, Inc. is trying to decide whether to make or buy a component of the product it sells. Which of the following costs and benefits is not relevant to the decision?

The selling price of the product The price Hampton charges for the product will not change across decision alternatives, so it is not relevant.

Which of the following statements is not correct about how an ABC system might be adapted to provide managers with sustainability-related information that would affect the triple bottom line?

The system can only capture and report cost information, so it only affects the "profit" part of the triple bottom line.

Which of the following statements is true about variances?

There is not necessarily any correlation between the sign of the result (positive or negative) and whether the variance is positive or negative

Which of the following is not true of activity cost drivers?

They are strictly volume-based allocation measures.

What are the decision alternatives in a special-order decision?

To accept or reject the offer.

What are the decision alternatives in a special-order decision?

To accept or reject the offer. Special-order decisions involve an offer outside the scope of normal sales; managers must decide whether to accept or reject the offer.

Which of the following statements is false?

To be relevant, a cost must be an opportunity cost. It is not true that to be relevant a cost must be an opportunity cost. Cash costs can also be relevant.

What is the primary goal of accounting?

To provide information for decision making.

Wilson Products uses a plantwide predetermined overhead rate of $10 per direct labor-hour. Direct material and direct labor associated with Job X23 are $4,000 and $1,200 respectively. If Job X23 used 100 direct labor-hours, what is the total cost assigned to this job?

Total cost associated with the job = Direct material + Direct labor + Manufacturing overhead applied Total cost associated with the job = $4,000 + $1,200 + ($10 × 100 DLHs) = $6,200

The formula for break-even point in terms of sales dollars is:

Total fixed costs/Contribution margin ratio

You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course Cost $3,000 $1,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend Number of meetings 16 8 Qualitative considerations Convenience, quality of instruction Flexibility, brief duration Consider the transportation cost. At what point would you be indifferent between alternatives?

Transportation cost of $250 per class for the community course Solve for the transportation cost per class to determine the point of indifference. Subtract the cost of the community course ($1,000) from the college course ($3,000). Divide that result ($2,000) by the number of classes (8) to get the transportation cost per class that would make you indifferent between alternatives ($250). ($3,000 - $1,000 = $2,000/8 = $250)

A volume-based allocation measure is directly related to the number of units produced or the number of customers served

True

Contribution margin is calculated as sales revenue less variable costs

True

Fixed costs stay the same, in total, as activity level changes

True

If there is a debit balance in the Manufacturing Overhead account at the end of the period, overhead was underapplied

True

The control function is comparing actual with budgeted results and taking corrective action when needed

True

The costs attached to products that have not been sold are included in ending inventory on the balance sheet.

True

The equation for a mixed cost is total fixed costs + variable cost per unit × units of activity

True

A predetermined overhead rate is calculated by dividing estimated total manufacturing overhead cost by estimated total cost driver.

True A predetermined overhead rate is calculated by dividing estimated total manufacturing overhead cost by estimated total cost driver.

Activity-based costing systems include non-volume-based cost drivers.

True ABC systems include both volume-based and non-volume-based measures that capture factors other than volume.

Volume-based cost systems tend to:

Under-cost low-volume products and over-cost high-volume products.

What is the term used when a company applies less overhead to production than it actually incurs?

Underapplied

When direct materials are used in production, which of the following accounts is increased?

Work in Process Inventory

When materials are placed into production: Raw Materials Inventory is debited if the materials are traced directly to the job. Work in Process Inventory is debited if the materials are traced directly to the job. Manufacturing Overhead is debited if the materials are traced directly to the job. Raw Materials Inventory is credited only if the materials are traced directly to the job, otherwise manufacturing overhead is credited.

Work in Process Inventory is debited if the materials are traced directly to the job.

When units are completed, the cost associated with the job is credited to which account? Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Cost of Goods Sold

Work in proces

Frank Inc is trying to decide whether to lease or purchase a piece of equipment needed for the next ten years. The equipment would cost $45,000 to purchase, and maintenance costs would be $5,000 per year. After ten years, Frank estimates it could sell the equipment for $20,000. If Frank leased the equipment, it would pay a set annual fee that would include all maintenance costs. Frank has determined after a net present value analysis that at its hurdle rate of 10%, it would be better off by $5,700 if it buys the equipment. What would the approximate annual cost be if Frank were to lease the equipment? a. $9,000 b. $7,000 c. $12,000 d. $13,250

c. $12,000

Newport Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and have a 6 year life. There is no salvage value for the equipment. What is the payback period? a. 1.33 years b. 2.57 years c. 4.50 years d. 6.00 years

c. 4.50 years

Projects that are unrelated to one another, so that investing in one project does not preclude or affect the choice about investing in the other alternatives, are a. mutually exclusive projects b. screening projects c. independent projects d. preference projects

c. independent projects

Which of the following is NOT a characteristic of annuity? a. it is a series of equal payments b. it earns an equal interest rate each interest period c. interest is compounded annually d. interest periods are of equal length

c. interest is compounded annually

The activity-rate method involves:

calculating an activity rate that is similar to the predetermined overhead rate.

A tool to help managers make decisions about investments in major assets such as new facilities, equipment, and products is called ________________ _______________________.

capital budgeting

Investing in new technology to save on labor costs is an example of a(n) ____________ _______ decision

capital investment

Investing in new technology to save on labor costs is an example of a(n) _______________ _____________ decision.

capital investment

Investing in new technology to save on labor costs is an example of a(n)______ decision.

capital investment

The components of the _____ budget include budgeted cash receipts, budgeted cash payments, and financing

cash

_____ _____ is the financial budget that provides info about budgeted cash receipts and payments

cash budget

a primary financial budget

cash budget

When a product line is eliminated, the _____ _____ costs allocated to that product will be redistributed to the remaining product lines

common fixed

_____ _____ _____ are costs shared by multiple segments that may be incurred even if a section is eliminated

common fixed costs

Discontinuing a _____ product can have a negative effect on related products

complementary

_____ _____ are products that are used together such as a printer and ink cartridge

complementary products

To reconcile the number of physical units using the weighted average method of process costing, one must determine whether the units were: completed or still in process at the end of the period. sold or still in inventory at the end of the period. in the next production process or sold at the end of the period. using direct materials or conversion costs at the end of the period.

completed or still in process at the end of the period.

backward-looking phase of the planning and control cycle

control

According to the ______ managers should only be held accountable for what they are actually in charge of.

controllability principle

One of the most important concepts in responsibility accounting is the ____________ _______________ , Correct Unavailable which states that managers should only be held responsible for what they are in charge of.

controllability principle

The manager of a(n) ______ center does not have control over revenue or the use of investment funds.

cost

A group of similar activities that have been combined together is called an activity

cost pool

current ratio=

current assets/current liabilities

A unit-level activity to a manufacturer is the same as a(n) _______ -level activity to a service company.

customer

Making a single sale at a department store is an example of a ______-level activity.

customer

The link between internal business processes and financial results is the ___________perspective of the balanced scorecard.

customer

The four groups of performance measures typically used in the balanced scorecard approach are financial, ______.

customer, internal business processes, and learning and growth

You invest $13,420 in an annuity contract that earns 8% interest, compounded annually. You are to receive annual payments for the next ten years. How much will each of the payments be? a. $1,342 b. $1,449 c. $1,459 d. $2,000

d. $2,000

Byron Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. The salvage value of the equipment is estimated to be $100,000. If the hurdle rate is 10%, what is the internal rate of return? a. between 6% and 8% b. between 8% and 10% c. between 10% and 12% d. between 12% and 14%

d. between 12% and 14%

A problem in which you must calculate the value now of a series of equal amounts to be received for some specified number of periods in the future is a a. future value of a single amount problem b. present value of a single amount problem c. future value of an annuity problem d. present value of an annuity problem

d. present value of an annuity problem

If the interest rate earned increases, net present value will ______.

decrease

To convert net income to net cash flow, add back ______ expense.

depreciation

To convert net income to net cash flow, add back _________ expense

depreciation

NOT a component of the cash budget

depreciation expense

______ ______ are costs that change across decision alternatives

differential costs

Costs that change across decision alternatives are:

differential costs.

Costs that change across decision alternatives are:

differential costs. Differential costs is another term for relevant costs, which change depending on the alternative selected by the manager.

Costs that can be traced to a specific cost object are:

direct costs.

Prime costs are defined as:

direct labor plus direct materials

The difference between the actual quantity and the standard quantity, multiplied by the standard price is the:

direct materials quantity variance.

The rate applied to future cash flows to reflect the time value of money is called the _______ rate.

discount

Calculating the present value of money is referred to as ______ cash flows.

discounting

which component of the cash budget is shown as a line item on the budgeted balance sheet

ending cash balance

A predetermined overhead rate is calculated by dividing:

estimated manufacturing overhead cost by estimated total cost driver.

_______ ______ ______ _____ ______ _____ ______ is step 3 of the management decision making process

evaluate the costs and benefits of alternatives

The worst type of quality costs for a firm are ______ costs.

external failure

Warranty and recall costs and product replacement are ______ costs.

external failure

Preference decisions compare an investment with some minimum criteria. T/F

false

The accounting rate of return is calculated as initial investment divided by annual net income. T/F

false

True or False: the time value of money is a significant factor in short run decisions

false

True or false: ABC is designed to provide managers with detailed information about the cost of activities and is therefore not useful in providing sustainability-related information.

false

NOT an example of a cost to include in a selling and administrative expense budget

fixed MOH

A cost is $50,000 when 25,000 units are produced, and $50,000 when 50,000 units are produced. This is an example of a(n):

fixed cost.

A cost that remains the same, in total, regardless of changes in activity level is a:

fixed cost.

All of the following are non-value-added activities except ______, which is a value-added activity.

free delivery service to customers

Opportunity costs become relevant when a company is operating at _____ _____

full capacity

If you have $1,000 now and want to know what it will be worth in 3 years, you are solving a(n) ____________ ___________ problem

future value

If you have $1,000 now and want to know what it will be worth in 3 years, you are solving a(n) _______problem.

future value

If the ROI of a project is greater than the hurdle rate, the residual income will be:

greater than zero

If the ROI of a project is greater than the hurdle rate, the residual income will be:

greater than zero.

A local tour company offers charter buses to corporations who have conventions or meetings in the city. Under activity-based costing, renting a bus to a corporation is a(n)________ -level activity.

group

A relevant cost is a cost that:

has the potential to influence a decision

The purpose of the cash budget is to be used as a basis for the operating budgets. provide external users with an estimate of future cash flows. help managers plan ahead to make certain they will have enough cash on hand to meet their operating needs. summarize the cash flowing into and out of the business during the past period.

help managers plan ahead to make certain they will have enough cash on hand to meet their operating needs

Cost structure refers to:

how a company uses variable versus fixed costs to perform operations

The minimum required rate of return is also known as the______ rate.

hurdle

The required rate of return is also known as the

hurdle rate

1st step of the management decision making process is ______ ______ ______ _____

identifying the decision problem

To foster continuous improvement, standards should ________________ over time.

increase in difficulty

When projects are ______________ or unrelated to one another, each project can be evaluated on its own merit

independent

When two projects are ______, investing in one of the projects does not preclude investing in the other.

independent

Make or buy decisions are also referred to as _____ vs. _____ decisions

insourcing, outsourcing

A just-in-time (JIT) system ______

is a demand-pull system is used to help reduce costs

Given the choice it ______.

is better to receive money today instead of a year from today

If cash flows are not equal each year, the payback period:

is calculated by subtracting each year's cash flows from the initial investment until zero is reached

participative budgeting is an approach to budgeting that

is more likely to motivate people

Participative budgeting is an approach to budgeting that is top-down in nature. allows top management to set the budget. discourages budget slack. is more likely to motivate people to work towards the organization's goals than a top-down approach.

is more likely to motivate people to work towards the organization's goals than a top-down approach

Evaluating how the company will sustain the ability to change and improve is part of the ______ perspective of the balanced scorecard.

learning and growth

In order to make good product introduction decisions in today's digital age, managers need to be able to accurately estimate ______

life cycle costs

specific goals that managers want to achieve over a 5-10 year horizon

long-term objectives

hurdle rate/required rate of return:

lowest possible rate of return a manager is willing to accept

All of the following are non-volume-based cost drivers except number of ______

machine hours

The most common method for disposing of over or underapplied overhead is to:

make a direct adjustment to Cost of Goods Sold.

Management decision in which relevant costs of making a product internally are compared to the cost of purchasing that product is a _____ _____ _____ ______

make or buy decision

Managerial decision makers must often consider non-economic factors as well. For example, when considering whether to outsource to another country, in addition to considering the cost of that decision, managerial accountants with an emphasis on sustainability should consider the human capital impact as well. This represents sustainability within a:

make-or-buy decision.

Under activity based management, cost management is achieved by:

managing the underlying activities.

Under activity based management, cost management is achieved by:

managing the underlying activities. reducing production volume. eliminating value-added activities.

Conversion costs can be defined as:

manufacturing costs minus direct materials.

Prime costs are the same as:

manufacturing costs minus manufacturing overhead

The transfer pricing method that uses the price the company would charge external customers is the:

market price method. The market price is the price that a company would charge to external customers; using that price for internal sales is the market price method of transfer pricing

A _____ budget is a comprehensive set of budgets that covers all phases of an organization's planned activities for a specific period

master

Each component of a(n) _____ budget is based on or provides input for another component

master

When performance is evaluated based on ROI, managers may ______.

not make an investment that would be good for the company as a whole

External failure costs are costs that:

occur when a defective product makes its way into the hands of the customer.

A/an _____ _____ is the forgone benefit of choosing to do one thing over another

opportunity cost

Total manufacturing overhead under activity-based costing consists of all ______

overhead assigned during Stage 2 allocations

Total manufacturing overhead under activity-based costing consists of all ______.

overhead assigned during Stage 2 allocations

A(n) _____ budget allows employees throughout the organization to have input into the budget setting process

participative

Non-discounting methods of evaluating capital investments are ______.

payback accounting rate of return

The total time to recover an original investment is the:

payback period

Utility companies often engage in ___________-___________ ___________ in providing services at high demand levels.

peak - load pricing

A project with a(n) ______ net present value creates economic value for a company whereas a project with a(n) _____ net present value reduces a firm's economic value.

positive negative

A project with a(n) ____________ net present value creates economic value for a company whereas a project with a(n) _________ net present value reduces a firm's economic value.

positive; negative

The term discounting cash flows refers to the process of calculating the ______ value of the cash flows.

present

Capital budgeting techniques involve solving __________ problems because of the need to know how much something is worth today.

present value

Capital budgeting techniques involve solving _____________ ___________ problems because of the need to know how much something is worth today.

present value

profitability index formula:

present value of future cash flows/initial investment

To keep quality problems from happening, companies incur _____ costs

prevention

Selling identical goods or services to different customers at different prices is:

price discrimination

When airlines sell tickets to customers who stay over Saturday night for less than tickets to customers who fly on Saturday, they are engaging in ___________ ___________

price discrimination

The agreement among business competitors to set prices as a particular level is:

price fixing

A spending variance is made up of:

price variance and quantity variance

The end result of the budgeting process is a set of _____ ______ financial statements that include a budgeted income statement, statement of cash flows, and budgeted balance sheet

pro forma

Research and development is a(n) ________ -level activity

product

Activities incurred for each product produced and not dependent on the number of units or batches are

product level activities

The duration of a product from its infancy through its eventual decline is represented by the _____ _______ ________

product life cycle

the _________ _________ __________ covers the time from initial research and development to the time when customer support is withdrawn.

product life cycle

Research and development is a(n)

product-level activity

The _____ budget shows the number of units that must be produced to satisfy sales needs and to provide for the desired ending inventory

production

The raw materials purchases, direct labor and manufacturing overhead budgets are all based on the ____ budget

production

Once the _____ _____ has been prepared, the raw materials purchases, the direct labor, and the manufacturing overhead budgets can be prepared

production budget

which budget would NOT exist for a merchandising firm

production budget

If a company is planning to build inventory, production should exceed sales. sales should exceed production. production should equal sales. production should equal inventory.

production should exceed sales

The manager of a(n) ____________ center has control over both costs and revenues, but not over the use of _________________ funds.

profit investment

In order to fully evaluate ROI, managers should compute both ________________ and _____________

profit margin investment

The responsibility center in which the manager has responsibility and authority over revenues and costs, but not assets, is the:

profit center. A profit center manager has responsibility only for revenues and costs. Investment center managers have responsibility for revenues, costs, and the investment of assets.

The manager of a(n) _______ center has control over both costs and revenues, but not over the use of _______ funds.

profit, investment

Given the following, a special order for 100 units @ $5 each will result in a (profit/loss) _____________ of $______ from the special order. Sales (2,000 units @ $9 each) = $18,000 Variable costs (2,000 units @ $4 each) = $8,000 Total Contribution margin = $18,000 - $8,000 = $10,000 Allocated fixed costs = $4,000 Operating profit = $10,000-$4,000 = $6,000

profit; $100

The ratio of a project's benefits (measured by the present value of future cash flows) to its required investment is the ____________ ____________

profitability index

The ratio of a project's benefits (measured by the present value of future cash flows) to its required investment is the _________________ ______________

profitability index

When investment funds are limited, the amount of economic value (represented by the present value of future cash flows) that is generated per unit of scarce resource (investment cash) is measured by the _________ _________

profitability index

When prioritizing independent projects when limited investment funds are available, the best capital budgeting method to use is the ______.

profitability index

When resources are limited, managers should prioritize independent projects based on the ______________ _________________

profitability index

Only those costs and benefits that differ in total between alternatives are _____ in a decision

relevant

A/an _____ _____ has the potential to influence a particular decision and will change depending on the alternative a manager selects

relevant cost

When a manager accepts a project because the net operating income from the investment exceeds the minimum acceptable profit based on required rate of return, the investment was evaluated based on________

residual income

The economic value added calculation is similar to the computation of ______.

residual income

The net operating income that an investment center earns above the amount required to earn the minimum required rate of return is ______.

residual income

The net operating income that an investment center earns above the minimum amount needed to meet the required rate of return is its

residual income

An area of business that a manager has control over and is accountable for is called a(n)

responsibility

An area of business that a manager has control over and is accountable for is called a(n)_________ center.

responsibility

The process of holding lower-level managers accountable for the part of the business over which they have control is referred to as

responsibility accounting

Gross profit margin calculates gross margin as a percentage of

sales

Synonyms for the accounting rate of return are the ______ rate of return and the ______ rate of return.

simple, unadjusted

If a company is not operating at full capacity, accepting a(n) _________ ___________ from a customer will not affect other sales and is usually a short-run occurrence.

special order

Negative consequences of accepting a _____ _____ include the potential impact sales made through "regular" channels, such as customers demanding the same reduced price that was given to the "special" order

special order

In a standard cost system, overhead is applied per unit by multiplying the ___________ overhead rate times the ____________ quantity of the cost driver.

standard, standard

NOT a component of the master budget

statement of return on investment

A budget that is based on a single estimate of sales volume is called a:

static budget

A budget that is based on a single estimate of sales volume is called a:

static budget.

_____ _____ products where one good can be used instead of another. Examples include butter and margarine, or sugar and artificial sweeteners

substitute products

You are to receive five gold coins from your great uncle as an incentive to study hard. The coins were originally purchased in 1982. Your great uncle will deliver the coins the week after finals (assuming your grades are "acceptable"). The amount your great uncle paid for the coins is a(n):

sunk cost.

_____ _____ are costs that have already been incurred and are not relevant to future decisions

sunk costs

A network of organizations and activities that move goods and services from suppliers to customers is a(n) ______

supply chain

The linearity assumption is:

the assumption that the relationship between fixed costs and variable costs can be approximated by a straight line.

When cash flows are uneven, ______.

the cash flow for each year must be multiplied by the appropriate discount factor

Net present value is ______.

the difference between the present value of cash inflows and present value of cash outflows for a project used to determine if a project is an acceptable capital investment

budgeted income statement is a combination of

the direct materials budget, direct labor budget, manufacturing overhead budget

The relevant range is:

the range of activity over which we expect our assumptions about cost behavior to hold true.

profitability index:

the ratio of a project's benefits (measured by the present value of the future cash flows) to its costs (or required investment).

Investment turnover is defined as:

the ratio of sales revenue to average invested assets

Using the activity-proportion method results in:

the same cost allocations as the activity rate method.

The time value of money is the idea that ______.

the value of a dollar changes over time

Cost behavior is:

the way in which costs change when the activity level changes.

Managers of cost centers are evaluated on ______.

their ability to control costs and provide quality service

the __________ of ___________ focuses on revenue and cost management when faced with bottlenecks.

theory of constraints

______ _____ _____ budgeting method in which top management sets a budget and imposes it on lower levels of the organization

top down approach

The activity rate is computed by dividing the ______ by the ______.

total activity cost; total cost driver

Transfer prices are not particularly important when managers are evaluated on ______.

total firm value

The y-intercept of the cost line on a scattergraph represents:

total fixed cost.

In the cost formula (Y = a + bX) that is used to estimate the total manufacturing overhead cost for a given period, the letter "a" refers to the estimated ________.

total fixed manufacturing overhead cost The cost formula used to estimate the total manufacturing overhead cost for a given period is: Y = a + bX where, Y = the estimated total manufacturing overhead cost, a = the estimated total fixed manufacturing cost, b = the estimated variable manufacturing overhead cost per unit of the allocation base, and X = the estimated total amount of the allocation base.

A management system that focuses on continually improving production processes is called ______

total quality management

To find the present value of a single amount, you only need to know the amount to be received in the future, the interest rate and the number of periods until the amount will be received. T/F

true

Analyzing products to determine which functions add value and finding ways to deliver those functions while meeting the target cost is called ____

value engineering

Direct labor hours and machine hours are both examples of ___ -based cost drivers.

volume

Direct labor hours and machine hours are both examples of _____-based cost drivers.

volume

You are saving for a car that costs $28,000 that you hope to purchase in five years. How much will you need to deposit today in a savings account that airs 8%, compounded annually, to withdraw enough for the purchase? a. $16,800 b. $19,057 C. $25,760 d. $41,140

b. $19,057

Which of the following would be included in net income but not in annual cash flows? a. sales revenue b. depreciation c. initial investment d. direct labor

b. depreciation

An activity that is performed for a group of units all at once is a(n):

batch-level activity.

ABC can be used in _______

both service and manufacturing companies

A(n) _____ translates company objectives into financial terms

budget

_____ _____ _____ is the budgeted sales less budgeted cost of goods sold

budgeted gross margin

_____ are an important part of organizing because they translate the company's objectives into financial terms and lay out the resources and expenditures required over a limited horizon

budgets

_____ give managers a goal to work toward as it directs their actions, and may either motivate or demotivate them

budgets

_____ impact the control function because they serve as a basis against which actual results are compared

budgets

A normal cost system applies overhead to jobs ________.

by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job

Randall Corp is trying to decide whether to lease or purchase a piece of equipment needed for the next five years. The equipment would cost $100,000 to purchase, and maintenance costs would be $10,000 per year. After five years, Randall estimates it could sell the equipment for $30,000. If Randall leases the equipment, it would pay $30,000 each year, which would include all maintenance costs. If the hurdle rate for Randall is 12%, Randall should A. lease the equipment, as net present value of cost is about $11,000 less. B. buy the equipment, as net present value of cost is about $11,000 less. C. lease the equipment, as net present value of cost is about $30,000 less. D. buy the equipment, as net present value of cost is about $30,000 less

A. lease the equipment, as net present value of cost is about $11,000 less.

Which of the following capital budgeting decision tools focuses on net operating income rather than cash flows?

Accounting rate of return

The formula to apply overhead to products is

Activity Rate x Activity

How is activity-based management related to activity-based costing?

Activity based management bases improvements to operations and reductions in costs on activity based costing data.

In activity-based costing, what is calculated by dividing the total cost of each activity by its total cost driver?

Activity rate

The budgeted income statement is a combination of All the operating budgets. All the operating budgets plus the budgeted balance sheet. The direct materials budget, the direct labor budget, and the manufacturing overhead budget. The production budget, the cost of goods sold budget, and the selling and administrative expense budget.

All the operating budgets

The budgeted income statement is a combination of:

All the operating budgets.

Which of the following is most likely to be true of the manufacturing overhead costs assigned to a product with relatively low volume and high complexity?

An ABC system will assign more manufacturing overhead costs to the product than a volume-based system.

Which of the following is an example of how a service firm might turn unused capacity into revenue using incremental analysis?

An instructor agrees to add an additional student to a class.

Which of the following is an example of how a service firm might turn unused capacity into revenue using incremental analysis?

An instructor agrees to add an additional student to a class. A train company uses a last-minute app to fill empty seats and makes long-term pricing decisions based on average revenue. An accountant with no extra time agrees to do an extra client's tax return during busy season.

Which of the following types of reports is more characteristic of managerial accounting than financial accounting?

An internal report used by management

Which of the following cannot be an out-of-pocket cost?

An opportunity cost

You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course Cost $3,000 $1,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend Number of meetings 16 8 Qualitative considerations Convenience, quality of instruction Flexibility, brief duration Which of the following is not relevant to the decision?

Apartment rent Your lodging will not change based on which Excel course you choose. Thus, the amount you pay in apartment rent is irrelevant to the decision.

The final step in ABC is ___. -Assigning indirect costs to products or services -Selecting cost drivers for each activity cost pool -Identifying and classifying activities -Assigning indirect costs to each activity pool

Assigning indirect costs to products or services

A relevant cost is A) The foregone benefit of choosing to do one thing instead of another B) A cost that differs across decision alternatives C) A cost that has already been incurred D) A cost that is the same regardless of the alternative the manager chooses

Budgetary slack occurs when a manager submits a budget that's A. very vague B. too easy to attain C. much like budgets submitted over the previous few years D. too difficult to attain

Segment margin A. is calculated as part of a special order decision B. includes both variable and direct fixed costs C. includes both direct and common fixed costs D. is the same thing as contribution margin

Spahn, Inc., which uses a volume-based cost system, produces cat condos that sell for $90 each. Direct materials cost $15 per unit, and direct labor costs $10 per unit. Manufacturing overhead is applied at a rate of 200% of direct labor cost. Nonmanufacturing costs are $27 per unit. What is the gross profit margin for the cat condos? a) 20.0% b) 50.0% c) 62.5% d) 80.0%

The starting point for preparing the master budget is the A) Inventory Policy B) Sales Budget C) Production Budget D) Budgeted balance sheet

When determining which product or service makes the best use of constrained resource, a company has to determine which course of action will maximize the company's total A. fixed costs B. contribution margin C. net income from sales D. net sales

Which budget shows the number of units that must be produced to satisfy sales needs and to provide for the desired ending inventory? A. cash budget B. production budget C. direct materials budget D. sales budget

Which of the following types of decisions involves deciding whether to perform a particular activity in house or purchase it from an outside supplier? A) Special order B) Mak or Buy C) Continue or discontinue D) Sell or process further

______ are the specific goals that managers want to achieve over a 5 to 10 year horizon A) Strategic plans B) Long-Term objectives C) Short term objectives D) Tactics

An analysis of a special order (check all that apply) A. uses the same decision making process as long term pricing decisions B. is different if a company has excess capacity that if it's at full capacity C. should consider the impact on regular customers

B, C

Budgets help companies A. meet short term objectives B. meet long term objectives C. both A and B D. none of the above

Which of the following budgets would not exist for a merchandising firm? A) Sale budget B) Purchases budget C) Production Budget D) Selling and administrative expense budget

The Ellis Company has budgeted its activity for September according to the following information: Sales are budgeted at $392,000 and all sales are for cash. All purchases of merchandise inventory are for cash. Merchandise inventory was $150,000 on August 31 and the planned merchandise inventory on September 30 is $140,000. All merchandise is sold at 40% above cost. The selling and administrative expenses are budgeted at $92,000 for the month. All of these expenses are paid for in cash except for depreciation of $12,000. The budgeted cash disbursements for September are: A) $140,000 B) $270,000 C) $350,000 D) $362,000

C) $350,000

The budget method that maintains a constant twelve month planning horizon by adding a new month on the end as the current month is completed is called: A) an operating budget. B) a capital budget. C) a continuous budget. D) a master budget.

C) a continuous budget.

Which of the following might be included as a disbursement on a cash budget? Depreciation on factory equipment//income taxes to be paid A) yes // yes B) yes // no C) no // yes D) no // no

C) no // yes

Which of the following statements regarding decentralized organizations are correct? A.) Decentralization is likely to cause job dissatisfaction and decreased motivation for lower-level managers since they have increased responsibility. B.) In a decentralized organization, decision-making authority is reserved for top management so lower level managers can concentrate on operations. C.) Decentralization helps lower-level managers develop better management skills. D.) Decentralized organizations often use responsibility accounting systems to evaluate lower level-managers. E.) In a decentralized organization, lower-level managers should not be held accountable for the outcomes of their decisions. F.) Managers in decentralized operations may make decisions that are good for their department, but not for the organization as a whole. G.) Decentralization often allows decisions to be made faster, since not as many layers of management are needed for approval.

C, D, F, G

Manufacturing overhead was estimated to be $200,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $215,000, actual labor hours were 21,000. The amount of manufacturing overhead applied to production would be A. $200,000 B. $215,000 C. $210,000 D. $225,750

C. $210,000 Predetermined overhead rate = $200,000/20,000 = $10.00. Applied manufacturing overhead = $10.00 x 21,000 = $210,000.

C. $25,440

Harney, Inc. has prepared the following budgets for March. In March, budgeted production equals budgeted sales, and raw materials inventory will stay constant. What is budgeted cost of goods sold for March? A. $14,560 B. $24,960 C. $27,560 D. $37,960

C. $27,560

Sawyer Company had the following information for the year: Direct materials used: $190,000 Direct Labor Incurred (7,000 hours) $245,000 Actual manufacturing overhead incurred $273,000 Sawyer Company used a predetermined overhead rate using estimated overhead of $320,000 and 8,000 estimated direct labor hours. Assume the only inventory balance is an ending Finished Goods balance of $9,000. How much overhead was applied during the year? A. $245,000 B. $273,000 C. $280,000 D. $320,000

C. $280,000 Predetermined overhead rate = $320,000/8,000 = $40.00. Applied manufacturing overhead = $40.00 x 7,000 = $280,000.

Boxwood Inc has forecast purchases on account to be $620,000 in March, $740,000 in April, $840,000 in May, and $980,000 in June. Seventy percent of purchases are paid for in the month of purchase, the remaining 30% are paid in the following month. What is the budgeted Accounts Payable balance for June 30? A. $588,000 B. $686,000 C. $294,000 D. $252,000

C. $294,000

C. $31,800

Jackson Company had the following information for the year: Direct materials used: $295,000 Direct Labor Incurred (9,000 hours) $245,000 Actual manufacturing overhead incurred $343,000 Jackson Company used a predetermined overhead rate using estimated overhead of $320,000 and 8,000 estimated direct labor hours. Assume the only inventory balance is an ending Finished Goods balance of $19,000. How much overhead was applied during the year? A. $245,000 B. $343,000 C. $360,000 D. $320,000

C. $360,000 Predetermined overhead rate = $320,000/8,000 = $40.00. Applied manufacturing overhead = $40.00 x 9,000 = $360,000.

Ebony Co. has forecast sales to be $300,000 in May, $375,000 in June, $475,000 in July and $600,000 in August. Forty percent of sales are cash, the remainder is on account. Credit sales are partially collected in the month of sale, with all collections completed by the end of the month following the sale. The August 31 accounts receivable is budgeted to be $108,000. What are budgeted cash collections for July? A. $389,500 B. $267,000 C. $457,000 D. $415,000

C. $457,000

C. $46,400

Manufacturing overhead was estimated to be $400,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $415,000, and actual labor hours were 21,000. Which of the following would be correct? A. Overhead is underapplied by $15,000 B. Overhead is underapplied by $5,000 C. Overhead is overapplied by $5,000 D. Overhead is overapplied by $15,000

C. Overhead is overapplied by $5,000 Predetermined overhead rate = $400,000/20,000 = $20.00. Applied manufacturing overhead = $20.00 x 21,000 = $420,000. Overapplied overhead = $420,000 - $415,000 = $5,000.

Olive Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $250,000. The equipment will have an initial cost of $1,300,000 and have an 8 year life. There is no salvage value for the equipment. If the hurdle rate is 10%, what is the internal rate of return? Ignore income taxes. A. between 6% and 8% B. between 8% and 10% C. between 10% and 12% D. less than zero

C. between 10% and 12%

Which of the following budgets are prepared before the production budget? Direct Materials budget // Sales budget A. yes//yes B. yes//no C. no//yes D. no//no

C. no//yes

When a transfer price is based on cost plus a percentage markup, the method being used is ______.

COST BASED

Which of the following is not a step in the managerial decision-making process?

Calculate the payback period.

A tool to help managers make decisions about investments in major assets such as new facilities, equipment, and products is called

Capital budgeting

A primary financial budget is the Production budget. Cash budget. Inventory budget. Selling and administrative budget.

Cash Budget

Which of the following is NOT an assumption of discounted cash flow methods?

Cash flow and net income will always be equal.

Which of the following is NOT an assumption of discounted cash flow methods? -Cash flows are immediately reinvested in other projects. -Cash flow and net income will always be equal. -Cash flows are all 100% certain. -All cash flows happen at the end of the year.

Cash flow and net income will always be equal.

Which of the following statements is correct?

Companies often provide products and services that have both common and unique characteristics, so they may use a blend of job order and process costing.

Which of the following statements is correct?

Companies often provide products and services that have both common and unique characteristics, so they may use a blend of job order and process costing. Companies always use job order costing unless it is prohibitively expensive. Companies always use process costing unless it is prohibitively expensive.

Which of the following would be used to apply manufacturing overhead to production for the period? Credit to Raw Materials Inventory. Credit to Work in Process Inventory. Debit to Manufacturing Overhead. Credit to Manufacturing Overhead.

Credit to Manufacturing Overhead.

Alcatraz Corp has the following information: Beginning balance Ending balance Raw materials 20,000 30,000 Work in process 15,000 18,000 Finished goods 30,000 20,000 The following additional information is available for the year: Raw materials purchases 100,000 Direct labor 75,000 Manufacturing overhead applied 80,000 Indirect materials 0 Compute the direct materials used in production. a) $20,000 Revised Fall 2012 Page 16 of 29 b) $30,000 c) $110,000 d) $90,000

Budgeted expenses for costs related to selling the product and managing the business are shown on the _____ budget A. manufacturing overhead B. cash C. ending finished goods inventory D. selling and administrative

Buhl manufactures a product that uses $15 in direct materials and $5 in direct labor per unit. Under the traditional costing system Buhl uses, manufacturing overhead applied to each unit is $12. Buhl is considering switching to an ABC system, under which the total activity cost would be $25. What is the total manufacturing cost per unit for Buhl under the ABC system? a) $20 b) $25 c) $32 d) $45

Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are _____ costs A. avoidable B. relevant C. irrelevant D. sunk

Fixed costs are a) Costs that are not worth the effort to trace to a specific cost object. b) Costs that change, in total, in direct proportion to changes in activity levels. c) Always irrelevant. d) Costs that remain constant, in total, no matter the activity level.

Jackson Company had the following information for the year: Direct materials used 190,000 Direct labor used (5,000 hours) 245,000 Manufacturing overhead incurred 273,000 Jackson Company calculated a predetermined overhead rate using estimated overhead of $320,000 and 8000 estimated direct labor hours. Finished Goods Inventory had a balance of $9,000 at the end of the year. What was adjusted cost of goods sold? a) $715,000 b) $708,000 c) $706,000 d) $699,000

Meadow Company produces hand tools. A sales budget for the next four months is as follows. March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Companys ending finished goods inventory policy is 10% of the following months sales. What is budgeted ending finished goods inventory for May? A) 1,000 B) 1,300 C) 1,600 D) 2,100

Sunk costs are always A. opportunity costs B. avoidable C. relevant D. irrelevant

The manager of Hampton, Inc. is trying to decide whether to make or buy a component of the product it sells. Which of the following costs and benefits is not relevant to the decision. A) Direct labor cost involved in making the component B) The purchase price of the component of it is a bought C) Variable manufacturing overhead involved in making the component D) The selling price of the product

Harris, Inc., has budgeted sales in units for the next five months as follows: June: 9400 units July: 7800 units August: 7300 units September 5400 units October 4100 units Past experience has shown that the ending inventory for each month should be equal to 20% of the next month's sales in units. The inventory on May 31 contained 1,880 units. The company needs to prepare a production budget for the next five months. The beginning inventory for September should be: A) 820 units B) 1,880 units C) 1,460 units D) 1,080 units

D) 1,080 units

Underapplied overhead means A. too little overhead was applied to raw materials. B. actual overhead is greater than estimated overhead. C. finished goods will need to be credited. D. there is a debit balance remaining in the overhead account.

D. there is a debit balance remaining in the overhead account. If overhead is underapplied, there is a debit balance in the account.

Which of the following is not a component of the cash budget?

Depreciation expense

Which component of the cash budget is shown as a line item on the budgeted balance sheet?

Ending cash balance

Which of the following steps in the managerial decision-making process involves differential analysis?

Evaluate the costs and benefits of the alternatives.

The total amount of cost assigned to jobs that were completed during the year is the cost of goods sold.

False The total amount of cost assigned to jobs that were completed during the year is the cost of goods manufactured, not the cost of goods sold.

To assign activity costs using the activity proportion method, multiply the activity rate by the activity requirements of each individual product.

False To assign activity costs using the activity proportion method, multiply the total activity cost by the activity proportion for each product.

A manufacturing firm reports only manufacturing costs

False - because a manufacturing firm reports both manufacturing and nonmanufacturing costs

When units are sold, the cost associated with the units decreases which account?

Finished Goods Inventory

annual rate of return limitations:

First, it does not incorporate the time value of money. Second, it is based on accounting net income rather than cash flow.

Which of the following would not be an example of a cost to include in a selling and administrative expense budget? Legal expenses Accounting services Fixed manufacturing overhead Franchise fees

Fixed Manufacturing Overhead

Which of the following would not be an example of a cost to include in a selling and administrative expense budget?

Fixed manufacturing overhead

A large company that uses activity based costing would do which of the following?

Group activities together to simplify the number of activities.

Managers who use activity-based management should begin by asking all of the following questions except:

How am I evaluated annually based on these activities?"

Which of the following types of standards can be achieved only under perfect conditions?

Ideal standard

Which of the following is not a step in the managerial decision-making process?

Identify the activity cost drivers.

Which of the following functions of management involves arranging the necessary resources to carry out the plan?

Implementing

Which of the following is not a characteristic of financial accounting?

Information is subjective, relevant and future-oriented

Which of the following is not a characteristic of managerial accounting?

Information is used by external parties

The cost of scrap and rework is an example of what type of quality cost?

Internal failure costs

Which type of manager(s) have the authority to make purchase decisions regarding company assets?

Investment center managers only

Which of the following is not a benefit of budgeting? It forces managers to look to the future It plays an important role in communication within the organization It serves an important role in motivating and rewarding employees It builds organizational slack

It builds organizational slack

Which of the following is not a benefit of budgeting?

It builds organizational slack.

Which of the following statements is true about the strategic plan?

It is management's vision of what they desire the organization to achieve over the long term.

For a cost to be relevant, it must meet which of the following criteria?

It must differ between the decision alternatives and it must be incurred in the future rather than in the past.

Which of the following balanced scorecard perspectives measures an organization's ability to change?

Learning and growth

All of the following are non-volume-based cost drivers except number of ___. -inspections -machine hours -design changes -setups

Machine Hours

Which of the following is NOT a volume-based cost driver? -Machine setups -Sales Revenue -Direct Material Costs -Direct Labor Dollars

Machine Setups

Which of the following is an ABC cost driver? -Direct Material Costs -Sales Revenue -Direct Labor Dollars -Machine Setups

Machine Setups

Creating a budget is an important part of which phase of the planning and control process? Planning Organizing Directing/Leading Control

Organizing

Total manufacturing overhead under activity-based costing consists of all ___

Overhead assigned during Stage 2 allocations

Which of the following is the best example of a unit-level activity? Human resources Research and development Painting a final product Product testing

Painting a final product

Which of the following are facility-level activities?

Paying factory insurance Human resource hiring fairs

When materials are purchased, which of the following accounts is increased?

Raw Materials Inventory

Which of the following represents the cost of materials purchased but not yet issued to production?

Raw Materials Inventory

Which of the following represents the cost of the jobs sold during the period?

Raw Materials Inventory Work in Process Inventory Cost of Goods Sold

Hair salons and law firms are examples of which of the following type of organization?

Service companies

Which of the following is not a perspective used by the balanced scorecard?

Short-term

Which of the following types of firms would most likely use process costing?

Superior Auto Body & Repair Jackson & Taylor Tax Service Sunshine Soft Drinks

In large organizations, the selling and administrative expense budget would be a compilation of many smaller, individual budgets submitted by department heads and other persons responsible for selling and administrative expenses. T/F

TRUE

Which of the following statements is not correct about using the balanced scorecard for sustainability accounting?

The company could focus exclusively on short-term metrics, creating sustainability in its operations.

Given the following, determine if a buy price for 2,000 units @ $5.00 per unit should be accepted or if the company should continue to make the 2,000 units. Direct materials ($1.25 per unit) = $2,500 Labor ($2.00 per unit) = $4,000 Variable overhead ($1.00 per unit) = $2,000 Fixed overhead =$1,000 Common costs = $500 If the company buys the units, all of the variable costs are differential. None of the fixed overhead or common costs are differential. None of the fixed overhead or common costs will be eliminated if the units are purchased. However, if the units are purchased the facilities that are no longer used will be used for another purpose which will provide a differential contribution of $2,500.

The company should buy the component because they will save $1,000 (Variable costs ($2,500 + $4,000 +$2,000) = $8,500 + $2,500 opportunity cost = $11,000 vs. $10,000 to buy (2,000 units x $5.00)

Which of the following statements is correct about the differences between a volume-based cost system and an ABC system?

The only difference is how the methods assign indirect costs to products.

Which of the following is not a source that can be used in preparing the sales budget? Prior sales. The production budget. Industry trends. Marketing activities.

The production Budget

Which costing system assigns overhead using volume-based cost drivers?

Traditional

A value-added activity is one that enhances the perceived value of the product or service to the customer

True

Whether a cost is treated as direct or indirect depends on whether tracing the cost is either possible or feasible

True

Unit product cost = Total product cost ÷ Number of units Unit product cost = $6,200 ÷ 50 Units = $124

Which of the following involves analyzing the market and estimating what consumers will be willing to pay for a product with specific features?

Value engineering

When an activity must be performed for each individual unit, an appropriate cost driver is ___

Volume-Based

Which of the following statements is correct about the way managers set standards for employees?

When setting standards, managers should include a reasonable amount of downtime for preventable maintenance, employee breaks, and training

The responsibility center in which the manager does not have responsibility and authority over revenues is:

a cost center.

A relevant cost is:

a cost that differs across decision alternatives.

A relevant cost is:

a cost that differs across decision alternatives. A relevant cost is one that will change depending on which alternative a manager selects.

An activity cost driver is:

a measure of the underlying activity that occurs in each activity cost pool.

annuity:

a stream of cash flows that occur uniformly across time

How much would you need to deposit in a savings account that earns 7%, compounded annually, to withdraw $20,000 eight years from now? a. $11,640 b. $18,600 c. $18,692 d. $34,364

a. $11,640

How much will you need you deposit now in a savings account that earns 5% interest, compounded annually, in order to withdraw $5,000 at the end of every year for ten years? a. $38,609 b. $47,500 c. $47,619 d. $50,000

a. $38,609

The margin of safety is the difference between:

actual sales and break-even sales

A predetermined overhead rate in an activity-based costing system is called ______.

an activity rate

An out-of-pocket costs is:

an actual outlay of cash

A cost object is:

an item for which managers are trying to determine the cost

A make-or-buy decision is the same as:

an outsourcing decision Both terms—make-or-buy and outsourcing—are used to describe decisions about whether to perform an activity in-house or purchase it from an outside supplier.

A make-or-buy decision is the same as:

an outsourcing decision.

The accounting rate of return is calculated as:

annual net income divided by initial investment

Equal interest rates, interest periods, and dollar amounts each interest period are all characteristics of ______.

annuities

A monthly house or car payment is an example of a(n) ________________

annuity

A stream of equal cash flows is called a(n)________.

annuity

Belmont Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $200,000. The equipment will have an initial cost of $1,000,000 and have a 8 year life. If there is no salvage value of the equipment, what is the accounting rate of return? a. 12.5% b. 20% c. 40% d. 15%

b. 20%

Which of the following capital budgeting methods focuses on net income rather than cash flows? a. payback period b. accounting rate of return c. net present value d. internal rate of return

b. accounting rate of return

NOT included in operating budget

budgeted balance sheet

The _____ _____ _____ provides info about a company's expected revenue, expenses, and profitability for a period of time

budgeted income statement

_____ _____ _____ is the forward looking income statement that summarizes budgeted sales revenues and expenses for the budget period

budgeted income statement

If cash flows are not equal each year, the payback period a. cannot be calculated b. is calculated by dividing the initial investment by the average cash flows c. is calculated by subtracting each year's cash flows from the initial investment until zero is reached d. is calculated by dividing the total years in the project by two

c. is calculated by subtracting each year;s cash flows from the initial investment until zero is reached

The method that compares the present value of a project's future cash flows to the initial investment is a. accounting rate of return b. payback period c. net present value d. internal rate of return

c. net present value

Degree of operating leverage is used to:

calculate change in profit given change in sales.

A measure of the limit placed on a specific resource is known as its _____

capacity

_____ is a measure of the limit placed on a specific resource

capacity

_____ is the measure of the limited capability of a resource

capacity

There are many variances of ROI, including return on ______.

capital employed assets equity

The _____ budget receives considerable attention because a company cannot exist without sufficient cash

cash

Decision-making authority is kept at the very top when an organization is

centralized

_____ _____ are resources that are unable to meet the demand placed on them

constrained resource

One of the most important concepts in responsibility accounting is the:

controllability principle.

The formula to compute activity proportion is ______

cost driver for product / cost driver for all products

The formula to compute activity proportion is ______.

cost driver for product / cost driver for all products

The discount rate should reflect a company's __________ of ______

cost of capital

To determine if a project is acceptable, compare the internal rate of return to the company's ______.

cost of capital

An important part of TQM is a(n) ______ report that summarizes the costs incurred to prevent, deduct, and correct problems.

cost of quality

Target costing is in stark contrast to _______-______ pricing, in which the company adds a markup to expenses required to produce the product.

cost plus

Internal transfer prices ______.

determine how revenues and costs are reported between divisions

Net present value is the ______.

difference between the present value of a project's cash inflows and the present value of the project's cash outflows

The process of estimating revenues and costs of alternative actions and comparing them to the status quo is called ____________ ___________.

differential analysis

_____ _____ is the costs that differ between decision alternatives

differential costs

A _____ fixed cost is one that can be traced to a specific business segment

direct

Only the _____ _____ costs traceable to a product are avoidable

direct fixed

A ______________ is one that can be attributed to a specific segment of the business.

direct fixed cost

Conversion costs consist of: all costs of production. raw materials and direct labor. direct labor and manufacturing overhead. raw materials and manufacturing overhead.

direct labor and manufacturing overhead.

_____ ____ _____ is a budget indicating the amount of direct labor needed to meet expected production

direct labor budget

The price variance for direct labor is called the:

direct labor rate variance

The formula AH × (SR - AR) is the:

direct labor rate variance.

The difference between the actual price and the standard price, multiplied by the actual quantity of materials purchased is the:

direct materials price variance

The difference between the actual quantity and the standard quantity, multiplied by the standard price is the:

direct materials quantity variance

The formula SP × (SQ - AQ) is the:

direct materials quantity variance

A(n)_________ fixed cost is under the control of a segment manager and a(n)_______ fixed cost is outside the segment manager's control.

direct, common

The rate applied to future cash flows to reflect the time value of money is called the ____________ rate

discount

The rate applied to future cash flows to reflect the time value of money is called the _______ rate

discounting

A performance metric based on after-tax net operating income, cost of capital, and total capital employed is ______.

economic value added

Total quality management aims to improve quality by doing all of the following except:

eliminating non-value-added costs.

The _____ balance of cash appears on the budgeted balance sheet

ending

_____ _____ is the difference between a company's current level of production and what it could produce given its current operating structure and cost

excess capacity

_____ capacity exists when a company has not yet reached the limit on its resources, while _____ capacity indicates that the limit on one or more resources has been reached

excess, full

Activities that occur regardless of how many products are produced or how many batches are run or units made are ___ - ___ activities

facility Level

A profitability index greater than zero means that a project has a positive NPV. T/F

false

An example of a future value of a single amount problem would be finding how much the right to receive a certain amount in the future would be worth today. T/F

false

Be cautious of __________ expressed on a per-unit basis when weighing make-or-buy decisions. The total value (instead of the per unit value) is relevant to the decision.

fixed costs Total fixed costs (and whether or not they change based on the decision) are relevant, not necessarily fixed costs per unit.

______ _____ costs can be ignored when making special order decisions because these costs will remain the same regardless of whether the order is accepted or not, so long as the company has the capacity to the order

fixed overhead

Financial performance measures ______.

focus on past, not future performance may cause managers to make decisions that won't be optimal in the long run

_____ _____ occurs when a company is operating its resources to the limit of its capacity. No additional units can be produced or customers served without increasing capacity or incurring opportunity costs

full capacity

_____ ______ exists when a company has met its limit on one or more resources

full capacity

Long-run pricing decision usually rely on:

full cost information

For a cost to be relevant it must be a _____ cost that differs between decision alternatives

future

Determining what an amount invested today will be worth in 5 years is a(n) ______________ _________ problem

future value

Responsibility centers can be based on _________ regions, ____________ lines, _________characteristics, or some combination of the three.

geographical product functional

Responsibility centers can be based on __________ regions, ________ lines, _________ characteristics, or some combination of the three.

geographical, product, functional

A performance evaluation system can create _________ or a conflict of interest between what is best for a division and best for the company as a whole.

goal incongruence

horizontal trend computations:

help decision makers and stakeholders recognize financial changes that unfold over time.

the purpose of a cash budget

help managers plan ahead to make certain they will have enough cash on hand to meet their operating needs

The cost estimating approach that uses the two most extreme activity observations is the:

high-low method.

When a company implements activity-based costing, overhead cost often shifts from ______-volume products to ______-volume products.

high; low

When a company implements activity-based costing, overhead cost often shifts from ______-volume products to ______-volume products.

high;low

explain the relationship between the components of the balanced scorecard:

if you have learning and growth then you have improved processes which give more customer satisfaction which ultimately improves the financial situation.

Discounted cash flow methods ______.

incorporate the time value of money include the profitability index are generally superior to non-discounting methods

As the cost of capital (discount rate) decreases, the net present value of a project will ______.

increase

When disposed of, underapplied manufacturing overhead will: increase Cost of Goods Sold. increase Finished Goods. decrease Cost of Goods Sold. decrease Finished Goods.

increase Cost of Goods Sold.

The internal rate of return ______.

is the discount rate that makes NPV equal zero for a project

which is NOT a benefit of budgeting

it build organizational slack

All the costs assigned to an individual job are summarized on a:

job cost sheet.

A system that pulls materials and products through the manufacturing system based on customer demand is called _____

just-in-time

Management decision in which lost revenue is compared to the reduction of costs to determine the overall effect on profit is _____ _____ _____ _____

keep or drop decision

_____ _____ _____ _____ application of incremental analysis that requires managers to decide whether to retain or eliminate a business segment or product

keep or drop decisions

A project's payback period is the ______.

length of time it takes for the project to recover its initial cost from the net cash inflows generated

Overhead costs are underapplied if the amount applied to Work in Process is:

less than actual overhead incurred.

Overhead costs are underapplied if the amount applied to Work in Process is: greater than estimated overhead. less than estimated overhead. greater than actual overhead incurred. less than actual overhead incurred.

less than actual overhead incurred.

In the _____ run, constrained resources impacts management decisions by eliminated non value added activities such as rework or waiting, or by increasing the capacity of the constrained resources such as hiring more workers, buying bigger or faster machines, or leasing additional space

long

The _____ _____ budget shows all costs of production other than direct materials and direct labor

manufacturing overhead

To compute the per-unit manufacturing cost, add ___ ___to direct materials and direct labor.

manufacturing overhead

To compute the per-unit manufacturing cost, add ______ _______ to direct materials and direct labor.

manufacturing overhead

_____ _____ _____ budget that estimates the manufacturing overhead costs needed to support budgeted production

manufacturing overhead budget

The _____ budget is a comprehensive set of budgets that covers all phases of planned activities for a specific period

master

The high-low method is a cost estimating approach that uses _______________ to find the cost line.

only two data points

The _____ budget feeds directly into the cash budget

operating

The _____ budget is made up of the sales forecast, production budget, direct materials purchases budget, direct labor budget, manufacturing overhead budget, selling and administrative budget, and budgeted income statement

operating

The _____ budgets also affect other elements of the budgeted balance sheet, including budgeted accounts receivable, inventory, accounts payable, and owner's equity

operating

_____ budgets includes sales, productions, and purchases budgets

operating

The _____ _____ establish goals for the company's sales and production personnel

operating budget

_____ _____ budgets that cover the organization's planned operating activities for a particular period of time

operating budgets

Return on investment can be calculated as:

operating income/average invested assets

Return on investment can be calculated as:

operating income/average invested assets.

Profit margin can be calculated as:

operating income/sales revenue.

Distinguish whether is an operating or financing budget 1. cash budget 2. sales budget 3. raw materials purchases budget 4. selling and administrative expense budget 5. budgeted balance sheet 6. manufacturing overhead budget 7. direct labor budget 8. budgeted income statement 9. production budget

operating= 2, 3, 4, 6, 7, 8, 9 financing= 1, 5

An _____ cost is what you give up when you choose to do something

opportunity

If a company has a resource that could be used for something else, the _____ cost is the profit that could be derived from the best alternative use of the resource

opportunity

When managers are forced to choose one alternative over another due to limited employee time and equipment availability, the business manager is facing _____ costs

opportunity

A company is considering whether to continue to make a component or buy it from an outside supplier. Because the company has no alternative use of the manufacturing facilities that are currently used to make the product, the ____________ __________ associated with the decision is zero.

opportunity cost

The forgone benefit of choosing one decision alternative over another is its _____ _____

opportunity cost

Which of the following is not another term for relevant costs?

opportunity costs

Which of the following is not another term for relevant costs?

opportunity costs Opportunity costs may be relevant, but the two are not synonymous. Differential, incremental, and avoidable costs are all synonymous to relevant costs.

The foregone benefit of choosing one alternative over another is measured by:

opportunity costs. An opportunity cost is the foregone benefit of choosing one alternative over another.

creating a budget is an important part of which phase of the planning and control process?

organizing

Cost of goods sold is the amount of cost transferred:

out of Finished Goods Inventory and into Cost of Goods Sold.

Cost of goods manufactured is the amount of cost transferred:

out of Work in Process Inventory and into Finished Goods Inventory.

The time that it takes for a project to recoup its original investment is the _____________ period

payback

the intent of ___________ ___________ is to drive competitors out of the market by setting prices low.

predatory pricing

_____ _____ _____ _____ budget that indicates the quantity of raw materials that must be purchased to meet production and raw materials inventory needs

raw materials purchases budget

budgeted COGS includes

raw materials, direct labor, manufacturing overhead

solvency ratio:

relate to the company's long-run survival—in particular, the company's ability to repay lenders when debt matures and to make the required interest payments prior to the date of maturity.

profitability ratio:

relate to the company's performance in the current period—in particular, the company's ability to generate income.

liquidity ratio:

relate to the company's short-term survival—in particular, the company's ability to use current assets to repay liabilities as they become due.

Non-volume-based cost drivers may be more appropriate for activities ______

related to the entire facility that are performed for each batch related to individual products

Business transactions between units or divisions of the same company are called ______ transactions.

related-party

Business transactions between units or divisions are commonly known as ______.

related-party transactions

Costs that differ between alternatives are called _____ costs

relevant

Typical capital budgeting decisions include ______.

research and development projects equipment selection decisions lease or buy decisions

internal failure costs

result from defects discovered during inspection are preferred over external failures

Internal failure costs are costs that:

result from defects that are caught before the product is shipped to the customer.

Which of the following business segments would not be considered a cost center?

retail outlet

Investment turnover × profit margin = ______.

return on investment

Net operating income ÷ average invested assets = ______.

return on investment

two common measures for evaluating financial performance:

return on investment, residual income

Sales quotas are often given to____________ center managers.

revenue

The responsibility center in which the manager does not have responsibility and authority over costs is the:

revenue center.

The final step in the decision making process is to:

review the results of the decision.

Gross profit margin calculates gross margin as a percentage of ______

sales

Narrowing down a set of projects for further consideration is a(n) ________________ decision.

screening

Sales revenue minus all costs that are directly attributable to a particular product line or region of a business is called the _________

segment margin

Sales revenue minus all costs that are directly attributable to a particular product line or region of a business is called the

segment margin

the period of time over which capacity will be unchanged (normally one year) is known as the ___________ ___________

short run

______ _____ _____ specific goal that management wants to achieve in the short run; usually no longer than 1 year

short term objective

Which of the following is NOT a value-added activity?

storing inventory

A _____ ____ is the starting point of the planning process and is the vision of what management wants to organization to achieve over the long term

strategic plan

The starting point of the planning process is management's _____ _____ or vision for the organization

strategic plan

_____ _____ managers' vision of what they want the organization to achieve over a long term horizon

strategic plan

the vision of what managment wants the organization to achieve over the long term

strategic plan

specific actions managers use to achieve their objectives

tactics

The approach to determine what costs should be in order to earn an acceptable profit across a product's life cycle is called ______ _______ or cost planning

target costing

Accounting rate of return:

tells managers how much net income a potential project is expected to generate as a relative percentage of the investment required.

One side benefit of JIT is that:

the accounting system is simplified.

Indirect costs can be assigned to products or services using ______

the activity proportion method the activity rate method

Indirect costs can be assigned to products or services using ______.

the activity rate method the activity proportion method

residual income:

the amount of net operating income earned over and above the minimum amount needed to meet the required rate of return.

Profit margin is:

the amount of profit generated for every dollar of sales revenue.

Investment turnover is:

the amount of sales revenue generated for every dollar of invested assets.

A volume-based allocation measure would vary proportionately with:

the number of units produced.

The break-even point is:

the point where zero profit is earned.

When it comes to setting transfer prices, ______.

the price set can have an impact on individual manager performance managers of different departments may have very different goals

Investment turnover is defined as:

the ratio of sales revenue to average invested assets.

Investment turnover is defined as:

the ratio of sales revenue to average invested assets. he formula for investment turnover is sales revenue divided by average invested assets. Net operating income divided by average invested assets is return on investment; net operating income divided by sales revenue is profit margin; and profit margin divided by return on investment is the inverse of investment turnover.

Using the activity-proportion method results in: higher cost allocations than the activity rate method. lower cost allocations than the activity rate method. the same cost allocations as the activity rate method. higher or lower cost allocations than the activity rate method, depending on the circumstances.

the same cost allocations as the activity rate method.

time value of money:

the simple idea that the value of a dollar changes over time because it can be invested to earn interest.

The full-cost fallacy occurs when decision makers:

think that fixed costs are variable

sales dollars minus direct materials costs and other variable costs such as energy and piecework labor equals ______________ contribution.

throughput

The principle that money is more valuable today than it will be in the future is referred to as the ______________ ____________ of ______________.

time value of money

The first step in ABC is:

to identify and classify activities.

T/F: Budgetary slack can sometimes be beneficial

true

The accounting rate if return is the only method that focuses on net income rather than cash flow. T/F

true

The internal rate of return is the rate of return that yields a zero net present value. T/F

true

The internal rate of return method uses cash flows rather than net income. T/F

true

The profitability index is calculated as the present value of future cash flows divided by the initial investment. T/F

true

_____ _____ budgeting requires managers to justify their expenditures each and every budgeting cycle instead of simply assuring previous period's levels are still appropriate

zero based

Exeter has a material standard of 1 pound per unit of output. Each pound has a standard price of $26 per pound. During July, Exeter paid $66,100 for 2,475 pounds, which it used to produce 2,350 units. What is the direct materials price variance?

$1,750 unfavorable

Parker Corp expects to sell 4,000 units in October, and expects sales to increase 20% each month thereafter. Sales price is expected to stay constant at $8 per unit. What are budgeted revenues for the fourth quarter? $32,000 $96,000 $115,200 $116,480

$116480

A company's sales for the year total $218,000. Cash expenses for the year were $92,000 and depreciation expense was $23,000. The company's net cash flow for the year is ______.

$126,000 Reason: $218,000 - $92,000 = $126,000

Grover has forecast sales to be $125,000 in February, $135,000 in March, $150,000 in April, and $140,000 in May. The average cost of goods sold is 70% of sales. All sales are made on credit and sales are collected 60% in the month of sale, and 40% the month following. What are budgeted cash receipts in April? $105,000 $141,000 $150,000 $144,000

$144,000

Using an ABC system, a company has estimated overhead of $2,100,000. They expect to use 1,000,000 machine hours and 500,000 labor hours. ABC has identified this as a machine-hour related activity. The activity rate for this activity is ______

$2.10 $2,100,000/1,000,000 = $2.10 per machine hour

Last month Carlos Company had a $60,000 profit on sales of $300,000. Fixed costs are $120,000 a month. What sales revenue is needed for Carlos to break even?

$200,000

$22,500

$400,000

Manufacturing overhead was estimated to be $400,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $415,000, actual labor hours were 21,000. The amount of manufacturing overhead applied to production would be:

$420,000.

Calculate the present value of a 10-year, 6% loan with annual payments of $7,500 made at the end of each year using the tables in the appendix.

$55,201 Rationale: $7,500 × 7.3601 (PV of an annuity for 10 years at 6%) = $55,201

A company wants to offer a new product, but only if it can earn a 20% return on sales. If the marketing department estimates that the new product will sell for $850, what is the most the company can spend on one unit and still achieve the goal (the target cost)? TO CALCULATE 850-(850*20%)

$680

$680 $850 - ($850 × 20%) = $680.

Miami Corp. has an operating income of $120,000, average invested assets of $600,000, and a cost of capital of 7%. What is the residual income?

$78,000

A company's total expected overhead for the year is $500,000. Two activity cost pools have been identified: Customer Service with a total cost of $200,000 and a total activity of 25,000 customer service calls; and Product Development with a total cost of $300,000 and total activity of 20,000 development hours. The activity rates are ______.

$8 per customer call and $15 per development hour Rationale: $200,000/25,000 = $8 per customer call and $300,000/20,000 = $15 per development hour.

Robin Company has the following balances for the current month: Direct materials used $24,000 Direct labor $36,800 Sales salaries $19,200 Indirect labor $4,800 Production manager's salary $9,600 Marketing costs $14,400 Factory lease $6,400 What is Robin's total manufacturing cost?

$81,600

Laredo, Inc. has a contribution margin ratio of 45%. This month, sales revenue was $200,000, and profit was $40,000. If sales revenue increases by $20,000, by how much will profit increase?

$9,000

Linden, Inc. uses a 5,000 square foot factory space that it rents for $2,500 a month for all its manufacturing activities. Linden has decided to switch to an activity based costing system, and has identified its activities as follows: Preparation and Setup, Machining, Finishing, and Quality Control. 500 square feet of the factory are used for machining, while 2,000 square feet (each) are used for Preparation and Setup and Quality Control. Finishing uses 500 square feet. When assigning indirect costs to each activity, how much factory rent should be assigned to the Preparation and Setup cost pool?

(2,000/5,000) × $2,500 = $1,000.

Cottonwood, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Standard uses 30% of total machine hours and 70% of total batches. What is the total activity cost assigned to Luxury?

(70% × $500,000) + (30% × $30,000) = $359,000.

horizontal formula:

(current year-prior year)/prior year

A screening decision ______.

- is used to determine if a project is a candidate for further consideration - relates to whether a proposed project meets some minimum criteria

Managers are evaluating two independent projects. Project X has a NPV of $282,500 and a profitability index of 2.1. Project Y has a NPV of $320,000 and a profitability index of 1.7. Which of the following statements are correct? -If funds are limited, Project X should be selected because it has the highest profitability index. -If funds are not limited, the company should only invest in the project Y. -If funds are limited, Project Y should be selected because it has the highest net present value. -If funds are not limited, the company should consider investing in both projects.

-If funds are limited, Project X should be selected because it has the highest profitability index. -If funds are not limited, the company should consider investing in both projects.

Which of the following statements are true? -The payback method is a discounted cash flow method. -The time value of money should be considered in capital budgeting decisions. -Money is more valuable today than it will be in the future.

-The time value of money should be considered in capital budgeting decisions. -Money is more valuable today than it will be in the future.

Discounted cash flow methods assume cash flows ______.

-are immediately reinvested in another project -can be projected with 100% certainty

Non-Volume based cost drivers ___ -are used in traditional costing systems -are related to the number of units products or customers served -are used in ABC systems -allow more indirect costs to be allocated to products

-are used in ABC systems -allow more indirect costs to be allocated to products

The weighted -average cost of capital ______.

-should be reflected in the company's discount rate -is how much it costs a company to fund capital projects

Which step in the management decision making process: identify the decision problem, or determine why a decision needs to be made in the first place

What are the 4 responsibility centers:

1) cost center 2) revenue center 3) profit center 4) investment center

4 dimensions of balanced scorecard:

1) financial perspective 2) customer perspective 3) internal business processes perspective 4) learning and growth perspective

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. Usage of the activity drivers are as follows: What is the amount of Machining cost assigned to Product A?

1,000 × $125 = $125,000.

Blowing Sand Company has just received a one time offer to purchase 10,000 units of its Gusty model for a price of $22 each. The Gusty model costs $26 to produce ($17 in variable costs and $9 of fixed overhead). Because the offer came during a slow production month, Blowing Sand has enough excess capacity to accept the order. 1. Should blowing sand accept the special order? 2. Calculate the increase or decrease in short term profit from accepting the special order

1. Yes 2. Profit will increase $50,000 (10,000 fans X $5 contribution margin)

transfer price methods:

1. market-price method 2. cost-based method 3. negotiation

3 categories of ratios:

1. profitability 2. liquidity 3. solvency

Calderon Kitchen Supplies is planning to invest $210,000 in a new product. The product is expected to generate a net present value of $56,700. The project profitability index is ______.

1.27 Rationale: The profitability index is calculated using the present value of the future cash flows, not the net present value. ($210,000 + $56,700) ÷ $210,000 = 1.27

Calderon Kitchen Supplies is planning to invest $210,000 in a new product. The product is expected to generate a net present value of $56,700. The project profitability index is ______.

1.27 Reason: The profitability index is calculated using the present value of the future cash flows, not the net present value. ($210,000 + $56,700) ÷ $210,000 = 1.27

Lea Company produces hand tools. Budgeted sales for March are 10,000 units. Beginning finished goods inventory in March is budgeted to be 1,300 units, and ending finished goods inventory is budgeted to be 1,400 units. How many units will be produced in March? 9,900 10,000 10,100 12,700

10100

To have $15,000 available for a down payment on a house 5 years from now, you need to invest $ ______ today at 7% compounded annually.

10695

1200

Which step in the management decision making process: determine the decision alternatives, or decide what the potential solutions to the problem are

Studio Films is considering the purchase of some new film equipment that costs $150,000. The new equipment is expected to increase revenues by $115,000 annually. Total annual operating expenses are expected to be $70,000. The accounting rate of return of the equipment is _________%

30%

Jared Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jared Inc.'s finished goods inventory policy is 10% of next month's sales needs. Jared Inc.'s leather inventory policy is 30% of next month's production needs. What will leather purchases be in August? 3,425 square meters 3,450 square meters 3,508 square meters 3,600 square meters

3600 square meters

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows: What is the amount of Machining cost assigned to Product X? Product A: Machine hours 1,000 Number of batches 45 Product X: Machine hours 3,000 Number of batches 15

375,000

Which step in the management decision making process: make the decision based on the info gathered in the previous step

4000

State Bank is implementing a new marketing campaign that requires an initial investment of $35,000. If the project profitability index is 1.2, the present value of the campaign's future cash flows is $ ___________

42000

Lincoln, Inc., which uses a volume-based cost system, produces cat condos that sell for $90 each. Direct materials cost $15 per unit, and direct labor costs $10 per unit. Manufacturing overhead is applied at a rate of 200% of direct labor cost. Nonmanufacturing costs are $27 per unit. What is the gross profit margin for the cat condos?

50.0%

Plaster Company expects to have a total cost of $400,000 in its activity cost pool. The total expected activity is 800 machine setups. The activity rate is $ ___ per setup.

500

57,600

Spicer Dentistry is considering the purchase of a new x-ray machine. The machine costs $2,400 and has a useful life of 10 years. The new machine is expected to reduce operating costs by $400 per year. The payback period for the x-ray machine is ______ years.

Organize the following budgets in order of preparation 1. cash budget 2. selling and administrative expense budget 3. manufacturing overhead budget 4. raw materials purchases budget 5. budgeted balance sheet 6. sales budget 7. direct labor budget 8. budgeted income statement 9. budgeted COGS 10. production budget

6, 10, 4, 7, 3, 9, 2, 8, 1, 5

Cooper Company has a direct material standard of 2 gallons of input at a cost of $7.50 per gallon. During July, Cooper Company purchased and used 13,000 gallons, paying $93,200. The direct materials quantity variance was $1,500 unfavorable. How many units were produced?

6,400 units

60,800

Widgets, Inc., plans to produce 8,000 widgets during the upcoming year. Each widget requires four direct labor hours at $25 per hour and $110 in direct material costs. Manufacturing overhead is assigned based on direct labor hours and is estimated to be $625,000 for the upcoming year. Compute the predetermined overhead rate per direct labor hour.

625,000/ (8,000x4) = 19.53

On December 1, 2018 you invest $5,000 in a mutual fund that earns 6% compounded annually. On December 1, 2023, the balance in your account rounded to the nearest whole dollar will be $ _______

6691

Calverton, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses P × $500,000 = $150,000; P = 30%. a number of batches as an activity driver. The cost of Machining is $500000, while the cost of Inspection is $30000. Standard is assigned $150,000 in Machining cost and $22,500 in Inspection cost. What proportion of Machining activity is used by Luxury?

70%

75%

Jeremy Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jeremy Inc.'s leather inventory policy is 30% of next month's production needs. If the leather policy is met, what will the July 1 inventory be? 750 square meters 1,050 square meters 1,825 square meters 300 square meters

750 square meters

8.4 Rationale: $210,000 ÷ $25,000 = 8.4 years

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 beginning inventory is projected to be 1,400 units. How many units will be produced in March?

9,900

Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How many unskilled labor hours will be budgeted for August? 7,000 9,100 15,400 24,500

9100

Budgets that are most likely to motivate employees A. are tight but attainable B. contain budgetary slack C. are preparing using a top down approach D. are prepared using easy goals

Deciding what to do with a product that's ready to sell or could be enhanced is a A. sell or process further decision B. product line decision C. special order decision D. make or buy decision

Homer Inc. had the following information for the preceding year: Beginning balance Ending balance Raw materials 0 0 Work in process ?? 35,000 Finished goods ?? 30,000 The following additional information is available for the year: Direct materials used 200,000 Direct labor 150,000 Manufacturing overhead applied 160,000 Cost of goods manufactured 525,000 Cost of goods sold (unadjusted) 544,000 What was the beginning Finished Goods Inventory balance on 1/1? a) $49,000 b) $65,000 c) $50,000 d) $69,000

If a company is planning to build inventory A) Production should exceed sales B) Sales should exceed production C) Production should equal sales D) Production should equal inventory

Indirect costs are a) Costs that are not worth the effort to trace to a specific cost object. b) Costs that change, in total, in direct proportion to changes in activity levels. c) Always irrelevant. d) Costs that remain constant no matter the activity level.

The foregone benefit of choosing one alternative over another is measured by A) Opportunity costs B) Activity based costs C) Differential costs D) Capital Costs

What determines the difference between a variable and a fixed cost? a) Whether it changes when activity levels change. b) Whether it is relevant to a particular decision. c) Whether it can be traced to a specific cost object. d) Whether it is related to manufacturing or nonmanufacturing activities.

When making a one time special order decision, a company can ignore fixed overhead because A. the cost is not avoidable B. the cost is avoidable C. the cost cannot be determined D. none of the above

When resources are constrained, managers should prioritize products in order to maximize A. contribution margin per unit of the constrained resource B. sales volume C. opportunity cost D. fixed cost per unit of the constrained resource

When there's excess capacity, an analysis of a special order A. excludes fixed costs B. should include a sales price that's the same as the regular selling price C. includes opportunity costs D. isn't required because all special orders should be accepted

Which of the following types of decisions involves deciding whether to accept or reject an order that is outside the scope of normal sales A) Special order B) Make or Buy C) Continue or discontinue D) Sell or process further

Which of the following is a variable cost?

A cost that is $26,000 when production is 65,000, and $36,400 when production is 91,000.

Which of the following is a mixed cost?

A cost that is $32.00 per unit when production is 80,000, and $26.00 per unit when production is 128,000.

Which of the following statements is correct?

A direct cost can be traced to a specific cost object, while an indirect cost cannot.

Which of the following statements are true?

A direct fixed cost supports a specific business segment. Common fixed costs are commonly incurred at higher levels of an organization. A profit manager is accountable for direct fixed costs.

When a traditional, volume-based costing system is used, which of the following products is most likely to suffer from cost distortion?

A low-volume, high-complexity product

Which of the following statements is correct?

A manager might reject a proposal using ROI that the manager would accept using residual income.

Which of the following statements best represents the controllability principle?

A profit center manager should be evaluated based on segment margin, not profit margin.

Which of the following companies would most likely use process costing? A soft drink company A law firm A custom garden equipment manufacturer A home remodeling company

A soft drink company

When is a volume-based cost system appropriate for a service company?

A volume-based cost system is appropriate for a service company when every customer places a similar demand on the company's resources

he Gerald Corporation makes and sells a single product called a Clop. Each Clop requires 1.1 direct labor-hours at $8.20 per direct labor-hour. The direct labor workforce is fully adjusted each month to the required workload. The company is preparing a Direct Labor Budget for the first quarter of the year. The budgeted direct labor cost per Clop is closest to: A) $9.02 B) $7.45 C) $9.76 D) $8.20

A) $9.02

On January 1, Colver Company has 6,500 units of Product A on hand. During the year, the company plans to sell 15,000 units of Product A, and plans to have 5,000 units on hand at year end. How many units of Product A must be produced during the year? A) 13,500 B) 16,500 C) 15,000 D) 20,000

A) 13,500

ABC Lumber spent $1,000 cutting down a tree. The result was 40 unfinished logs that sell for $20 each and 100 bags of sawdust that sell for $1 each. If the unfinished logs are processed into finished lumber at a cost of $8 each, they will sell for $35. A bag of sawdust can be processed into Presto Logs that sell for $1.25 at a cost of $0.75 per bag. Which of the following statements are TRUE concerning whether the logs should be processed into finished lumber and whether the sawdust should be processed into Presto Logs? (check all that apply) A. the logs should be processed B. the sawdust should be sold as is without being processed into Presto Logs C. both the logs and the sawdust should be processed D. the $1,000 cost for cutting down the tree is relevant to the decision

A, B

Relevant costs (check all that apply) A. differ between alternatives B. are also called sunk costs C. occur in the future D. include all costs involved in a decision

A, C

Grover has forecast sales to be $and 40% the month following. What are budgeted cash receipts in March? A. $131,000 B. $135,000 C. $94,500 D. $91,700

A. $131,000

Manufacturing overhead was estimated to be $400,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $415,000, actual labor hours were 21,000. The predetermined manufacturing overhead rate would be A. $20.00 B. $0.05 C. $20.75 D. $19.05

A. $20.00 $400,000/20,000 = $20.00.

Which of the following is not a key assumption of cost-volume-profit?

Costs must be fixed.

Decision-making authority lies mostly with higher-level managers in strongly ______ organizations.

centralized

When performing a keep or drop analysis, _____ fixed costs should be excluded from the analysis

common

When performing a keep or drop decision analysis, _____ fixed costs should be excluded from the analysis

common

Which of the following statements is true?

An existing ABC system can report sustainability-related information.

Product costs are sometimes called:

Inventorial costs

When considering a special order:

fixed costs may be irrelevant

compounding:

interest earned on top of interest

The activity proportion method uses ___ to assign overhead costs to products

Conversion costs can be defined as

manufacturing costs minus direct materials

Which of the following is NOT a volume-based cost driver?

Machine setups

Which of the following budgets would not exist for a merchandising firm? Sales budget Purchases budget Production budget Selling and administrative expense budget

Production budget

It costs Camp, Inc. $35 per unit to manufacture 1,000 units per month of a product that it can sell for $50 each. Alternatively, Camp could process the units further into a more complex product, which would cost an additional $30 per unit. Camp could sell the more complex product for $75 each. How would processing the product further affect Camp's profit?

Profit would decrease by $5,000

Budgeted cost of goods sold should include which of the following?

Raw materials, direct labor, and manufacturing overhead

Budgeted cost of goods sold should include which of the following? Raw materials and direct labor. Raw materials, direct labor, and manufacturing overhead. Raw materials, direct labor, manufacturing overhead, and selling expenses. Raw materials, direct labor, manufacturing overhead, selling expenses, and administrative expenses.

Raw materials, direct labor, and manufacturing overhead

Isabella Canon is considering taking a part time job at a local clothing store. She loves the store and shops there often, but unfortunately, employee discounts are given only to full time employees. If Isabella takes this job, she would have to withdraw from her Tuesday night basket weaving class to work. Accepting the job would also mean that Isabella must give up her volunteer work at the local animal sanctuary, an activity that she enjoys a great deal. The new job would pay approx. $125 per week but would cost Isabella $15 per week in gas. Isabella would be able to keep her Saturday afternoon job at the library that pays $40 per week. Identify if these factors are relevant or irrelevant to Isabella's decision 1. The $125 income from her new job 2. The $40 income from the library 3. The $50 nonrefundable registration fee Isabella paid for the basket weaving class 4. The $15 cost for gas 5. The $75 per month that Isabella spends on clothing 6. The time Isabella spends volunteering at the animal sanctuary

Relevant= 1, 4, 6 irrelevant= 2, 3, 5

The decision-making approach that focuses on factors that will change between alternatives is sometimes called all of the following except:

actual costing.

The Cost of Goods Manufactured Report includes all of the following except:

actual manufacturing overhead.

The Cost of Goods Manufactured Report includes all of the following except: direct materials used. direct labor. actual manufacturing overhead. applied manufacturing overhead.

actual manufacturing overhead.

Budgeted production is calculated by adding budgeted unit sales to budgeted beginning finished goods inventory, and subtracting budgeted ending finished goods inventory. adding budgeted unit sales to budgeted beginning work in process inventory, and subtracting budgeted ending work in process inventory. adding budgeted unit sales to budgeted ending finished goods inventory, and subtracting budgeted beginning finished goods inventory adding budgeted unit sales to budgeted ending work in process inventory, and subtracting budgeted beginning work in process inventory.

adding budgeted unit sales to budgeted ending finished goods inventory, and subtracting budgeted beginning finished goods inventory

the cost - plus approach:

adds mark-up to full cost to determine target prices

External failure costs occur _________ a defective product makes its way to the customer, while internal failure costs occur ______ a defective product makes its way to the customer.

after, before

Non-volume-based cost drivers ______

allow more indirect costs to be allocated to products are used in ABC systems

a detailed plan that translates the company's objectives into financial terms, identifying the resources and expenditures that will be requires over the planning horizon is a

budget

_____ _____ is crucial because companies use budgets to plan their ongoing operations so they'll be able to meet their short term and long term objectives

budgetary planning

Managers who intentionally understate expected sales or overstate expected expenses are creating _____ _____

budgetary slack

_____ _____ is a cushion that managers may try to build into their budget by understating expected sales or overstating budgeting expenses so that they're more likely to come in under budget for expenses and over budget for revenues

budgetary slack

______ ______ results form employees' attempts to build a cushion or margin of safety into their budget so that they'll be more likely to meet or exceed their budgetary goal, and thus receive a better performance evaluation

budgetary slack

______ _______ can be detrimental if other decisions are based on the budget, without adjustment for it

budgetary slack

The _____ _____ _____ provides info about a company's expected financial position at a specific point in time

budgeted balance sheet

_____ _____ _____ forward looking balance sheet that shows expected balance of assets, liabilities, and owners' equity at the end of the budget period

budgeted balance sheet

_____ _____ _____ _____ _____ budgeted manufacturing cost per unit multiplied by budgeted unit sales

budgeted cost of goods sold

_____ _____ _____ _____ _____ is the sum of budgeted direct materials, direct labor, and manufacturing overhead stated on a per unit basis

budgeted manufacturing cost per unit

True or false: When the discount rate increases a project is more likely to be acceptable because its net present value will also increase.

false

True or false: When two projects are mutually exclusive, investing in one does not eliminate the other one from consideration.

false

When deciding between mutually exclusive investments, a manager should choose the option which the lowest depreciation. T/F

false

When managers must choose among independent projects, the should prioritize projects according to their net present value. T/F

false

True or false: Assume the net present value of $1,000 to be received in four years is $645. If you have the choice of receiving $645 now or $1,000 in four years, the best option is to take the $1,000 in four years.

false;Both options are equal so neither option is best.

_____ _____ are budgets that focus on the financial resources needed to support operations

financial budgets

Microsoft Excel's Solver function may be used to:

find the optimal product mix when there are constraining resources

Microsoft Excel's Solver function may to used to:

find the optimal product mix when there are constraining resources

When target costing is used, the target cost is determined by:

finding the difference between the market price and the amount of profit needed to satisfy stakeholders.

At _____ capacity, opportunity costs become relevant and should be incorporated into the analysis

full

If a company is at _____ capacity, production cannot be increased without incurring additional fixed costs

full

When a company's operating at _____ capacity, it means the limit on one or more resources has been reached, and making the choice to do one thing means giving up the opportunity to do something else

full

_____ costs are relevant when firms are at full capacity because choosing to do one thing forces managers to give up something else

full

At _____ _____ opportunity costs become relevant and should be incorporated into the analysis

full capacity

The first step in the managerial decision making process is to:

identify the decision problem.

Major limitations of the accounting rate of return method for evaluating capital investment proposals include that it ______.

ignores the time value of money is based on net income instead of net cash flows

The budgeted _____ _____ shows a company's planned profit

income statement

_____ _____ of make or buy decisions occur when a company loses an opportunity by making something internally as opposed to buying it from someone else (vice versa)

opportunity cost

The cost of not doing something is a(n):

opportunity cost.

_____ _____ benefits given up when one alternative is chosen over another

opportunity costs

Disadvantages of _____ budgeting include the amount of time consumed and the fact that employees may try to build slack into a budget

participative

_____ _____ method that allows employees throughout the organization to have input into the budget setting process

participative budgeting

A _____ approach to budgeting is more likely to motivate people to work toward an organization's goal than a _____ _____ approach

participative, top down

vertical (common size) computation:

percentage of total group (like assets)

The activity proportion method uses ______ to assign overhead costs to products.

percentages, %, or proportions

Comparing ______ is the basis of benchmarking

performance within the same industry

_____ involves developing goals and objectives for the future

planning

_____ involves developing goals for the budget, whereas _____ involves determining if goal have been followed

planning, controlling

Determining what an amount to be received next year is worth today is a(n) __________ _______ problem

present value

An activity that is performed to support a specific product line is a(n):

product-level activity.

_____ _____ budget that shows how many units need to be produced each period

production budget

how many units will be produced each period

production budget

NOT a source that can be used in preparing the sales budget

production buudget

if a company is planning to build inventory

production should exceed sales

Net operating income ÷ Sales revenue = ______.

profit margin

The ratio of a project's benefits (measured by the present value of future cash flows) to its required investment is the

profitability index

The basic premise of the payback method is ______.

projects with shorter payback periods are safer investments than projects with longer payback periods

Unit-level activities are ______

proportional to the number of units produced performed for specific customers

Implementing an ABC system ______

provides information for cost management

Implementing an ABC system ______.

provides information for cost management

If the company has limited production capacity, filling the _____ _____ may create opportunity costs including lost revenue from regular sales, back orders, ect

special order

_____ _____ _____ involve deciding whether to accept or reject an order that outside the normal scope of business, often at a reduced price

special order decisions

price/earnings=

stock price/EPS

The network of organizations and activities needed to move goods and services from suppliers to customers is called a(n) _____

supply chain

_____ specific actions or mechanisms that management uses to achieve objectives

tactics

Using "price-based costing" instead of "cost-based pricing" is the concept of __________ ___________.

target cost

A proactive approach managers use to determine what costs should be is called ______

target costing

A volume-based cost system is likely to assign more manufacturing overhead costs to products:

that sell more units than others.

When making screening decisions using the net present value method, a project is acceptable if:

the NPV is positive

The internal rate of return method indicates ______.

the discount rate that makes the present value of the cash inflows equal to the present value of the cash outflows

An opportunity cost is:

the foregone benefit of the path not taken.

When a firm has limited direct labor hours, it should prioritize the product with

the highest contribution margin per direct labor hour.

Unlike a "_____ ______" approach to budgeting where budgets are set by upper management and imposed on employees, participative budgeting allows employees to provide input into their own budget

top down

An approach that aims to improve products by reducing and eliminating errors, streamlining activities, and continuously making production processes better is called _______ _______ management

total quality

asset turnover=

total revenue/average total assets

Traditional costing systems tend to overcost high-volume products because ______

traditional costing systems don't allow for complex activities required by lower-volume products high-volume products use more labor and machine hours

The price charged when one segment of a company provides goods or services to another segment of the same company is the ______ price.

transfer

The amount that one division charges when it sells goods or services to another division of the same company is called a(n)

transfer price

The amount that one division charges when it sells goods or services to another division of the same company is called a(n)_____.

transfer price

A predetermined overhead rate in an activity-based costing system is called a(n)

activity rate

A predetermined overhead rate in an activity-based costing system is called a(n) ______ _______

activity rate

The formula to apply overhead to products is ______.

activity rate times activity

Exists when a company has not yet reached the limit on its resources is ______ _____

excess capacity

If a company has enough _____ _____ of fill a special order without affecting "normal" sales, then there are no incremental fixed costs or opportunity costs to consider. Only the variable costs of the order must be covered by the sales price

excess capacity

When a company has not yet reached the limit on its resources, it has _____ _____

excess capacity

Activities that occur regardless of how many products are produced or how many batches are run or units made are_____ - ______ activities

facility level

An activity that is performed to benefit the organization as a whole is a(n):

facility-level activity.

The net present value method compares a projects future net income to the initial investment. T/F

false

The payback period is defined as the average net income divided by the initial investment. T/F

false

True or false: Activity-based costing is appropriate for every company.

false

True or false: The best reason to implement an ABC system is to obtain more accurate information about the cost of products and services.

false

A problem with decentralization is that ______.

it may lead to duplication of resources

Managerial decision makers must often consider non-economic factors as well. For example, when considering whether to eliminate a product line, managerial accountants with an emphasis on sustainability should consider the employee job loss implications as well. This represents sustainability within a:

keep-or-drop decision.

Environmental regulations that require firms to "take back" and dispose of products have increased the importance of:

life-cycle costing

A strategic plan includes _____ term goals which are typically over a 5-10 year period and also include a ____ term or intermediate steps needed to achieve the long term goals

long, short

The most common method for disposing of over or underapplied overhead is to: recalculate the overhead rate for the period. recalculate the overhead rate for the next period. make a direct adjustment to Work in Process Inventory. make a direct adjustment to Cost of Goods Sold.

make a direct adjustment to Cost of Goods Sold.

_____ _____ _____ _____ application of incremental analysis that requires managers to decide whether to perform a particular activity or function in house or to purchase it from an outside supplier

make or buy decisions

A diner is deciding whether to use its own ingredients to prepare meals or purchase frozen prepared items form a supplier. This is an example of a:

make-or-buy decision

To calculate manufacturing overhead cost per unit using ABC, divide the total ______

manufacturing overhead cost by the number of units produced

To calculate manufacturing overhead cost per unit using ABC, divide the total ______.

manufacturing overhead cost by the number of units produced

Once Stage 2 allocation has been completed it is possible to compute total ______.

manufacturing overhead per product

The transfer pricing method that generally provides the most benefit to the seller is the ______ method.

market price

The transfer pricing method that treats the two segments as if they were independent businesses is the ______ method.

market price

When negotiating a transfer price, the highest price the buyer will be willing to pay is the _____________, while the lowest price the seller will be willing to accept is the _______________.

market price; variable cost

The _____ _____ is a set of interrelated budgets that constitutes a plan of action for a specific period

master budget

_____ _____ comprehensive set of budgets that covers all phases of an organization's planned activities for a specific period

master budget

differential costs:

may be approximated by full costs in the long run

Inside information about the other division's costs, capacity, and demand will impact setting a transfer price using the ______ method.

negotiation

annual cash flow=

net income + depreciation expenses <--(indirect method) or sales revenue - cash expenses <--(direct method)

Residual income is the difference between:

net operating income and the minimum acceptable profit.

When a manager is evaluated on residual income, an investment is acceptable when ______.

net operating income for the investment is above the minimum required return on average operating assets

The formula for return on investment is ______.

net operating income ÷ average invested assets

The method that compares the present value of a project's future cash flows to the initial investment is:

net present value

When deciding between two competing alternatives, the best capital budgeting method to use is the ______.

net present value

The gross margin does not take into account:

non-manufacturing cost.

A ______ cost driver is not strictly related to the number of units produced or customers served

non-volume based

The gross margin does not take into account:

nonmanufacturing cost.

Activity-based costing ______

offers some advantages over costing systems

An advantage of IRR over NPV is that it is stated ______.

on a relative basis

The most common method of evaluating a profit center manager is based on the ______.

segmented income statement

The most common method of evaluating a profit center manager is the:

segmented income statement.

The most common method used to evaluate profit center managers is based on ______.

segmented income statements

A bakery creates a new type of cake for sale. Under activity-based costing, this is an example of a ______-level activity

service

Under activity-based costing, a degree program at a university is considered a(n)_______ -level activity.

service

_____ firms do not need to prepare production budgets, inventory budgets, or manufacturing overhead budgets but they need to prepare budgets to predict sales revenue, labor costs, supplies, and other non manufacturing expenses such as commissions and advertising

service

Garfield Personal Training Services is owned by Gina Garfield. Gina provides personal training and coaching to individuals or small groups using the local fitness facility and pool. Gina rents the group training room at the local fitness facility or the pool for scheduled classes. For one-on-one training, she meets clients at the fitness facility where she is a member. Gina is currently learning Zumba and plans to offer a Zumba class in the group training room on Wednesday mornings starting next month. The first scheduled Zumba class is considered a ___________ activity for Garfield.

service-level

Non-value-added activities ______.

should be eliminated whenever possible do not enhance the product or service

Little Tots Gym has a required rate of return of 13%. The gym is considering the purchase of $12,500 of new equipment. The internal rate of return on the project has been calculated to be 11%. This project ______.

should be rejected

True or false: When two projects are mutually exclusive, investing in one does not eliminate the other one from consideration.

False

Linden, Inc. uses a 5,000 square foot factory space that it rents for $2,500 a month for all its manufacturing activities. Linden has decided to switch to an activity-based costing system, and has identified its activities as follows: Preparation and Setup, Machining, Finishing, and Quality Control. 500 square feet of the factory are use for machining, while 2,000 square feet (each) are used for Preparation and Setup and Quality Control. Finishing uses 500 square feet. When assigning indirect costs to each activity, how much factory rent should be assigned to the Preparation and Setup cost pool?

$1,000

Washington, Inc. produces two different products (Product C and Product 2) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $750,000, while the cost of Inspection is $90,000. The activity drivers are used as follows: product c . product 2 . total machine hours . 1000 . 3000 . 4000 number of batches . 45 . 15 . 60 What is the activity rate for Inspection?

$1,500 per batch

Orchard has forecast sales to be $250,000 in February, $270,000 in March, $300,000 in April, and $280,000 in May. The average cost of goods sold is 70% of sales. All sales are made on credit and sales are collected 60% in the month of sale, and 40% the month following. What is the budgeted Accounts Receivable balance on May 31? $196,000 $117,600 $112,000 $168,000

$112,000

When Greenway, Inc. sells 48,000 units, its total fixed cost is $115,200. What is its total fixed cost when it sells 54,000 units?

$115,200

After selling 4,300 units during the period, Dole Corp. prepared a flexible budget that included $22,962 for direct materials, $36,120 for direct labor, $19,350 for variable overhead, and $46,440 for fixed overhead. Dole originally planned its master budget based on sales of 4,000 units. What would total costs have been on the master budget?

$119,400

Davidson Corp's master budget shows expected direct labor cost of $90,000 for the month of May. During May, the company's expected sales equal 12,000 units and expected production is 15,000 units. If each unit requires 1/2 hour of direct labor, the budgeted direct labor rate is _____ per hour

$12 (15,000 X 1/2 hour or 7,500 required labor hours. 90,000/7,500)

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows: Product A . Product X total machine hours . 1000 . 3000 . 4000 number of batches . 45 . 15 . 60 What is the amount of Machining cost assigned to Product A?

$125,000

Which of the following budgets shows how many units will be produced each period?

Production budget

Edison Corp's variable manufacturing overhead rate is $5 per direct labor hour. Budgeted direct labor cost is $20 per hour. Total budgeted fixed overhead is $25,000 per month. Total budgeted direct labor hours for the month of July is 20,000. Total budgeted manufacturing overhead for July is

$125,000 ((20,000 X 5) 100,000 + 25,000)

Grover has forecast sales to be $125,000 in February, $135,000 in March, $150,000 in April, and $140,000 in May. The average cost of goods sold is 70% of sales. All sales are on made on credit and sales are collected 60% in the month of sale, and 40% the month following. What are budgeted cash receipts in March? $131,000 $135,000 $94,500 $91,700

$131,000

A company's net operating income for the year is $118,000. Depreciation expense for the year equals $23,000. The company's net cash flow for the year is ______.

$141,000 Rationale: $118,000 + $23,000 = $141,000

A company's net operating income for the year is $118,000. Depreciation expense for the year equals $23,000. The company's net cash flow for the year is ______.

$141,000 Reason: $118,000 + $23,000 = $141,000

Pima, Inc. manufactures calculators that sell for $40 each. Each calculator uses $15 in direct materials and $5 in direct labor per unit. Pima has two activities: Machining, which is applied at the rate of $4 per machine hour, and Finishing, which is applied at the rate of $20 per batch. This month, Pima made 400 calculators, using 1,000 machine hours in 40 batches. What is the total manufacturing cost for one calculator?

$15 + $5 + [($4 × 1,000)/400] + [($20 × 40)/400] = $32.

$170

$171,000

Jackson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $270,000, while the cost of Inspection is $38,000. Product 5 uses 35% of total machine hours and 50% of total batches. What is the total Machining cost assigned to Product Z?

$175,500 Multiply the percentage of total machine hours used by Product Z by the total cost of machining: 65% × $270,000 = $175,500. (If product 5 uses 35% of the machine hours, then the remaining 65% of the hours must have been used on Product Z.)

$187.50 per machine hour

$19.53

$19.53 Rationale: $625,000/(8,000 × 4) = $19.53

Yuma, Inc. manufactures teddy bears and dolls. Currently, Yuma makes 2,000 teddy bears each month. Each teddy bear uses $2.00 in direct materials and $0.50 in direct labor. Yuma uses two activities in manufacturing the teddy bears: Sewing and Processing. The cost associated with Sewing is $15,000 a month, allocated on the basis of direct labor hours. The cost associated with Processing is $10,000 a month, allocated on the basis of batches. Teddy bears use 1/2 of the direct labor hours, and 35% of total batches. What is the total manufacturing cost for one teddy bear?

$2.00 + $0.50 + [($15,000 × 1/2)/2,000] + [($10,000 × 35%)/2,000] = $8.00.

$2.10

$200,000/25,000 = $8 per customer call and $300,000/20,000 = $15 per development hour

Audrey has forecast sales to be $205,000 in February, $270,000 in March, $290,000 in April, and $310,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit and sales are collected 50% in the month of sale, 30% the month following and the remainder two months after the sale. What is the budgeted Accounts Receivable balance on May 31? $155,000 $213,000 $127,800 $186,000

$213,000

S&P's direct material cost is $6.50 per unit. The direct labor rate is $30 per hour and each unit takes 1/2 hour to produce. Variable manufacturing overhead is $2.75 per unit and total budgeted fixed overhead is $63,000. A sales commission of $5 is paid on each unit. If S&P expects to produce 9,000 units and sell 7,000 units, the total budgeted cost of goods sold for the year is

$218,750 (6.50 + 15 (30 X 1/2) + 2.75 + 7 (63,000/9,000)= 31.25 X 7,000)

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows: Product A . Product X total machine hours . 1000 . 3000 . 4000 number of batches . 45 . 15 . 60 What is the amount of Inspection cost assigned to Product A?

$22,500

Newport Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and have a 6-year life. There is no salvage value for the equipment. If the hurdle rate is 8%, what is the approximate net present value? Ignore income taxes.

$24,580

Manufacturing overhead was estimated to be $489,600 for the year along with 20,400 direct labor hours. Actual manufacturing overhead was $470,220, actual labor hours were 21,800. The predetermined manufacturing overhead rate per direct labor hour would be:

$24.00 $489,600 / 20,400 = $24.00

Madison Corp's expected beginning cash balance for the month is $35,000. The company expects to collect $50,000 from customers. Cash disbursements are estimated to be $80,000. Management wants to maintain a minimum cash balance of $20,000. the company can borrow as much as needed in increments of $10,000. Calculate the expected ending cash balance for the month

$25,000 (35,000 + 50,000 - 80,000= 5,000 + 20,000)

Dade Corp. has residual income of $10,000. If operating income equals $30,000 and the minimum required rate of return is 8%, what are average invested assets?

$250,000

Culver, Inc. produces two different products (Product V3 and Product G8) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity drivers are used as follows: Product V3 Product G8 Total Machine hours 1,000 3,000 4,000 Number of batches 45 15 60 The activity rate for Machining is $67.50 per machine hour. What is the total cost of Machining?

$270,000

Culver, Inc. produces two different products (Product V3 and Product G8) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity drivers are used as follows: product v3 . product g8 . total machine hours . 1000 . 3000 . 4000 number of batches . 45 15 . 60 The activity rate for Machining is $67.50 per machine hour. What is the total cost of Machining?

$270,000

Elm uses the high-low method of estimating costs. Elm had total costs of $250,000 at its lowest level of activity, when 5,000 units were sold. When, at its highest level of activity, sales equaled 10,000 units, total costs were $390,000. Elm would estimate variable cost per unit as:

$28.00

Adele's Attic assigns overhead to products based on direct labor hours. For the upcoming year the business plans to use a total of 25,000 machine hours and 5,000 direct labor hours. Total overhead cost is expected to be $35,000. How much overhead would be assigned to a job that used 180 machine hours and 40 direct labor hours? TO CALCULATE: 1.35000/5000=Per direct labor hour 2. PDLH*40

$280

$280 Rationale: Predetermined overhead rate = $35,000/5,000 or $7 per direct labor hour × 40 hours = $280.

$280 = 35,000/5000 or 7$ per direct labor hours x 40 hours

Cedar Co. has forecast purchases to be $330,000 in June, $375,000 in July, $310,000 in August, and $270,000 in September. Purchases average 30% paid in cash, 70% are on credit. Credit purchases are paid 60% in the month of purchase, 30% during the month following, and 10% the second month following the purchase. Cash disbursements in September would be $113,400. $204,750. $261,450. $285,750.

$285,750

$294,000

Dayton has forecast sales to be $205,000 in February, $270,000 in March, $290,000 in April, and $310,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit and sales are collected 50% in the month of sale, 30% the month following and the remainder two months after the sale. What are budgeted cash receipts in May? $267,000 $296,000 $161,250 $241,500

$296,000

$3,250 unfavorable

Using the tables from the Appendix, and an interest rate of 8% compounded annually, $5,000 to be received four years from today is equal to ______ today.

$3,675 Reason: $5,000 x 0.7350 (PV of a dollar for 4 years at 8%) = $3,675.

Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). What will be the total labor cost for the month of August? $303,800 $231,000 $121,500 $161,000

$303,800

Jaybird Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Jaybird Inc.'s ending finished goods inventory policy is 10% of the following month's sales. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). What will be the total labor cost for the month of August? $24,675 $225,680 $303,800 $305,970

$305,970

Atlantic, Inc. has prepared the following budgets for March. In March, budgeted production equals budgeted sales of 1,000 units, and raw materials inventory will stay constant. Direct Materials $6.00 per unit Direct Labor $10.80 per unit Variable Manufacturing overhead $7.50 per unit Fixed Manufacturing Overhead $7,500 What is budgeted cost of goods sold for March? $16,800 $24,300 $31,800 $43,800

$31,800

$35,000

Cottonwood, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses the number of batches as an activity driver. The cost of Machining is $500,000, while the cost of Inspection is $30,000. Standard uses 30% of total machine hours and 70% of total batches. What is the total activity cost assigned to Luxury?

$359,000

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows: Product A . Product X total machine hours . 1000 . 3000 . 4000 number of batches . 45 . 15 . 60 What is the amount of Machining cost assigned to Product X?

$375,000

Culver, Inc. produces two different products (Product V3 and Product G8) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity drivers are used as follows: product v3 . product g8 . total machine hours . 1000 . 3000 . 4000 number of batches . 45 15 . 60 The activity rate for Inspection is $750 per batch. What is the total cost of Inspection?

$45,000

$457,000

$46,400

Skybird has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Skybird's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly costs are budgeted as follows: Fixed Manufacturing Costs-$17,000 Fixed Selling Costs-$10,000 Fixed Administrative Costs-$8300 Variable Manufacturing Costs-$6 per unit produced Variable Selling Costs-$3 per unit sold What is budgeted manufacturing overhead cost for July? $32,000 $41,000 $46,400 $17,000

$46,400

Which of the following best defines a facility-level activity?

An activity that is performed to support the entire company

Ivory Inc has forecast purchases on account to be $310,000 in March, $370,000 in April, $420,000 in May, and $490,000 in June. Seventy percent of purchases are paid for in the month of purchase, the remaining 30% are paid in the following month. What are budgeted cash payments for June? $441,000 $469,000 $343,000 $294,000

$469,000

Manufacturing overhead was estimated to be $500,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $450,000, and actual direct labor hours were 19,000. The amount of manufacturing overhead applied to production would be:

$475,000.

Whitman has a direct labor standard of 2 hours per unit of output. Each employee has a standard wage rate of $22.50 per hour. During July, Whitman paid $94,750 to employees for 4,445 hours worked. 2,350 units were produced during July. What is the direct labor efficiency variance?

$5,737.50 favorable

Pacific has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Pacific's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly costs are budgeted as follows: Fixed Manufacturing Costs-$17,000 Fixed Selling Costs-$10,000 Fixed Administrative Costs-$8300 Variable Manufacturing Costs-$6 per unit produced Variable Selling Costs-$3 per unit sold What is budgeted manufacturing overhead cost for August? $50,000 $47,000 $33,000 $32,000

$50,000

Lemon, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and raw materials inventory and unit costs will stay constant. Direct Materials $8,000 Direct Labor $14,400 Manufacturing Overhead $20,000 Selling and administrative expense $16,000 What is budgeted cost of goods sold for March? $40,734 $42,400 $48,880 $50,880

$50,880

Manufacturing overhead was estimated to be $477,000 for the year along with 26,500 direct labor hours. Actual manufacturing overhead was $364,375, actual labor hours were 29,100. The amount of manufacturing overhead applied to production would be:

$523,800 Calculate the predetermined overhead rate of $18.00 by dividing total estimated manufacturing overhead by the estimated total cost driver for the year. ($477,000 / 26,500 = $18.00) Multiply the predetermined manufacturing overhead rate ($18.00) to the actual number of direct labor hours (29,100) to calculate applied manufacturing overhead. ($18.00 × 29,100 = $523,800).

Arbor Co. has forecast sales to be $400,000 in May, $475,000 in June, $575,000 in July and $700,000 in August. Forty percent of sales are cash, the remainder is on credit. Credit sales are collected 60% in the month of sale, the remaining the following month. What are budgeted cash collections for July? $230,000 $334,000 $459,000 $551,000

$551,000

$56,600

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $190 per machine hour, and the activity rate for Inspection is $530 per batch. The activity drivers are used as follows: Product A Product X Total Machine hours 1,300 3,100 4,400 Number of batches 55 24 79 What is the amount of Machining cost assigned to Product X?

$589,000 Multiply the number of machine hours for Product X by the activity rate per machine hour: 3,100 × $190 = $589,000

Blue has forecast sales to be $410,000 in February, $540,000 in March, $580,000 in April, and $620,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit and sales are collected 50% in the month of sale, 30% the month following and the remainder two months after the sale. What are budgeted cash receipts in May? $592,000 $620,000 $310,000 $483,334

$592,000

A company's activity rate for the general factory is $2.00 per machine hour. Product A used 3,000 machine hours and 1,000 labor hours. General factory overhead assigned to Product A is ______.

$6,000 Rationale: $2 × 3,000 = $6,000

$643500

Linden, Inc. uses a 8,150 square foot factory space that it rents for $3,900 a month for all its manufacturing activities. Linden has decided to switch to an activity-based costing system, and has identified its activities as follows: Preparation and Setup, Machining, Finishing, and Quality Control. 4,500 square feet of the factory are used for machining, while 1,450 square feet (each) are used for Preparation and Setup and Quality Control. Finishing uses 750 square feet. When assigning indirect costs to each activity, how much factory rent should be assigned to the Preparation and Setup cost pool?

$694 Divide the amount of square feet used by Preparation and Setup by the factory's total square feet, and multiply the result by the total cost of all manufacturing activities. (1,450 / 8,150) × $3,900 = $694

$7,500

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The activity drivers are used as follows: Product A . Product X total machine hours . 1000 . 3000 . 4000 number of batches . 45 . 15 . 60 What is the amount of Inspection cost assigned to Product X?

$7,500

Larson Productions LLC has an activity cost pool called product design and redevelopment. The cost driver for this pool is design hours. A total of 1,000 design hours were used, 620 for Model XLT and 380 for Model TXT. The total cost assigned to the cost pool was $118,000. Using the activity proportion method, determine how much cost should be allocated to each product.

$73,160 to Model XLT and $44,840 to Model TXT 620/1000 = 62% to Model XLT and 380/1000 = 38% to TXT

$73,160 to Model XLT and $44,840 to Model TXT Rationale: 620/1000 = 62% to Model XLT and 380/1000 = 38% to TXT

$73160 to Model XLT & $44840 to Model TXT

Killian Corp. has a residual income of $30,000 on invested assets of $450,000. If the hurdle rate is 10%, what is the operating income?

$75,000

Sherman, Inc. manufactures chainsaws that sell for $200. Each chainsaw uses $19 in direct materials and $5 in direct labor per unit. Sherman has two activities: Machining, which is applied at the rate of $5 per machine hour, and Finishing, which is applied at the rate of $28 per batch. This month, Sherman made 200 chainsaws, using 1,868 machine hours in 45 batches. What is the total manufacturing cost for one chainsaw?

$77 Total manufacturing costs include direct materials, direct labor, and overhead: $19 + $5 + [($5 × 1,868) / 200] + [($28 × 45) / 200] = $77.

Sperling Company's master budget shows expected sales of 10,000 units and expected production 11,000 units for the month of March. Each unit requires 1/2 hour of direct labor. The direct labor rate is $15 per hour. Calculate the expected total direct labor cost for the month of March

$82,500 (11,000 X 1/2 X $15)

Parsley Inc, a merchandising firm, has forecasted sales to be $125,000 in February, $135,000 in March, $150,000 in April, and $140,000 in May. The average cost of goods sold is 60% of sales. The merchandise inventory policy is to carry 50% of next month's sales needs. If actual February 1 inventory is $40,000, what will the cost of March purchases be? $58,500 $142,500 $81,000 $85,500

$85,500

(30% × $500,000) + (70% × $30,000) = $171,000.

Typical capital budgeting decisions include ______.

- research and development projects - lease or buy decisions - equipment selection decisions

Which of the following statements are correct?

- the differential approach indicates the minimum acceptable price for a product. - fixed costs are generally irrelevant in short-term pricing decisions - following the differential approach in the short run may lead to under pricing in the long run

When considering the differential costs versus total costs approach:

- the differential format can be derived from the total format - the total cost approach provides information regarding total resources required.

Identify which of these activities are steps in management's decision making process and place those steps in the order in which they should be executed. 1. Analyze how changes in cost structure affect CVP relationships 2. Make the decision 3. Eliminate the product line 4. Evaluate the costs and benefits of the alternatives 5. Prioritize products to maximize short term profits 6. Determine the decision alternatives 7. Process the product further 8. Review the results of the decision 9. Use cost volume profit analysis to determine sales needed to break even 10. Identify the decision problem

10, 6, 4, 2, 8

To have $15,000 available for a down payment on a house 5 years from now, you need to invest $ _______ today at 7% compounded annually.

10,695 or 10,694

Spicer, Inc. is considering purchasing a piece of equipment that will cost $80,000 and generate the following cash flows: Yr. 1 = $25,000; Yr. 2 = $40,000; and Yr. 3 = $45,000. Using a discount rate of 9% and the tables in Supplement 11A, the net present value rounded to the nearest dollar is $

11,352

Given variable manufacturing costs of $1.25 per unit, direct fixed overhead of $3,000 and a cost to outsource of $1.50 per unit, the company will be indifferent to make or buy (in terms of cost) at a volume of ____________ units.

12,000 ($3,000 + $1.25x = $1.50x) ($3,000 = $.25x) (x=12,000 units)

1200

A company's sales for the year total $218,000. Cash expenses for the year were $92,000 and depreciation expense was $23,000. The company's net cash flow for the year is ______.

126,000 Rationale: $218,000 - $92,000 = $126,000

If budgeted sales are 10,000 units, the desired ending inventory of finished goods is 5,000 units, and the beginning inventory of finished goods is 2,000 units, required production is

13,000 units (10,000 + 5,000 - 2,000)

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 inventory is projected to be 1,400 units. How many units will be produced in April? 13,300 15,900 12,700 13,000

13300

Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. Leather is expected to cost $5.00 per square meter in June, but go up to $6.00 per square meter in July. What is the expected cost of leather purchases in July? 13,800 15,300 16,200 16,300

15300

ABC Inc's expected sales for the first 6 months of the year are as follows month expected unit sales Jan. 12,000 Feb. 15,000 March 16,000 April 20,000 May 22,000 June 25,000 Management believes that an appropriate ending inventory is 25% of current period sales. Calculate the number of units to be produced in March

16,250 (march sales 16,000 + ending inventory (25% of march sales) 4,000 - beginning inventory (25% of february sales) 3,750)

Valley Manufacturing reported sales of $800,000, net operating income of $40,000, and average invested assets of $400,000. Based on this, Valley's investment turnover is _______, its profit margin is __________, and its return on investment is __________%.

2 5 10

Valley Manufacturing reported sales of $800,000, net operating income of $40,000, and average invested assets of $400,000. Based on this, Valley's investment turnover is_________its profit margin is_________and its return on investment is.

2,5,10

2,550 square meters

Sandy's Soda Co. is planning an investment in new cooling equipment that would cost $56,000. The new equipment would save on operating costs over the next 5 years as follows: $21,500 in year 1; $23,100 in year 2; $19,000 in year 3; $13,900 in year 4; and $15,200 in year 5. The payback period for the cooling equipment is ______ years,

2.6 Rationale: After two years $44,600 ($21,500 + $23,100) will have been paid back, leaving $11,400 ($56,000 - $44,600). $11,400 ÷ $19,000 = 0.6, so the total payback period is 2.6 years.

20%

Macey, Inc.'s investment center had invested assets at the beginning of the year of $300,000. Ending invested assets totaled $400,000. Total revenue for the year was $1,050,000, and net operating income was $70,000. Return on investment was ______.

20%

20% Rationale: Return on investment = Net operating income ÷ Average invested assets = $70,000 ÷ $350,000 = 20%.

20,800

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. What is budgeted ending finished goods inventory for May? 1,000 1,300 1,600 2,100

2100

Carter production, Inc's required production for the first 6 months of the year is as follows monthrequired production jan 50,000 feb 70,000 march 85,000 april 105,000 may 110,000 june 120,000 Each unit requires 2 pounds of material. Management believes that an appropriate ending inventory is 20% of next month's production needs. Calculate the pounds of material to be purchased in April

212,000 pounds (april production needs (105,000 X 2)210,000 + ending inventory (20% of May production needs: 110,000 X 2 X 20%)44,000 - beginning inventory (20% of April)42,000)

Given beginning operating assets of $140,000, ending operating assets of $180,000, net operating income of $40,000, and tax expense of $8,000, return on investment is equal to

Calverton, Inc. produces two different products (Standard and Luxury) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $500000, while the cost of Inspection is $30000. Standard is assigned $150000 in Machining cost, and $22500 in Inspection cost. What proportion of Inspection activity is used by Luxury?

25%

Given beginning operating assets of $140,000, ending operating assets of $180,000, net operating income of $40,000, and tax expense of $8,000, return on investment is equal to

25%

Jillian Inc produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How many total labor hours will be budgeted for September? 7,500 9,750 16,500 26,250

26250

Anders Inc. assigns overhead using activity proportions and has a machine setup cost pool. Last year there were 7,500 setups at a total cost of $550,000. Product R3D used a total of 8,250 of those setups and should be assigned ___% of the total setup cost.

30%

Poppy's Gumball Co. is planning to invest in a new marketing campaign that would require an initial investment of $85,000. The project is expected to generate net income of $27,200. The accounting rate of return on the project is ______.

32% Rationale: $27,200 ÷ $85,000 = 32%

Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc's leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. What will leather purchases be in August? 7,150 square meters 3,575 square meters 7,075 square meters 3,425 square meters

3575 square meters

Johnson Inc. produces leather handbags. Johnson Inc. estimates it will use 3,500 square meters of leather in production in August, and 3,750 square meters of leather in production in September. Johnson Inc.'s leather inventory policy is 30% of next month's production needs. What will leather purchases be in August? 3,425 square meters 3,500 square meters 3,575 square meters 4,625 square meters

3575 square meters

Which step in the management decision making process: review the results of the decision with the goal of improving future decision making

Plaster Company expects to have a total cost of $400,000 in its activity cost pool. The total expected activity is 800 machine setups. The activity rate is $______ per setup

500

Which of the following statements are true?

Appraisal costs identify defective products before they get to the customer. Appraisal costs are also known as inspection costs.

6600 units

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 inventory is projected to be 1,400 units. How many units will be produced in March? 10,000 9,900 13,000 10,100

9900

Collections on credit sales made to customers in prior period(s) plus collections on sales made in the current budget period equal A. cash receipts B. cash payments C. merchandise purchases

Cost of goods sold is the amount of cost transferred a) From of Finished Goods Inventory and into Cost of Goods Sold. b) From of Work in Process Inventory and into Cost of Goods Sold. c) From of Work in Process Inventory and into Manufacturing Overhead. d) From of Work in Process Inventory and into Finished Goods Inventory.

Martin Company has the following balances for the current month: Direct materials used 15,000 Direct labor 23,000 Sales salaries 12,000 Indirect labor 3,000 Production manager's salary 6,000 Marketing costs 9,000 Factory lease 4,000 What are Martin's prime costs? a) $38,000 b) $35,000 c) $47,000 d) $41,000

Shasta Company plants to double its profits in 5 years. This is an example of a A. long term objective B. short term objective C. tactic D. sales forecast

The direct materials budget DIRECTLY relies on the A. production budget B. sales budget C. direct labor budget D. merchandise purchase budget

What kind of cost is gasoline when planning a trip and deciding to drive your car or take the train? A. relevant cost B. irrelevant cost C. sunk cost

When a company is operating at full capacity A. a special order analysis includes the opportunity cost of lost sales B. a special order analysis is the same as if there's excess capacity C. a special order should never be considered or accepted D. a special order must consider the fixed manufacturing overhead costs

Which of the following is NOT a qualitative factor to consider in a make or buy decision? A. the variable production costs of the product B. the quality of the purchased product C. the reliability of the supplier

Which of the following is NOT a way to determine the sales forecast? A. long term objectives for R&D B. actual sales from prior periods C. planned marketing activities D. research on industry trends

Which of the following is most likely to be true of the manufacturing overhead costs assigned to a product with relatively low volume and high complexity? a) An ABC system will assign more manufacturing overhead costs to the product than a volume-based system. b) A volume-based system will assign more manufacturing overhead costs to the product than an ABC system. c) An ABC system will assign the same manufacturing overhead costs to the product as a volume-based system. d) An ABC system will assign manufacturing overhead costs to the product, while a volume-based system will not.

Abba Inc. is considering dropping a segment. During the prior year, the segment had sales of $207,000 and a contribution margin of $124,000. Fixed expenses consist of salaries $60,000 rent $50,000 advertising $20,000 administrative $35,000 total fixed expenses $165,000 The segment manager's $60,000 salary is a direct fixed cost as is the advertising. Of the administrative expenses, $10,000 is a direct fixed cost and the rest is part of common fixed costs. The rent expense is allocated to segments based on sales and represents a share of the total cost for building. If this segment were dropped, what would happen to the company's overall net operating income? A. overall net income would decrease by $34,000 B. overall net income would decrease by $124,000 C. overall net income would increase by $16,000 D. overall net income would increase by $41,000

A (the company would lose the $124,000 contribution margin. $90,000 of the fixed costs (salary, advertising and $10,000 of administrative) and direct fixed costs, so net income would decrease by $34,000)

Which of the following statements about employee motivation is true?

A budget that is tight but attainable is more likely to motivate than a budget that is too easy or too difficult to achieve.

Which of the following statements is true? A process costing system will have a single Work in Process Inventory account. A process costing system will have a separate Work in Process Inventory account for each of the major processes. A job costing system will have a separate Work in Process Inventory account for each of the major processes. A process costing system will have a separate Raw Materials Inventory account for each of the major processes.

A process costing system will have a separate Work in Process Inventory account for each of the major processes.

A cost that has already been incurred is called a(n) a) Indirect cost. b) Sunk cost. c) Relevant cost. d) Opportunity cost.

Which of the following budgets would not exist for a merchandising firm?

Production budget

Which of the following statement is correct about the functions that fall within various responsibility centers?

A revenue center manager is responsible for more functions than a profit center manager is. A revenue center manager is responsible for fewer functions than a profit center manager is. A revenue center manager is not responsible for any functions; only the profit center manager is responsible for functions.

When is a volume-based cost system appropriate for a service company?

A volume-based cost system is appropriate for a service company when every customer places a similar demand on the company's resources.

Cashan Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 1.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows: August: 24500 units September: 24700 units October: 26400 units November: 26400 units December: 24500 units The company wants to maintain monthly ending inventories of Jurislon equal to 30% of the following month's production needs. On July 31, this requirement was not met since only 10,400 kilograms of Jurislon were on hand. The cost of Jurislon is $4.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months. The total cost of Jurislon to be purchased in August is: A) $149,860 B) $252,400 C) $191,460 D) $147,000

A) $149,860

The Ellis Company has budgeted its activity for September according to the following information: Sales are budgeted at $392,000 and all sales are for cash. All purchases of merchandise inventory are for cash. Merchandise inventory was $150,000 on August 31 and the planned merchandise inventory on September 30 is $140,000. All merchandise is sold at 40% above cost. The selling and administrative expenses are budgeted at $92,000 for the month. All of these expenses are paid for in cash except for depreciation of $12,000. The budgeted net income for September is: A) $20,000 B) $143,200 C) $112,000 D) $64,800

A) $20,000

Hamway Products, Inc. makes and sells a single product called a Wob. It takes two yards of material A to make one Wob. Budgeted production of Wobs for the next four months is as follows: April: 12000 units May: 13500 units June: 12400 units July: 11200 units The company wants to maintain monthly ending inventories of material A equal to 10% of the following month's production needs. On March 31 this target had not been met since only 1,500 yards of material A were on hand. The cost of material A is $.90 per yard. The total cost of material A to be purchased in April is: A) $22,680 B) $24,750 C) $26,750 D) $26,780

A) $22,680

Axsom Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 1,300 direct labor-hours will be required in March. The variable overhead rate is $8.90 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $20,020 per month, which includes depreciation of $2,600. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for March should be: A) $24.30 B) $22.30 C) $8.90 D) $15.40

A) $24.30

Which of the following is the cornerstone of the master budget? A) The Sales Budget B) The Production Budget C) The Budgeted Balance Sheet D) The Selling and Administrative Budget

A) The Sales Budget

Which of the following would be an advantage of dropping a division or other segment? (Check all that apply) A. an overall increase in net operating income B. avoiding more direct fixed costs than the company loses in contribution margin C. an overall decrease in other product line sales D. increasing relevant costs that the company incurs

A, B

Which of the following statements are true? (check all that apply) A. advertising for a specific product line is a direct fixed cost B. the general manager of a factory that has 3 separate product lines is a direct fixed cost C. direct fixed costs are avoidable if a segment is eliminated D. direct fixed costs will still be incurred if a segment is eliminated

A, C

Which of the following budgets are needed to calculate unit product costs (check all that apply) A. direct materials budget B. cash budget C. selling and administrative budget D. direct labor budget E. manufacturing overhead budget

A, D, E

Which of the following statements are true? A.) A direct fixed cost supports a specific business segment. B.) Common fixed costs are commonly incurred at higher levels of an organization. C.) Segment margin is another term for profit margin. D.) A profit manager is accountable for direct fixed costs.

A,B,D

Optimum Finance Inc. provides budget, savings, and investment services to clients who want a stress-free financial lifestyle. The company customizes a program for each client based on their individual goals that includes budget recommendations, investment counseling, and savings techniques. The company uses a job order cost system that keeps track of the cost of the amount of time financial consultants spend with each client. Optimum applies all indirect operating costs (e.g., rent, utilities, and management salaries) as a percentage of the consultant's labor cost. During the most recent year, the firm estimated that it would pay $500,000 to its consultants and incur indirect operating costs of $750,000. Actual consultant labor costs were $537,500 and actual indirect operating costs were $725,000. What is the predetermined overhead rate that Optimum will use for the current year? A. $1.50 per dollar of consultant labor cost. B. $1.35 per dollar of consultant labor cost. C. $0.67 per dollar of consultant labor cost. D. $1.45 per dollar of consultant labor cost.

A. $1.50 per dollar of consultant labor cost. The predetermined overhead rate is $750,000/$500,000 = $1.50 per dollar of consultant labor cost.

A detailed plan that translates the companys objectives into financial terms, identifying the resources and expenditures that will be required over the planning horizon is a A) Strategic Plan B) Budget C) Tactic D) Long-Term Objective

A direct cost is one which a) involves an actual outlay of cash for a specific cost object. b) can be traced to a specific cost object. c) cannot be traced to a specific cost object. d) is not worth the effort of tracing to a specific cost object.

Optimum Finance Inc. provides budget, savings, and investment services to clients who want a stress-free financial lifestyle. The company customizes a program for each client based on their individual goals that includes budget recommendations, investment counseling, and savings techniques. The company uses a job order cost system that keeps track of the cost of the amount of time financial consultants spend with each client. Optimum applies all indirect operating costs (e.g., rent, utilities, and management salaries) as a percentage of the consultant's labor cost. During the most recent year, the firm estimated that it would pay $500,000 to its consultants and incur indirect operating costs of $750,000. Actual consultant labor costs were $537,500 and actual indirect operating costs were $725,000. During the year, Optimum provided 42 hours of consulting services to Joan Clair for which Optimum pays an average of $20 per hour. What is the total cost of providing services to Joan? A. $2,100. B. $1,974. C. $2,058. D. $1,403.

A. $2,100. The predetermined overhead rate is $750,000/$500,000 = $1.50 per dollar of consultant labor cost. Consultant labor cost for providing services to Joan is $840 (42 x $20). Overhead is applied at $1.50 per dollar of consultant labor cost = $840 x $1.50 = $1,260. Total cost of providing services to Joan = $840 + $1,260 = $2,100.

Santos Inc had the following information for the preceding year: Raw Materials: BE (1/1): $40,000 EE (12/31): $30,000 Work in Process Inventory: BE: $35,000 EE: $? Finished Goods Inventory: $30,000 $? Additional information for the year is as follows: Direct Materials Used: $200,000 Direct Labor: $150,000 Manufacturing overhead applied: $160,000 Cost of goods manufactured: $525,000 Cost of goods sold: $544,000 What was the ending Work in Process Inventory balance on 12/31? A. $20,000 B. $11,000 C. $50,000 D. $54,000

A. $20,000 Current manufacturing costs = $200,000 + $150,000 + $160,000 = $510,000. Cost of goods manufactured = 525,000 = $35,000 + $510,000 - ending Work in Process Inventory, so ending Work in Process Inventory = $35,000 + $510,000 - $525,000 = $20,000.

McGown Corp has the following information: Raw Materials: BE (1/1): $20,000 EE (12/31): $30,000 Work in Process Inventory: BE: $15,000 EE: $18,000 Finished Goods Inventory: $30,000 $20,000 Additional information for the year is as follows: Raw materials purchases: $100,000 Direct Labor: $75,000 Manufacturing overhead applied: $80,000 Indirect Materials: $0 Compute the current manufacturing costs. A. $245,000 B. $255,000 C. $65,000 D. $68,000

A. $245,000 Direct materials used = $20,000 + $100,000 - $0 - $30,000 = $90,000. Current manufacturing costs = $90,000 + $75,000 + $80,000 = $245,000.

Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). What will be the total labor cost for the month of August? A. $303,800 B. $231,000 C. $121,500 D. $161,000

A. $303,800

You have a savings account that earns 5% interest, compounded annually. A friend has offered you an investment opportunity; he says that if you invest in his new business, he will pay you $10,000 a year for the next five years. What is the most you would be willing to invest in your friend's business? A. $43,295 B. $47,500 C. $47,619 D. $50,000

A. $43,295

Mendez Inc had the following information for the preceding year: Work in Process Inventory: BE: $? EE: $35,000 Finished Goods Inventory: $? $30,000 Additional information for the year is as follows: Direct Materials Used: $200,000 Direct Labor: $150,000 Manufacturing overhead applied: $160,000 Cost of goods manufactured: $525,000 Cost of goods sold: $544,000 What was the beginning Finished Goods Inventory balance on 1/1? A. $49,000 B. $65,000 C. $50,000 D. $69,000

A. $49,000 $544,000 = Beginning Finished Goods Inventory + $525,000 - $30,000. Beginning Finished Goods Inventory = $544,000 + $30,000 - $525,000 = $49,000.

50. Pacific has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Pacific's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly costs are budgeted as follows: What is budgeted manufacturing overhead cost for August? A. $50,000 B. $47,000 C. $33,000 D. $32,000

A. $50,000

A. $592,000

Sawyer Company had the following information for the year: Direct materials used:$190,000 Direct Labor Incurred (7,000 hours) $245,000 Actual manufacturing overhead incurred $273,000 Sawyer Company used a predetermined overhead rate using estimated overhead of $320,000 and 8,000 estimated direct labor hours. Assume the only inventory balance is an ending Finished Goods Inventory balance of $9,000. What was cost of goods manufactured? A. $715,000 B. $708,000 C. $755,000 D. $706,000

A. $715,000 Predetermined overhead rate = $320,000/8,000 = $40. Applied manufacturing overhead = $40 x 7,000 = $280,000. Cost of goods manufactured = $190,000 + $245,000 + $280,000 + $0 - $0 = $715,000.

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 inventory is projected to be 1,400 units. How many units will be produced in April? A. 13,300 B. 15,900 C. 12,700 D. 13,000

A. 13,300

Patterson Corp is considering the purchase of a new piece of equipment, which would have an initial cost of $500,000, a 7 year life, and $150,000 salvage value. The increase in net income each year of the equipment's life would be as follows: What is the payback period? A. 3.55 years B. 3.82 years C. 5.97 years D. 6.18 years

A. 3.55 years

Jeremy Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jeremy Inc.'s leather inventory policy is 30% of next month's production needs. If the leather policy is met, what will the July 1 inventory be? A. 750 square meters B. 1,050 square meters C. 1,825 square meters D. 300 square meters

A. 750 square meters

A method that attempts to assign overhead costs based on what is required to produce products is ______ costing.

activity-based

Which of the following is incorrect regarding service firms? A. Each client or account is equivalent to a process in a process costing firm. B. The accounting system will track the time and resources spent serving a specific client or account. C. Managers of service firms need cost information to price their services, to budget and control costs, and to determine the profitability of different types of clients. D. The primary driver used to assign costs is billable hours.

A. Each client or account is equivalent to a process in a process costing firm. In service firms, each client or account is equivalent to a job in a manufacturing setting. All the other choices regarding service firms are correct.

Manufacturing overhead was estimated to be $200,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $215,000, and actual labor hours were 21,000. To dispose of the balance in the Manufacturing Overhead account, which of the following would be correct? A. Manufacturing Overhead would be credited for $5,000 B. Manufacturing Overhead would be credited for $15,000 C. Manufacturing Overhead would be debited for $5,000 D. Manufacturing Overhead would be debited for $15,000

A. Manufacturing Overhead would be credited for $5,000 Predetermined overhead rate = $200,000/20,000 = $10.00. Applied manufacturing overhead = $10.00 x 21,000 = $210,000. Underapplied overhead = $215,000 - $210,000 = $5,000, which is credited to Manufacturing Overhead.

Which of the following accounts is not affected by applied manufacturing overhead? A. Raw Materials Inventory B. Work in Process Inventory C. Finished Goods Inventory D. Cost of Goods Sold

A. Raw Materials Inventory Manufacturing overhead is applied to Work in Process inventory; the cost moves to Finished Goods when goods are completed, and Cost of Goods Sold when they are sold.

Which of the following represents the cost of materials purchased but not yet issued to production? A. Raw Materials Inventory B. Work in Process Inventory C. Finished Goods Inventory D. Cost of Goods Sold

A. Raw Materials Inventory Raw Materials Inventory represents the cost of materials purchased from suppliers but not yet used in production.

When materials are purchased, which of the following accounts is debited? A. Raw Materials Inventory B. Work in Process Inventory C. Finished Goods Inventory D. Cost of Goods Sold

A. Raw Materials Inventory When materials are purchased, they are initially recorded in Raw Materials Inventory with a debit to the account.

In recording the purchase of materials that are not traced to any specific job, which of the following is correct? A. Raw Materials Inventory would be debited B. Work in Process Inventory would be debited C. Manufacturing Overhead would be debited D. Manufacturing Overhead would be credited

A. Raw Materials Inventory would be debited When indirect materials are purchased, they are debited to raw materials inventory.

When disposed of, underapplied manufacturing overhead will A. increase Cost of Goods Sold. B. increase Finished Goods. C. decrease Cost of Goods Sold. D. decrease Finished Goods.

A. increase Cost of Goods Sold. If manufacturing overhead is underapplied, Cost of Goods sold should be adjusted upward since not enough overhead was put in during the period.

Byron Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. The salvage value of the equipment is estimated to be $75,000. If the hurdle rate is 15%, what is the approximate net present value? Ignore income taxes. A. negative $27,490 B. zero C. positive $400,000 D. positive $75,000

A. negative $27,490

Newport Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and have a 6 year life. There is no salvage value for the equipment. If the hurdle rate is 10%, what is the approximate net present value? Ignore income taxes. A. negative $28,940 B. positive $28,940 C. zero D. positive $300,000

A. negative $28,940

Ajax uses the high-low method of estimating costs. Ajax had total costs of $50,000 at its lowest level of activity, when 5,000 units were sold. When, at its highest level of activity, sales equaled 12,000 units, total costs were $78,000. Ajax would estimate fixed costs as a) $28,000 b) $30,000 c) $64,000 d) $128,000

Budgeted cost of goods sold should include which of the following? A) Raw materials and direct labor B) Raw materials, direct labor, and manufacturing overhead C) Raw materials, direct labor, manufacturing overhead, and selling expenses D) Raw materials, direct labor, manufacturing overhead, Selling Expenses, and administrative expenses

Foster, which uses the high-low method, reported total costs of $24 per unit at its lowest activity level, when production equaled 10,000 units. When production doubled, at its highest activity level, the total cost per unit dropped to $15. Foster would estimate variable cost per unit as a) $9 b) $6 c) negative $9 d) negative $0.0009

Tactics are A. specific goals managers need to achieve B. specific actions or mechanisms C. used to develop the strategic plan D. detailed plans stated in financial terms

The basic form of the cash budget is A) Budgeted cash collections - budgeted cash payments +/- Cash borrowed or repaid = Ending cash balance B) Beginning cash balance + Budgeted cash collections - budgeted cash payments +/- cash borrowed or repaid = ending cash balance C) Beginning cash balance - Budgeted cash collections + Budgeted cash payments +/- Cash borrowed or repaid = Ending cash balance D) Beginning cash balance + Budgeted cash collections - budgeted cash payments = cash borrowed or repaid

Which of the following causes opportunity costs to become relevant to management decisions? A. sunk cost B. operating at full capacity C. operating with idle or excess capacity D. avoidable costs

Which of the following is NOT a step of the management decision making process? A. review results of the decision B. contact competitors who have made similar decisions C. evaluate the costs and benefits of the alternatives D. determine the decision alternatives

Which of the following is NOT another term for relevant costs? A. avoidable costs B. sunk costs C. differential costs D. incremental costs

Which of the following is considered irrelevant when planning a trip? A. the cost of gasoline for the car B. the original cost of the car C. the tolls that will be paid during the drive to the destination

Which of the following is the definition of "cost"? a) Cash paid for something. b) The value of what is given up in exchange for something else. c) The foregone benefit of the path not taken. d) The choice between one alternative and another.

Which of the following is true of a firm that has reached the limit on its resources? A) It has idle capacity B) Opportunity costs are now relevant C) It has no relevant costs D) It has excess capacity

Which of the following should a company consider when making a decision? A. relevant and irrelevant costs and benefits B. relevant costs and benefits C. neither relevant nor irrelevant costs and benefits D. irrelevant costs and benefits

Which of the following would be used to apply manufacturing overhead to production for the period? a) Raw Materials Inventory would be debited b) Work in Process Inventory would be debited c) Manufacturing Overhead would be debited d) Work in Process Inventory would be credited

Stephens Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Stephens' per unit manufacturing costs for 20,000 units is cost per unit total VMC $12 $240,000 SS $3 $60,000 D $1 $20,000 AFO $7 $140,000 If the part is purchased, the supervisor position would be eliminated. The special equipment used to manufacture part XYZ has no other used and no salvage value. Total allocated fixed overhead would be unaffected by the decision. Should the company buy the part or continue to make it? A. buy- $100,000 advantage B. continue to make- $60,000 advantage C. buy- $80,000 advantage D. continue to make- $40,000 advantage

B (depreciation isn't a relevant cost. the avoidable costs of making the product are the variable costs plus the supervisor salary of $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make X 20,000 units))

Goodstone Tire Corp. sells tires for $90 each. Per unit costs associated with producing and selling the tires are direct materials $35 direct labor $10 factory overhead $20 The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 1,000 tires for $65 each. Assuming that Goodstone has no excess capacity A. there will be no incremental profit or loss from the special order B. the incremental loss from the special order will be $25,000 C. the incremental profit from the special order will be $12,000

B (the total revenue of the special order is $65,000 and the cost is $53,000 (DM, DL, VO). The opportunity cost of lost sales is $37,000 (($90 regular cost-$53 of variable cost)X 1,000) for an overall loss of $25,000)

The manufacturing overhead budget at Amrein Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 4,900 direct labor-hours will be required in August. The variable overhead rate is $9.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $96,040 per month, which includes depreciation of $7,350. All other fixed manufacturing overhead costs represent current cash flows. The August cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A) $88,690 B) $134,750 C) $46,060 D) $142,100

B) $134,750

The Gerald Company makes and sells a single product called a Clop. Each Clop requires the use of 1.1 hours of direct labor time. The planned cost of direct labor time is $8.20 per hour. The direct labor workforce is fully adjusted each month to the required workload. The company wishes to prepare a Direct Labor Budget for the first quarter of the year. If the company has budgeted to produce 20,000 Clops in January, then the budgeted direct labor cost for January is: A) $164,000 B) $180,400 C) $172,200 D) $195,600

B) $180,400

B) $24.30

Morrish Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 7,100 direct labor-hours will be required in January. The variable overhead rate is $1.80 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $102,950 per month, which includes depreciation of $19,880. All other fixed manufacturing overhead costs represent current cash flows. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A) $115,730 B) $95,850 C) $12,780 D) $83,070

B) $95,850

Harris, Inc., has budgeted sales in units for the next five months as follows: June: 9400 units July: 7800 units August: 7300 units September 5400 units October 4100 units Past experience has shown that the ending inventory for each month should be equal to 20% of the next month's sales in units. The inventory on May 31 contained 1,880 units. The company needs to prepare a production budget for the next five months. The total number of units produced in July should be: A) 9260 units B) 7700 units C) 7800 units D) 7900 units

B) 7700 units

Carmen Inc is considering three different independent investment opportunities. The present value of future cash flows, initial investment, net present value, and profitability index for each of the projects are as follows: Present Value CF - $300k / $250k / $275k Initial Investment - 150k / 105k / 140k NPV - $150k / $145k / $135k Profitability Index - 2.00 / 2.38 / 1.96 In what order should Carmen prioritize investment in the projects?

B, A, C

Carol Inc is considering three different independent investment opportunities. The present value of future cash flows, initial investment, and net present value for each of the projects are as follows: Present Value CF - $300k / $250k / $275k Initial Investment - 150k / 105k / 140k NPV - $150k / $145k / $135k In what order should Carol prioritize investment in the projects?

B, A, C

Iron Inc, which has a hurdle rate of 10%, is considering three different independent investment opportunities. Each project has a five-year life. The annual cash flows and initial investment for each of the projects are as follows: Annual CF - $79,150 / $65,950 / $72,540 Initial Investment - 150k / 105k / 140k In what order should Iron prioritize investment in the projects?

B, A, C

Short term objectives (check all that apply) A. are the starting point of strategic planning B. are an important component of long term objectives C. need to be achieved in one year or less D. are developed after the budget process

B, C

It's important to review the results of decisions because (check all that apply) A. it's important to make sure that all expected costs occurred B. feedback is an important component of managerial accounting C. they're likely to be unexpected costs and benefits D. corrective action may be needed

B, C, D

Incremental analysis (check all that apply) A. is an important component of identifying decision problems B. is also called differential analysis C. considers all costs and benefits of a decision D. may be referred to as relevant costing

B, D

Which of the following statements is true? (check all that apply) A. the general manager of a factory that has 3 separate product lines is a direct fixed cost B. direct fixed costs are avoidable if a segment is eliminated C. direct fixed costs will still be incurred if a segment is eliminated D. advertising for a specific product line is a direct fixed cost

B, D

Which of the following budgets are needed to calculate unit product costs? (check all that apply) A. selling and administrative budget B. manufacturing overhead budget C. cash budget D. direct labor budget E. direct materials budget

B, D, E

Santos Inc had the following information for the preceding year: Raw Materials: BE (1/1): $40,000 EE (12/31): $30,000 Work in Process Inventory: BE: $35,000 EE: $? Finished Goods Inventory: $30,000 $? Additional information for the year is as follows: Direct Materials Used: $200,000 Direct Labor: $150,000 Manufacturing overhead applied: $160,000 Cost of goods manufactured: $525,000 Cost of goods sold: $544,000 What was the ending Finished Goods Inventory balance on 12/31? A. $20,000 B. $11,000 C. $50,000 D. $54,000

B. $11,000 $544,000 = $30,000 + $525,000 - ending Finished Goods Inventory. Ending Finished Goods Inventory = $30,000 + $525,000 - $544,000 = $11,000.

85. If you invest $10,000 today in a savings account that earns 5% interest, compounded annually, how much would be in the account at the end of ten years? A. $6,139 B. $16,289 C. $77,217 D. $125,779

B. $16,289

You are saving for a car that costs $28,000 that you hope to purchase in five years. How much will you need to deposit today in a savings account that earns 8%, compounded annually, to withdraw enough for the purchase? A. $16,800 B. $19,057 C. $25,760 D. $41,140

B. $19,057

B. $213,000

B. $215,000 Actual manufacturing overhead costs of $215,000 are accumulated on the debit side of the Manufacturing Overhead account.

Newport Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and have a 6 year life. There is no salvage value for the equipment. If the hurdle rate is 8%, what is the approximate net present value? Ignore income taxes. A. $924,580 B. $24,580 C. $900,000 D. $300,000

B. $24,580

McGown Corp has the following information: Raw Materials: BE (1/1): $20,000 EE (12/31): $30,000 Work in Process Inventory: BE: $15,000 EE: $18,000 Finished Goods Inventory: $30,000 $20,000 Additional information for the year is as follows: Raw materials purchases: $100,000 Direct Labor: $75,000 Manufacturing overhead applied: $80,000 Indirect Materials: $0 Compute the cost of goods manufactured. A. $248,000 B. $242,000 C. $265,000 D. $235,000

B. $242,000 Direct materials used = $20,000 + $100,000 - $0 - $30,000 = $90,000. Current manufacturing costs = $90,000 + $75,000 + $80,000 = $245,000. Cost of goods manufactured = $15,000 + $245,000 - $18,000 = $242,000.

Manufacturing overhead was estimated to be $500,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $450,000, actual direct labor hours were 19,000. The predetermined overhead rate would be A. $22.50 B. $25.00 C. $23.68 D. $26.32

B. $25.00 $500,000/20,000 = $25.00

B. $296,000

Cortland Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net cash flows of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. If the salvage value of the equipment is estimated to be $75,000, what is the annual net income? Ignore income taxes. A. $25,000 B. $35,000 C. $165,000 D. $175,000

B. $35,000

You purchase a home for $200,000 that you expect to appreciate 6% in value on an annual basis. How much will the home be worth in ten years? A. $111,680 B. $358,120 C. $1,472,020 D. $2,636,160

B. $358,120

B. $415,000 Actual manufacturing overhead costs are debited to the Manufacturing Overhead account.

B. $469,000

Marlow Company produces hand tools. A production budget for the next four months is as follows: March 10,300 units, April 13,300, May 16,500, and June 21,800. Marlow Company's ending finished goods inventory policy is 10% of the following month's sales. Meadow plans to sell 16,000 units in May. How many units will be sold in April? A. 12,380 B. 13,000 C. 13,570 D. 13,620

B. 13,000

34. Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. What will leather purchases be in July? A. 2,300 square meters B. 2,550 square meters C. 2,700 square meters D. 3,575 square meters

B. 2,550 square meters

Wright Corp is considering the purchase of a new piece of equipment, which would have an initial cost of $1,000,000 and a 5 year life. There is no salvage value for the equipment. The increase in cash flow each year of the equipment's life would be as follows: What is the payback period? A. 2.39 years B. 2.96 years C. 3.00 years D. 3.51 years

B. 2.96 years

Belmont Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $200,000. The equipment will have an initial cost of $1,000,000 and have an 8 year life. If there is no salvage value of the equipment, what is the accounting rate of return? A. 12.5% B. 20% C. 40% D. 15%

B. 20%

Palmer Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $100,000. The equipment will have an initial cost of $400,000 and have a 7 year life. If the salvage value of the equipment is estimated to be $75,000, what is the accounting rate of return? A. 14.28% B. 25.00% C. 42.11% D. 147.37%

B. 25.00%

33. Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc's leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. What will leather purchases be in August? A. 7,150 square meters B. 3,575 square meters C. 7,075 square meters D. 3,425 square meters

B. 3,575 square meters

Belmont Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $200,000. The equipment will have an initial cost of $1,000,000 and have an 8 year life. If there is no salvage value of the equipment, what is the payback period? A. 1.6 years B. 3.08 years C. 5 years D. 8 years

B. 3.08 years

Nelson Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. If the salvage value of the equipment is estimated to be $75,000, what is the accounting rate of return? Ignore income taxes. A. 6.25% B. 8.75% C. 25.00% D. 26.67%

B. 8.75%

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 inventory is projected to be 1,400 units. How many units will be produced in March? A. 10,000 B. 9,900 C. 13,000 D. 10,100

B. 9,900

Manufacturing overhead was estimated to be $250,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $225,000, and actual direct labor hours were 19,000. To dispose of the balance in the Manufacturing Overhead account, which of the following would be correct? A. Cost of Goods Sold would be credited for $25,000 B. Cost of Goods Sold would be credited for $12,500 C. Cost of Goods Sold would be debited for $12,500 D. Cost of Goods Sold would be debited for $25,000

B. Cost of Goods Sold would be credited for $12,500 Predetermined overhead rate = $250,000/20,000 = $12.50. Applied manufacturing overhead = $12.50 x 19,000 = $237,500. Overapplied overhead = $237,500 - $225,000 = $12,500, which is credited to Cost of Goods Sold.

Manufacturing overhead was estimated to be $400,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $415,000, and actual labor hours were 21,000. To dispose of the balance in the Manufacturing Overhead account, which of the following would be correct? A. Cost of Goods Sold would be credited for $15,000 B. Cost of Goods Sold would be credited for $5,000 C. Cost of Goods Sold would be debited for $5,000 D. Cost of Goods Sold would be debited for $15,000

B. Cost of Goods Sold would be credited for $5,000 Predetermined overhead rate = $400,000/20,000 = $20.00. Applied manufacturing overhead = $20.00 x 21,000 = $420,000. Overapplied overhead = $420,000 - $415,000 = $5,000, which is credited to cost of goods sold.

Which of the following would be used to transfer the cost of completed goods during the period? A. Credit to Raw Materials Inventory B. Credit to Work in Process Inventory C. Debit to Manufacturing Overhead D. Credit to Manufacturing Overhead

B. Credit to Work in Process Inventory When a job is completed, its total manufacturing cost is transferred out of Work in Process Inventory with a credit and into Finished Goods Inventory with a debit.

Which of the following types of firms would most likely use job order costing? A. Happy-Oh Cereal Company B. Huey, Lewey & Dewie, Attorneys C. SoooSweet Beverage D. C-5 Cement Company

B. Huey, Lewey & Dewie, Attorneys Job order costing is used in companies that offer customized or unique products or services, such as a law firm.

Manufacturing overhead was estimated to be $200,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $215,000, and actual labor hours were 21,000. Which of the following would be correct? A. Overhead is underapplied by $15,000 B. Overhead is underapplied by $5,000 C. Overhead is overapplied by $5,000 D. Overhead is overapplied by $15,000

B. Overhead is underapplied by $5,000 Predetermined overhead rate = $200,000/20,000 = $10.00. Applied manufacturing overhead = $10.00 x 21,000 = $210,000. Underapplied overhead = $215,000 - $210,000 = $5,000.

You will need at least $5,000 in four years and your friend says she can either loan you $5,000 all at once four years from now or she can deposit $1,200 in your savings account at the end of each year for the next four years. Your savings account earns 7% interest, compounded annually. Which option would be worth more to you four years from now, and how much more? A. The $5,000 in four years will be worth $328 more than the annual deposits. B. The annual deposits will be worth $328 more than the $5,000 in four years. C. The $5,000 in four years will be worth $136 more than the annual deposits. D. The annual deposits will be worth $136 more than the $5,000 in four years.

B. The annual deposits will be worth $328 more than the $5,000 in four years.

When units are completed, the cost associated with the job is credited to which account? A. Raw Materials Inventory B. Work in Process Inventory C. Finished Goods Inventory D. Cost of Goods Sold

B. Work in Process Inventory When a job is completed, its cost is transferred from Work in Process Inventory (with a credit) to Finished Goods Inventory (with a debit).

When direct materials are used in production, which of the following accounts is debited? A. Raw Materials Inventory B. Work in Process Inventory C. Finished Goods Inventory D. Cost of Goods Sold

B. Work in Process Inventory When direct materials are used in production, the cost is transferred from Raw Materials Inventory (with a credit) to Work in Process Inventory (with a debit).

Which of the following represents the accumulated costs of jobs as yet incomplete? A. Raw Materials Inventory B. Work in Process Inventory C. Finished Goods Inventory D. Cost of Goods Sold

B. Work in Process Inventory Work in Process Inventory represents the total cost of jobs that are still in process.

Ajax uses the high-low method of estimating costs. Ajax had total costs of $50,000 at its lowest level of activity, when 5,000 units were sold. When, at its highest level of activity, sales equaled 12,000 units, total costs were $78,000. What would Ajax estimate its total cost to be if sales equaled 8,000 units? a) $32,000 b) $52,000 c) $62,000 d) $80,000

Improving operations and reducing costs is the focus of ________ - _______ management

activity-based

When materials are placed into production, A. Raw Materials Inventory is debited if the materials are traced directly to the job. B. Work in Process Inventory is debited if the materials are traced directly to the job. C. Manufacturing Overhead is debited if the materials are traced directly to the job. D. Raw Materials Inventory is credited only if the materials are traced directly to the job, otherwise manufacturing overhead is credited.

B. Work in Process Inventory is debited if the materials are traced directly to the job. When direct materials are placed into production, the cost is transferred from Raw Materials Inventory with a credit, and debited to Work in Process Inventory.

Which of the following would be used to record the labor cost that is traceable to a specific job? A. Raw Materials Inventory would be debited B. Work in Process Inventory would be debited C. Manufacturing Overhead would be debited D. Manufacturing Overhead would be credited

B. Work in Process Inventory would be debited As direct labor costs are incurred, they are debited to Work in Process Inventory.

Which of the following would be used to apply manufacturing overhead to production for the period? A. Raw Materials Inventory would be debited B. Work in Process Inventory would be debited C. Manufacturing Overhead would be debited D. Work in Process Inventory would be credited

B. Work in Process Inventory would be debited When manufacturing overhead is applied to production, Work in Process Inventory is debited and the Manufacturing Overhead account is credited.

Newport Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and have a 6 year life. There is no salvage value for the equipment. If the hurdle rate is 10%, what is the internal rate of return? Ignore income taxes. A. between 6% and 8% B. between 8% and 10% C. between 10% and 12% D. less than zero

B. between 8% and 10%

Foster Inc. is trying to decide whether to lease or purchase a piece of equipment needed for the next ten years. The equipment would cost $45,000 to purchase, and maintenance costs would be $5,000 per year. After ten years, Foster estimates it could sell the equipment for $20,000. If Foster leases the equipment, it would pay $12,000 each year, which would include all maintenance costs. If the hurdle rate for Foster is 10%, Foster should A. lease the equipment, as net present value of cost is about $5,700 less. B. buy the equipment, as net present value of cost is about $5,700 less. C. lease the equipment, as net present value of cost is about $2,000 less. D. buy the equipment, as net present value of cost is about $45,000 less.

B. buy the equipment, as net present value of cost is about $5,700 less.

Which of the following statements regarding the balanced scorecard is incorrect?

Balanced scorecard objectives are generally broad and generic.

How is the cost of a batch-level activity similar to the cost of a unit-level activity?

Both increase as production volume increases.

Budgeted direct labor hours are calculated as A) Budgeted production units x Direct labor requirements per unit + ending inventory - beginning inventory B) Budgeted production units x Direct labor requirements per unit + beginning inventory -ending inventory C) Budgeted Production units x Direct labor requirements per unit D) Budgeted sales units x Direct labor requirements per unit

Budgeted production is calculated by A) Adding budgeted unit sales to budgeted beginning finished goods inventory, and subtracting budgeted ending finished goods inventory B) Adding budgeted unit sales to budgeted beginning work in process inventory, and subtracting budgeted ending work in process inventory. C) Adding budgeted unit sales to budgeted ending finished goods inventory, and subtracting budgeted beginning finished goods inventory. D) Adding budgeted unit sales to budgeted ending work in process inventory, and subtracting budgeted beginning work in process inventory.

In deciding whether to sell a product or continue to process it, costs incurred to get to product into its current condition _____ relevant in the decision A. are B. may be C. are not

Logan, Inc. manufactures chainsaws that sell for $60. Each chainsaw uses $10 in direct materials and $3 in direct labor per unit. Logan has two activities: Machining, which is applied at the rate of $2 per machine hour, and Finishing, which is applied at the rate of $20 per batch. This month, Logan made 200 chainsaws, using 1,000 machine hours in 40 batches. What is the gross profit for 200 chainsaw? a) $2,600 b) $5,400 c) $6,600 d) $9,400

Long term objectives are goals A. managers hope to achieve in 6-12 months B. that are used to develop a strategic plan C. managers hope to achieve in 5-10 years D. that are an integral part of the operating budget

Mantilla Inc. estimated manufacturing overhead to be $200,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $215,000, and actual labor hours were 21,000. The journal entry to close the balance in the Manufacturing Overhead account would include which of the following? a) Cost of Goods Sold would be credited for $15,000 b) Cost of Goods Sold would be credited for $5,000 c) Cost of Goods Sold would be debited for $5,000 d) Cost of Goods Sold would be debited for $15,000

Mathews Woodworking manufactures baseball bats and wooden tops. Currently, Mathews makes 5,000 baseball bats each month. Each bat uses $1.00 in direct materials and $0.50 in direct labor. There are two activities in manufacturing the baseball bats: Cutting and Finishing. The cost associated with Cutting is $7,500 a month, allocated on the basis of direct labor hours. The cost associated with Finishing is $12,000 a month, allocated on the basis of batches. Usage of the activity drivers are as follows: Bats Tops Direct labor hours 100 200 Batches 4 6 What is the total manufacturing cost for one baseball bat? a) $1.46 b) $1.50 c) $2.96 d) $19,501.50

Products that can be used in place of one another are called A. segment products B. common products C. substitute products D. complementary products

Sales revenue minus all costs (fixed or variable) of a particular division is known as A. gross margin B. contribution magin C. segment margin D. net operating income

Which of the following best defines a unit-level activity? a) An activity that is performed for a specific customer b) An activity that is performed to support a specific product line c) An activity that is performed for each individual unit d) An activity that is performed for a group of units all at once

Which of the following is an advantage of budgeting? A. budgets focus on what has happened in the past B. budgets primarily help managers with day to day emergencies C. budgets communicate management's plan throughout the organization

Goodstone Tire Corp. sells tires for $90 each. Per unit costs associated with producing and selling the tires are direct materials $35 direct labor $10 factory overhead $20 The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 1,000 tires for $65 each. Assuming that Goodstone has excess capacity A. there will be no incremental profit or loss from the special order B. the incremental loss from the special order will be $25,000 C. the incremental profit from the special order will be $12,000

C (the revenue per tire is $65 and the cost is $53 (DM, DL, VO), so each tire will generate $12 in incremental profit or $12,000 total)

The manufacturing overhead budget at Pendley Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 8,900 direct labor-hours will be required in August. The variable overhead rate is $5.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $133,500 per month, which includes depreciation of $30,260. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for August should be: A) $5.50 B) $17.10 C) $20.50 D) $15.00

C) $20.50

The Gerald Company makes and sells a single product called a Clop. Each Clop requires the use of 1.1 hours of direct labor time. The planned cost of direct labor time is $8.20 per hour. The direct labor workforce is fully adjusted each month to the required workload. The company wishes to prepare a Direct Labor Budget for the first quarter of the year. The budgeted direct labor cost per Clop is: A) $7.45 B) $8.20 C) $9.02 D) $9.76

C) $9.02

The following are budgeted data: January // February // March Sales in units: 16000 // 21000 // 20000 Production in units: 17000 //19000//18000 One pound of material is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. Purchases of raw materials for February would be budgeted to be: A) 19000 pounds B) 19200 pounds C) 18800 pounds D) 23000 pounds

C) 18800 pounds

Boxwood Inc is considering three different independent investment opportunities. The present value of future cash flows, initial investment, and net present value for each of the projects are as follows: Present Value CF - $600k / $550k / $500k Initial Investment - 320k / 300k / 230k NPV - $280k / $250k / $270k In what order should Boxwood prioritize investment in the projects?

C, A, B

Norwood Inc is considering three different independent investment opportunities. The present value of future cash flows, initial investment, net present value, and profitability index for each of the projects are as follows: Present Value CF - $600k / $550k / $500k Initial Investment - 320k / 300k / 230k NPV - $280k / $250k / $270k Profitability Index - 1.88 / 1.83 / 2.17 In what order should Norwood prioritize investment in the projects?

C, A, B

C. $112,000

Frank Inc. is trying to decide whether to lease or purchase a piece of equipment needed for the next ten years. The equipment would cost $45,000 to purchase, and maintenance costs would be $5,000 per year. After ten years, Frank estimates it could sell the equipment for $20,000. If Frank leased the equipment, it would pay a set annual fee that would include all maintenance costs. Frank has determined after a net present value analysis that at its hurdle rate of 10%, it would be better off by $5,700 if it buys the equipment. What would the approximate annual cost be if Frank were to lease the equipment? A. $9,000 B. $7,000 C. $12,000 D. $13,250

C. $12,000

Homer Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. If the salvage value of the equipment is estimated to be $75,000, what is the annual net cash flow? A. $25,000 B. $35,000 C. $165,000 D. $175,000

C. $165,000

C. $210,000 Predetermined overhead rate = $200,000/20,000 = $10.00. Applied manufacturing overhead = $10.00 x 21,000 = $210,000, which would be credited to Manufacturing Overhead.

McGown Corp has the following information: Raw Materials: BE (1/1): $20,000 EE (12/31): $30,000 Work in Process Inventory: BE: $15,000 EE: $18,000 Finished Goods Inventory: $30,000 $20,000 Additional information for the year is as follows: Raw materials purchases: $100,000 Direct Labor: $75,000 Manufacturing overhead applied: $80,000 Indirect Materials: $0 Compute the unadjusted cost of goods sold. A. $133,000 B. $242,000 C. $252,000 D. $255,000

C. $252,000 Direct materials used = $20,000 + $100,000 - $0 - $30,000 = $90,000. Current manufacturing costs = $90,000 + $75,000 + $80,000 = $245,000. Cost of goods manufactured = $15,000 + $245,000 - $18,000 = $242,000. Cost of goods sold = $30,000 + $242,000 - $20,000 = $252,000.

Dallas Corp is trying to decide whether to lease or purchase a piece of equipment needed for the next five years. The equipment would cost $100,000 to purchase, and maintenance costs would be $10,000 per year. After five years, Dallas estimates it could sell the equipment for $30,000. If Dallas leased the equipment, it would pay a set annual fee that would include all maintenance costs. Dallas has determined after a net present value analysis that at its hurdle rate of 12%, it would be better off by $11,000 if it leases the equipment. What would the approximate annual cost be if Dallas were to lease the equipment? A. $21,800 B. $27,800 C. $30,000 D. $34,700

C. $30,000

C. $420,000 Predetermined overhead rate = $400,000/20,000 = $20.00. Applied manufacturing overhead = $20.00 x 21,000 = $420,000, which is credited to Manufacturing Overhead.

C. $420,000 Predetermined overhead rate = $400,000/20,000 = $20.00. Applied manufacturing overhead = $20.00 x 21,000 = $420,000.

49. Skybird has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Skybird's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly costs are budgeted as follows: What is budgeted manufacturing overhead cost for July? A. $32,000 B. $41,000 C. $46,400 D. $17,000

C. $46,400

Mendez Inc had the following information for the preceding year: Work in Process Inventory: BE: $? EE: $30,000 Finished Goods Inventory: $? $30,000 Additional information for the year is as follows: Direct Materials Used: $200,000 Direct Labor: $150,000 Manufacturing overhead applied: $160,000 Cost of goods manufactured: $525,000 Cost of goods sold: $544,000 What was the beginning Work in Process Inventory balance on 1/1? A. $49,000 B. $65,000 C. $50,000 D. $69,000

C. $50,000 Current manufacturing costs = $200,000 + $150,000 + $160,000 = $510,000. Cost of goods manufactured = $525,000 = Beginning Work in Process Inventory + $510,000 - $35,000, so ending Work in Process Inventory = $525,000 + $35,000 - $510,000 = $50,000.

C. 10,100

Johnson Inc. produces leather handbags. Johnson Inc. estimates it will use 3,500 square meters of leather in production in August, and 3,750 square meters of leather in production in September. Johnson Inc.'s leather inventory policy is 30% of next month's production needs. What will leather purchases be in August? A. 3,425 square meters B. 3,500 square meters C. 3,575 square meters D. 4,625 square meters

C. 3,575 square meters

Newport Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and have a 6 year life. There is no salvage value for the equipment. What is the payback period? A. 1.33 years B. 2.57 years C. 4.50 years D. 6.00 years

C. 4.50 years

Manufacturing overhead was estimated to be $200,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $215,000, and actual labor hours were 21,000. To dispose of the balance in the Manufacturing Overhead account, which of the following would be correct? A. Cost of Goods Sold would be credited for $15,000 B. Cost of Goods Sold would be credited for $5,000 C. Cost of Goods Sold would be debited for $5,000 D. Cost of Goods Sold would be debited for $15,000

C. Cost of Goods Sold would be debited for $5,000 Predetermined overhead rate = $200,000/20,000 = $10.00. Applied manufacturing overhead = $10.00 x 21,000 = $210,000. Underapplied overhead = 215,000 - $210,000 = $5,000, which is debited to Cost of Goods Sold.

Which of the following represents the cost of jobs completed but not yet sold? A. Raw Materials Inventory B. Work in Process Inventory C. Finished Goods Inventory D. Cost of Goods Sold

C. Finished Goods Inventory Once goods are finished, their costs are transferred out of Work in Process Inventory and into Finished Goods Inventory until they are sold.

When units are completed, the cost associated with the job is debited to which account? A. Raw Materials Inventory B. Work in Process Inventory C. Finished Goods Inventory D. Cost of Goods Sold

C. Finished Goods Inventory When a job is completed, its cost is transferred from Work in Process Inventory (with a credit) to Finished Goods Inventory (with a debit).

When units are sold, the cost associated with the units is credited to which account? A. Raw Materials Inventory B. Work in Process Inventory C. Finished Goods Inventory D. Cost of Goods Sold

C. Finished Goods Inventory When units are sold, their cost is transferred from Finished Goods Inventory (with a credit) to Cost of Goods Sold (with a debit).

The source document that captures how much time a worker has spent on various jobs during the period is a A. Cost driver sheet. B. Materials requisition form. C. Labor time ticket. D. Job cost sheet.

C. Labor time ticket. A direct labor time ticket shows how much time a worker has spent on various jobs each week, as well as the cost of that time.

If a company uses a predetermined overhead rate, which of the following statements is correct? A. Manufacturing Overhead will be debited for estimated overhead B. Manufacturing Overhead will be credited for estimated overhead C. Manufacturing Overhead will be debited for actual overhead D. Manufacturing Overhead will be credited for actual overhead

C. Manufacturing Overhead will be debited for actual overhead Actual manufacturing overhead costs are accumulated on the debit side of the Manufacturing Overhead account.

Which of the following would be used to record the labor cost that is not traceable to a specific job? A. Raw Materials Inventory would be debited B. Work in Process Inventory would be debited C. Manufacturing Overhead would be debited D. Manufacturing Overhead would be credited

C. Manufacturing Overhead would be debited Actual indirect labor costs are accumulated on the debit side of the Manufacturing Overhead account.

Which of the following would be used to record the property taxes on a factory building? A. Raw Materials Inventory would be debited B. Work in Process Inventory would be debited C. Manufacturing Overhead would be debited D. Manufacturing Overhead would be credited

C. Manufacturing Overhead would be debited Actual indirect manufacturing costs are accumulated in the Manufacturing Overhead account on the debit side of the account.

Which of the following would be used to record the usage of indirect manufacturing resources? A. Raw Materials Inventory would be debited B. Work in Process Inventory would be debited C. Manufacturing Overhead would be debited D. Manufacturing Overhead would be credited

C. Manufacturing Overhead would be debited All actual indirect manufacturing costs are accumulated in the Manufacturing Overhead account on the debit side of the account.

To calculate the direct labor requirement for each quarter A. multiply the number of direct labor hours required per unit times the number of units to be sold B. add the number of direct labor hours required per unit to the number of units to be produced C. add the number of direct labor hours required per unit to the number of units to be sold D. multiply the number of direct labor hours required per unit times the number of units to be produced

Manufacturing overhead was estimated to be $250,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $225,000, and actual direct labor hours were 19,000. To dispose of the balance in the Manufacturing Overhead account, which of the following would be correct? A. Manufacturing Overhead would be credited for $12,500 B. Manufacturing Overhead would be credited for $25,000 C. Manufacturing Overhead would be debited for $12,500 D. Manufacturing Overhead would be debited for $25,000

C. Manufacturing Overhead would be debited for $12,500 Predetermined overhead rate = $250,000/20,000 = $12.50. Applied manufacturing overhead = $12.50 x 19,000 = $237,500. Overapplied overhead = $237,500 - $225,000 = $12,500, which is debited to Manufacturing Overhead.

Manufacturing overhead was estimated to be $400,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $415,000, and actual labor hours were 21,000. To dispose of the balance in the Manufacturing Overhead account, which of the following would be correct? A. Manufacturing Overhead would be credited for $5,000 B. Manufacturing Overhead would be credited for $20,000 C. Manufacturing Overhead would be debited for $5,000 D. Manufacturing Overhead would be debited for $20,000

C. Manufacturing Overhead would be debited for $5,000 Predetermined overhead rate = $400,000/20,000 = $20.00. Applied manufacturing overhead = $20.00 x 21,000 = $420,000. Overapplied overhead = $420,000 - $415,000 = $5,000, which is debited to Manufacturing Overhead.

If materials being placed into production are not traced to a specific job, A. Raw Materials Inventory would be debited. B. Work in Process Inventory would be debited. C. Manufacturing Overhead would be debited. D. Manufacturing Overhead would be credited.

C. Manufacturing Overhead would be debited. When indirect materials are placed into production, the cost is transferred from Raw Materials Inventory with a credit, and debited to Manufacturing Overhead.

Manufacturing overhead was estimated to be $250,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $225,000, and actual direct labor hours were 19,000. Which of the following would be correct? A. Overhead is underapplied by $25,000 B. Overhead is underapplied by $12,500 C. Overhead is overapplied by $12,500 D. Overhead is overapplied by $25,000

C. Overhead is overapplied by $12,500 Predetermined overhead rate = $250,000/20,000 = $12.50. Applied manufacturing overhead = $12.50 x 19,000 = $237,500. Overapplied overhead = $237,500 - $225,000 = $12,500.

Which of the following types of firms would most likely use process costing? A. Superior Auto Body & Repair B. Crammond Custom Cabinets C. Sunshine Soft Drinks D. Jackson & Taylor Tax Service

C. Sunshine Soft Drinks Process costing is used by companies that make standardized or homogeneous products or services, such as a soft drink company.

Your grandmother has told you she can either give you $4,000 now or $5,000 when you graduate from college in three years. Your savings account earns 7% interest, compounded annually. Which option would be worth more to you now, and how much more? A. The $4,000 now is worth $81.50 more than the $5,000 in the future. B. The $4,000 now is worth $100.00 more than the $5,000 in the future. C. The $5,000 in the future is worth $81.50 more than the $4,000 now. D. The $5,000 in the future is worth $100.00 more than the $4,000 now.

C. The $5,000 in the future is worth $81.50 more than the $4,000 now.

Service firms: A. tend to use a lot of direct materials in addition to billable hours. B. tend to incur few indirect costs that cannot be traced to specific clients or accounts. C. assign indirect costs to individual clients or accounts based on an allocation base such as billable hours. D. use process costing to assign costs to individual clients or accounts.

C. assign indirect costs to individual clients or accounts based on an allocation base such as billable hours. Most service firms do not use a lot direct materials, tend to incur many indirect costs that cannot be traced to specific clients or accounts, and use job costing to assign costs to individual clients or accounts. Indirect costs are treated much like manufacturing overhead in a factory and are assigned using an allocation base such as billable hours.

Wilson Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $50,000. The equipment will have an initial cost of $600,000 and have an 8 year life. The salvage value of the equipment is estimated to be $100,000. If the hurdle rate is 10%, what is the internal rate of return? A. less than zero B. between zero and 10% C. between 10% and 15% D. more than 15%

C. between 10% and 15%

Lawrence Corp is considering the purchase of a new piece of equipment. When discounted at a hurdle rate of 8%, the project has a net present value of $24,580. When discounted at a hurdle rate of 10%, the project has a net present value of ($28,940). The internal rate of return of the project is A. zero. B. between zero and 8%. C. between 8% and 10%. D. greater than 10%.

C. between 8% and 10%.

When disposed of, overapplied manufacturing overhead will A. increase Cost of Goods Sold. B. increase Finished Goods. C. decrease Cost of Goods Sold. D. decrease Finished Goods.

C. decrease Cost of Goods Sold. If manufacturing overhead is overapplied, Cost of Goods sold should be adjusted downward since too much overhead was put in during the period.

Overhead costs are overapplied if the amount applied to Work in Process is A. greater than estimated overhead. B. less than estimated overhead. C. greater than actual overhead incurred. D. less than actual overhead incurred.

C. greater than actual overhead incurred. Overhead cost is overapplied if the amount applied is more than the actual overhead cost.

Devon Corp is trying to decide whether to lease or purchase a piece of equipment. The total cost lease the equipment will be $150,000 over its estimated life, while the total cost to buy the equipment will be $120,000 over its estimated life. At Devon's required rate of return, the net present value of the cost of leasing the equipment is $108,000 and the net present value of the cost of buying the equipment is $119,000. Based on financial factors, Devon should A. lease the equipment, saving $30,000 over buying. B. buy the equipment, saving $30,000 over leasing. C. lease the equipment, saving $11,000 over buying. D. buy the equipment, saving $11,000 over leasing.

C. lease the equipment, saving $11,000 over buying.

Equivalent units are tracked separately for which two categories of costs? Direct labor and manufacturing overhead. Direct materials and conversion cost. Direct materials and indirect materials. Finished goods and cost of goods sold.

Direct materials and conversion cost.

Larson, Inc. makes two products. Due to a limited number of available machine hours, demand for the products exceeds production capability. When allocating resources, Larson's measure of profitability should be:

Cm per machine hour

Which of the following changes introduced by the Sarbanes-Oxley Act is not one intended to reduce opportunities for error and fraud?

Code of Ethics

You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course Cost $3,000 $1,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend Number of meetings 16 8 Qualitative considerations Convenience, quality of instruction Flexibility, brief duration If you earn a scholarship that covers 95% of your tuition costs at the college (but cannot be applied to other learning opportunities), which option would you choose (based on net enrollment cost)?

College course The net cost of the college course is $150 [$3,000 × (1 - 0.95) = $150], making it considerably less expensive than the community course.

You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course Cost $3,000 $1,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend Number of meetings 16 8 Qualitative considerations Convenience, quality of instruction Flexibility, brief duration If you enroll in the community class, you will be unable to work at your regular job on weekends for the eight weekend days when the class meets. If you typically earn $500 per weekend shift, which option would you choose (considering enrollment cost and opportunity cost)?

College course The opportunity cost (lost wages) is $4,000 ($500 × 8). The sum of opportunity cost and actual cost is $5,000 ($4,000 + $1,000), making the community course more expensive than the college course. The college course is the preferred alternative based on cost.

Which of the following is irrelevant to the decision to eliminate an unprofitable segment?

Common fixed costs Common fixed costs will be incurred even if a segment is eliminated, therefore they are irrelevant to the decision.

Total manufacturing costs includes

Direct materials and direct labor

You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course Cost $3,000 $1,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend Number of meetings 16 8 Qualitative considerations Convenience, quality of instruction Flexibility, brief duration Considering solely the enrollment cost of each alternative, which would you choose?

Community course If you consider only the cost of the two alternatives, you would choose the less expensive option. In this case, it is the community college.

You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course Cost $3,000 $1,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend Number of meetings 16 8 Qualitative considerations Convenience, quality of instruction Flexibility, brief duration Pretend transportation (gas, mileage, and parking) cost $200 per class session at the library. If you consider solely the cost - including transportation - of each alternative, which would you choose?

Community course The cost of the community course including transportation is $2,600, the sum of the tuition ($1,000) and the per-class transportation cost ($200 × 8 = $1,600). $2,600 is still less than the cost of the college course, making it the preferred alternative based solely on cost.

Which of the following functions of management involves providing feedback for future plans?

Control

Which of the following is the backward-looking phase of the planning and control cycle? Planning Directing/Leading Organizing Control

Control

Which of the following statements is correct about the connection between cost centers and revenue?

Cost centers do not directly generate revenue from customers, but they may have an impact on revenue through customer satisfaction and overall quality.

Cost of goods completed is the same as: Cost of Goods Sold. Work in Process Inventory. Cost of Goods Manufactured. Finished Goods Inventory.

Cost of Goods Manufactured.

When units are sold, the cost associated with the units increases which account?

Cost of Goods Sold

Manufacturing overhead was estimated to be $397,100 for the year along with 20,900 direct labor hours. Actual manufacturing overhead was $418,600, and actual labor hours were 23,000. To dispose of the balance in the Manufacturing Overhead account, which of the following would be correct?

Cost of Goods Sold would be credited for $18,400 Calculate the predetermined overhead rate by dividing total estimated manufacturing overhead by total estimated direct labor hours. ($397,100 / 20,900 = $19.00). Apply manufacturing overhead by multiplying the predetermined overhead rate by the actual number of direct labor hours. ($19.00 × 23,000 = $437,000). The amount of overhead applied ($437,000) on the credit side of the manufacturing overhead account exceeded the actual overhead costs ($418,600) on the debit side of the manufacturing overhead account, so the overhead was overapplied with a credit balance of $18,400. ($437,000 - $$418,600 = $18,400) The most common way of correcting this is with a direct charge, in this case a debit to the manufacturing overhead account to close it out and an offsetting credit to cost of goods sold.

Cost of Goods Sold would be decreased by $5,000.

Which of the following is not a category used to reconcile the number of physical units using the weighted average method of process costing? Units started Ending units in inventory Cost of goods sold Units completed

Cost of goods sold

Arthur Company provided the following information for the year: Direct materials used 110,000 Direct labor used (5,000 hours) 150,000 Manufacturing overhead incurred 166,000 The predetermined overhead rate was $35 per direct labor hour for the year.Assuming the ending balance in Work in Process Inventory is $17,000, what was cost of goods manufactured? a) $260,000 b) $426,000 c) $435,000 d) $418,000

Budgeted cost of goods sold is based on A. expected production B. actual sales C. actual production D. expected sales

The process of making a decision A. should consider both relevant and irrelevant costs B. starts with a determination of the decision alternatives C. varies depending upon the decision at hand D. is basically the same for all decisions

Manufacturing costs are generally classified into which of the following categories?

Direct materials, direct labor, and manufacturing overhead

To maximize total contribution margin when a constrained resources exists A. produce the products with the lowest unit contribution margin B. produce the products with the highest unit contribution margin C. produce the products with the lowest contribution margin per unit of the constrained resource D. produce the products with the highest contribution margin per unit of the constrained resource

When making make or buy decisions, managers should consider A. alternate uses for any facility currently being used to make the item B. the costs of direct materials included in making the item C. qualitative factors such as whether the supplier can deliver the item on time and to the company's quality standards D. all of the above

Which of the following budgets is affected by the sales budget? A. direct labor budget B. cash receipts and payments budget C. selling and administrative budget D. all of the above

Which of the following budgets would be prepared earliest in a company's budgeting process? A. budgeted income statement B. budgeted balance sheet C. raw materials purchases budget D. production budget

Which of the following costs is not relevant in a special-order decision? A) Direct Labor B) Direct Materials C) Variable Overhead D) Fixed Overhead

Which of the following statements is TRUE? A. the first step in preparing the master budget is a budgeted balance sheet B. the master budget may be prepared in any order C. cooperation from management is not a required part of the budgeting process D. materials and labor budgets are based on the production budget

Which of the following statements is true? A. GAAP requires all companies to prepare budgets B. only newly formed companies need budgets C. most service firms prepare production budgets D. most companies would benefit from budgeting

Which phases of the management process are impacted by budgeting? A. planning B. directing/leading C. controlling D. all of the above

_____ happens when a manger creates a budget that understates expected revenues or overstates expected expenses A. zero based budgeting B. participative budgeting C. top down budgeting D. budgetary slack

Vandel Inc. bases its selling and administrative expense budget on budgeted unit sales. The sales budget shows 6,600 units are planned to be sold in April. The variable selling and administrative expense is $9.70 per unit. The budgeted fixed selling and administrative expense is $127,380 per month, which includes depreciation of $8,580 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the April selling and administrative expense budget should be: A) $191,400 B) $118,800 C) $64,020 D) $182,820

D) $182,820

Cashan Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 1.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows: August: 24500 units September: 24700 units October: 26400 units November: 26400 units December: 24500 units The company wants to maintain monthly ending inventories of Jurislon equal to 30% of the following month's production needs. On July 31, this requirement was not met since only 10,400 kilograms of Jurislon were on hand. The cost of Jurislon is $4.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months. The desired ending inventory of Jurislon for the month of September is: A) $29,640 B) $29,520 C) $44,460 D) $44,280

D) $44,280

Davey Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable factory overhead rate is $3.00 per direct labor-hour; the budgeted fixed factory overhead is $66,000 per month, of which $10,000 is factory depreciation. If the budgeted direct labor time for October is 6,000 hours, then the total budgeted factory overhead for October is: A) $28,000 B) $56,000 C) $74,000 D) $84,000

D) $84,000

Acmal Manufacturing Company is estimating the following raw material purchases for the last four months of the year: September: $850000 October: $900000 November: $810000 December: $780000 At Acmal, 25% of raw materials purchases are normally paid for in the month of purchase. The remaining 75% is paid for in the month following the purchase. How much cash should Acmal expect to pay out for raw material purchases during the month of November? A) $202,500 B) $832,500 C) $862,500 D) $877,500

D) $877,500

The Gerald Company makes and sells a single product called a Clop. Each Clop requires the use of 1.1 hours of direct labor time. The planned cost of direct labor time is $8.20 per hour. The direct labor workforce is fully adjusted each month to the required workload. The company wishes to prepare a Direct Labor Budget for the first quarter of the year. If the budgeted direct labor cost for February is $162,360, then the budeted production of Clops for February is: A) 23200 units B) 21000 units C) 19800 units D) 18000 units

D) 18000 units

Hamway Products, Inc. makes and sells a single product called a Wob. It takes two yards of material A to make one Wob. Budgeted production of Wobs for the next four months is as follows: April: 12000 units May: 13500 units June: 12400 units July: 11200 units The company wants to maintain monthly ending inventories of material A equal to 10% of the following month's production needs. On March 31 this target had not been met since only 1,500 yards of material A were on hand. The cost of material A is $.90 per yard. The desired ending inventory of material A for the month of June is A) 2480 yards B) 1120 yards C) 1870 yards D) 2240 yards

D) 2240 yards

Fletcher Corp is considering the purchase of a new piece of equipment. The equipment will have an initial cost of $400,000, a 5 year life, and a salvage value of $75,000. If the accounting rate of return for the project is 10%, what is the annual increase in net cash flow? Ignore income taxes. A. $25,000 B. $40,000 C. $65,000 D. $105,000

D. $105,000

D. $116,480

Grover has forecast sales to be of sale, and 40% the month following. What are budgeted cash receipts in April? A. $105,000 B. $141,000 C. $150,000 D. $144,000

D. $144,000

Addison Corp is considering the purchase of a new piece of equipment. The equipment will have an initial cost of $900,000, a 6 year life, and no salvage value. If the accounting rate of return for the project is 5%, what is the annual increase in net cash flow? Ignore income taxes. A. $45,000 B. $105,000 C. $150,000 D. $195,000

D. $195,000

D. $2,000

Optimum Finance Inc. provides budget, savings, and investment services to clients who want a stress-free financial lifestyle. The company customizes a program for each client based on their individual goals that includes budget recommendations, investment counseling, and savings techniques. The company uses a job order cost system that keeps track of the cost of the amount of time financial consultants spend with each client. Optimum applies all indirect operating costs (e.g., rent, utilities, and management salaries) as a percentage of the consultant's labor cost. During the most recent year, the firm estimated that it would pay $500,000 to its consultants and incur indirect operating costs of $750,000. Actual consultant labor costs were $537,500 and actual indirect operating costs were $725,000. During the year, Optimum provided 64 hours of consulting services to Robert Howard for which Optimum pays an average of $18 per hour. What is the total cost of providing services to Robert? A. $2,707. B. $2,822. C. $1,924. D. $2,880.

D. $2,880. The predetermined overhead rate is $750,000/$500,000 = $1.50 per dollar of consultant labor cost. Consultant labor cost for providing services to Robert is $1,152 (64 x $18). Overhead is applied at $1.50 per dollar of consultant labor cost = $1,152 x $1.50 = $1,728. Total cost of providing services to Robert = $1,152 + $1,728 = $2,880.

Kilt Company had the following information for the year: Direct materials used: $110,000 Direct Labor Incurred (5,000 hours) $150,000 Actual manufacturing overhead incurred $166,000 Kilt Company used a predetermined overhead rate of $42 per direct labor hour for the year and estimated that direct labor hours would total 5,500 hours. Assume the only inventory balance is an ending Work in Process balance of $17,000. How much overhead was applied during the year? A. $231,000 B. $150,000 C. $166,000 D. $210,000

D. $210,000 $42.00 x 5,000 = $210,000.

D. $237,500 Predetermined overhead rate = $250,000/20,000 = $12.50. Applied manufacturing overhead = $12.50 x 19,000 = $237,500, which is credited to Manufacturing Overhead.

D. $285,750.

Jaybird Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Jaybird Inc.'s ending finished goods inventory policy is 10% of the following month's sales. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). What will be the total labor cost for the month of August? A. $24,675 B. $225,680 C. $303,800 D. $305,970

D. $305,970

D. $38,160

Ragtime Company had the following information for the year: Direct materials used: $110,000 Direct Labor Incurred (5,000 hours) $150,000 Actual manufacturing overhead incurred $166,000 Ragtime Company used a predetermined overhead rate of $35 per direct labor hour for the year. Assume the only inventory balance is an ending Work in Process Inventory balance of $17,000. What was adjusted cost of goods sold? A. $435,000 B. $426,000 C. $418,000 D. $409,000

D. $409,000 Applied manufacturing overhead = $35 x 5,000 = $175,000. Cost of goods manufactured = $110,000 + $150,000 + $175,000 + $0 - $17,000 = $418,000. Overapplied overhead = $175,000 - $166,000 = $9,000. Unadjusted cost of goods sold = $0 + $418,000 - $0 = $418,000. Adjusted cost of goods sold = $418,000 - $9,000 = $409,000.

Ragtime Company had the following information for the year: Direct materials used: $110,000 Direct Labor Incurred (5,000 hours) $150,000 Actual manufacturing overhead incurred $166,000 Ragtime Company used a predetermined overhead rate of $35 per direct labor hour for the year. Assume the only inventory balance is an ending Work in Process Inventory balance of $17,000. What was cost of goods manufactured? A. $260,000 B. $426,000 C. $435,000 D. $418,000

D. $418,000 Applied manufacturing overhead = $35 x 5,000 = $175,000. Cost of goods manufactured = $110,000 + $150,000 + $175,000 + $0 - $17,000 = $418,000.

Wilson Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $50,000. The equipment will have an initial cost of $600,000 and have an 8 year life. The salvage value of the equipment is estimated to be $100,000. If the hurdle rate is 10%, what is the approximate net present value? A. less than zero B. $100,000 C. $500,000 D. $46,826

D. $46,826

Manufacturing overhead was estimated to be $500,000 for the year along with 20,000 direct labor hours. Actual manufacturing overhead was $450,000, actual direct labor hours were 19,000. The amount of manufacturing overhead applied to production would be A. $500,000 B. $450,000 C. $427,500 D. $475,000

D. $475,000 Predetermined overhead rate = $500,000/20,000 = $25.00. Applied manufacturing overhead = $25.00 x 19,000 = $475,000.

Lemon, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and raw materials inventory and unit costs will stay constant. What is budgeted cost of goods sold for March? A. $40,734 B. $42,400 C. $48,880 D. $50,880

D. $50,880

D. $52,500

D. $551,000

Sawyer Company had the following information for the year: Direct materials used:$190,000 Direct Labor Incurred (7,000 hours) $245,000 Actual manufacturing overhead incurred $273,000 Sawyer Company used a predetermined overhead rate using estimated overhead of $320,000 and 8,000 estimated direct labor hours. Assume the only inventory balance is an ending Finished Goods Inventory balance of $9,000. What was adjusted cost of goods sold? A. $715,000 B. $708,000 C. $706,000 D. $699,000

D. $699,000 Predetermined overhead rate = $320,000/8,000 = $40. Applied manufacturing overhead = $40 x 7,000 = $280,000. Cost of goods manufactured = $190,000 + $245,000 + $280,000 + $0 - $0 = $715,000. Overapplied overhead = $280,000 - $273,000 = $7,000. Unadjusted cost of goods sold = $0 + $715,000 - $9,000 = $706,000. Adjusted cost of goods sold = $706,000 - $7,000 = $699,000.

D. $85,500

D. $859,320

Jenkins Company had the following information for the year: Direct materials used:$295,000 Direct Labor Incurred (9,000 hours) $245,000 Actual manufacturing overhead incurred $343,000 Jenkins Company used a predetermined overhead rate using estimated overhead of $320,000 and 8000 estimated direct labor hours. Assume the only inventory balance is an ending Finished Goods Inventory balance of $19,000. What was adjusted cost of goods sold? A. $900,000 B. $883,000 C. $881,000 D. $864,000

D. $864,000 Predetermined overhead rate = $320,000/8,000 = $40. Applied manufacturing overhead = $40 x 9,000 = $360,000. Cost of goods manufactured = $295,000 + $245,000 + $360,000 + $0 - $0 = $900,000. Unadjusted cost of goods sold = $0 + $900,000 - $19,000 = $881,000. Overapplied overhead = $360,000 - $343,000 = $17,000. Adjusted cost of goods sold = $881,000 - $17,000 = $864,000.

McGown Corp has the following information: Raw Materials: BE (1/1): $20,000 EE (12/31): $30,000 Work in Process Inventory: BE: $15,000 EE: $18,000 Finished Goods Inventory: $30,000 $20,000 Additional information for the year is as follows: Raw materials purchases: $100,000 Direct Labor: $75,000 Manufacturing overhead applied: $80,000 Indirect Materials: $0 Compute the direct materials used in production. A. $20,000 B. $30,000 C. $110,000 D. $90,000

D. $90,000 Direct materials used = $20,000 + $100,000 - $0 - $30,000 = $90,000.

Jenkins Company had the following information for the year: Direct materials used:$295,000 Direct Labor Incurred (9,000 hours) $245,000 Actual manufacturing overhead incurred $343,000 Jenkins Company used a predetermined overhead rate using estimated overhead of $320,000 and 8,000 estimated direct labor hours. Assume the only inventory balance is an ending Finished Goods Inventory balance of $19,000. What was cost of goods manufactured? A. $841,000 B. $860,000 C. $883,000 D. $900,000

D. $900,000 Predetermined overhead rate = $320,000/8,000 = $40. Applied manufacturing overhead = $40 x 9,000 = $360,000. Cost of goods manufactured = $295,000 + $245,000 + $360,000 + $0 - $0 = $900,000.

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. What is budgeted ending finished goods inventory for May? A. 1,000 B. 1,300 C. 1,600 D. 2,100

D. 2,100

40. Jillian Inc produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How many total labor hours will be budgeted for September? A. 7,500 B. 9,750 C. 16,500 D. 26,250

D. 26,250

Jared Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jared Inc.'s finished goods inventory policy is 10% of next month's sales needs. Jared Inc.'s leather inventory policy is 30% of next month's production needs. What will leather purchases be in August? A. 3,425 square meters B. 3,450 square meters C. 3,508 square meters D. 3,600 square meters

D. 3,600 square meters

Which of the following represents the cost of the jobs sold during the period? A. Raw Materials Inventory B. Work in Process Inventory C. Finished Goods Inventory D. Cost of Goods Sold

D. Cost of Goods Sold Once a job is sold, its total cost is transferred out of Finished Goods Inventory and into Cost of Goods Sold.

When units are sold, the cost associated with the units is debited to which account? A. Raw Materials Inventory B. Work in Process Inventory C. Finished Goods Inventory D. Cost of Goods Sold

D. Cost of Goods Sold When units are sold, their cost is transferred from Finished Goods Inventory (with a credit) to Cost of Goods Sold (with a debit).

Which of the following is a characteristic of a manufacturing environment that would use job order costing? A. Standardized production process B. Continuous manufacturing C. Homogenous products D. Differentiated products

D. Differentiated products Job order costing is used in companies that offer customized or unique products or services.

A predetermined overhead rate is calculated using which formula? A. Actual manufacturing overhead cost/estimated units in the allocation base B. Estimated units in the allocation base/estimated manufacturing overhead cost C. Estimated manufacturing overhead cost/actual units in the allocation base D. Estimated manufacturing overhead cost/estimated units in the allocation base

D. Estimated manufacturing overhead cost/estimated units in the allocation base This is the formula for the predetermined overhead rate.

When manufacturing overhead is applied to production, which of the following accounts is credited? A. Raw Materials Inventory B. Work in Process Inventory C. Finished Goods Inventory D. Manufacturing Overhead

D. Manufacturing Overhead When manufacturing overhead is applied to production, Work in Process Inventory is debited and the Manufacturing Overhead account is credited.

Byron Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. The salvage value of the equipment is estimated to be $75,000. If the hurdle rate is 10%, what is the internal rate of return? A. between 6% and 8% B. between 8% and 10% C. between 10% and 12% D. between 12% and 14%

D. between 12% and 14%

Heidi Inc. is considering whether to lease or purchase a piece of equipment. The total cost to lease the equipment will be $120,000 over its estimated life, while the total cost to buy the equipment will be $75,000 over its estimated life. At Heidi's required rate of return, the net present value of the cost of leasing the equipment is $73,700 and the net present value of the cost of buying the equipment is $68,000. Based on financial factors, Heidi should A. lease the equipment, saving $45,000 over buying. B. buy the equipment, saving $45,000 over leasing. C. lease the equipment, saving $5,700 over buying. D. buy the equipment, saving $5,700 over leasing.

D. buy the equipment, saving $5,700 over leasing.

Overhead costs are underapplied if the amount applied to Work in Process is A. greater than estimated overhead. B. less than estimated overhead. C. greater than actual overhead incurred. D. less than actual overhead incurred.

D. less than actual overhead incurred. Overhead cost is underapplied if the amount applied is less than the actual overhead cost.

The most common method for disposing of over- or underapplied overhead is to A. recalculate the overhead rate for the period. B. recalculate the overhead rate for the next period. C. make a direct adjustment to Work in Process Inventory. D. make a direct adjustment to Cost of Goods Sold.

D. make a direct adjustment to Cost of Goods Sold. The most common method for disposing of the balance in Manufacturing Overhead is to make a direct adjustment to Cost of Goods Sold.

Dehner Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on direct labor-hours. The company based its predetermined overhead rate for the current year on the following data: Total direct labor-hours 40,000 Total fixed manufacturing overhead cost $ 96,000 Variable manufacturing overhead per direct labor-hour $ 3.00 Recently, Job P951 was completed with the following characteristics: Number of units in the job 20 Total direct labor-hours 100 Direct materials $ 755 Direct labor cost $ 4,000 The predetermined overhead rate is closest to:

Estimated total manufacturing overhead cost = Estimated total fixed manufacturing overhead cost + (Estimated variable overhead cost per unit of the allocation base × Estimated total amount of the allocation base) = $96,000 + ($3.00 per direct labor-hour × 40,000 direct labor-hours) = $96,000 + $120,000 = $216,000 Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $216,000 ÷ 40,000 direct labor-hours = $5.40 per direct labor-hour Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $5.40 per direct labor-hour × 100 direct labor-hours = $540

You wish to take an Excel course. (Step 1 of the decision-making process.) You may enroll at one within your school or you may take a community class at the local library. (Step 2 of the decision-making process.) You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course Cost $3,000 $1,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend Number of meetings 16 8 Qualitative considerations Convenience, quality of instruction Flexibility, brief duration This information illustrates which step in the decision-making process?

Evaluate the costs and benefits of the alternatives.

What types of activities are carried out regardless of which products are produced, how many batches are run, or how many units are produced?

Facility-level

If a job is not completed at year end, then no manufacturing overhead cost would be applied to that job when a predetermined overhead rate is used.

False

In departments that are relatively labor-intensive, their overhead costs should be applied to jobs based on machine-hours rather than on direct labor-hours. T/F

False

Job cost sheets contain entries for actual direct material, actual direct labor, and actual manufacturing overhead cost incurred in completing a job.

False

True or false: When a manufacturing overhead cost relates to multiple activities, the cost should be allocated to the activity that has the highest total overhead cost.

False

A job cost sheet will record the direct materials and direct labor used by the job but not the manufacturing overhead applied.

False A job cost sheet summarizes all of the costs incurred on a specific job, not just direct materials and direct labor.

Activity Based Costing divides activities into two categories: unit-level activities and facility level activities.

False Activity Based Costing divides activities into four categories: facility-level, product-level, batch-level, and unit-level activities.

Activity-based costing is not appropriate for service providers since they do not have manufacturing overhead that needs to be assigned to products.

False Although service providers do not have manufacturing overhead, they incur many indirect costs, such as rent, supplies, supervision, advertising, and administrative expenses. ABC can be used to assign these costs to different services and customers.

When manufacturing overhead is applied to a job, a credit is made to the Work in Process account.

False Applied manufacturing overhead is debited (not credited) to Work in Process inventory. The credit is to the Manufacturing Overhead account.

To eliminate underapplied overhead at the end of the year, Manufacturing Overhead would be debited and Cost of Goods Sold would be credited.

False If manufacturing overhead is underapplied during the year, Manufacturing Overhead will need to be credited to bring the account balance to zero, while Cost of Goods Sold would be debited.

Each individual indirect cost should be assigned to one activity when forming activity cost pools.

False Some costs will need to be allocated among several activities (not one activity).

A job cost sheet will record the direct materials and direct labor used by the job but not the manufacturing overhead applied

False - because a job cost sheet summarizes all of the costs incurred on a specific job

A fixed cost will stay constant on a per unit basis as the volume increases

False - because fixed costs remain constant in total and decrease per unit as volume increases

Manufacturing overhead includes all costs of producing a product except for indirect materials and indirect labor

False - because manufacturing overhead includes all manufacturing costs except direct materials and direct labor

Step costs are fixed over some range of activity and then increase like a variable cost

False - because step costs are fixed over a certain range of activity and increase in a step-like manner when the next range of activity is reached

The relevant range is the range in which costs remain variable

False - because the relevant range is the range of activity over which assumptions about cost behavior hold true

Activity based management is a method of assigning indirect costs to products or services based on the activities they require

False - because this describes activity based costing, not activity based management

Variable costs are always direct costs

False - because variable costs are not always direct costs, which can be traced to a specific cost object

Firms that use JIT often rely on:

Fewer suppliers that must adhere to very strict quality standards.

Which of the following balanced scorecard perspectives measures how an organization satisfies its stakeholders?

Financial

Managerial Accounting Information includes all of the following except:

Financial statements prepared in accordance with generally accepted accounting principles

Managerial accounting information includes all of the following except:

Financial statements prepared in accordance with generally accepted accounting principles.

___________ is/are excluded from the incremental analysis because they will be incurred regardless of whether or not the company accepts the special order.

Fixed overhead costs

___________ is/are excluded from the incremental analysis because they will be incurred regardless of whether or not the company accepts the special order.

Fixed overhead costs Fixed overhead costs are excluded from the incremental analysis because they will be incurred regardless of whether or not the company accepts the special order.

Which of the following is the best example of a facility-level activity? Human resources Research and development Painting a final product Product testing

Human resources

Which of the following statements regarding decentralized organizations are correct?

Managers in decentralized operations may make decisions that are good for their department, but not for the organization as a whole. Decentralized organizations often use responsibility accounting systems to evaluate lower level-managers. Decentralization often allows decisions to be made faster, since not as many layers of management are needed for approval. Decentralization helps lower-level managers develop better management skills.

Which of the following statements are true?

Managing and reducing costs is the true benefit of ABC. Implementing an ABC system is not a trivial task.

When manufacturing overhead is applied to production, which of the following accounts is credited? Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Manufacturing Overhead

Manufacturing Overhead

Which of the following would be used to record the labor cost that is not traceable to a specific job?

Manufacturing Overhead

The formula for budgeted raw materials purchases is Budgeted production units + Ending raw materials inventory - Beginning raw materials inventory. Budgeted production units + Beginning raw materials inventory - Ending raw materials inventory. Materials needed for production + Ending raw materials inventory - Beginning raw materials inventory. Materials needed for production + Beginning raw materials inventory - Ending raw materials inventory.

Materials needed for production + Ending raw materials inventory - Beginning raw materials inventory.

Which of the following statements are true?

Money is more valuable today than it will be in the future. The time value of money should be considered in capital budgeting decisions

Which of the following statements are true?

Most experts believe that incurring prevention costs is the most effective way to manage quality costs. Quality training is an example of a prevention cost.

When are period costs counted as inventory?

Never

Which of the following would be considered a non-volume-based cost driver?

Number of batches

Manufacturing overhead was estimated to be $406,000 for the year along with 20,300 direct labor hours. Actual manufacturing overhead was $423,400, and actual labor hours were 21,500. Which of the following would be correct?

Overhead is overapplied by $6,600 Calculate the predetermined overhead rate by dividing the estimated total manufacturing overhead by the estimated total direct labor hours. ($406,000 / 20,300 = $20.00). Apply manufacturing overhead by multiplying the predetermined rate by the actual total direct labor hours. ($20.00 × 21,500 = $430,000). Since the applied overhead ($430,000) on the credit side of the manufacturing overhead account is greater than the actual overhead ($423,400) on the debit side of the manufacturing overhead account, the $6,600 credit balance represents overapplied overhead.

Manufacturing overhead is applied to each job using which formula?

Predetermined overhead rate × actual value of the cost driver for the job

The cost of quality training is an example of what type of quality cost?

Prevention costs

Which of the following statements is true?

Price discrimination enables companies to sell products to customers who may not otherwise purchase them.

Which of the following is NOT a short-run pricing decision?

Pricing a main product in a large market

Which of the following is true about product and period costs?

Product costs are usually manufacturing costs, and period costs are usually nonmanufacturing costs.

Which of the following budgets shows how many units will be produced each period? Direct materials budget Direct labor budget Sales budget Production budget

Production Budget

Which of the following sequences is correct? Sales budget - production budget - direct materials budget - budgeted income statement Budgeted income statement - direct materials budget - production budget - sales budget Cash receipts budget - sales budget - production budget - budgeted income statement Inventory budget - production budget - sales budget - selling and administrative budget

Sales budget - production budget - direct materials budget - budgeted income statement

Which of the following does not describe the Implementing function within the management cycle?

Setting short- and long-term objectives

Which of the following statements is true?

Some factors in a make-or-buy decision are not easily quantified

Which of the following types of decisions involves deciding whether to accept or reject an order that is outside the scope of normal sales?

Special-order

Which of the following is not a component of the master budget? Operating budget Budgeted income statement Budgeted balance sheet Statement of return on investment

Statement of return on ivestment

Which of the following statements is correct about the break-even point?

The break-even point quantifies the number of units that must be sold to cover total costs with zero profit.

Which of the following is a direct cost of manufacturing a table made of wood and glass, for a firm that manufactures furniture?

The cost of the wood in the table

Marcos Co. is considering a project that will increase residual income by $15,000. The project has a 12% return on investment (ROI) which exceeds the company's 10% required rate of return. Marcos Co. currently has an overall 15% ROI in the department where this project would be implemented. Which of the following statements regarding this potential investment are true?

The department manager may not want to accept the project because it will lower the overall ROI for the department. The project should be accepted by the company because it increases overall residual income.

`Garnett, Inc. has a required rate of return on new projects of 12%. The Western division of Garnett is currently earning a combined return on investment (ROI) of 14.5% on the projects in its division. The manager of the Western division is considering a project that is projected to earn 13.25%. Which of the following statements regarding the manager's decision are true?

The project is acceptable because it exceeds the company's required rate of return. The project will generate positive residual income. The manager may decide to reject the project because it will lower the current ROI earned by his division.

Garnett, Inc. has a required rate of return on new projects of 12%. The Western division of Garnett is currently earning a combined return on investment (ROI) of 14.5% on the projects in its division. The manager of the Western division is considering a project that is projected to earn 13.25%. Which of the following statements regarding the manager's decision are true?

The project will generate positive residual income. The manager may decide to reject the project because it will lower the current ROI earned by his division. The project is acceptable because it exceeds the company's required rate of return.

a. $43,295

Job-order costing systems often use allocation bases that do not reflect how jobs actually use overhead resources.

True

The appeal of using multiple departmental overhead rates is that they presumably provide a more accurate accounting of the costs caused by jobs.

True

The only difference between a volume-based cost system and an ABC system is how the methods assign indirect costs to products

True

To eliminate underapplied overhead at the end of the year, Manufacturing Overhead would be credited and Cost of Goods Sold would be debited

True

True or false: For capital budgeting purposes, capital assets includes item research and development projects.

True

When forming activity cost pools, the goal is to create as few cost pools as possible, while still capturing major activities

True

When goods are completed, a debit is made to Finished Goods Inventory and a credit is made to Work in Process Inventory

True

The cost measurement system can impact how indirect costs are spread among product lines, which may affect decisions managers make.

True The cost measurement system can impact how indirect costs are spread among product lines and thus the information that managers have about the profitability of those products.

The most common method for disposing of the balance in Manufacturing Overhead is to make a direct adjustment to Cost of Goods Sold.

True The most common method for disposing of the balance in Manufacturing Overhead is to make a direct adjustment to Cost of Goods Sold. Doing so makes sense as long as most of the jobs worked on during the period were completed and sold.

The total manufacturing cost for a job is based on the amount of applied overhead using the predetermined overhead rate.

True The total manufacturing cost is based on the amount of overhead applied using the predetermined overhead rate.

What level of activity is performed each time a single item is produced?

Unit

Which of the following would be used to apply manufacturing overhead to production for the period? Raw Materials Inventory would be debited. Work in Process Inventory would be debited. Manufacturing Overhead would be debited. Work in Process Inventory would be credited.

Work in Process Inventory would be debited.

Which of the following would be used to record the labor cost that is traceable to a specific job? Raw Materials Inventory would be debited. Work in Process Inventory would be debited. Manufacturing Overhead would be debited. Manufacturing Overhead would be credited.

Work in Process Inventory would be debited.

Which of the following would be used to transfer the cost of completed goods during the period to the Finished Goods account?

Work in Process Inventory would be decreased.

Which of the following would be used to record the labor cost that is traceable to a specific job?

Work in Process Inventory.

A comprehensive performance measurement system that is derived from an organization's strategic vision is ______.

a balanced scorecard

which is true about employee motivation

a budget that is tight but attainable is more likely to motivate

Palmer Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $100,000. The equipment will have an initial cost of $400,000 and have a 7 year life. If the salvage value of the equipment is estimated to be $75,000, what is the payback period? a. 2.73 years b. 4.00 years c. 4.75 years d. 7.00 years

a. 2.73 years

Patterson Corp is considering the purchase of a new piece of equipment, which would have an initial cost of $500,000, a 7 year life, and a $150,000 salvage value. The increase in net income each year of the equipment's life would be as follows: year 1 $99,000 year 2 $91,000 year 3 $89,000 year 4 $78,000 year 5 $75,000 year 6 $70,000 year 7 $64,000 What is the payback period? a. 3.55 years b. 3.82 years c. 5.97 years d. 6.18 years

a. 3.55 years

a. 5.56%

Which of the following methods is calculated as annual net income as a percentage of the original investment in assets? a. accounting rate of return b. payback period c. net present value d. internal rate of return

a. accounting rate of return

When comparing mutually exclusive capital investments, managers should a. choose the option with the lowest cost on a net present value basis b. choose then option which the lowest undercounted cost c. not use the present value because it cannot be used to compare investments d. not use sensitivity analysis

a. choose the option with the lowest cost on a net present value basis

A problem in which you must calculate how much money you will have in the future as a result of investing a certain amount in the present is a a. future value of a single amount problem b. present value of a single amount problem c. future value of an annuity problem d. present value of an annuity problem

a. future value of a single amount problem

A positive net present value indicates that a project will a. generate a return in excess of the firm's cost of capital b. generate more cash than is initially invested c. generate more cash than alternative projects d. generate a return in excess of alternative projects

a. generate a return in excess of the firm's cost of capital

Randall Corp is trying to decide whether to lease or purchase a piece of equipment needed for the next five years. The equipment would cost $100,000 to purchase, and maintenance costs would be $10,000 per year. After five years, Randall estimates it could sell the equipment for $30,000. If Randall leases this equipment, it would pay $30,000 each year, which would include all maintenance costs. If the hurdle rate for Randall is 12%, Randall should a. lease the equipment, as NPV of cost is about $11,000 less b. buy the equipment, as NPV of cost is about $11,000 less c. lease the equipment, as NPV of cost is about $30,000 less d. buy the equipment, as NPV of cost is about $30,000 less

a. lease the equipment, as NPV of cost is about $11,000 less

Projects that involve a choice among competing alternatives, where selection of one project implies rejection of all the other alternatives, are a. mutually exclusive projects b. screening projects c. independent projects d. preference projects

a. mutually exclusive projects

Byron Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. The salvage value of the equipment is estimated to be $75,000. If the hurdle rate is 15%, what is the approximate net present value? Ignore income taxes. a. negative $27,490 b. zero c. positive $400,000 d. positive $75,000

a. negative $27,490

Newport Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and have a 6 year life. There is no salvage value for the equipment. If the hurdle rate is 10%, what is the approximate net present value? Ignore income taxes. a. negative $28,940 b. positive $28,940 c. zero d. positive $300,000

a. negative $28,940

A decision that requires managers to choose from among a set of alternative capital investment opportunities is a(n) a. preference decision b. capital decision c. screening decision d. incremental decision

a. preference decision

The value now of a cash flow to be received in the future is called a. present value b. cash value c. future value d. accounting value

a. present value

Independent projects should be prioritized according to their a. profitability index b. net present value c. payback period d. total cash flows

a. profitability index

The internal rate of return is a measure of a. the rate actually earned by the project, considering the time value of money b. the rate actually earned by the project, based on accounting income c. the rate used to discount the future cash flows to reflect the time value of money d. the firms cost of capital

a. the rate actually earned by the project, considering the time value of money

Capital budgeting decisions include ______.

acquiring a new facility to increase capacity purchasing new equipment to reduce cost deciding to replace old equipment determining which equipment to purchase among available alternatives choosing to lease or buy new equipment

When a company engages in predatory pricing, the ultimate goal is to:

act like a monopolist

The first step in implementing an ABC system is to identify the organization's major ___

activities

Discounted cash flow methods assume cash flows ______.

are immediately reinvested in another project can be projected with 100% certainty

Prevention costs are costs that:

are incurred to prevent quality problems from occurring in the first place.

Life cycle cost management takes into consideration the fact that costs and revenues:

are not constant across different stages of the product's life cycle.

Indirect costs ______.

are not easily traced to products or services

indirect costs _______

are not easily traced to products or services

Non-volume-based cost drivers ______.

are used in ABC systems allow more indirect costs to be allocated to products

Using non-volume-based activity drivers allows activity-based costing to:

assign more indirect costs to products whose complexity is higher.

At a minimum, an ABC system should have ______.

at least one non-unit-level activity cost pool

_____ _____ is a cost that can be avoided by choosing one decision option instead of another

avoidable cost

An _____ cost is one that can be avoided by selecting a particular decision alternative. It's a _____ cost because it will differ between decision alternatives

avoidable, relevant

Newport Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and have a 6 year life. There is no salvage value for the equipment. If the hurdle rate is 8%, what is the approximate net present value? Ignore income taxes. a. $924,580 b. $24,580 c. $900,000 d. $300,000

b. $24,580

Cortland Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in new cash flows of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. If the salvage value of the equipment is estimated to be $75,000, what is the annual net income? Ignore income taxes. a. $25,000 b. $35,000 c. $165,000 d. $175,000

b. $35,000

You purchase a home for $200,000 that you expect to appreciate 6% in value on an annual basis. Hoe much will the home be worth in ten years? a. $111,680 b. $358,120 c. $1,472,020 d. $2,636,160

b. $358,120

Wright Corp is considering the purchase of a new piece of equipment, which would have an initial cost of $1,000,000 and a 5 year life. There is no salvage value for the equipment. The increase in cash flow each year of the equipment's life would be as follows: year 1 $375,000 year 2 $350,000 year 3 $285,000 year 4 $230,000 year 5 $185,000 What is the payback period? a. 2.39 years b. 2.96 years c. 3.00 years d. 3.51 years

b. 2.96 years

Palmer Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $100,000. The equipment will have an initial cost of $400,000 and have a 7 year life. If the salvage value of the equipment is estimated to be $75,000, what is the accounting rate of return? a. 14.28% b. 25.00% c. 42.11% d. 143.37%

b. 25.00%

Belmont Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $200,000. The equipment will have an initial cost of $1,000,000 and have a 8 year life. If there is no salvage value of the equipment, what is the payback period? a. 1.6 years b. 3.08 years c. 5 years d. 8 years

b. 3.08 years

Nelson Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. If the salvage value of the equipment is estimated to be $75,000, what is the payback period? Ignore income taxes. a. 3.25 years b. 4.00 years c. 4.75 years d. 7.00 years

b. 4.00 years

Patterson Corp is considering the purchase of a new piece of equipment, which would have an initial cost of $500,000, a 7 year life, and a $150,000 salvage value. The increase in cash flow each year of the equipment's life would be as follows: year 1 $99,000 year 2 $91,000 year 3 $89,000 year 4 $78,000 year 5 $75,000 year 6 $70,000 year 7 $64,000 What is the payback period? a. 5.51 years b. 5.97 years c. 6.00 years d. 6.18 years

b. 5.97 years

Nelson Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. If the salvage value of the equipment is estimated to be $75,000, what is the accounting rate of return? Ignore income taxes. a. 6.25% b. 8.75% c. 25.00% d. 26.67%

b. 8.75%

Newport Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and have a 6 year life. There is no salvage value for the equipment. If the hurdle rate is 10%, what is the internal rate of return? Ignore income taxes. a. between 6% and 8% b. between 8% and 10% c. between 10% and 12% d. less than zero

b. between 8% and 10%

Foster Inc is trying to decide whether to lease or purchase a piece of equipment needed for the next ten years. The equipment would cost $45,000 to purchase, and maintenance costs would be $5,000 per year. After ten years, Foster estimates it could sell the equipment for $20,000. If Foster leases this equipment, it would pay $12,000 each year, which would include all maintenance costs. If the hurdle rate for Foster is 10%, Foster should a. lease the equipment, as NPV of cost is about $5,700 less b. buy the equipment, as NPV of cost is about $5,700 less c. lease the equipment, as NPV of cost is about $2,000 less d. buy the equipment, as NPV of cost is about $45,000 less

b. buy the equipment, as NPV of cost is about $5,700 less

Which of the following statements regarding the payback method is incorrect? a. the payback period is the amount of time it takes for a capital investment to "pay for itself" b. in general, projects with longer payback periods are safer investments than those with shorter payback periods c. when cash flows are equal each year, the payback period is calculated by divided initial investment in each project by its annual cash flow d. the payback method is often used as a screening tool for potential investments

b. in general, projects with longer payback periods are after investments than those with shorter payback periods

When cash flows are equal each year, the payback period is calculated as: a. initial investment x annual net cash flow b. initial investment / annual net cash flow c. annual net cash flow / initial investment d. annual net cash flow - initial investment / project life

b. initial investment / annual net cash flow

A problem in which you must calculate the worth to you today of receiving a certain amount at some time in the future is a a. future value of a single amount problem b. present value of a single amount problem c. future value of an annuity problem d. present value of an annuity problem

b. present value of a single amount problem

You will need at least $5,000 in four years and your friend says she can either loan you $5,000 all at once four years from now or she can deposit $1,200 in your savings account at the end of each year for the next four years. Your savings account earns 7% interest, compounded annually. Which option would be worth morello you four years from now, and how much more? a. the $5,000 in four years will be worth $328 more than the annual deposits b. the annual deposits will be worth $328 more than the $5,000 in four years c. the $5,000 in four years will be worth $136 more than the annual deposits d. the annual deposits will be worth $136 more than the $5,000 in four years

b. the annual deposits will be worth $328 more than the $5,000 in four years

A group-level activity for a service company is the same as a(n)______ -level activity for a manufacturing company.

batch

Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ___-level activities.

batch

What types of activities are performed each time a group of units is processed, regardless of how many units are in the group?

batch

Monroe, Inc. randomly selects ten units from each production run to be inspected for quality, regardless of the size of the production run. The inspection of these units would most likely be classified as a:

batch-level activity.

Costs at the batch level depend on the number of ______

batches processed

Costs at the batch level depend on the number of ______.

batches processed

In target costing, the target cost should be determined:

before manufacturing ever starts.

basic form of the cash budget

beg cash balance+budgeted cash collections-budgeted cash payments+/-cash borrowed or repaid= ending cash balance

Comparing the performance within an organization to that of other similar organizations is called _____

benchmarking

The direct materials required to manufacture each unit of product are listed on a ________.

bill of materials The direct materials required to manufacture each unit of product are listed on a bill of materials. A materials requisition form identifies the materials drawn from the storeroom that must then be charged to each job. Each employee who works on the job uses a time ticket to record the time spent. A job cost sheet is used to keep track of the materials, labor, and manufacturing overhead costs charged to each job.

To reconcile the total cost of Work in Process Inventory, account for: both beginning Work in Process Inventory and any costs that were added during the current period. only beginning Work in Process Inventory. only costs that were added during the period. beginning Work in Process Inventory, any costs that were added during the current period, and completed costs.

both beginning Work in Process Inventory and any costs that were added during the current period.

A budget depends upon:

both the level of output as well as the input standards

Activity-based costing systems typically include ___ cost drivers

both volume and non-volume based

Activity-based costing systems typically include ______ cost drivers

both volume- and non-volume-based

Activity-based costing systems typically include ______ cost drivers.

both volume- and non-volume-based

A(n) ____________ is a constraining resource in which the work to be performed limits production.

bottleneck

Resource that's insufficient to meet the demands placed on them is _____

bottleneck

The process that's limiting overall output is called a(n) _____

bottleneck

_____ is the most constrained resource or the process that limits a system's output

bottleneck

Jacki's Jewels has a limited number of skilled direct labor hours to make necklaces and bracelets. Each necklace has a contribution margin of $175 and requires 1 hours of labor. Each bracelet has a cm of $100 and requires 1/2 hour of labor. In order to maximize cm, Jacki should first use labor hours to make _______________

bracelets

When calculating raw materials purchases, the starting point should be actual materials purchases from the previous year. budgeted sales. budgeted production. budgeted cost of raw materials.

budgeted production

When calculating the direct labor budget, the starting point should be actual direct labor hours from the previous year. budgeted sales. budgeted production. budgeted cost of direct labor.

budgeted production

when calculating raw materials purchases, the starting point should be

budgeted production

Benefits of _____ include forcing managers to look ahead, which will help them to foresee potential problems such as running out of cash or inventory

budgets

Utilizing different _____ for different purposes will minimize the impact of budgetary slack

budgets

given the following, determine if a buy price for 3,000 units @ $4.00 per unit should be accepted or if the company should continue to make the 3,000 units. Direct materials ($1.00 per unit) = $3,000 Labor ($1.60 per unit) = $4,800 Variable overhead ($1.10 per unit) = $3,300 Fixed Overhead = $1,500 Common costs = $2,000 If the company buys the component, all of the variable costs and fixed overhead costs are differential. None of the common costs will be eliminated if the component is purchased. Based on price, the company should (make/buy) _________ the component at a net total advantage of $________.

buy; $600

The Copy Center can purchase a new copier for $15,000. It would last for 3 years and have a salvage value of $3,000. Depreciation cost would be $4,000 per year and cash operating costs would equal $1,000 per year. The same copier could be leased for $6,500 per year. Using a discount rate of 7%, and the tables in Supplement 11A, it is best to _______________________ (buy/lease) the copier because the difference in cost is $ ____________

buy; 1883

How much will you have in a savings account in ten years, if you deposit $1,000 in the account at the end of each year and the account earns 6% interest, compounded annually? a. $10,000 b. $10,600 c. $13,181 d. $17,906

c. $13,181

Homer Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. If the salvage value of the equipment is estimated to be $75,000, what is the annual cash flow? a. $25,000 b. $35,000 c. $165,000 d. $175,000

c. $165,000

c. $17,600

c. $30,000

Olive Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $250,000. The equipment will have an initial cost of $1,300,000 and have a 8 year life. There is no salvage value for the equipment. If the hurdle rate is 10%, what is the internal rate of return? Ignore income taxes. a. between 6% and 8% b. between 8% and 10% c. between 10% and 12% d. less than zero

c. between 10% and 12%

Wilson Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $50,000. The equipment will have an initial cost of $600,000 and have an 8 year life. The salvage value of the equipment is estimated to be $100,000. If the hurdle rate is 10%, what is the internal rate of return? a. less than zero b. between zero and 10% c. between 10% and 15% d. more than 15%

c. between 10% and 15%

Lawrence Corp is considering the purchase of a new piece of equipment. When discounted at a hurdle rate of 8%, the project has a net present value $24,580. When discounted at a hurdle rate of 10%, the project has a net present value of ($28,940). The internal rate of return on the project is a. zero b. between zero and 8% c. between 8% and 10% d. greater than 10%

c. between 8% and 10%

A problem in which you must calculate how much money you will have in the future as a result of depositing a fixed amount of money each period is a a. future value of a single amount problem b. present value of a single amount problem c. future value of an annuity problem d. present value of an annuity problem

c. future value of an annuity problem

When a project has a positive net present value, it has a profitability index a. greater than zero b. less than zero c. greater than one d. less than one

c. greater than one

The minimum required rate of return for a project is the a. annual rate of return b. accounting rate of return c. hurdle rate d. internal rate of return

c. hurdle rate

Devon Corp is trying to decide whether to lease or purchase a piece of equipment. The total cost to lease the equipment will be $150,000 over its estimated life, while the total cost to buy the equipment will be $120,000 over its estimated life. At Devon's required rate of return, the net present value of the cost of leasing the equipment is $108,000 and the net present value of the cost of buying the equipment is $119,000. Based on financial factors, Devon should a. lease the equipment, saving $30,000 over buying b. buy the equipment, saving $30,000 over leasing c. lease the equipment, saving $11,000 over buying d. buy the equipment, saving $11,000 over leasing

c. lease the equipment, saving $11,000 over buying

If a company has _____ capacity, increasing production will only increase the costs that vary with production

excess

A decision that occurs when managers evaluate a proposed capital investment to determine whether is meets some minimum criteria is a(n) a. preference decision b. capital decision c. screening decision e. incremental decision

c. screening

Your grandmother has told you she can either give you $4,000 now or $5,000 when you graduate from college in three years. Your savings account earns 7% interest, compounded annually. Which option would be worth more to you now, and how much more? a. the $4,000 now is worth $81.50 more than the $5,000 in the future b. the $4,000 now is worth $100.00 more than the $5,000 in the future c. the $5,000 in the future is worth $81.50 more than the $4,000 now d. the $5,000 in the future is worth $100.00 more than the $4,000 now

c. the $5,000 in the future is worth $81.50 more than the $4,000 now

When making screening decisions using the net present value method, a project is acceptable if a. the NPV is greater than the hurdle rate b. the NPV is greater than the IRR c. the NPV is positive d. the NPV is negative

c. the NPV is positive

When comparing mutually exclusive capital investments, managers should:

choose the option with the lowest cost on a net present value basis

The decision to eliminate one product or service is unlikely to eliminate the _____ _____ costs that are shared by other product or service lines

common fixed

When the dollar amount of interest earned on a given investment increases every year, ______ interest is in force.

compound

Interest earned on top of interest is called

compounding

The required rate of return ______.

considers financing costs considers the risk of an investment

A(n) _____ resource requires a manager prioritize how products are produced

constrained

When a company has a limited number of machine hours available each month, the limitation is known as a(n) ______________.

constraint

_____ budgeting gives managers a constant period of budgets available and keeps them in a continuous planning mode instead of only once per period

continuous

Responsibilities of a profit center manager may include ______.

contract negotiations involvement in strategic initiatives related to product success controlling division costs

Responsibilities of a profit center manager may include ______.

contract negotiations controlling division costs involvement in strategic initiatives related to product success

The reason we focus on _____ _____ is that fixed costs will not change in the short run

contribution margin

Sanders, Inc. makes two products. Due to a limited availability of skilled labor hours, demand for the products exceeds production capability. In deciding how to allocation resources, Sanders' measure of profitability should be:

contribution margin per direct labor hour

Comparing actual results to budgeted pans is an example of management performing its _____ function

control

One of the most important concepts in responsibility accounting is the________ which states that managers should only be held responsible for what they are in charge of. (Enter only one word per blank.)

controllability principle

One of the most important concepts in responsibility accounting is the:

controllability principle. The controllability principle forms the basis of responsibility accounting, holding that managers should only be held responsible for what they control.

The manager of a(n) __________center does not have control over revenue or the use of investment funds.

cost

When a transfer price is based on cost plus a percentage markup, the method being used is ______.

cost based

A group of similar activities that have been combined together is an activity ______

cost pool

A group of similar activities that have been combined together is an activity ______.

cost pool

The discount rate should reflect a company's_____ of_____.

cost, capital

The internal rate of return is compared to the______ of________ when analyzing the acceptability of an investment

cost, capital

The transfer pricing method that uses either the variable cost or the full cost as the basis for setting the transfer price is the:

cost-based method.

Determining what a product costs and adding a markup is called ______

cost-plus pricing

In order to use Goal Seek for a make-or-buy analysis:

costs must be separated into fixed and variable components

NOT a way to reduce the dysfunctional behaviors associated with budgeting

create budget slack

When a company has more than enough resources to satisfy demand it's operating with ____ capacity

excess

d. $105,000

d. $195,000

Wilson Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $50,000. The equipment will have an initial cost of $600,000 and have a 8 year life. The salvage value of the equipment is estimated to be $100,000. If the hurdle rate is 10%, what is the approximate net present value? a. less than zero b. $100,000 c. $500,000 d. $46,826

d. $46,826

Grace Corp, whose required rate of return is 10%, is considering the purchase of a new piece of equipment. The internal rate of return on the project, which has a life of 8 years, is 12%. The project would have a. an accounting rate of return greater than 10% b. a payback period more than 8 years c. a net present value of zero d. a net present value greater than zero

d. a net present value greater the zero

Heidi Inc is considering whether to lease or purchase a piece of equipment. The total cost to lease the equipment will be $120,000 over its estimated life, while the total cost to buy the equipment will be $75,000 over its estimated life. At Heidi's required rate of return, the net present value of the cost of leasing the equipment is $68,000. Based on financial factors, Heidi should a. lease the equipment, saving $45,000 over buying b. buy the equipment, saving $45,000 over leasing c. lease the equipment, saving $5,700 over buying d. buy the equipment, saving $5,700 over leasing

d. buy the equipment, saving $5,700 over leasing

The payback method a. is a complex method of analysis b. is infrequently used c. incorporates the time value of money d. ignores benefits and costs that occur after the project has paid for itself

d. ignores benefits and costs that occur after the project has paid for itself

The discount rate that would return net present value to zero is the a. annual rate of return b. accounting rate of return c. hurdle rate d. internal rate of return

d. internal rate of return

Which of the following is the formula for the accounting rate of return? a. initial investment / net income b. annual net cash flow / initial investment c. initial investment / annual cash flow d. net income / initial investment

d. net income / initial investment

The total time to recover an original investment is the a. net present value b. internal rate of return c. accounting rate of return d. payback period

d. payback period

An analysis that reveals whether changing the underlying assumptions would affect the decision is a a. net present value analysis b. internal rate of return analysis c. payback period analysis d. sensitivity analysis

d. sensitivity analysis

When disposed of, overapplied manufacturing overhead will:

decrease Cost of Goods Sold.

When disposed of, overapplied manufacturing overhead will: increase Cost of Goods Sold. increase Finished Goods. decrease Cost of Goods Sold. decrease Finished Goods.

decrease Cost of Goods Sold.

When disposed of, overapplied manufacturing overhead will:

decrease Cost of Goods Sold. decrease Finished Goods. increase Finished Goods.

In a lease or buy decision, ______ is not relevant to the decision.

depreciation expense Reason: This is a noncash cost.

The 3 sections of the cash budget are _____, _____, and financing

disbursements, receipts

Net present value, internal rate of return, and profitability index are referred to as___________methods because they incorporate the time value of money.

discounted cash flow

Backing out interest to find the equivalent value in today's present dollars is called _________

discounting

Calculating the present value of money is referred to as _________ cash flows

discounting

The opposite of compounding is

discounting

The opposite of compounding is ______

discounting

Shortcomings of the payback period include it ______.

does not consider the time value of money ignores cash flows that occur after the payback period

When calculating Return on Investment (ROI), net operating income ______.

does not include interest expense includes income from normal operations

A predetermined overhead rate is calculated by dividing: actual manufacturing overhead cost by estimated total cost driver. estimated total cost driver by estimated manufacturing overhead cost. estimated manufacturing overhead cost by actual total cost driver. estimated manufacturing overhead cost by estimated total cost driver.

estimated manufacturing overhead cost by estimated total cost driver.

Decide whether the statement about management's decision making process is correct or incorrect 1. The final step in management's decision making process is to actually make the decision 2. In making business decisions, management will ordinarily only concern financial info because it's objectively determined 3. The 1st step in management's decision making process is to determine the decision alternatives 4. Relevant costing is used for short term decision making because it focuses only on the cost and benefits that are relevant to the decision at hand 5. Under incremental analysis, variable costs will change under different courses of action, but fixed costs will never change 6. Decisions involve a choice among alternative courses of action 7. When using differential analysis, some costs will change under alternative courses of action, but revenues will not change

incorrect= 1, 2, 3, 5, 7 correct= 4, 6

Comparing the relevant costs and benefits of alternative decision choices is called _____ _____

incremental analysis

_____ _____ is the decision making approach that focuses on the differential costs and benefits of alternative decision choices

incremental analysis

Net operating income is income before other income,

interest tax

Net operating income is income before other income,______and_______.

interest, taxes

The balanced scorecard perspective that focuses on all activities from product design and development until the time it is in the hands of the customer is

internal business processes

Product costs are sometimes called:

inventoriable costs.

Product costs are:

inventoried until the units are sold

Return on investment (ROI) is a measure used to evaluate managers of ______ centers.

investment

The responsibility center in which the manager has responsibility and authority over revenues, costs and assets is the:

investment center.

ROI is a method used to evaluate ______.

investment centers, but not cost or profit centers

When choosing among independent projects, ______.

investment resources must be prioritized

Sales revenue divided by average invested assets equals

investment turnover

When making decisions, managers should ignore _____ costs

irrelevant

Decide whether it's relevant or irrelevant 1. Decision: should you take the bus or drive your car to school for the semester? Cost: $300 repair bill to fix brakes 2. Decision: Eliminate an unprofitable segment. Cost: unavoidable fixed overhead 3. Decision: make or buy a component used in manufacturing a product. Benefit: selling price of the final product 4. Decision: accept a special order. Cost: variable overhead 5. Decision: sell unassembled and unfinished furniture or sell finished assembled furniture. Cost: the cost of producing an unfinished and unassembled table 6. Decision: XYZ Tire Company is considering dropping one of its 10 models of tires. Cost: common fixed costs 7. Decision: ABC Golf Co. produces custom golf clubs and is considering purchasing the putter from a manufacturer of custom putters. Cost: direct labor 8. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, FL, for an executive training session. The airline has excess capacity on the scheduled flight date. Cost: cost of flight crew 9. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, FL, for an executive training session. The airline has excess capacity on the scheduled flight date. Cost: in flight meals 10. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, FL, for an executive training session. The airline has excess capacity on the scheduled flight date. Benefit: discounted ticket price

irrelevant= 1, 2, 3, 5, 6, 8 relevant= 4, 7, 9, 10

A step cost:

is fixed over some range of activity.

An advantage of IRR as compared to NPV is that IRR ______.

is generally easier for managers to interpret makes it easier to compare projects of different sizes

The weighted -average cost of capital ______.

is how much it costs a company to fund capital projects should be reflected in the company's discount rate

The local summer baseball league wants to buy new uniforms for its teams. The current uniforms are quite old and will require $400 in repairs before they can be handed out to players next week for the upcoming season. The old uniforms will be replaced as soon as new ones can be purchased. League leaders have investigated several possible fund raisers and have narrowed the choice down to 2 options: candy sales and car washes. Each option can generate the $2,500 that the new uniforms would cost. Option 1: The candy sales option would require the league to purchase 2,000 candy bars at a cost of $0.75 each. The players and coaches would then sell the bars for $2 each. The league estimates that it would take about 4 weeks to sell the candy and collect all of the money Option 2: The car wash option would require about $200 for buckets, sponges, soap, and towels. A local business has offered to donate the water (estimated at $300 total) and a location. The car washes would be held on Saturdays, and each team would be required to provide workers. Each car wash day is expected to generate $450 in proceeds, so the league expects that it would take 6 weeks to raise $2,500 Which factors are relevant and irrelevant to deciding which project to engage in 1. Repair costs for the old uniforms, $400 2. Initial outlay to purchase the candy bars, $1,500 3. Initial outlay to purchase car wash supplies, $200 4. Cost of water for the car wash option, $300 5. Cost of the new uniforms, $2,500 6. Additional 2 weeks that the car wash option would require to raise the money

relevant= 2, 3, 6 irrelevant= 1, 4, 5

The part of the organization for which managers are responsible is called a:

responsibility center

The part of the organization for which managers are responsible is called a:

responsibility center.

Using a _____ _____, when one budget period passes, another is automatically added at the end

rolling budget

Eliminated of one product may also impact _____ of the remaining products as customers either move to one of the remaining products or move all or part of their business to another company

sales

The _____ budget is used to compute the cash receipts, while the direct materials purchases, direct labor, manufacturing overhead, and selling administrative expense budgets are used to compute budgeted cash payments

sales

The first step in preparing the master budget process is the ____ budget or forecast

sales

The production budget is based upon the _____ budget

sales

______ _____ estimate of the total sales revenue to be generated in each budget period

sales budget

starting point for the master budget

sales budget

sequence of budgets

sales budget->production budget->DM budget->budgeted income statement

The starting point for preparing the master budget is the:

sales budget.

The _____ _____ is the starting point because all of the other budgets are based on it

sales forecast

The ______ ______ is based on last period's sales, industry trends, info from top management about sales objectives, input from research and development, and planned marketing activities

sales forecast

The starting point for preparing the master budget is the _____ _____

sales forecast

_____ ______ number of units expected to be sold each budget period. Serves as the starting point for all other components of the master budget

sales forecast

Investment turnover can be calculated as:

sales revenue/average invested assets

investment turnover formula:

sales revenue/average invested assets

Investment turnover can be calculated as:

sales revenue/average invested assets.

A graph of that provides a visual representation of the relationship between total cost and activity level is called a:

scattergraph

The two types of capital investment decisions are ______ and ______ decisions.

screening, preference

The two types of capital investment decisions are ___________ decisions and ________ decisions

screening, preference

The two types of capital investment decisions are ______ and ______ decisions.

screening; preference

The two types of capital investment decisions are _________________ decisions and ___________ decisions

screening; preference

______ _____ calculated as revenue minus all costs that are directly traceable to a particular business segment

segment margin

A_______ income statement is broken down by product line, region, or other area of a business.

segmented

A ________________ is the amount that one division charges when it sells goods or services to another division within the same company.

transfer price The definition of a transfer price is the price one division charges when it sells goods or services to another division within the same company.

An annuity is a series of consecutive payments that are equal in dollar amount, have interest periods of equal length, and earn an equal interest rate each period. T/F

true

If a project has a positive net present value, it means the project is expected to provide returns that are greater than the cost of capital. T/F

true

Independent projects are unrelated to one another, so that investing in one project does not affect the choice about investing in another project. T/F

true

Sensitivity analysis helps determine whether changing the underlying assumptions would affect the decision. T/F

true

True or false: Preference decisions are made to prioritize and select from capital budgeting alternatives.

true

True or false: Ultimately dumping can cause the same harm to consumers that is caused by predatory pricing.

true

True or false: When computing unit costs, the direct materials and direct labor costs are the same, regardless of whether ABC or a volume-based costing system is used.

true

An activity that is performed for each individual unit is a ________ level activity.

unit

An activity that is performed for each individual unit is a ___________ level activity.

unit

An activity that is performed for a specific customer is a(n):

unit-level activity.

Economic value added (EVA) ______.

uses the cost of capital as the hurdle rate uses total capital employed as the measure of investment is similar to the residual income calculation

The perceived value of a product or service to the customer is enhanced by ______ - ______ activities

value added

The concept of the _____ _______ begins with the customer and works backward to ensure that activities deliver what matters to customers.

value chain

The linked set of activities required to design, produce, and deliver products and provide aftermarket service to customers is called the _________ ____________

value chain

Comparing the master budget with the flexible budget creates a:

volume variance

When an activity must be performed for each individual unit, an appropriate cost driver is ______

volume-based

The cost of capital is the ______.

weighted average after tax cost of debt and cost of equity

ABC works best in service industries ______.

when different customers require different levels of services

An irrelevant cost:

will not influence a decision

quick ratio=

(cash + short-term investments + accounts receivable)/current liabilities

to increase ROI, managers must:

1. increase sales revenue 2. reducing costs without affecting revenue

the liquidity ratios you need to know:

1. receivables turnover 2. current ratio 3. quick ratio

present value:

1000 / (1 + 10%)= 909 909 / (1 + 10%)= 826 826 / (1 + 10%)= 751

compounding:

1000 x (1 + 10%)=1100 1100 x (1 + 10%)=1210 1210 x (1 + 10%)=1331

Sharp Company, a retailer, plans to sell 15,000 units of Product X during the month of August. If the company has 2,500 units on hand at the start of the month, and plans to have 2,000 units on hand at the end of the month, how many units of Product X must be purchased from the supplier during the month? A) 14,500 B) 15,500 C) 15,000 D) 17,000

A) 14,500

Which of the following benefits could an organization reasonably expect from an effective budget program? Increased employee motivation // exposure of bottlenecks A) yes // yes B) yes // no C) no // yes D) no // no

A) yes // yes

Sparks Company has a cash balance of $7,500 on April 1. The company must maintain a minimum cash balance of $6,000. During April, cash receipts of $48,000 are planned. Cash disbursements during the month are expected to total $52,000. Ignoring interest payments, during April the company will need to borrow: A) $3,500 B) $2,500 C) $6,000 D) $4,000

B) $2,500

Razz Company is estimating the following sales: July: $45000 August: $50000 September: $65000 October: $80000 November: $75000 December $60000 Sales at Razz are normally collected as follows: 10% in the month of sale; 60% in the month following the sale; and the remaining 30% in the second month following the sale. In Razz's budgeted balance sheet at December 31, at what amount will accounts receivable be shown? A) $49,500 B) $76,500 C) $120,500 D) $135,500

B) $76,500

Villi Manufacturing Corporation's most recent sales budget indicates the following expected sales (in units): July: 230000 August: 275000 September: 310000 Villi wants to maintain a finished goods inventory of 20% of the next month's expected sales. How many units should Villi plan on producing for the month of August? A) 268,000 units B) 282,000 units C) 291,000 units D) 337,000 units

B) 282,000 units

The following are budgeted data: April // May // June Sales in units: 26000 // 28000 // 32000 Budgeted production: 28000 // 32000 //36000 Desired ending inventory: 2100//2800//3000 How many yards of cloth should Rhett plan on purchasing in May? A) 84,700 yards B) 96,700 yards C) 98,100 yards D) 98,800 yards

B) 96,700 yards

When preparing a production budget, the required production equals: A) budgeted sales + beginning inventory + desired ending inventory. B) budgeted sales - beginning inventory + desired ending inventory. C) budgeted sales - beginning inventory - desired ending inventory. D) budgeted sales + beginning inventory - desired ending inventory.

B) budgeted sales - beginning inventory + desired ending inventory.

Milano Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.50 direct labor-hours. The direct labor rate is $9.80 per direct labor-hour. The production budget calls for producing 6,400 units in October and 6,300 units in November. If the direct labor work force is fully adjusted to the total direct labor-hours needed each month, what would be the total combined direct labor cost for the two months? A) $30,870 B) $31,360 C) $62,230 D) $31,115

C) $62,230

Which of the following is an advantage of implementing a self-imposed budgeting system? A) Budgeting is quick and easy because only a few individuals are involved in the budgeting process. B) Upper level management does not have to review budget estimates. C) Motivation to meet budget estimates is usually enhanced. D) All of the above.

C) Motivation to meet budget estimates is usually enhanced.

Which of the following represents the normal sequence in which the below budgets are prepared? A) Sales, Balance Sheet, Income Statement B) Balance Sheet, Sales, Income Statement C) Sales, Income Statement, Balance Sheet D) Income Statement, Sales, Balance Sheet

C) Sales, Income Statement, Balance Sheet

Which of the following is NOT an objective of the budgeting process? A) To communicate management's plans throughout the entire organization. B) To provide a means of allocating resources to those parts of the organization where they can be used most effectively. C) To ensure that the company continues to grow. D) To uncover potential bottlenecks before they occur.

C) To ensure that the company continues to grow.

All the following are considered to be benefits of participative budgeting, except for: A) Individuals at all organizational levels are recognized as being part of a team; this results in greater support for the organization. B) The budget estimates are prepared by those in directly involved in activities. C) When managers set their own targets for the budget, top management need not be concerned with the overall profitability of operations. D) Managers are held responsible for reaching their goals and cannot easily shift responsibility by blaming unrealistic goals set by others.

C) When managers set their own targets for the budget, top management need not be concerned with the overall profitability of operations.

The direct labor budget is based on: A) the desired ending inventory of finished goods. B) the beginning inventory of finished goods. C) the required production for the period. D) the required materials purchases for the period.

C) the required production for the period.

For May, Young Company has budgeted its cash receipts at $125,000 and its cash disbursements at $138,000. The company's cash balance on May 1 is $17,000. If the desired May 31 cash balance is $20,000, then how much cash must the company borrow during the month (before considering any interest payments)? A) $4,000 B) $8,000 C) $12,000 D) $16,000

D) $16,000

Thirty percent of Sharp Company's sales are for cash and 70% are on account. Sixty percent of the account sales are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The remainder is uncollectible. The following are budgeted sales data for the company: January: $50000 February: $60000 March: $40000 April: $30000 Total cash receipts in April are expected to be: A) $24,640 B) $35,200 C) $31,560 D) $33,640

D) $33,640

Douglas Company plans to sell 24,000 units of Product A during July and 30,000 units during August. Sales of Product A during June were 25,000 units. Past experience has shown that end-of-month inventory should equal 3,000 units plus 30% of the next month's sales. On June 30 this requirement was met. Based on these data, how many units of Product A must be produced during the month of July? A) 28,800 B) 22,200 C) 24,000 D) 25,800

D) 25,800

Budgeting is a trade-off between planning and control in that increased use of budgeting will usually improve planning but will weaken control. T/F

FALSE

In zero-base budgeting, only changes from the prior budget must be justified. T/F

FALSE

One of the weaknesses of budgets is that they are of little value in uncovering potential bottlenecks in an organization. T/F

FALSE

The basic idea behind responsibility accounting is that top management is responsible for preparing detailed budgets by which the performance of middle and lower management will be evaluated. T/F

FALSE

The cash budget is the starting point in preparing the master budget. T/F

FALSE

The first budget a company prepares in a master budget is the production budget. T/F

FALSE

Uncollectible amounts on credit sales to customers will be listed as cash outflows on the schedule of expected cash collections. T/F

FALSE

When preparing a direct materials budget, beginning inventory for raw materials should be added to production needs, and desired ending inventory should be subtracted to determine the amount of raw materials to be purchased. T/F

FALSE

Cost center:

Managers are responsible for controlling costs within their area of responsibility, such as distribution, advertising, accounting, or human resources. Cost center managers are evaluated based on their ability to control costs while providing the necessary support to the organization.

Investment center:

Managers are responsible for generating sales revenue within their area of responsibility, such as a store, a district, or a region. They are evaluated based on their ability to meet sales quotas and other measures of success like customer retention.

Profit center:

Revenue center:

net present value formula:

Present Value of the Inflows + Cash inflows x PV factor (PVOA) + Any Salvage Value x PV factor (PV $1) = Total PV of Inflows $ Less: Present Value of the Outflows + Investment amount x 1 @ to + Any additional outlay x PV factor = Total PV of Outflows ($) = Net Present Value (NPV) $

examples of cash inflows:

Sale of old equipment (Trade-in) Increased cash received from customers Reduced cash outflows related to operating costs Salvage value of equipment when project is complete

On a cash budget, the total amount of budgeted cash payments for manufacturing overhead should not include any amounts for depreciation on factory equipment. T/F

TRUE

One of the advantages of a self-imposed budget is that the person directly involved in an activity is more likely to be in a position to make good budget estimates. T/F

TRUE

Describe the four dimensions of the balanced scorecard and explain how they are used to evaluate managerial performance.

The balanced scorecard is a comprehensive performance measurement system that translates the organization's vision and strategy into a set of operational performance measures. The balanced scorecard measures operational performance on four key dimensions: customer perspective, learning and growth perspective, internal business processes perspective, and financial perspective. The customer perspective focuses on customers' perception of the company through measures such as customer retention, customer satisfaction, and market share. The learning and growth perspective focuses on the organization's ability to change and improve through measures such as the amount of money spent on research and development and employee education and training. Page 437 The internal business processes perspective focuses on the internal processes required to meet customer needs through measures such as on-time-delivery, quality, inventory stock-outs, and process efficiency. The financial perspective focuses on traditional financial measures of performance, such as return on investment, residual income, and economic value added.

vertical analysis

focus on important relationships between items on the same financial statement.

ratio analyses

help financial statement users to understand relationships among various items reported in the financial statements.

payback period formula:

initial investment/annual cash flow

payback period disadvantages:

it does not incorporate the time value of money. This method does not take into account anything that happens after the payback period. It ignores any benefits (and costs) that occur after the project has paid for itself.

The balanced scorecard measures performance along several dimensions and includes measures that reflect past performance (called _______) as well as future performance (called ________).

lagging indicators; leading indicators

net present value (NPV):

method compares the present value (PV) of a project's future cash inflows to the PV of the cash outflows. The difference between the present value of the cash inflows and outflows is called the net present value.

return on investment formula:

net operating income/average invested assets

profit margin formula:

net operating income/sales revenue

receivables turnover=

net sales revenue/average net receivables

transfer price:

the amount that one division charges when it sells goods or services to another division of the same company

debt to assets ratio=

total liabilities/total assets

In preparing a master budget, top management is generally best able to: A) prepare detailed departmental-level budget figures. B) provide a perspective on the company as a whole. C) point out the particular persons who are to blame for inability to meet budget goals. D) responses a, b, and c are all correct.

B) provide a perspective on the company as a whole.

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