Acct Final Ch 21,22,23,&27

A company has a process that results in 24,000 pounds of Product A that can be sold for $8 per pound. An alternative would be to process Product A further at a cost of $160,000 and then sell it for $14 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action? a) Sell now, the company will be better off by $16,000. b) Sell now, the company will be better off by $160,000. c) Process further, the company will be better off by $16,000. d) Process further, the company will be better off by $144,000.

A

A process with no beginning work in process, completed and transferred out 85,000 units during a period and had 50,000 units in the ending work in process inventory that were 30% complete. The equivalent units of production for the period were: a) 100,000 equivalent units. b) 135,000 equivalent units. c) 85,000 equivalent units. d) 70,000 equivalent units.

A

Costs that will differ between alternatives and influence the outcome of a decision are a) relevant costs. b) sunk costs. c) product costs. d) unavoidable costs.

A

If a company must expand capacity to accept a special order, it is likely that there will be a) an increase in fixed costs. b) no increase in fixed costs. c) an increase in variable and fixed costs per unit. d) an increase in unit variable costs.

A

Net annual cash flow can be estimated by a) adding depreciation expense to net income. b) adding advertising expense to net income. c) deducting credit sales from net income. d) deducting credit purchases from net income.

A

Using the profitability index method, the present value of cash inflows for Project Flower is $88,000 and the present value of cash inflows of Project Plant is $48,000. If Project Flower and Project Plant require initial investments of $90,000 and $40,000, respectively, and have the same useful life, the project that should be accepted is a) Project Plant. b) Neither project should be accepted. c) Either project may be accepted. d) Project Flower.

A

Which of the following is not a capital budgeting decision? a) Scrapping obsolete inventory b) Replacing old equipment c) Constructing new studios d) Remodeling an office building

A

Which of the following would generally not affect a make-or-buy decision? a) Selling expenses b) Opportunity cost c) Variable manufacturing costs d) Direct labor

A

A company has a unit contribution margin of $120 and a contribution margin ratio of 40%. What is the unit selling price? a) $48 b) $300 c) Cannot be determined. d) $200

B

A mixed cost contains a) both selling and administrative costs. b) a variable element and a fixed element. c) both operating and nonoperating costs. d) both retailing and manufacturing costs.

B

A process cost system would be used for all of the following products except a) chemicals. b) motion pictures. c) computer chips. d) soft drinks.

B

Conversion cost per unit equals $6. Total materials cost equal $90,000. Equivalent units for materials are 10,000. How much is the total manufacturing cost per unit? a) $6. b) $15. c) $9. d) $12.

B

If a company's required rate of return is 10% and, in using the net present value method, a project's net present value is zero, this indicates that the a) project earns a rate of return of 0%. b) project earns a rate of return of 10%. c) project's rate of return is less than the minimum rate required. d) project's rate of return exceeds 10%.

B

If a project's profitability index is less than 1, then a) its net present value is positive. b) it should be rejected. c) its internal rate of return is greater than the discount rate. d) its net present value is zero.

B

In Saint-Simon, Inc., the Assembly Department started 60,000 units and completed 70,000 units. If beginning work in process was 30,000 units, how many units are in ending work in process? a) 10,000. b) 20,000. c) 0. d) 40,000.

B

In the month of June, a department had 20,000 units in beginning work in process that were 70% complete. During June, 90,000 units were transferred into production from another department. At the end of June there were 10,000 units in ending work in process that were 40% complete. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process. How many units were transferred out of the process in June? a) 90,000 units. b) 100,000 units. c) 80,000 units. d) 110,000 units.

B

In the production cost report, the total a) costs charged equals the units to be accounted for. b) physical units accounted for equals the units to be accounted for. c) physical units accounted for equals the costs accounted for. d) costs accounted for equals the costs of the units started into production.

B

Miley, Inc. has excess capacity. Under what situations should the company accept a special order for less than the current selling price? a) Never b) When incremental revenues exceed incremental costs c) When the company thinks it can use the cheaper materials without the customer's knowledge d) When additional fixed costs must be incurred to accommodate the order

B

The activity that causes changes in the behavior of costs is referred to as the activity a) element. b) index. c) correlation. d) multiplier.

B

The first step in the capital budgeting evaluation process is to a) screen proposals by a capital budgeting committee. b) request proposals for projects. c) determine which projects are worthy of funding. d) approve the capital budget.

B

The process of evaluating financial data that change under alternative courses of action is called a) cost-benefit analysis. b) incremental analysis. c) double entry analysis. d) contribution margin analysis.

B

The total costs accounted for in a production cost report equal the a) cost of beginning work in process plus the cost of units completed and transferred out. b) cost of units completed and transferred out plus the cost of ending work in process. c) cost of units started into production. d) cost of units completed and transferred out only.

B

Which decision will involve no incremental revenues? a) Drop a product line b) Make or buy decision c) Accept a special order d) Additional processing decision

B

Which of the following is an irrelevant cost? a) An opportunity cost b) A sunk cost c) An incremental cost d) An avoidable cost

B

A company has total fixed costs of $240,000 and a contribution margin ratio of 20%. The total sales necessary to break even are a) $288,000. b) $960,000. c) $1,200,000. d) $300,000.

C

A cost which remains constant per unit at various levels of activity is a a) mixed cost. b) manufacturing cost. c) variable cost. d) fixed cost.

C

A fixed cost is a cost which a) remains constant per unit with changes in the level of activity. b) varies inversely in total with changes in the level of activity. c) remains constant in total with changes in the level of activity. d) varies in total with changes in the level of activity.

C

A negative net present value indicates that the a) project is acceptable. b) present value of the cash inflows was more than the present value of the cash out flows. c) present value of the cash inflows was less than the present value of the cash out flows. d) project's annual rate of return exceeds the discount rate.

C

A process cost accounting system is most appropriate when a) a variety of different products are produced, each one requiring different types of materials, labor, and overhead. b) individual products are custom made to the specification of customers. c) similar products are mass-produced. d) the focus of attention is on a particular job or order.

C

A product requires processing in two departments, the Baking Department and then the Packaging Department, before it is completed. Costs transferred out of the Baking Department will be transferred to: a) Cost of Goods Sold. b) Manufacturing Overhead. c) Work in Process—Packaging Department. d) Finished Goods Inventory.

C

A revenue that differs between alternatives and makes a difference in decision-making is called a(n) a) sales revenue. b) unavoidable revenue. c) incremental revenue. d) irrelevant revenue.

C

A variable cost is a cost that a) varies per unit at every level of activity. b) occurs at various times during the year. c) varies in total in proportion to changes in the level of activity. d) may or may not be incurred, depending on management's discretion.

C

An opportunity cost a) is the cost of a new product proposal. b) should be initially recorded as an asset. c) is the potential benefit that may be obtained by following an alternative course of action. d) is classified as manufacturing overhead.

C

At the high level of activity in November, 7,000 machine hours were run and power costs were $18,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $9,000. Using the high-low method, the estimated fixed cost element of power costs is a) $18,000. b) $9,000. c) $5,400. d) $12,600.

C

Contribution margin a) is always the same as gross profit margin. b) is calculated by subtracting total manufacturing costs per unit from sales revenue per unit. c) equals sales revenue minus variable costs. d) excludes variable selling costs from its calculation.

C

Equivalent units of production are a measure of a) units completed and transferred out. b) units in ending work in process. c) the work done in a period expressed in fully completed units. d) units transferred out.

C

If 180,000 units are transferred out of a department, there was no beginning work in process, and there are 30,000 units still in process at the end of a period, the number of units that were started into production during the period is a) 180,000. b) 30,000. c) 210,000. d) 150,000.

C

If the activity level increases 10%, total variable costs will a) decrease by less than 10%. b) increase by more than 10%. c) increase 10%. d) remain the same.

C

In a process cost system, a production cost report is prepared a) only for the first processing department. b) for all departments in the aggregate. c) for each processing department. d) only for the last processing department.

C

In a process cost system, units to be accounted for in a department are equal to the a) ending inventory plus the units started or transferred into the department. b) number of units transferred out of the department. c) units in the beginning inventory plus the units started or transferred into the department. d) number of units started or transferred into the department.

C

It costs Garner Company $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 3,000 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Garner has sufficient unused capacity to produce the 3,000 scales. If the special order is accepted, what will be the effect on net income? a) $6,000 decrease b) $45,000 increase c) $6,000 increase d) $9,000 decrease

C

Materials requisitions are: a) used more frequently by latter stage production departments. b) generally used more frequently in process costing than job order costing. c) generally used less frequently in process costing than job order costing. d) not used in process costing.

C

The Molding Department of Kennett Company has the following production data: beginning work in process 25,000 units (60% complete), started into production 475,000 units, completed and transferred out 450,000 units, and ending work in process 50,000 units (40% complete). Assuming conversion costs are incurred uniformly during the process, the equivalent units for conversion costs are: a) 455,000. b) 500,000. c) 470,000. d) 450,000.

C

The potential effects of the decision to eliminate a line of business on existing employees and the community are a) opportunity costs. b) ignored in incremental analysis. c) qualitative factors. d) quantitative factors.

C

The profitability index is computed by dividing the a) initial investment by the total cash flows. b) total cash flows by the initial investment. c) present value of cash flows by the initial investment. d) initial investment by the present value of cash flows.

C

Which of the following ignores the time value of money? a) Net present value b) Internal rate of return c) Cash payback d) Profitability index

C

Which one of the following is not an assumption of CVP analysis? a) Sales mix remains constant. b) The behavior of costs and revenues are linear within the relevant range. c) All costs are variable costs. d) All units produced are sold.

C

Why is identification of a relevant range important? a) It is required under GAAP. b) It directly impacts the number of units of product a customer buys. c) Cost behavior outside of the relevant range is not linear, which distorts CVP analysis. d) It is a cost that is incurred by a company that must be accounted for.

C

A company's discount rate is based on the a) cut-off rate and the internal rate of return. b) cost of capital and the internal rate of return. c) cut-off rate and the risk element. d) cost of capital and the risk element.

D

Capital budgeting is the process a) used in sell or process further decisions. b) of eliminating unprofitable product lines. c) of determining how much capital stock to issue. d) of making capital expenditure decisions.

D

Fixed costs are $3,000,000 and the unit contribution margin is $150. What is the break-even point? a) 7,500 units b) $7,500,000 c) $20,000,000 d) 20,000 units

D

For an activity base to be useful in cost behavior analysis, a) the activity should always be stated in dollars. b) the activity level should be constant over a period of time. c) the activity should always be stated in terms of units. d) there should be a correlation between changes in the level of activity and changes in costs.

D

Hollis Industries produces flash drives for computers, which it sells for $20 each. Each flash drive costs $13 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio? a) 25% b) 75% c) 65% d) 35%

D

If an asset costs $240,000 and is expected to have a $40,000 salvage value at the end of its ten-year life, and generates annual net cash inflows of $40,000 each year, the cash payback period is a) 7 years. b) 5 years. c) 4 years. d) 6 years.

D

In a make-or-buy decision, opportunity costs are a) deducted from the make total cost. b) added to the buy total cost. c) ignored. d) added to the make total cost.

D

In an equipment replacement decision, the cost of the old equipment is a(n) a) incremental cost. b) relevant cost. c) opportunity cost. d) sunk cost.

D

Intangible benefits in capital budgeting would include all of the following except increased a) employee loyalty. b) product safety. c) product quality. d) salvage value.

D

The primary capital budgeting method that uses discounted cash flow techniques is the a) annual rate of return method. b) cash payback technique. c) profitability index method. d) net present value method.

D

What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment? a) It is not relevant since it reduces the cost of the old equipment. b) It is relevant since it increases the cost of the new equipment. c) It is not relevant to the decision since it does not impact the cost of the new equipment. d) It is relevant since it reduces the cost of the new equipment.

D

When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the a) internal rate of return. b) profitability index. c) annual rate of return. d) required rate of return.

D