Accounting Exam 2

A) May find that having less inventory actually loads to increased customer satisfaction.

A company that uses a just in time inventory system: A) May find that having less inventory actually loads to increased customer satisfaction. B) Has finished goods inventory on hands at all times in order to speed up shipments of customer orders. C) Adopts a systematic, problem-solving attitude. D) Assesses its value chain to create new value-added activities.

A) Mixed cost.

A cost that contains both fixed and variable elements is referred to as a: A) Mixed cost. B) Hybrid cost. C) Relevant cost. D) Non-variable cost.

A) Mixed cost.

A cost that contains both fixed and variable elements is referred to as a: A) Mixed cost. B) Non-variable cost. C) Relevant cost. D) Hybrid cost.

C) Total Quality Management (TQM)

A systematic problem-solving philosophy that encourages front line workers to achieve zero defects is known as: A) Activity Based Management (ABM) B) just-in-time (JIT) C) Total Quality Management (TQM) D) None of these

D) Earnings per share

All of the following are considered to be measures of a company's short-term debt-paying ability except: A) Inventory turnover B) Average collection period C) Current ratio D) Earnings per share

B) Research and development

All of the following are downstream costs except: A) Packaging costs B) Research and development C) Advertising D) Sales commissions

D) Information is characterized by objectivity, reliability, consistency, and accuracy.

All of the following are features of managerial accounting except: A) Information is reported continuously with a present or future orientation. B) Information includes economic and non-financial data as well as financial data. C) Information is provided primarily to insiders such as managers. D) Information is characterized by objectivity, reliability, consistency, and accuracy.

D) Hourly wages for machine operators.

All of the following would be considered a fixed cost for a bottled water company except: A) Property taxes on its factory building. B) Depreciation on its manufacturing equipment. C) Rent on warehouse facility. D) Hourly wages for machine operators.

C) Hourly wages for machine operators.

All of the following would be considered a fixed cost for a bottled water company except: A) Rent on warehouse facility. B) Depreciation on its manufacturing equipment. C) Hourly wages for machine operators. D) Property taxes on its factory building.

C) Vertical analysis

An analysis procedure that uses percentages to compare each of the parts of an individual statement to a key dollar amount from the financial statements is: A) Contribution analysis B) Horizontal analysis C) Vertical analysis D) Ratio analysis

D) Both financial data and non- financial data.

Ashley Bradshaw is the manager of one department in a large store. In this capacity, which of the following kinds of information would she be interested in? A) Financial data. B) Economic data. C) Non-financial data. D) Both financial data and non- financial data.

D) All of these answers are correct.

Assume that you are considering purchasing some of a company's long-term bonds as an investment. Which of the company's financial statement ratios would you probably be most interested in? A) Plant assets to long-term liabilities. B) Debt to assets ratio. C) Debt to equity. D) All of these answers are correct.

B) Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct.

At the break-even point: A) Sales would be equal to total costs. B) Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct. C) Contribution margin would be equal to total fixed costs. D) Sales would be equal to fixed costs.

D) Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct.

At the break-even point: A) Sales would be equal to total costs. B) Contribution margin would be equal to total fixed costs. C) Sales would be equal to fixed costs. D) Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct.

D) 5.50 Contribution Margin/Net Income 220,000/40,000 = 5.50

Based on the following operating data, the operating leverage is: Sales $500,000 Variable Costs 280,000 Contribution Margin 220,000 Fixed Costs 180,000 Income from Operations $40,000 A) 0.18 B) 1.22 C) 12.5 D) 5.50

B) 5.50 Operating Leverage= Contribution Margin/Net Income 220,000/40,000 = 5.50

Based on the following operating data, the operating leverage is: Sales = $500,000 Variable Costs = 280,000 Contribution Margin = 220,000 Fixed Costs = 180,000 Income from Operations = $40,000 A) 0.18 B) 5.50 C) 1.22 D) 12.5

B) 1.16 Contribution Margin/Income 1,098,000/944,000 = 1.16

Based on the following operating data, the operating leverage is: Sales= $1,450,000 Variable Costs= 352,000 Contribution Margin= 1,098,000 Fixed Costs= 154,000 Income from Operations= $944,000 A) 1.32 B) 1.16 C) 0.32 D) 1.54

A) 5,000 units. Margin of Safety= Sales - Breakeven Sales Sales $850,000 Breakeven Sales $600,000 Margin of Safety $250,000 Selling Price Per Unit $50 Margin of Safety Units 5,000

Burke Company has a break-even of $600,000 in total sales. Assuming the company sells it product for $50 per unit, what is its margin of safety in units if sales total $850,000? A) 5,000 units. B) 250,000 units. C) 12,000 units. D) 17,000 units.

A) 20% 600,000-500,000=100,000 100,000/500,000= 20%

Carson's Corporation's sales increase from $500,000 to $600,000 in the current year. What is the percentage in sales? A) 20% B) 25% C) 22% D) 16.7%

D) The break-even point would increase, and the margin of safety would decrease.

Chesterfield Corporation has been operating well above its break-even point. What will happen to Chesterfield's margin of safety if the variable cost per unit increases? A) The break-even point would increase, and the margin of safety would increase. B) The break-even point would decrease, and the margin of safety would increase. C) The break-even point would decrease, and the margin of safety would decrease. D) The break-even point would increase, and the margin of safety would decrease.

B) It is focused primarily on the future.

Choose that answer that is not a distinguishing characteristic of financial accounting information: A) It is global information that reflects the performance of the whole company. B) It is focused primarily on the future. C) It is more highly regulated than managerial accounting information. D) It is more concerned with financial data than physical or economic data.

C) Incremental analysis

Common methods of financial statement analysis include all of the following except: A) Vertical analysis B) Ratio analysis C) Incremental analysis D) Horizontal analysis

C) Inventory turnover.

Cost of goods sold divided by average inventory is the formula for which of these analytical measures? A) Debt to assets ratio. B) Return on investment. C) Inventory turnover. D) Number of day's sales in inventory.

E) All of these

Costs associated with holding inventory often include: A) Theft, damage, and obsolescence B) Supervision C) Financing D) Warehouse space E) All of these

C) Relevant range.

Craft, Inc. normally produces between 120,000 and 150,000 units each year. Producing more than 150,000 units alters the company's cost structure. For example, fixed costs increase because more space must be reentered, and additional supervisors must be hired. The production range between 120,000 and 150,000 is called the: A) Differential range. B) Median range. C) Relevant range. D) Leverage range.

C) Relevant range.

Craft, Inc. normally produces between 120,000 and 150,000 units each year. Producing more than 150,000 units alters the company's cost structure. For example, fixed costs increase because more space must be rented, and additional supervisors must be hired. The production range between 120,000 and 150,000 is called the: A) Median range. B) Differential range. C) Relevant range. D) Leverage range.

D) Have a reasonably informed knowledge of business.

Current financial reporting standards assume that users of accounting information: A) Have only minimal knowledge of business. B) Have an expert's understanding of economic and financial events and conditions. C) Have widely differing levels of knowledge about business, and that financial reporting must meet these differing needs. D) Have a reasonably informed knowledge of business.

D) All of these answers are correct.

Factor(s) involved in communicating useful information is (are): A) Purpose for which the information will be used. B) Process by which the information is analyzed. C) Attributes of the users. D) All of these answers are correct.

D) All of these answers are correct.

Financial ratios can be used to assess which of the following aspects of a firm's performance? A) Liquidity B) Profitability C) Solvency D) All of these answers are correct.

D) All of these answers are correct.

Financial statement analysis involves forms of comparison including: A) Comparing key items to industry averages. B) Comparing key relationships within the same year. C) Comparing changes in the same item over a number of periods. D) All of these answers are correct.

C) Decreases as production volume increases.

Fixed cost per unit: A) Decreases as product volume decreases. B) Is not affected by changes in the production volume. C) Decreases as production volume increases. D) Increases as production volume increases.

A) Decreases as production volume increases.

Fixed cost per unit: A) Decreases as production volume increases. B) Increases as production volume increases. C) Is not affected by changes in the production volume. D) Decreases as production volume decreases.

A) Warehousing costs.

For a manufacturing company, product costs include all of the following except: A) Warehousing costs. B) Direct labor costs. C) Indirect material costs. D) All of these are product costs.

C) 25% increase. 200,000-160,000=40,000 40,000/160,000=.25x100$ = 25%

For the last two years BRC Company had net income as follows: 2012 2013 Net Income. $160,000 $200,000 What was the percentage change in income from 2012 to 2013? A) 20% increase. B) 20% decrease. C) 25% increase. D) 25% decrease.

B) Trend analysis.

Horizontal analysis is also known as: A) Variance analysis. B) Trend analysis. C) Revenue analysis. D) Liquidity analysis.

B) Variable and fixed costs.

In order to prepare a contribution format income statement, costs must be separated into: A) Mixed, variable and fixed costs. B) Variable and fixed costs. C) Manufacturing and selling, general, and administrative costs. D) Cost of goods sold and operating expenses.

C) Costs must be separated into variables and fixed costs.

In order to prepare a contribution format income statement: A) Costs must be separated into manufacturing and selling, general, and administrative costs. B) Costs must be separated into cost of goods sold and operating expenses. C) Costs must be separated into variables and fixed costs. D) Costs must be separated into mixed, variable, and fixed costs.

A) Variable cost.

In the graph below, which depicts the relationship between units produced and unit cost, the dotted line depicted which type of cost per unit? (The graph is a dotted line starting in the middle and going straight across) A) Variable cost. B) Fixed cost. C) Mixed cost. D) None of these.

A) Variable cost.

In the graph below, which depicts the relationship between units product and total cost, the dotted line depicts which type of total cost? (The graph is of a dotted line rising diagonally) A) Variable cost. B) Fixed cost. C) Mixed cost. D) None of these.

A) Sales on the income statement.

In vertical analysis each item is expressed as a percentage of: A) Sales on the income statement. B) Total expenses on the income statement. C) Net income on the income statement. D) None of these answers is correct.

B) Total assets on the balance sheet.

In vertical analysis each item is expressed as a percentage of: A) Total cash on the balance sheet. B) Total assets on the balance sheet. C) Total current assets on the balance sheet. D) None of these answers is correct.

B) $200,000

Jarvis Company produces a product that has a selling price of $20.00 and a variable cost of $15.00 per unit. The company's fixed costs are $50,000. What is the break-even point measured in sales dollars? A) $150,000 B) $200,000 C) $62,500 D) $100,000

B) Variable cost.

Java Joe operates a chain of coffee shops. The company pays rent of $20,000 per year for each shop. Supplies (napkins, bags, and condiments) are purchased as needed. The manager of each shop is paid a salary of $3,000 per month, and all other employees are paid on an hourly basis. Relative to the number of customers for a shop, the cost of supplies is which kind of cost? A) Relevant cost. B) Variable cost. C) Fixed cost. D) Mixed cost.

B) Increases in direct proportion to the number of hours the lawn equipment is operated.

Larry's Law Care incurs significant gasoline costs. The cost would be classified as a variable cost if the total gasoline cost: A) Is not affected by the number of hours the lawn equipment is operated. B) Increases in direct proportion to the number of hours the lawn equipment is operated. C) Varies inversely with the number of hours the lawn equipment is operated. D) None of the above.

B) Just-in time inventory

Levenworth Company incurs unnecessary costs each period because of the excess quantities of inventory maintained to meet unexpected customer demand. The costs of inventory financing, storage, supervision, and obsolescence could most likely be reduced by which of the following practices? A) Benchmarking B) Just-in time inventory C) Total quality management D) Activity-based costing

B) Solvency.

Long-term creditors are usually most interested in evaluating: A) Profitability. B) Solvency. C) Managerial effectiveness. D) Liquidity.

C) $125,000 Selling Price $5.00 100% Variable Cost $3.00 60% --------------------- Contribution Margin $2.00 40% Fixed Cost + Desired Profit/Contribution Margin 30,000+20,000/40% = $125,000

M and M, Inc. produces a product that has a variable cost of $3.00 per unit. The company's fixed costs are $30,000. The product is sold for $5.00 per unit and the company desires to earn a target profit of $20,000. What is the amount of sales that will be necessary to earn the desired profit? A) $50,000 B) $83,333 C) $125,000 D) $75,000

D) Value-Added Principle

Managerial accounting information is limited or restricted by which of the following authorities or principles? A) Generally Accepted Accounting Principles B) Securities and Exchange Commission C) Managerial Accounting Standards Board D) Value-Added Principle

A) Both depreciation on production equipment and indirect labor.

Manufacturing costs that cannot be traced to specific units of product in a cost-effective manner include: A) Both depreciation on production equipment and indirect labor. B) Depreciation on product equipment. C) Indirect labor. D) Direct material.

C) 5 times. 20,000/4,000= 5

Mark Company, Inc. sells electronics. The company generates sales of $45,000. Contribution margin is $20,000 and net income is $4,000. Based on this information, the magnitude of operating leverage is: A) 2.25 times. B) 11.25 times. C) 5 times. D) 6.25 times.

A) $240,000 Per Unit: Selling Price $12.00 Variable Cost $6.00 --------------------------- Contribution Margin $6.00 Units Sold 40,000 Contribution Margin $240,000

Martin Company currently produces and sells 40,000 units of product at a selling price of $12. The product has variable costs of $6 per unit and fixed costs of $150,000. The company currently earns a total contribution margin of: A) $240,000 B) $90,000 C) $280,000 D) $200,000

C) $240,000 280,000-240,000=240,000

Martin Company currently produces sells 40,000 units of product at a selling price of $12. The product has variable costs of $6 per unit and fixed costs of $150,000. The company currently earns a total contribution margin of: A) $280,000 B) $200,000 C) $240,000 D) $90,000

B) 60% Sales $20 100% Variable Costs (8) -40% -------------------- Contribution Margin $12 60%

Martinez Company sells one product that has a sales price of $20 per unit, variable costs of $8 per unit, and total fixed costs of $200,000, what is the contribution margin ratio? A) 40% B) 60% C) 50% D) 66%

C) 2.3. Current Assets/Current Liabilities $46,000/$20,000=2.30

Milton Company has a total current assets of $46,000, including inventory of $10,000, and current liabilities of $20,000. The company's current ratio is: A) 0.4. B) 2.8. C) 2.3. D) 1.8.

C) 1.80 Current Assets/Current Liabilities 54,000/30,000 = 1.80

Milton Company has total current assets of $54,000, including inventory of $14,500, and current liabilities of $30,000. The company's current ratio is: A) 0.56 B) 1.32 C) 1.80 D) 2.28

D) Fixed cost and fixed cost.

Mug Shots operates a chain of coffee shops. The company pays rent of $15,000 per year for each shop. Supplies (napkins, bag and condiments) are purchased as needed. The managers of each shop are paid a salary of$2,500 per month and all other employees are paid on an hourly basis. The cost of rent relative to the number of customers in a particular shop and relative to the number of customers in the entire chain of shops is which kind of cost, respectively? A) Variable cost and variable cost. B) Variable cost and fixed cost. C) Fixed cost and variable cost. D) Fixed cost and fixed cost.

C) Net margin.

Net income divided by sales is the formula for which of these analytical measures? A) Return on assets. B) Return on equity. C) Net margin. D) Earnings per share.

C) $1,000,000 Sales $20 100% Variable Costs (12) -60% ------------------------- Contribution Margin $8 40% Breakeven with a Desired Profit Fixed Costs + Profit/Contribution Margin % 300,000+100,000/40%= 1,000,000 OR 50,000 units

Ng Company sells one product that has a sales price of $20 per unit, variable costs of $12 per unit, and total fixed costs of $300,000. What is the amount of sales volume in dollars necessary to attain a desired profit of $100,000? A) $250,000 B) $750,000 C) $1,000,000 D) $666,667

D) Increase profit by an amount equal to the per unit contribution margin.

Once sales reach the break-even point, each additional unit sold will: A) Increase fixed cost by a proportionate amount. B) Reduce the margin of safety. C) Increase the company's operating leverage. D) Increase profit by an amount equal to the per unit contribution margin.

B) Increase profit by an amount equal to the per unit contribution margin.

Once sales reach the break-even point, each additional unit sold will: A) Reduce the margin of safety. B) Increase profit by an amount equal to the per unit contribution margin. C) Increase fixed cost by a proportionate amount. D) Increase the company's operating leverage.

C) Small percentage changes in revenue product large percentage changes in profit.

Operating leverage exists when: A) A company utilizes debt to finance its assets. B) The organization makes purchases on credit instead of paying cash. C) Small percentage changes in revenue product large percentage changes in profit. D) Management buys enough of the company's shares of stock to take control of the corporation.

C) A variable cost.

Rock Creek Bottling Company pays its production manager a salary of $6,000 per month. Salespersons are paid strictly on commission, at $1.50 for each case of product sold. For Rock Creek Bottling Company, the cost of the salesperson's commission is an example of: A) A mixed cost. B) A fixed cost. C) A variable cost. D) None of these.

B) A fixed cost.

Rock Creek Bottling Company pays its production manager a salary of $6,000 per month. Salespersons are paid strictly on commission, at $1.50 for each case of product sold. For Rock Creek Bottling Company, the production manager's salary is an example of: A) A mixed cost. B) A fixed cost. C) A variable cost. D) None of these.

A) A fixed cost structure offers greater risk but higher opportunity for profitability than does a variable cost structure.

Select the correct statement from the following: A) A fixed cost structure offers greater risk but higher opportunity for profitability than does a variable cost structure. B) A variable cost structure offers greater risk but higher opportunity for profitability than does a fixed cost structure. C) A fixed cost structure offers less risk (I.e., less earnings volatility) and higher opportunity for profitability than does a variable cost structure. D) A variable costs structure offers less risk and higher opportunity for profitability than does a fixed cost structure.

D) All of these are correct statements.

Select the correct statement regarding fixed costs. A) Fixed cost per unit is not fixed. B) Total fixed cost remains constant when volume changes. C) There is a contradiction between the term "fixed cost per unit" and the behavior pattern implied by the term. D) All of these are correct statements.

B) The fixed cost per unit decreases when volume increases.

Select the correct statement regarding fixed costs. A) The fixed cost per unit does not change when volume decreases. B) The fixed cost per unit decreases when volume increases. C) Because they do not change, fixed costs should be ignored in decision making. D) The fixed cost per unit increases when volume increases.

C) Financial accounting is more highly regulated than managerial accounting.

Select the correct statement regarding managerial and financial accounting. A) Both managerial and financial accounting use economic and physical data in addition to financial data. B) Users of managerial accounting information desire greater aggregation than do users of financial accounting information. C) Financial accounting is more highly regulated than managerial accounting. D) Timeliness is more important in financial accounting than in managerial accounting.

D) All of these answers are correct.

Select the correct statement regarding vertical analysis. A) Vertical analysis examines two or more items from the financial statements of one account period. B) Vertical analysis of the income statement involves showing each item as a percentage of sales. C) Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets. D) All of these answers are correct.

D) Manufacturing-related costs are initially recorded as expenses.

Select the incorrect statement regarding costs and expenses. A) Non-manufacturing costs should be expensed in the period in which they are incurred. B) Some costs are initially recored as expenses while others are initially recorded as assets. C) Expenses are incurred when assets are used to generate revenue. D) Manufacturing-related costs are initially recorded as expenses.

A) Senior executives need less aggregated information than do lower-level managers.

Select the incorrect statement regarding the relationship between type of user and type of information: A) Senior executives need less aggregated information than do lower-level managers. B) Senior executives use general economic information as well as financial information. C) Assembly line supervisors need more immediate feedback on performance than do senior executives. D) Middle managers need more non-financial, or operational data than do senior executives.

C) Total cost per unit is expected to remain constant.

Select the incorrect statement regarding the relevant range of volume. A) Total fixed costs are expected to remain constant. B) Total variable costs are expected to vary in direct proportion with changes in volume. C) Total cost per unit is expected to remain constant. D) Variable cost per unit is expected to remain constant.

A) Upstream and downstream costs are reported as product costs on the income statement

Select the incorrect statement regarding upstream and downstream costs. A) Upstream and downstream costs are reported as product costs on the income statement. B) Companies normally incur significant downstream costs. C) To be profitable, companies must recover the total cost of developing, producing, and delivering products. D) Pricing decisions must consider both upstream and downstream costs in addition to manufacturing costs.

B) Liquidity.

Short-term creditors are usually most interested in assessing: A) Solvency. B) Liquidity. C) Profitability. D) Managerial effectiveness.

B) Long-term debt paying ability.

Solvency ratios are used to assess a company's: A) Short-term debt paying ability. B) Long-term debt paying ability. C) Profitability. D) Efficiency in use of its assets.

C) Mixed cost.

Southern Food Service operates six restaurants in the Atlanta area. The company pays rent of $20,000 per year for each shop. The managers of each shop are paid a salary of $4,200 per month and all other employees are paid on an hourly basis. Relative to the number of hours worked, total compensation cost for a particular shop is which kind of cost? A) Fixed cost. B) Variable cost. C) Mixed cost. D) None of these.

C) Product cost and recorded in the inventory account.

Steuben Company produces dog houses. During the current year, Steuben Company incurred the following costs: Rent on manufacturing facility= $250,000 Office manager's salary= 150,000 Wages of factory machine operators= 110,000 Depreciation on manufacturing equipment= 50,000 Insurance and taxes on selling and administrative offices= 30,000 Direct materials purchased and used= 170,000 Wages paid to factory machine operators in producing the dog houses should be categorized as a: A) Product cost and recorded on the income statement. B) Period cost and recorded in the inventory account. C) Product cost and recorded in the inventory account. D) Period cost and recorded in the income statement.

A) Variable.

Taste of the Town, Inc. operates a gourmet sandwich shop. The company orders bread, cold cuts, and product several times a week. If the cost of these items remains constant per customer served, the cost is said to be: A) Variable. B) Opportunity. C) Mixed. D) Fixed.

A) Historical cost principle.

The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the: A) Historical cost principle. B) Conservatism concept. C) Matching principle. D) Time value of money concept.

D) Increased warehousing costs.

The benefits of a just-in-time system would include all of the following except: A) Improved customer satisfaction. B) Decrease in the number of suppliers. C) Reduced inventory holding costs. D) Increased warehousing costs.

C) Contribution margin.

The excess of a product's selling price over its variable costs is referred to as: A) Gross profit. B) Gross margin. C) Contribution margin. D) Manufacturing margin.

B) Contribution margin.

The excess of revenue over variable costs is referred to as: A) Gross margin. B) Contribution margin. C) Gross profit. D) Manufacturing margin.

A) 4.2 times. Average Inventory Year 1= 38,500 Year 2= 35,000 Sum= 36,500 Cost of Goods Sold/Average Inventory 730,000/36,500 =4.20 times.

The following balance sheet information was provided by Gaynor Company: Assets Year 1 Year 2 Cash $4,000 $2,000 Accounts 15,000 12,000 receivable Inventory $35,000 $38,000 Assuming Year 2 cost of goods sold is $153,000, what is the company's inventory turnover? A) 4.2 times. B) 4.0 times. C) 4.4 times. D) None of these answers is correct.

C) 21.81 times. Net Credit Sales = $157,000 Average ACCTs REC: Year 1 = 6,200 Year 2= 8,200 Average= 7,200 Net Credit Sales/Average AR 157,000/7,200 AR Turnover= 21.81

The following balance sheet information was provided by O'Connor Company: Assets Year 1 Year 2 Cash $3200 $2200 Accounts $8200 $6200 Receivable Inventory $32,000 $33,000 Assuming that net credit sales for Year 2 totaled $157,000, what is the company's most recent accounts receivable turnover? A) 10.90 times. B) 19.15 times. C) 21.81 times. D) 25.32 times.

D) 20 times Average Accounts Receivable: Year 1 = 12,000 Year 2= 15,000 Sum= 27,000 Net Credit Sales/Average Accounts Receivable 270,000/13,500= 20.0 times Accounts Receivable Turnover= 20.0 times.

The following balance sheet information was provided by O'Connor Company: Assets Year 1 Year 2 Cash $4,000 $2,000 Accounts 15,000 12,000 receivable Inventory $35,000 $38,000 Assuming that net credit sales for Year 2 totaled $270,000, what is the company's most recent accounts receivable turnover? A) 7.7 times. B) 18 times. C) 22.5 times. D) 20 times.

B) 18.25 days. Days/Average Inventory Turnover 365/20= 18.25 days.

The following balance sheet information was provided by Patton Company: Assets Year 1 Year 2 Cash $4,000 $2,000 Accounts 15,000 12,000 receivable Inventory $35,000 $38,000 Assuming Year 2 cost of goods sold is $730,000, what are the company's average days to sell inventory? (Use 365 days in a year. Do not round intermediate calculations). A) 19 days. B) 18.25 days. C) 20.86 days. D) 17.5 days.

B) 55.30 days Net Credit Sales = $132,000 Average ACCTs REC: Year 1 = 19,000 Year 2 = 21,000 Average = 20,000 Net Credit Sales/Average AR 132,000/20,000= 6.60 Average Days to Sell: Days in a Year/AR Turnover 365/6.60= 55.30

The following balance sheet information was provided by Western Company: Assets Year 1 Year 2 Cash $3200 $2700 Accounts $21,000 $19,000 Receivable Inventory $36,000 $42,000 Assuming Year 2 net credit sales totaled $132,000, what was the company's average days to collect receivables? (Use 365 days in a year. Do not round your intermediate calculations.) A) 58.10 days B) 55.30 days C) 110.60 days D) 52.50 days

D) 18.25 days. Days/Average Inventory Turnover 365/20= 18.25 days.

The following balance sheet information was provided by Western Company: Assets Year 1 Year 2 Cash $4,000 $2,000 Accounts 15,000 12,000 receivable Inventory $35,000 $38,000 Assuming Year 2 net credit sales totaled $270,000, what were the company's average days to collect receivables? (Use 365 days in a year. Do not round intermediate calculations.) A) 20.28 days B) 16.22 days. C) 47.31 days. D) 18.25 days.

B) 2.81 times. Inventory Year 1 $49,000 Year 2 $41,500 Average $45,250 COGS/Average Inv $127,000/$45,250 Turnover= 2.81

The following balance sheet information was provided for Gaynor Company: Assets Year 1 Year 2 Cash $3950 $3200 Accounts $16,700 $14,700 Receivable Inventory $41,500 $49,000 Assuming Year 2 cost of goods sold is $127,000, what is the company's inventory turnover? A) 2.59 times. B) 2.81 times. C) 3.06 times. D) None of these answers is correct.

A) 30.50 days. Inventory Year 1 $34,500 Year 2 $27,500 Average $31,000 ------------------ COGS $371,000 Average Inv $31,000 Turnover 11.97 ------------------ Average Days to Sell: Days in Year/Turnover 365/11.97= 30.50

The following balance sheet information was provided for Patton Company: Assets Year 1 Year 2 Cash $3100 $2700 Accounts $12,600 $14,600 Receivable Inventory $27,500 $34,500 Assuming Year 2 cost of goods sold is $371,000, what are the company's average days to sell inventory? (Use 365 days in a year. Do not round your immediate calculations.) A) 30.50 days. B) 27.06 days. C) 33.94 days. D) 54.00 days.

D) 3.00 Sales Revenue $45,000 Variable Costs: Variable Manufacturing Costs (21,000) Contribution Margin (24,000) 45,000-21,000=24,000 Operating Leverage= Contribution Margin/Net Income 24,000/8,000= 3.00

The following income statement is provided for Grant, Inc. Sales Revenue (1,500 @ $30 per unit) = $45,000 Variable Costs (1,500 @ $14 per unit) = 21,000 Fixed Costs = 16,000 Net Income= $8,000 What is this company's magnitude of operating leverage? A) 0.33 B) 1.31 C) 2.00 D) 3.00

A) $30,360 Sales= $68,640 Less: COGS= 29,050 Supplies= 9,240 Total Variable Exp= 38,280 68,640-38,280= 30,360

The following income statement is provided for Ramirez Company for the current year: Sales Revenue (3300 units x $20.80 per unit) = $68,640 Cost of Goods Sold (Variable; 3300 units x $8.80 per unit) = (29,040) Cost of Goods Sold (Fixed) = (4800) Gross Margin = 34,800 Administrative Salaries = (6800) Depreciation = (4800) Supplies (3300 units x $2.80 per unit) = (9240) Net Income = $13,960 What amount was the company's contribution margin? A) $30,360 B) $13,960 C) $34,800 D) $39,600

A) $50,000 Sales Revenue $100,000 Variable Costs COGS (40,000) Supplies (10,000) Total Variable (50,000) 100,000-50,000=50,000

The following income statement is provided for Ramirez Company is 2013: Sales Revenue (2,500 units x $40 per unit) = $100,000 Cost of goods sold (variable; 2,500 units x $16 per unit) = (40,000) Cost of goods sold (fixed) = (8,000) Gross Margin = 52,000 Administrative Salaries = (12,000) Depreciation = (8,000) Supplies (2,500 units x $4 per unit) = (10,000) Net Income = $22,000 What amount was the company's contribution margin? A) $50,000 B) $22,000 C) $52,000 D) $60,000

D) $67,500 Sales Revenue $125,000 Variable Costs: Variable Manufacturing Costs (42,500) Variable Selling and Administrative Costs (15,000) 125,000-42,500-15,000=67,500

The following information is provided for Southall Company: Sales Revenue = $125,000 Variable Manufacturing Costs = 42,500 Fixed Manufacturing Costs = 37,500 Variable Selling and Administrative Costs = 15,000 Fixed Selling and Administrative Costs = 12,500 What is this company's contribution margin? A) $30,000 B) $17,500 C) $45,000 D) $67,500

A) Cost structure.

The manager of Kenton Company states that 45% of its total costs were fixed. The manager was describing the company's: A) Cost structure. B) Operating leverage. C) Contribution margin. D) Cost averaging.

A) Excess of budgeted sales over break-even sales divided by budgeted sales.

The margin of safety ratio can be defined as the: A) Excess of budgeted sales over break-even sales divided by budgeted sales. B) Excess of budgeted sales over break-even sales divided by break-even sales. C) Excess of budgeted sales over fixed costs divided by budgeted sales. D) Excess of budgeted sales over variable costs divided by budgeted sales.

A) Return on assets.

The return on investment measure is also referred to as: A) Return on assets. B) Net margin. C) Return on debt. D) Return on equity.

C) Horizontal analysis

The student of an individual financial statement item over several accounting periods is called: A) Vertical analysis B) Ratio analysis C) Horizontal analysis D) Time and motion analysis

A) Horizontal analysis.

The study of an individual item or account over several periods in the same financial year or over many years is known as: A) Horizontal analysis. B) Ratio analysis. C) Liquidity analysis. D) Vertical analysis.

A) Accounts receivable turnover and average days to collect receivables.

Two ratios that provide insight on the relationship between credit sales and receivables are: A) Accounts receivable turnover and average days to collect receivables. B) Average days to collect receivables and asset turnover. C) Accounts receivable turnover and current ratio. D) Current ratio and inventory turnover ratio.

D) Contribution margin/sales

What is the formula for calculating contribution margin ratio? A) Contribution margin/net income B) Contribution margin/fixed costs C) Contribution margin/desired profit D) Contribution margin/sales

A) Activity based used.

Whether a cost behaves as a fixed cost or as a variable cost depends upon the: A) Activity based used. B) Significance of the dollar amount of the cost. C) Cost structure of the company. D) Industry.

D) All of these answers are correct.

Which of the follow is an (are) objective(s) of ratio analysis? A) Analyzing how a company finances its operations. B) Assessing the past performance. C) Assessing the prospects for future performance. D) All of these answers are correct.

D) Information is based on estimates and is bounded by relevance and timeliness.

Which of the following best represents a characteristic of managerial accounting? A) Information is characterized by reliability and objectivity. B) Information is regulated by the Securities and Exchange Commission. C) Information is historically based and reported annually. D) Information is based on estimates and is bounded by relevance and timeliness.

B) Freight paid on a purchase of raw materials

Which of the following costs is not considered to be a period cost? A) Warehousing costs B) Freight paid on a purchase of raw materials C) Depreciation of delivery vehicles D) Salaries paid to company executives

C) Administrative employee salaries

Which of the following costs should be recorded as an expense? A) Insurance for the factory building B) Depreciation for manufacturing equipment C) Administrative employee salaries D) All of these are expenses

C) Factory overhead.

Which of the following costs typically include both fixed and variable components? A) Direct labor. B) Direct materials. C) Factory overhead. D) None of these.

C) Factory overhead.

Which of the following costs typically include both fixed and variable components? A) Direct materials. B) Direct labor. C) Factory overhead. D) None of these.

A) Both seats used in the motorcycles and wages of motorcycle assembly workers are correct.

Which of the following costs would be classified as a direct cost for a company that produces motorcycles? A) Both seats used in the motorcycles and wages of motorcycle assembly workers are correct. B) Seats used in the motorcycles. C) Rent of manufacturing facility that produces motorcycles. D) Wages of motorcycle assembly workers.

D) All of these answers are correct.

Which of the following is a potential limitation of financial statement analysis? A) Lack of compatibility of firms in different industries. B) The impact of having more than one acceptable alternative accounting principle for accounting for a given transaction or economic event. C) The impact of changing economic conditions. D) All of these answers are correct.

C) Cost of transporting raw materials to the job site.

Which of the following is a product cost for a construction company? A) Rent of the company's main office. B) Wages paid to the company's payroll clerk. C) Cost of transporting raw materials to the job site. D) All of these.

D) Product delivery costs.

Which of the following is not classified as manufacturing overhead? A) Factory insurance. B) Supervisory labor. C) Production supplies. D) Product delivery costs.

C) Prepaid expenses.

Which of the following is not included in the computation of the quick ratio? A) Marketable securities. B) Accounts receivable. C) Prepaid expenses. D) Cash.

A) Selling and administrative salaries

Which of the following items would be reported directly on the income statement as a period cost? A) Selling and administrative salaries B) Wages paid to machine operators C) Cost of lubricant for oiling machinery D) All of these

A) Information gathering and reporting activities should be restricted to those activities that add value in excess of their cost.

Which of the following most exemplifies the value-added principles? A) Information gathering and reporting activities should be restricted to those activities that add value in excess of their cost. B) An ongoing process where continuous improvement is the goal. C) Managerial accounting information is measured in economic, physical, and financial terms. D) A competitive management program that emphasizes quality.

D) The reason behind a financial statement ratio or percentage analysis result is usually self-evident and does not require further study or analysis.

Which of the following statements about financial statement analysis is incorrect? A) Horizontal analysis for several years can be done by choosing one year as a base year and calculating increases or decreases in relation to that year. B) Vertical analysis compares two or more financial statement items within the same time period. C) In horizontal percentage analysis, an item from the financial statements is expressed as a percentage of the same item from a previous year's financial statements. D) The reason behind a financial statement ratio or percentage analysis result is usually self-evident and does not require further study or analysis.

D) The debt to assets ratio is a liquidity ratio.

Which of the following statements about financial statements is incorrect? A) The net margin ratio is a profitability ratio. B) The current ratio is a liquidity ratio. C) The dividend yield is a stock market ratio. D) The debt to assets ratio is a liquidity ratio.

D) Depreciation on manufacturing equipment is a period cost.

Which of the following statements concerning manufacturing costs is incorrect? A) Direct labor costs are recorded initially in an inventory account. B) The cost of direct materials can be readily traced to products. C) All salaries incurred by the sales department are expensed as incurred. D) Depreciation on manufacturing equipment is a period cost.

B) The quick ratio is a more conservative variation of the current ratio.

Which of the following statements is correct in regarding the quick ratio? A) The quick ratio is also called the working capital ratio. B) The quick ratio is a more conservative variation of the current ratio. C) The numerator for the quick ratio is current assets minus inventory minus accounts receivable. D) The numerator for the quick ratio is current assets.

B) Investors need to understand that the value of a company's earnings per share is affected by its choices of accounting principles and assumptions.

Which of the following statements is correct? A) The book value per share measures the market value of a corporation's stock. B) Investors need to understand that the value of a company's earnings per share is affected by its choices of accounting principles and assumptions. C) The most widely quoted measure of a company's earnings performance is return on equity. D) Earnings per share is calculated for a company's preferred stock.

B) A 1:1 current ratio is generally preferred over a 1.5:1 current ratio.

Which of the following statements is generally incorrect from an investor's perspective? A) A 20-day average collection period for accounts receivable is generally preferred over a 30-day average collection period. B) A 1:1 current ratio is generally preferred over a 1.5:1 current ratio. C) A 10% net margin is generally preferred over an 8% net margin. D) A 5% dividend yield is generally preferred over a 3% dividend yield.

B) Product costs associated with units sold appear on the income statement as cost of goods sold.

Which of the following statements is true with regard to product costs versus general, selling, and administrative costs? A) Product costs associated with unsold units appear on the income statement as general expenses. B) Product costs associated with units sold appear on the income statement as cost of goods sold. C) General, selling, and administrative cots appear on the balance sheet. D) None of these is true.

B) A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue.

Which of the following statements regarding horizontal analysis is incorrect? A) Percentage analysis involves establishing the relationship of one amount to another. B) A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue. C) In doing horizontal analysis, an account is expressed as a percentage of the previous balance of the same account. D) Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes.

D) The smaller the net margin the better.

Which of the following statements regarding net margin is incorrect? A) Net margin may be calculated in several ways. B) Net margin refers to the average amount of each sales dollar remaining after all expenses are subtracted. C) The amount of net margin is affected by a company's choices of accounting principles. D) The smaller the net margin the better.

B) Ratio analysis is a specific form of horizontal analysis.

Which of the following statements regarding ratio analysis is incorrect? A) Some ratios involve an account from the balance sheet and one from the income statement. B) Ratio analysis is a specific form of horizontal analysis. C) There are many different ratios available for evaluating a firm's performance. D) Ratio analysis involves making comparisons between different accounts in the same set of financial statements.

A) Using absolute amounts eliminates the problem of varying materiality levels.

Which of the following statements regarding the analysis of absolute amounts of various accounts reported on the financial statements is incorrect? A) Using absolute amounts eliminates the problem of varying materiality levels. B) Financial statement users with expertise in particular industries can look at absolute amounts and assess a company's performance in a certain area. C) Economic statistics such as the gross national product are built upon totals of absolute amounts reported by businesses. D) To correctly evaluate an absolute amount, the analyst must consider its relative importance.

B) Financial statements should be detailed enough to answer any financial-related question an investor might have.

Which of the following statements regarding the information disclosed in financial statements is incorrect? A) When too much information is presented users may suffer from information overload. B) Financial statements should be detailed enough to answer any financial-related question an investor might have. C) Some information disclosed in financial statements may be irrelevant to some users. D) The costs of providing all possible information about a firm would be prohibitively high for the business.

A) The quick ratio equals quick assets divided by total liabilities.

Which of the following statements regarding the quick ratio is incorrect? A) The quick ratio equals quick assets divided by total liabilities. B) The quick ratio is a conservative variation of the current ratio. C) The quick ratio ignores some current assets that are less liquid than others. D) The quick ratio is also known as the acid-test ratio.

B) The quick ratio equals quick assets divided by total liabilities.

Which of the following statements regarding the quick ratio is incorrect? A) The quick ratio ignores some current assets the are less liquid than others. B) The quick ratio equals quick assets divided by total liabilities. C) The quick ratio is also known as the acid-test ratio. D) The quick ratio is a conservative variation of the current ratio.

C) Sales commissions.

Which of the following types labor costs will never flow through the balance sheet? A) Assembly labor. B) Plant supervision. C) Sales commissions. D) Material handling.

B) Price-earnings ratio.

Which ratio compares the earnings per share of a company to the market price for a share of the company's stock? A) Book value per share. B) Price-earnings ratio. C) Dividend yield. D) Return on equity.

C) Asset turnover.

Which ratio measures how effectively a company is using assets to generate revenue? A) Net margin. B) Inventory turnover. C) Asset turnover. D) Plant assets to long-term liabilities.

A) Debt to assets ratio.

Which ratio measures the percentage of company's assets that are financed by debt? A) Debt to assets ratio. B) Debt to equity. C) Asset turnover. D) Return on investment.

C) Acid-test ratio.

Which ratio would you use to examine a company's ability to pay its debts in the short term? A) Earnings per share. B) Debt to assets ratio. C) Acid-test ratio. D) Return on equity.

C) Solvency

Which ratios measure a company's long-term debt paying ability and its financing structure? A) Profitability B) Liquidity C) Solvency D) None of these answers is correct

`D) All of these answers are correct.

Which type of approach should be used when evaluating corporate results having horizontal analysis? A) Percentages. B) Trends. C) Study of absolute amounts. D) All of these answers are correct.

D) All of these are justifications for computing average unit costs.

Why do accountants normally calculate cost per unit as an average? A) Some manufacturing-related costs cannot be accurately traced to specific units of product. B) Determining the exact cost of a product is virtually impossible. C) Even when producing multiple units of the same product, normal variations occur in the amount of materials and labor used. D) All of these are justifications for computing average unit costs.

D) Current assets less current liabilities

Working capital is defined as: A) Current liabilities divided by total liabilities. B) Total assets minus total liabilities. C) Current assets divided by current liabilities. D) Current assets less current liabilities

B) Decrease.

Wu Company incurred $40,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold. If the company's volume doubles, the total cost per unit will: A) Stay the same. B) Decrease. C) Double as well. D) Increase but will not double.

D) Debt to equity ratio

You are considering an investment in Apple stock and wish to assess the firm's short-term debt-paying abilities. All of the following ratios are used to assess liquidity except: A) Quick ratio B) Inventory turnover C) Accounts receivable turnover D) Debt to equity ratio

A) Working capital.

You are considering an investment in Facebook stock and wish to assess the company's position in the stock market. All of the following ratios can be used except: A) Working capital. B) Earnings per share. C) Price-earnings ratio. D) Dividend yield.

A) Average days to collect receivables.

You are considering an investment in Frontier Airlines stock and wish to assess the firm's earnings performance. All of the following ratios can be used to assess profitability except: A) Average days to collect receivables. B) Asset turnover. C) Net margin. D) Return on investment.

D) Net margin.

You are considering an investment in IBM stock and wish to assess the firm's long-term debt-paying ability and its use of debt financing. All of the following ratios can be used to assess solvency except: A) Debt to equity ratio. B) Number of times interest is earned. C) Debt to assets ratio. D) Net margin.