ACC 5500 Final
White Company budgeted for $200,000 of fixed overhead cost and volume of 40,000 units. During the year, the company produced and sold 39,000 units and spent $210,000 on fixed overhead. The fixed overhead cost volume variance is: A. $10,000 favorable. B. $10,000 unfavorable. C. $5,000 favorable. D. $5,000 unfavorable.
$5,000 unfavorable.
Which of the following equations can be used to compute the total materials variance? (A = Actual; S = Standard; Q = Quantity; P = Price) A. (AQ×AP)-(SQ×SP) B. (SQ×SP)-(SQ×SP) C. (AQ×AP)-(AQ×SP) D. (AQ×SP)-(SQ×SP)
(AQ×AP)-(SQ×SP)
The master budget normally covers: A. Three months. B. 1 year. C. 1-5 years. D. 5-10 years.
1 year.
Which of the following statements is generally incorrect from an investor's perspective? A. A 1:1 current ratio is generally preferred over a 1.5:1 current ratio. B. A 20-day average collection period for accounts receivable is generally preferred over a 30-day average collection period. C. A 5% dividend yield is generally preferred over a 3% dividend yield. D. A 10% net margin is generally preferred over an 8% net margin.
A 1:1 current ratio is generally preferred over a 1.5:1 current ratio.
Contribution margin would be the most important variable in evaluating the performance of: A. A cost center. B. A production center. C. An investment center. D. A profit center.
A profit center.
Packrall Company makes computer chips. Curtis is manager of the company's maintenance department. Because his maintenance technicians are so well trained in maintaining expensive and sensitive circuit board stamping equipment, Curtis has been authorized to contract to perform maintenance for outside customers. In this company, the maintenance department is likely organized as: A. A profit center. B. A revenue center. C. A cost center. D. An investment center.
A profit center.
Which of the following is an incorrect statement regarding variances? A. A variance is favorable when expected sales are more than actual sales. B. A variance is a difference between budgeted and actual amounts. C. A variance can be calculated for both revenues and expenses. D. A variance can be both favorable and unfavorable.
A variance is favorable when expected sales are more than actual sales.
Which of the following can reduce the amount of employees' budget gamesmanship? A. Have superiors and subordinates participate in the standard-setting process. B. Incorporate standards into the firm's evaluation system. C. Avoid using standards for punitive purposes. D. All of these answers are correct.
All of these answers are correct.
Which of the following factors should be considered in establishing standards for use with a standard costing system? A. Historical data B. Current and planned technology, plant layout, and operating procedures C. Behavioral implications D. All of these answers are correct.
All of these answers are correct.
Which of the following is (are) objective(s) of ratio analysis? A. Assessing past performance. B. Assessing the prospects for future performance. C. Analyzing how a company finances its operations. D. All of these answers are correct.
All of these answers are correct.
Which of the following is a potential limitation of financial statement analysis? A. Lack of comparability of firms in different industries B. The impact of changing economic conditions C. The impact of having more than one acceptable alternative accounting principle for accounting for a given transaction or economic event D. All of these answers are correct.
All of these answers are correct.
Which of the following reason(s) cause flexible budgets to be useful planning tools? A. Flexible budgets allow managers to anticipate results under a variety of scenarios. B. Flexible budgets can help determine if a company's cash position is adequate. C. Flexible budgets can help managers judge if materials and storage facilities are appropriate for various production levels. D. All of these answers are correct.
All of these answers are correct.
Which of the following statements is true? A. An unfavorable materials price variance could have resulted from actions taken by the purchasing agent. B. An unfavorable materials usage variance could have resulted from actions taken by the production supervisor. C. An unfavorable labor usage variance could have resulted from actions taken by the personnel department. D. All of these answers are correct.
All of these answers are correct.
Which type of approach should be used when evaluating corporate results using horizontal analysis? A. Study of absolute amounts. B. Percentages. C. Trends. D. All of these answers are correct.
All of these answers are correct.
A responsibility report provided to a manager typically includes: A. A list of all the items under the manager's control. B. The budgeted amount for each item on the report. C. The differences between the budgeted and actual amounts for each item on the report. D. All of these are correct answers.
All of these are correct answers.
Stephanie's responsibility report includes the salary and benefits of her secretary. Although Stephanie prepares a performance evaluation for the secretary each year, Stephanie's superior determines how much the secretary will be paid. This example is an illustration of the fact that: A. Responsibility reporting systems are not perfect. B. Managers sometimes are held responsible for items over which they have only limited control. C. Control may be shared. D. All of these are correct answers.
All of these are correct answers.
Which of the following is a characteristic that is needed for decentralization to work well in an organization? A. Clear lines of authority B. Responsibility C. Good communication D. All of these are correct answers.
All of these are correct answers.
Which of the following may be used to establish transfer prices? A. Standard cost of a product B. A negotiated price C. Market price D. All of these are correct answers.
All of these are correct answers.
Which of the following statements regarding a balanced scorecard is correct? A. A balanced scorecard includes several different performance measures that can be used to assess how well a business is accomplishing their mission. B. A balanced scorecard includes financial performance measures such as ROI. C. A balanced scorecard includes non-financial measures such as defect rates or on- time deliveries. D. All of these are correct answers.
All of these are correct answers.
The cost of capital is called all of the following except: A. cutoff rate. B. discount rate. C. hurdle rate. D. All of these are terms for the cost of capital.
All of these are terms for the cost of capital.
An indirect material: A. Is an overhead cost. B. Is a product cost. C. Does not need to be accounted for using the perpetual method. D. All of these.
All of these.
Cost information for services or products produced by a company is needed for: A. determining the company's selling prices. B. external reporting. C. managerial decisions. D. All of these.
All of these.
Which of the following accounts is reported on the balance sheet? A. Raw Materials Inventory. B. Work in Process Inventory. C. Finished Goods Inventory. D. All of these.
All of these.
Which of the following items is provided on a work ticket? A. Job-number B. Employee identification C. Work description D. All of these.
All of these.
Payment of cash for production workers' wages is: A. An asset exchange transaction. B. An asset source transaction. C. An asset use transaction. D. A claims exchange transaction.
An asset exchange transaction.
The application of estimated manufacturing overhead to jobs is: A. An asset exchange transaction. B. An asset source transaction. C. An asset use transaction. D. A claims exchange transaction.
An asset exchange transaction.
The purchase of raw materials for cash is: A. An asset source transaction. B. An asset exchange transaction. C. An asset use transaction. D. A claims exchange transaction.
An asset exchange transaction.
The use of raw materials in production is: A. An asset source transaction. B. An asset use transaction. C. An asset exchange transaction. D. A claims exchange transaction.
An asset exchange transaction.
Recognition of revenue from sale of finished goods is: A. An asset use transaction. B. An asset exchange transaction. C. An asset source transaction. D. A claims exchange transaction.
An asset source transaction.
The purchase of raw materials on account is: A. An asset use transaction. B. An asset exchange transaction. C. An asset source transaction. D. A claims exchange transaction.
An asset source transaction.
During the current accounting period, O'Hare Company paid $2,300 for selling and administrative expenses. Payment of cash for selling and administrative expenses is: A. An asset exchange transaction. B. An asset source transaction. C. An asset use transaction. D. A claims exchange transaction.
An asset use transaction.
The kind of responsibility center that would be evaluated by comparing income on assets to the amount of assets invested is: A. An investment center. B. An asset center. C. A cost center. D. A profit center.
An investment center.
A tool that is often used to depict the lines of authority and responsibility within a firm is: A. A variance report. B. An organization chart. C. A master budget. D. A responsibility report.
An organization chart.
Which of the following cash budget equations is incorrect? A. Cash payments + cash receipts = cash requirements B. Beginning cash + cash receipts = total cash available C. Cash payments + cash cushion = total cash needed D. Period one ending cash balance = period two beginning cash balance
Cash payments + cash receipts = cash requirements
Which of the following budgets or schedules uses data contained in the selling and administrative expense budget? A. Cash receipts schedule B. Cash payments schedule C. Inventory purchases budget D. Sales budget
Cash payments schedule
n which of the following industries would a job-order cost system most likely be used? A. Oil refinery B. Small appliances manufacturer C. Construction of cell towers D. Beverage manufacturer
Construction of cell towers
The concept says that managers should be evaluated on the basis of revenues and/or expenses they can control is known as the: A. Management by exception concept. B. Controllability concept. C. Responsibility concept. D. None of these.
Controllability concept.
Jacob is a department manager who recently instituted a new recognition program for his employees. He budgeted the cost of the new program at $10 per employee, but actual costs were $15 per employee. The cost associated with the recognition program would be considered which of the following kinds of cost? A. Controllable cost B. Opportunity cost C. Fixed cost D. Product cost
Controllable cost
When a company's district managers submitted their preliminary budget proposals, top management discovered that the southern district manager had requested a new project management information system. Unfortunately, the system is incompatible with the system used at headquarters. Which of the following advantages of budgeting reduces the likelihood that the company will end up with two incompatible systems? A. Planning B. Coordination C. Performance measurement D. Corrective measures
Coordination
Vanessa Grant is responsible for controlling expenses, but is not responsible for generating revenues. Vanessa Grant is a manager of a(n): A. Cost center. B. Profit center. C. Investment center. D. Liability center.
Cost center.
Which of the following is an advantage of decentralization? A. Decentralization encourages lower-level managers to focus on strategic decisions. B. Authority and responsibility is not clear. C. Decentralization motivates managers to improve productivity. D. None of these.
Decentralization motivates managers to improve productivity.
The practice of delegating authority and responsibility is referred to as: A. Centralization of authority. B. Standard costing. C. Management by exception. D. Decentralization.
Decentralization.
Which of the following is not typically found in a decentralized organization? A. Cost center B. Decision center C. Investment center D. Profit center
Decision center
During the current accounting period, O'Hare applied $14,500 of estimated overhead cost to production. Actual overhead costs were $14,325. Assuming that the balance in the Manufacturing Overhead is insignificant, the recognition of the transaction to close that account will: A. Decrease cost of goods sold and increase stockholder's equity. B. Increase cost of goods sold. C. Decrease stockholder's equity. D. Decrease total assets and total liabilities.
Decrease cost of goods sold and increase stockholder's equity.
Beta Company determined that its manufacturing overhead for the current accounting period was overapplied by $1,400. It closed the amount to cost of goods sold. The recognition of this transaction will: A. Decrease cost of goods sold. B. Increase cost of goods sold. C. Have no impact on cost of goods sold. D. None of these.
Decrease cost of goods sold.
Which of the following would increase residual income? (Assume all other things are equal) A. Decrease in investment B. Decrease in operating income C. Increase in the desired return on investment D. None of these.
Decrease in investment
Knoell Company paid its sales employees $15,000 in sales commissions. What impact will this transaction have on the firm's working capital? A. No impact B. Increase it C. Decrease it D. Not enough information is provided to answer the question.
Decrease it
The manager of Pearless Company's Toy Division is not satisfied with the level of return on investment that the division achieved this year. What can be done to improve return on investment? A. Decrease the investment in assets B. Increase operating expenses C. Increase sales D. Decrease the investment in assets and/or increase sales.
Decrease the investment in assets and/or increase sales.
Benson Company received cash of $1,000,000 from issuing common stock at par value. As a result of this transaction, the company's debt to equity ratio will: A. Decrease. B. Increase. C. Remain the same. D. Cannot be determined.
Decrease.
Which of the following would appear on a selling and administrative expense budget, but would not appear on a schedule of cash payments for selling and administrative expenses? A. Cost of goods sold B. Depreciation expense C. Salary expense D. Sales expense
Depreciation expense
Which of the following would not be included in the cash budget? A. Receipts from customers B. Ending cash balance C. Interest expense D. Depreciation expense
Depreciation expense
All of the following are considered to be measures of a company's short-term debt- paying ability except: A. Current ratio. B. Earnings per share. C. Inventory turnover. D. Average collection period.
Earnings per share.
Which of the following statements is true? A. Participative budgeting means that a company's budget should be prepared by lower-level employees. B. The attitudes and actions of upper-level management have little impact on the effectiveness of a company's budget. C. Employees often find that budgets are constraining and limiting. D. In preparing a budget, information flows occur only from the bottom up.
Employees often find that budgets are constraining and limiting.
Which of the following is a benefit of participative budgeting? A. Employees tend to be more motivated to achieve the budget. B. A twelve-month planning horizon is maintained at all times. C. Budget planning is highly centralized. D. Communication is clearer because it flows in only one direction - upward.
Employees tend to be more motivated to achieve the budget.
Thanks to his firm's decentralization and use of responsibility accounting, Matt has more time to review a proposed new joint venture with one of the firm's business partners. What advantage of decentralization does this illustrate? A. Encourages upper level management to concentrate on strategic decisions B. Trains lower level managers to accept higher responsibilities C. Improves performance evaluation D. Motivates managers to improve productivity
Encourages upper level management to concentrate on strategic decisions
Select the correct formula for computing the cost to be assigned to ending inventory in a process costing system. A. Ending inventory equivalent units × cost per equivalent unit B. Ending inventory units × cost per equivalent unit C. Beginning inventory cost + transferred-in costs D. Beginning inventory units + units transferred in - units transferred out
Ending inventory equivalent units × cost per equivalent unit
Assuming actual volume is 10,000 units and planned volume is 12,000 units, the sales volume variance in units: A. Equals 2,000 units unfavorable. B. Equals 2,000 units favorable. C. Cannot be determined without additional information. D. None of these answers is correct.
Equals 2,000 units unfavorable.
Select the correct formula for computing equivalent units for the period under the weighted average approach. A. Equivalent units = Units transferred B. Equivalent units = Units transferred + (Ending inventory units × Percentage complete) C. Equivalent units = Units transferred + Ending inventory units D. Equivalent units = (Units transferred + Ending inventory units) × Percentage complete
Equivalent units = Units transferred + (Ending inventory units × Percentage complete)
Which of the following items will not appear on a cash budget? A. Expected cash collections B. Expected cash payments C. Expected credit sales D. Financing activities
Expected credit sales
Which of the following items is not needed to prepare a sales budget by product line? A. Expected purchase price of each product. B. Expected unit sales of each product. C. Expected selling price of each product. D. All of the answers are correct.
Expected purchase price of each product.
Which of the following items is not needed to prepare an inventory purchases budget for a merchandising business? A. Expected unit selling price B. Beginning inventory C. Expected unit sales D. Desired ending inventory
Expected unit selling price
Expressing plans for a business in financial terms is commonly called: A. master planning. B. budgeting. C. strategic planning. D. operational planning.
Expressing plans for a business in financial terms is commonly called: A. master planning. B. budgeting. C. strategic planning. D. operational planning.
Global Company makes a product that is expected to use 2.2 pounds of material per unit of product. The material has a standard cost of $2 per pound. Global actually used 2.3 pounds of material per unit of product made in January. The actual cost of material was $1.95 per pound. Based on this information alone, the materials variances for the January production would be: A. Favorable for price and unfavorable for usage. B. Unfavorable for price and favorable for usage. C. Unfavorable for price and unfavorable for usage. D. Favorable for price and favorable for usage.
Favorable for price and unfavorable for usage.
A hybrid cost system contains: A. Features of a job-order cost system. B. Features of a process cost system. C. Features of both variable and absorption cost systems. D. Features of both job-order and process cost systems.
Features of both job-order and process cost systems.
The study of an individual financial statement item over several accounting periods is called: A. Horizontal analysis. B. Vertical analysis. C. Ratio analysis. D. Time and motion analysis.
Horizontal analysis.
Standards that do not allow for normal down time, waste of materials, or machine breakdowns are known as: A. Lax standards. B. Practical standards. C. Exceptional standards. D. Ideal standards.
Ideal standards.
Which of the following is not a component of process cost systems? A. Multiple work in process accounts. B. Cost of production report. C. Job cost sheet. D. None of these.
Job cost sheet.
In a job-order cost system, the subsidiary accounts for the Work in Process Inventory account are the: A. Standard cost cards. B. Job cost sheets. C. Individual accounts payable accounts. D. Cost of production report.
Job cost sheets.
The two most common types of costing systems are: A. Process cost and transfer cost systems. B. Job order and process cost systems. C. Job order and direct cost systems. D. Process cost and standard cost systems.
Job order and process cost systems.
Drummond Company provides customized computer training to employees of large corporations. What kind of costing system should Drummond use? A. Standard costing B. Process costing C. Job-order costing D. None of these.
Job-order costing
Which of the following should not be included in the investment base used to compute residual income? A. Accounts receivable B. Inventory C. Cash D. Land held for future use
Land held for future use
Which of the following is not an approach to compute equivalent whole units? A. Weighted average. B. Last-in-first-out. C. First-in-first-out. D. All of these can be used.
Last-in-first-out.
Short-term creditors are usually most interested in assessing: A. Liquidity. B. Solvency. C. Managerial effectiveness. D. Profitability.
Liquidity.
Solvency ratios are used to assess a company's: A. Long-term debt paying ability. B. Profitability. C. Short-term debt paying ability. D. Efficiency in use of its assets.
Long-term debt paying ability.
Which of the following is not an example of budget gamesmanship that may occur in a company? A. Lowballing B. Budget slack C. Making the numbers D. None of these answers is correct.
Making the numbers
The manager of the production department for Romulus Manufacturing has responsibility for all stages of the production process and does not have time to review all the operational details of his department. He has found it to be more productive to focus on the significant deviations from budget. This kind of management is called: A. Management by exception. B. Crisis management. C. Controllable management. D. Decentralized management.
Management by exception
A major benefit of a decentralized organization is that: A. Managers are more motivated to improve productivity. B. Upper level managers are more involved in routine decisions. C. It avoids the necessity for a managerial accounting system. D. It avoids decision making by less experienced lower level managers.
Managers are more motivated to improve productivity.
Select the incorrect statement concerning the human factor of performance evaluation. A. Variances should not be used to single out managers for punishment. B. Variances must be analyzed carefully to ensure that they are fully understood. C. Just because a cost variance is labeled as favorable doesn't necessarily mean that the manager should be commended for a job well done. D. Managers should always be punished for unfavorable variances.
Managers should always be punished for unfavorable variances.
Standard cost systems facilitate the management practice known as: A. Management by the numbers. B. Management development. C. Managing by exception. D. Just-in-time management.
Managing by exception.
In which account is the actual amount of costs such as factory utilities and maintenance initially recorded? A. Work in Process Inventory B. Manufacturing Overhead C. Raw Materials Inventory D. Supplies Inventory
Manufacturing Overhead
O'Hare Company is a manufacturing firm that uses a job-order cost system to determine the costs of its products. O'Hare Company counted the production supplies on hand at year-end and determined that the amount used was $125. The recognition of this event on the financial statements would include an increase to which of the following accounts? A. Supply Expense B. Work in Process Inventory C. Manufacturing Overhead D. Finished Goods Inventory
Manufacturing Overhead
At the time indirect materials are issued to production, the balance in the: A. Manufacturing Overhead account will decrease. B. Work in Process Inventory account will increase. C. Raw Materials inventory account will increase. D. Manufacturing Overhead account will increase.
Manufacturing Overhead account will increase.
The cost of direct materials flow through all of the following accounts except: A. Manufacturing Overhead. B. Work in Process Inventory. C. Finished Goods Inventory. D. Cost of Goods Sold.
Manufacturing Overhead.
The cost of indirect labor will initially be charged to: A. Cost of Goods Sold. B. Work in Process Inventory. C. Manufacturing Overhead. D. Wages Expense.
Manufacturing Overhead.
O'Hare Company, is a manufacturing firm that uses a job-order cost system to determine the costs of its products. During the current accounting period, O'Hare applied estimated manufacturing overhead costs of $1,550 to job #132. Which of the following statements regarding this transaction is correct? A. Work in process inventory decreases. B. Net income decreases. C. Manufacturing overhead decreases. D. Total equity increases.
Manufacturing overhead decreases.
Which of the following are not present value methods of analyzing capital investment proposals? A. Internal rate of return and payback B. Unadjusted rate of return and net present value C. Net present value and payback D. Payback and unadjusted rate of return
Payback and unadjusted rate of return
Jason had been operating his machine for an entire month before he realized that it was generating more scrap than usual. Which advantage of budgeting would have helped him identify this problem sooner? A. Performance measurement B. Coordination C. Planning D. Corrective action
Performance measurement
One company's practice is to provide bonuses to salespeople who exceed their sales targets. Which of the following advantages of budgeting enables the company to establish its recognition program? A. Planning B. Coordination C. Performance measurement D. Corrective action
Performance measurement
Which range of difficulty should normally be used to develop standards? A. Practical standards B. Lax standards C. Ideal standards D. Inflated standards
Practical standards
Standards that do allow for normal down time and can be achieved with reasonable amounts of effort are known as: A. Ideal standards. B. Lax standards. C. Practical standards. D. Exceptional standards.
Practical standards.
Which of the following is not included in the computation of the quick ratio? A. Cash B. Prepaid expenses C. Accounts receivable D. Marketable securities
Prepaid expenses
Which of the following is not a characteristic of an effective responsibility accounting system? A. Reports that show the areas that need corrective action B. Reports that show revenue and/or expense items under a manager's control C. Reports that show budgeted and actual amounts of controllable revenue and expense items D. Reports that set goals for long-term strategic performance
Reports that set goals for long-term strategic performance
A materials requisition in a job-order cost system is used as a: A. A source document for assigning costs to individual departments. B. A subsidiary account for recording the materials used on each job. C. Request form for getting the necessary materials from the materials store room. D. A means of ordering materials from outside suppliers.
Request form for getting the necessary materials from the materials store room.
Brookings Company evaluates its managers on the basis of return on investment. Division Three has a return on investment (ROI) of 15% while the company as a whole has an ROI of only 10%. Which of the following performance measures will motivate the manager of Division Three to accept a project earning a 12% return? A. ROI B. Residual income C. Both ROI and residual income will motivate the manager to accept the project. D. Neither ROI nor residual income will motivate the manager to accept the project.
Residual income
To avoid suboptimization, many companies prefer to evaluate their investment centers using: A. Residual income instead of return on investment. B. Return on investment instead of residual income. C. Gross margin instead of contribution margin. D. Sales instead of income.
Residual income instead of return on investment.
Which of the following statements about residual income is true? A. Residual income = Operating Income - Sales B. Residual income = Operating Income - Operating Assets C. Residual income is the amount of income in excess of a target or desired return on investment D. None of these.
Residual income is the amount of income in excess of a target or desired return on investment
The process of evaluating the performance of individual managers is known as: A. Responsibility accounting. B. Management by exception. C. Responsibility management. D. Performance management.
Responsibility accounting.
A reporting unit of a decentralized business that controls identifiable revenue and/or expense items is known as a(n): A. Management center. B. Performance center. C. Accounting center. D. Responsibility center.
Responsibility center.
All of the following are source documents used in job order cost systems except: A. Time card. B. Standard cost card. C. Work ticket. D. Materials requisition.
Standard cost card.
A budget prepared at a single volume of activity is referred to as a: A. Strategic budget. B. Standard budget. C. Static budget. D. Flexible budget.
Static budget.
Select the correct statement from the following, assuming Carmichael Company had a favorable direct materials price variance of $3,000 and an unfavorable direct materials usage variance of $2,000. A. The total direct materials variance is $1,000 unfavorable. B. The total direct materials variance is $5,000 favorable. C. The total direct materials variance is $5,000 unfavorable. D. The total direct materials variance is $1,000 favorable.
The total direct materials variance is $1,000 favorable.
Which capital budgeting technique defines returns in terms of income instead of cash flows? A. The unadjusted rate of return method B. The internal rate of return technique C. The net present value technique D. The payback period
The unadjusted rate of return method
Which of the following does not represent an advantage of the unadjusted rate of return over the payback method for evaluating capital projects? A. The unadjusted rate of return method considers the investment's profitability. B. The unadjusted rate of return method considers the time value of money. C. The unadjusted rate of return is a percentage that can be compared to a stated hurdle rate. D. None of these represents an advantage.
The unadjusted rate of return method considers the time value of money.
Static and flexible budgets are similar in that: A. They both are based on the same per unit variable amounts and the same fixed costs. B. They both concentrate solely on costs. C. They both are prepared for multiple activity levels. D. None of these answers is correct.
They both are based on the same per unit variable amounts and the same fixed costs.
What is the role of top management in a participative budgeting system? A. Top management has no role - the budget is entirely developed by the lower-level employees. B. Top management must always tighten employee-set budget standards to eliminate employees' attempts to build slack into the standards. C. Top management must ensure that employee-generated objectives are consistent with those of the company. D. All of the answers are correct.
Top management must ensure that employee-generated objectives are consistent with those of the company.
A difference between the static budget based on planned volume and a flexible budget prepared at actual volume is called a: A. Flexible budget variance. B. Static budget variance. C. Production activity variance. D. Volume variance.
Volume variance.
The review of a capital budgeting decision to determine whether a project was accepted that should have been rejected is referred to as: A. an audit. B. a preaudit. C. a postaudit. D. a capital review.
a postaudit.
The reporting method that includes in the cost of inventory (and cost of goods sold) all product costs, including both fixed and variable costs is known as: A. variable costing. B. total costing. C. direct costing. D. absorption costing.
absorption costing.
All of the following are capital investment decisions except: A. acquiring $100,000 of common stock. B. buying a $5,000,000 manufacturing plant. C. purchasing equipment for $80,000. D. paying $600,000 to renovate a restaurant.
acquiring $100,000 of common stock.
A capital investment project may provide cash inflows from: A. incremental revenues. B. cost savings. C. the salvage value of the investment. D. all of these answers are correct.
all of these answers are correct.
A cash flow that only occurs in equal amounts each year is referred to as: A. a lump sum. B. a perpetuity. C. an annuity. D. None of these.
an annuity.
The difference between an ordinary annuity and an annuity due is: A. an ordinary annuity represents a present value and an annuity due represents a future value. B. an ordinary annuity represents a future value and an annuity due represents a present value. C. an ordinary annuity assumes the cash flows occur at the beginning of the period and an annuity due assumes the cash flows occur at the end of the period. D. an ordinary annuity assumes the cash flows occur at the end of the period and an annuity due assumes the cash flows occur at the beginning of the period.
an ordinary annuity assumes the cash flows occur at the end of the period and an annuity due assumes the cash flows occur at the beginning of the period.
Cash outflows generated by capital investments include all of the following except: A. annual depreciation of the capital asset. B. initial investment in the capital asset. C. increase in operating expenses. D. increase in the amount of required working capital
annual depreciation of the capital asset.
A series of equal cash flows at fixed intervals is termed a(n): A. net cash flow. B. lump sum. C. annuity. D. return on investment.
annuity.
Paying for factory utilities used during the current month is a(n): A. asset exchange transaction. B. asset use transaction. C. asset source transaction. D. claims exchange transaction.
asset exchange transaction.
Purchasing production supplies for cash is a(n): A. asset source transaction. B. asset exchange transaction. C. asset use transaction. D. claims exchange transaction.
asset exchange transaction.
Recognizing estimated manufacturing overhead costs at the end of a month is a(n): A. asset source transaction. B. asset use transaction. C. asset exchange transaction. D. claims exchange transaction.
asset exchange transaction.
Cost of goods sold is equal to the cost of goods: A. manufactured minus ending finished goods. B. available for sale minus beginning finished goods. C. available for sale minus ending finished goods. D. manufactured minus beginning finished goods.
available for sale minus ending finished goods.
Budgeting that involves decisions such as whether to buy or lease equipment or build a new factory is referred to as: A. capital budgeting. B. operations budgeting. C. facilities planning. D. strategic planning.
capital budgeting.
The process by which management evaluates long-term investment decisions involving long term operational assets is called: A. capital investment analysis. B. activity based management. C. strategic business analysis. D. fixed cost analysis.
capital investment analysis.
Company X manufactures 3-ring notebooks. All of the following are considered indirect costs except: A. cardboard used in production of the notebooks. B. depreciation on manufacturing equipment. C. factory utilities. D. salaries for production supervisors.
cardboard used in production of the notebooks.
Carolina Company placed $26,500 of raw materials into production. The recognition of this event will: A. decrease net income. B. not effect total assets. C. increase revenue. D. decrease cash flow from investing activities.
not effect total assets.
Herald Company paid $2,800 cash for production supplies. The recognition of this event will: A. not impact total assets. B. increase expenses. C. decrease equity. D. None of these.
not impact total assets.
Budgeting that involves the development of a master budget to direct the firm's activities over the short-term is referred to as: A. capital budgeting. B. operations budgeting. C. strategic planning. D. None of the above.
operations budgeting.
The budgeting technique that provides for employee input into the planning process is known as: A. continuous budgeting. B. perpetual budgeting. C. participative budgeting. D. zero-based budgeting.
participative budgeting.
The length of time required to recover the initial investment in a capital asset is known as the: A. the rate of return. B. investment period. C. present value period. D. payback period.
payback period.
The budgeting process formalizes and documents managerial plans to clearly communicating objectives to both superiors and subordinates. This budgeting requirement is an example of: A. performance measurement. B. planning. C. budget coordination. D. taking corrective action.
planning.
When using residual income as a project-screening tool, management should accept a project if the residual income is: A. positive. B. negative. C. equals the ROI. D. greater than net income.
positive.
The present value index indicates the: A. time it will take to recover the initial cash outflow of an investment. B. additional cash inflows from operating activities. C. rate of return per dollar invested in a capital project. D. ratio of the net present value of an investment to the initial investment.
rate of return per dollar invested in a capital project.
A credit to the Raw Materials Inventory account represents: A. raw materials added to production. B. raw materials purchased. C. raw materials available for use. D. none of these.
raw materials added to production.
The purposes of the postaudit for capital investments include all of the following except: A. continuous improvement. B. rewarding managers for increasing idle cash. C. determining whether the project generated the results expected. D. encouraging managers to closely scrutinize capital investment decisions.
rewarding managers for increasing idle cash.
Budgeted sales commissions would appear on the: A. selling, general and administrative budget and pro forma income statement B. selling, general and administrative budget and pro forma balance sheet C. sales budget and pro forma balance sheet D. sales budget and pro forma income statement
selling, general and administrative budget and pro forma income statement
Guest Corporation estimated that total overhead cost would be $23,000 for the current year, but actual overhead costs were $25,500; as a result, Guest spent $2,500 more than expected for overhead cost. This type of variance is known as a(n): A. material variance. B. activity variance. C. volume variance. D. spending variance.
spending variance.
The sales volume variance is the difference between the: A. static budget (based on actual volume) and the flexible budget (based on planned volume). B. static budget (based on planned volume) and the flexible budget (based on actual volume). C. static budget (based on planned volume) and actual revenue or cost. D. flexible budget (based on actual volume) and actual or revenue or cost.
static budget (based on planned volume) and the flexible budget (based on actual volume).
Planning concerned with long-range decisions such as defining the scope of the business is referred to as: A. operations budgeting. B. master planning. C. capital budgeting. D. strategic planning.
strategic planning.
The term that describes what occurs when a manager does what is in his/her best interests and not what is in the best interests of the company as a whole is known as: A. suboptimization. B. strategic planning. C. lowballing. D. goal alignment.
suboptimization.
Bates Company recognized $16,000 of estimated manufacturing overhead costs at the end of the month. As a result of this transaction the: A. temporary account Manufacturing Overhead increases and the Work in Process account decreases. B. temporary account Manufacturing Overhead decreases and the Work in Process account increases. C. temporary account Manufacturing Overhead decreases and the Wages Expense account increases. D. none of these.
temporary account Manufacturing Overhead decreases and the Work in Process account increases.
Capital investment decisions involve all of the following, except: A. the acquisition of short-term operational assets. B. projects requiring relatively long periods of time and large cash flows. C. the acquisition of long-term operational assets. D. none of these answers is correct.
the acquisition of short-term operational assets.
A customary assumption in capital budgeting analysis is that: A. the desired rate of return includes the effects of compounding. B. the cash inflows generated by the investment are not reinvested. C. annual cash flows occur at the beginning of each period. D. the time value of money is ignored.
the desired rate of return includes the effects of compounding.
Furst Company pays production workers' salaries on account. The cost will be recognized as an expense when: A. the goods made by the production workers are sold. B. the manufacturing process is complete. C. the cash is paid to settle the associate account payable. D. none of these.
the goods made by the production workers are sold.
Virginia Company paid $7,500 cash for various manufacturing overhead costs. As a result of this transaction: A. total assets increase. B. total assets, total equity, and net income are not affected. C. total assets, total equity, and net income decrease. D. none of these.
total assets, total equity, and net income are not affected.
Product costs are expensed as cost of goods sold: A. when production is complete. B. at the start of production. C. when the related products are sold. D. when the related revenue is collected.
when the related products are sold.
Hughes Company paid production workers $25,550 cash. These wages will be classified as: A. manufacturing overhead. B. work in process. C. cost of goods sold. D. salary expense.
work in process.
Long-term creditors are usually most interested in evaluating: A. Liquidity. B. Managerial effectiveness. C. Solvency. D. Profitability.
Solvency.
Which of the following applications is most suited for developing flexible budgets? A. Database B. Graphics C. Spreadsheet D. Word processing
Spreadsheet
White Company budgeted for $200,000 of fixed overhead cost and volume of 40,000 units. During the year, the company produced and sold 39,000 units and spent $210,000 on fixed overhead. The fixed overhead cost spending variance is: A. $10,000 favorable. B. $10,000 unfavorable. C. $5,000 favorable. D. $5,000 unfavorable.
$10,000 unfavorable.
Spark Company's static budget is based on a planned activity level of 45,000 units. At the same time the static budget was prepared, the management accountant prepared two additional budgets, one based on 40,000 units and one based on 50,000. The company actually produced and sold 49,000 units. In evaluating its performance, management should compare the company's actual revenues and costs to which of the following budgets? A. A budget based on 40,000 units B. A budget based on 45,000 units C. A budget based on 49,000 units D. A budget based on 50,000 units
A budget based on 49,000 units
Which of the following statements regarding the return on equity (ROE) measure is incorrect? A. ROE is used to measure the profitability of the firm in relation to the amount invested by stockholders. B. ROE equals net income divided by average total stockholders' equity. C. ROE is affected by a company's use of leverage. D. A company's ROE is lower than its return on investment because ROE does not consider that part of the business that is financed by debt.
A company's ROE is lower than its return on investment because ROE does not consider that part of the business that is financed by debt.
The research and development department of Apple Computers would likely be organized as: A. A profit center. B. A cost center. C. A revenue center. D. An investment center.
A cost center.
The entry to record the completion of a job in a job costing system would cause: A. An increase to the cost of goods manufactured account. B. An increase in net income. C. An increase to the Cost of Goods Sold account. D. A decrease to the Work in Process Inventory account.
A decrease to the Work in Process Inventory account.
The cellular phone division of Stegall Company had budgeted sales of $950,000 and actual sales of $900,000. Budgeted expenses were $600,000 while actual expenses were $550,000. Based on this information, the responsibility report for the manager of this profit center would show: A. A favorable revenue variance. B. A favorable cost variance. C. Both a favorable revenue variance and a favorable cost variance. D. None of these.
A favorable cost variance.
What is the result when the actual rate paid for labor is less than the standard rate? A. A favorable labor price variance B. An unfavorable labor price variance C. A favorable labor usage variance D. An unfavorable labor usage variance
A favorable labor price variance
What is the result when the quantity of materials used is less than the standard quantity? A. A favorable materials usage variance B. A favorable materials price variance C. An unfavorable materials usage variance D. An unfavorable materials price variance
A favorable materials usage variance
Which of the following statements is correct? A. Establishing standards is the least difficult aspect of using a standard cost system. B. Managers should be praised or punished based on variances. C. A favorable variance may indicate the existence of unfavorable conditions. D. Budget slack exists when performance standards are set at an ideal, unachievable level.
A favorable variance may indicate the existence of unfavorable conditions.
Select the incorrect statement regarding flexible budgets. A. Flexible budgets often show the estimated revenues and costs at multiple volume levels. B. A flexible budget is used to compare actual to budgeted amounts. C. A flexible budget is also known as a master budget. D. Standard prices and costs are used in preparing a flexible budget.
A flexible budget is also known as a master budget.
Select the correct statement regarding flexible budgets. A. A flexible budget can only be prepared for a single level of activity. B. A flexible budget is not used for planning. C. A flexible budget shows expected revenues and costs at a variety of activity levels. D. A flexible budget is also known as the master budget.
A flexible budget shows expected revenues and costs at a variety of activity levels.
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. Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes. D. In doing horizontal analysis, an account is expressed as a percentage of the previous balance of the same account.
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 profit centers is correct? A. A manager of a profit center has more responsibility than a manager of an investment center. B. A manager of profit center is evaluated only on his/her ability to control costs. C. A manager of a profit center is evaluated on his/her ability to control costs and generate revenues. D. A manager of a profit center is responsible for assets, liabilities, and earnings.
A manager of a profit center is evaluated on his/her ability to control costs and
Which of the following statements regarding investment centers is incorrect? A. A manager of an investment center is responsible for the investment of capital, but not revenues or expenses. B. Investment centers are commonly found at the higher levels of an organization chart. C. A manager of an investment center should be accountable for assets, liabilities, earnings. D. Return on investment and residual income are tools used to assess managers of an investment center.
A manager of an investment center is responsible for the investment of capital, but
Select the incorrect statement regarding postaudits of capital investment decisions. A. A postaudit should be conducted at the end of the project. B. The postaudit helps management determine whether a project that had been accepted should have been rejected. C. A postaudit is only necessary for a capital investment selected using a technique that does not consider the time value of money. D. The goal of a postaudit is to provide feedback that can be used to improve the accuracy of future capital investment decisions.
A postaudit is only necessary for a capital investment selected using a technique that does not consider the time value of money.
Which of the following is a valid reason for using variable costing? A. Fixed production cost should be ignored when costing units of inventory since it is not essential to the production process. B. Absorption costing recognizes fixed costs as expense regardless of volume of production. C. Absorption costing may motivate managers to overproduce in order to increase profits. D. Under variable costing managers can increase profitability by increasing the volume of production.
Absorption costing may motivate managers to overproduce in order to increase profits.
Which of the following accounts would appear on the inventory purchases budget and pro forma balance sheet? A. Cost of goods sold B. Sales revenue C. Accounts receivable D. Accounts payable
Accounts payable
Two ratios that provide insight on the relationship between credit sales and receivables are: A. Current ratio and inventory turnover ratio. B. Accounts receivable turnover and average days to collect receivables. C. Average days to collect receivables and asset turnover. D. Accounts receivable turnover and current ratio.
Accounts receivable turnover and average days to collect receivables.
Which ratio would you use to examine a company's ability to pay its debts in the short term? A. Earnings per share B. Acid-test ratio C. Debt to assets ratio D. Return on equity
Acid-test ratio
Select the response that best illustrates the point that product cost flows are cyclical and occur in a specific sequence. A. Acquire raw materials, convert raw materials, sell finished goods, collect cash B. Acquire finished goods, acquire raw materials, convert raw materials, collect cash C. Sell finished goods, collect cash, acquire raw materials D. Collect cash, acquire raw materials, sell finished goods
Acquire raw materials, convert raw materials, sell finished goods, collect cash
Which of the following statements is incorrect regarding variable overhead variances? A. Variable overhead variances are based on the same general formulas used to compute the materials and labor price variances. B. Variable overhead costs represent many inputs such as supplies, utilities and indirect labor. C. All companies must calculate price and usage variances for variable overhead costs. D. None of these answers is correct.
All companies must calculate price and usage variances for variable overhead costs.
Which of the following is a benefit associated with budgeting? A. Promotes planning and coordination B. The ability to take corrective action to improve performance C. Enhances performance measurement D. All of the answers are correct
All of the answers are correct
Select the correct statement regarding the selling and administrative (S&A) expense budget. A. The S&A budget is prepared after the sales budget. B. The S&A budget is prepared before the cash budget. C. The S&A budget is prepared before the pro forma income statement. D. All of the answers are correct.
All of the answers are correct.
The cash budget is based on which budget? A. Sales budget B. Inventory purchases budget C. Selling and administrative expense budget D. All of the answers are correct.
All of the answers are correct.
Which of the following is a true statement? A. Pro forma financial statements are based on the company's budgets. B. Companies prepare pro forma financial statements to show how their performance for the period will "look" if actual results match the budget. C. Companies usually prepare a pro forma income statement, pro forma balance sheet, and pro forma statement of cash flows. D. All of the answers are correct.
All of the answers are correct.
Which of the following statements concerning payback analysis is true? A. An investment with a shorter payback is preferable to an investment with a longer payback. B. The payback method ignores the time value of money concept. C. The payback method and the unadjusted rate of return are different approaches that will not consistently lead to the same conclusion. D. All of the other answers are correct.
All of the other answers are correct.
Accrual accounting requires the use of many estimates, including: A. Uncollectible accounts expense. B. Warranty costs. C. Assets' useful lives. D. All of these answers are correct.
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. Debt to assets ratio B. Debt to equity C. Plant assets to long-term liabilities D. All of these answers are correct.
All of these answers are correct.
Factor(s) involved in communicating useful information is (are): A. Attributes of the users B. Purpose for which the information will be used C. Process by which the information is analyzed D. All of these answers are correct.
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. Solvency C. Profitability D. All of these answers are correct.
All of these answers are correct.
Financial statement analysis involves forms of comparison including: A. Comparing changes in the same item over a number of periods. B. Comparing key relationships within the same year. C. Comparing key items to industry averages. D. All of these answers are correct.
All of these answers are correct.
For a product made by George Company, last year's standards for labor were 2 hours at $12 per hour. Which of the following considerations should George take into account in setting the standards for this year? A. George should revisit the prior year standards. B. George should consider whether or not the prior year standards were achieved. C. George should consider any changes that may influence worker productivity. D. All of these answers are correct.
All of these answers are correct.
Select the correct statement regarding vertical analysis. A. Vertical analysis of the income statement involves showing each item as a percentage of sales. B. Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets. C. Vertical analysis examines two or more items from the financial statements of one accounting period. D. All of these answers are correct.
All of these answers are correct.
Select the incorrect statement concerning the application of the controllability concept to responsibility accounting. A. As a practical matter, control of costs or revenues may be shared rather than absolute. B. The concept of control is crucial to an effective responsibility accounting system. C. Managers lose motivation when they are held accountable for actions that are beyond their scope of control. D. Each manager should be evaluated on the costs but not the revenues that are under his or her control.
As a practical matter, control of costs or revenues may be shared rather than absolute.
Which ratio measures how effectively a company is using assets to generate revenue? A. Net margin B. Plant assets to long-term liabilities C. Asset turnover D. Inventory turnover
Asset turnover
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. Return on investment. D. Net margin.
Average days to collect receivables.
Which of the following statement(s) is (are) correct? I. It is easy to distinguish the balance sheet of a company that uses a process costing system from that of a company that uses job-order costing II. A process cost system requires a work in process account for each processing department, while a job order system uses a single work in process account III. Process cost systems use multiple Finished Goods Inventory accounts A. I only B. II only C. II and III D. I, II, and III
B. II only
If a company is unable to use market-based transfer prices, the next best alternative is to use a price: A. Based on negotiation. B. Based on variable cost. C. Based on standard cost. D. Set by senior management.
Based on negotiation.
Which of the following items typically found on the selling and administrative expense budget will also impact the cash budget? A. Depreciation expense B. Administrative salaries C. Advertising expense D. Both administrative salaries and advertising expense are correct.
Both administrative salaries and advertising expense are correct.
Which of the following would be considered a cash inflow in determining the value of a capital investment? A. Incremental revenues from increased productivity B. Cost savings from a reduction in labor hours C. An increase in working capital commitments D. Both incremental revenues from increased productivity and cost savings from a reduction in labor hours are correct.
Both incremental revenues from increased productivity and cost savings from a reduction in labor hours are correct.
Select the incorrect statement. A. If both the flexible budget and actual results are based on the actual volume of activity, the flexible budget sales variance will be attributable to sales price, not sales volume. B. Budget slack is the difference between deflated and realistic standards. C. Gamesmanship is decreased if superiors and subordinates participate sincerely in setting mutually agreeable, attainable standards. D. For performance evaluation, management should compare actual results to a flexible budget based on the actual volume of activity.
Budget slack is the difference between deflated and realistic standards.
Sometimes employees will deliberately overstate the amount of materials and/or labor that should be required to complete a job. The difference between inflated and realistic standards is known as: A. Budget slack. B. Making the numbers. C. Lowballing. D. Cooking the books.
Budget slack.
Which of the following would not be included in a selling and administrative expenses budget? A. Budgeted salary expenses B. Budgeted rent expense C. Cash payments for selling and administrative expenses D. Budgeted interest expense
Budgeted interest expense
Select the incorrect statement regarding the human factor in the budgeting process. A. Budgets force employees to follow the organization's plan. B. The evaluation feature of budget systems is frightening for many people. C. There is a tendency for people to be uncomfortable with budgets. D. Proper handling of human relations is essential to the establishment of an effective budget system.
Budgets force employees to follow the organization's plan.
Which of the following would be prepared first when a merchandising company uses a master budget? A. Selling and administrative expense budget B. Budgeted income statement C. Sales forecast D. Inventory purchases budget
C. Sales forecast
Management recently instituted a new training program for upper level managers. They budgeted the cost of the new program at $1,000 per employee trained but actual costs were $1,250 per employee trained. The difference between the budgeted cost for training and the actual cost of training is called a: A. Period cost. B. Loss. C. Variance. D. Controllable cost.
C. Variance.
Which of the following statements is incorrect? A. Capital budgeting affects the master budget because it considers what assets a company should have and use when achieving its budgets. B. Capital budgeting involves decisions as whether to buy or lease equipment. C. Capital budgeting focuses on short-term planning. D. Cash outflows for capital budgeting will appear on the cash budget .
Capital budgeting focuses on short-term planning.
Budgeted depreciation expense would not appear on a: A. Selling and administrative expense budget. B. Budgeted income statement. C. Cash budget. D. All of the answers are correct.
Cash budget.
Which of the following would not be included in the inventory purchases budget? A. Required purchases B. Cash collections C. Budgeted cost of goods sold D. Desired ending inventory
Cash collections
Which of the following statements regarding cost centers is incorrect? A. Cost centers are units within a business that incur expense, but do not have responsibility for generating revenue. B. Cost centers tend to be found at upper levels on a company's organization chart. C. A manager of a cost center has less responsibility than a manager in an investment center. D. Cost center managers are evaluated on their ability to control costs and keep within budget.
Cost centers tend to be found at upper levels on a company's organization chart.
Grimes Company sold 2,500 units that had cost $12,000 to produce. The recording of the sale would include an increase to: A. Cost of Goods Sold. B. Finished Goods Inventory. C. Cost of Goods Manufactured. D. Manufacturing Overhead.
Cost of Goods Sold.
Select the correct equation format for the purchases budget. A. Beginning inventory + expected sales = required purchases. B. Cost of budgeted sales + beginning inventory - desired ending inventory = required purchases. C. Beginning inventory + expected sales - desired ending inventory = required purchases. D. Cost of budgeted sales + desired ending inventory - beginning inventory = required purchases.
Cost of budgeted sales + desired ending inventory - beginning inventory = required purchases.
Which of the following costs would not increase the Work in Process Inventory account? A. Cost of direct labor B. Cost of allocated overhead C. Cost of direct materials D. Cost of selling supplies
Cost of selling supplies
All of the following are asset exchange events except: A. Purchase of raw materials with cash. B. Use of raw materials in production. C. Cost of shipping goods to customers. D. Payment of production wages.
Cost of shipping goods to customers.
Which of the following is incorrect regarding a job-order cost system? A. Unit cost is determined for each product or job. B. Source documents are used to assign costs to the subsidiary accounts. C. Costs are accumulated for homogenous products that are produced through a continuous process. D. Costs may be accumulated for a batch of work that contains many units of a product.
Costs are accumulated for homogenous products that are produced through a continuous process.
Select the incorrect statement regarding cost flows through a job-order cost system. A. Product costs are accumulated separately by job. B. The job order cost system is patterned after the physical flow of products as they move through the production process. C. The three inventory accounts used are maintained on a perpetual basis. D. Costs are averaged for all jobs produced within a department.
Costs are averaged for all jobs produced within a department.
Jared expects to charge $60 per hour for his industrial maintenance business during the following year. He expects to reach 50,000 hours at that price. Jared's partner disagrees with the estimate and expects closer to 40,000 hours. What should Jared do when preparing the budget for the year? A. Create a flexible budget showing a range of outcomes between 40,000 hours and 50,000 hours. B. Create two master budgets, one at 50,000 hours and one at 40,000 hours. C. Create only one budget at the more optimistic volume of 50,000 hours. D. Create a volume budget based on actual performance.
Create a flexible budget showing a range of outcomes between 40,000 hours and 50,000 hours.
If the company purchased a $60,000 piece of equipment by paying $30,000 and having the rest financed with a short-term note from the bank, then immediately after this transaction what is the expected impact on the components of the current ratio? A. Current assets decrease and current liabilities increase by the same amount. B. Current liabilities decrease. C. Current assets and current liabilities decrease by the same amount. D. Current assets increase.
Current assets decrease and current liabilities increase by the same amount.
Working capital is defined as: A. Current assets divided by current liabilities. B. Total assets minus total liabilities. C. Current assets less current liabilities. D. Current liabilities divided by total liabilities.
Current assets less current liabilities.
The time value of money concept recognizes that a dollar today is worth more than a dollar tomorrow. Which of the following is not a factor in causing the present value of cash inflows to diminish over time? A. Current expenses. B. Earning potential, such as interest. C. Risk of uncollectibility. D. Inflation reduces future purchasing power.
Current expenses.
Which of the following statement(s) is/are correct? I. A predetermined overhead rate is used to assign estimated overhead costs to work in process. II. The predetermined overhead rate is calculated by dividing estimated overhead cost by the estimated volume or level of activity. III. The most common means of allocating overhead costs is to calculate a predetermined overhead rate at the end of the period. A. I B. I and III C. II D. I and II
D. I and II
The entry to record cost of selling a particular job in a job-order costing system would include a: A. Debit to Finished Goods Inventory and a credit to Cost of Goods Sold. B. Debit to Cost of Goods Sold and a credit to Finished Goods Inventory. C. Debit to Cost of Goods Sold and a credit to Wrk in Process Inventory. D. Credit to Work in Process Inventory and a debit to Finished Goods Inventory.
Debit to Cost of Goods Sold and a credit to Finished Goods Inventory.
If overhead was overapplied during the accounting period by an insignificant amount, the entry to close the Manufacturing Overhead account will include a: A. Debit to Cost of Goods Sold and a credit to Manufacturing Overhead. B. Debit to Cost of Goods Sold and a credit to Finished Goods Inventory. C. Debit to Manufacturing Overhead and a credit to Cost of Goods Sold. D. Debit to Finished Goods Inventory and a credit to Manufacturing Overhead.
Debit to Manufacturing Overhead and a credit to Cost of Goods Sold.
Which ratio measures the percentage of company's assets that are financed by debt? A. Debt to assets ratio B. Asset turnover C. Debt to equity D. Return on investment
Debt to assets ratio
You are considering an investment in Apple stock and wish to assess the firm's short- term debt-paying ability. All of the following ratios are used to assess liquidity except: A. Debt to equity ratio. B. Inventory turnover. C. Quick ratio. D. Accounts receivable turnover.
Debt to equity ratio.
Which of the following statements regarding the information disclosed in financial statements is incorrect? A. The costs of providing all possible information about a firm would be prohibitively high for the business. B. Some information disclosed in financial statements may be irrelevant to some users. C. Financial statements should be detailed enough to answer any financial-related question an investor might have. D. When too much information is presented users may suffer from information overload.
Financial statements should be detailed enough to answer any financial-related question an investor might have.
O'Hare Company, is a manufacturing firm that uses a job-order cost system to determine the costs of its products. During the current accounting period, O'Hare recognized cost of goods sold of $4,850 for job #132. The recognition of this event will include a decrease to which of the following accounts? A. Cost of Goods Sold. B. Production Supplies. C. Work in Process Inventory. D. Finished Goods Inventory.
Finished Goods Inventory.
As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant purchased merchandise on account for $4,000. Which of the following statements is correct? A. Gant's current ratio will decrease. B. Gant's quick ratio will increase. C. Gant's working capital will increase. D. Gant's quick ratio will increase and its current ratio will decrease.
Gant's current ratio will decrease.
As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant issued common stock at par value for $10,000 cash. Which of the following statement is correct? A. Gant's current ratio will decrease. B. Gant's current ratio will increase. C. Gant's quick ratio will decrease. D. Gant's working capital will decrease.
Gant's current ratio will increase.
As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2 Gant paid $3,600 on accounts payable. Which of the following statements is incorrect? A. Gant's quick ratio will increase and its current ratio will decrease. B. Gant's quick ratio will increase. C. Gant's working capital will remain the same. D. Gant's current ratio will increase.
Gant's quick ratio will increase and its current ratio will decrease.
As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant sold inventory on account for $6,000. Which of the following statements is incorrect? A. Gant's current ratio will decrease. B. Gant's quick ratio will increase. C. Gant's working capital will increase. D. None of these answers is correct.
Gant's quick ratio will increase.
As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant paid $250 for transportation in cost on merchandise it had received. Which of the following statements is incorrect? A. Grove's current ratio will remain the same B. Grove's quick ratio will increase C. Grove's working capital will remain the same D. Grove's quick ratio will increase and its current ratio will remain the same.
Grove's quick ratio will increase
Current financial reporting standards assume that users of accounting information: A. Have an expert's understanding of economic and financial events and conditions. B. Have a reasonably informed knowledge of business. C. Have widely differing levels of knowledge about business, and that financial reporting must meet these differing needs. D. Have only minimal knowledge of business.
Have a reasonably informed knowledge of business.
O'Hare Company, is a manufacturing firm that uses a job-order cost system to determine the costs of its products. During the current accounting period, O'Hare paid $700 for equipment rental and other indirect costs. The recognition of this event would: A. Decrease total assets. B. Increase total assets. C. Reduce net income. D. Have no impact on total assets.
Have no impact on total assets.
O'Hare Company, is a manufacturing firm that uses a job-order cost system to determine the costs of its products. During the current accounting period, O'Hare transferred total product costs for job #132, to finished goods. The recognition of this event would: A. Increase total assets. B. Decrease total assets. C. Reduce net income. D. Have no impact on total assets.
Have no impact on total assets.
O'Hare Company, is a manufacturing firm that uses a job-order cost system to determine the costs of its products. On January 1, O'Hare purchased $3,000 of raw materials with cash. The entry to record the purchase of raw materials would: A. Increase total assets. B. Decrease total assets. C. Have no impact on total assets. D. Decrease net income.
Have no impact on total assets.
Which of the following is not a factor in explaining why the present value of a future dollar is less than one dollar? A. Inflation B. Interest C. Risk of failure to receive expected cash inflows D. Historic cost
Historic cost
The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the: A. Matching principle. B. Conservatism concept. C. Historic cost principle. D. Time value of money concept.
Historic cost principle.
A process cost system is used when: A. Homogenous items are produced in a continuous flow production process. B. Batches of identical inventory items are produced. C. A company produces unique, one-of-a-kind inventory items. D. All of these.
Homogenous items are produced in a continuous flow production process.
The study of an individual item or account over several periods in the same financial year or over many years is known as: A. Liquidity analysis B. Ratio analysis C. Vertical analysis D. Horizontal analysis
Horizontal analysis
Select the incorrect statement regarding the recognition of depreciation on manufacturing equipment. A. Recognizing depreciation on manufacturing equipment is an asset exchange event. B. Depreciation on manufacturing equipment is an indirect product cost. C. Recognizing depreciation on manufacturing equipment decreases the equipment's book value and increases the Manufacturing Overhead account. D. If the equipment was used to work on a job, the amount of depreciation must be entered on the appropriate job cost sheet.
If the equipment was used to work on a job, the amount of depreciation must be entered on the appropriate job cost sheet.
Which of the following is not a criteria that is used to determine whether a project is acceptable under the net present value method? A. If the net present value is equal to zero B. If the net present value is greater than zero C. If the net present value is equal to the required rate of return D. None of these answers is correct.
If the net present value is equal to the required rate of return
Joan Osborne is evaluating a potential capital investment. She has calculated the net present value using a minimum rate of return of 10%. Using this rate, the net present value is negative. What does this tell her about the rate of return expected for the project? A. If the net present value is negative; the expected rate of return for the project is greater than the 10% minimum or required rate of return. B. If the net present value is negative; the expected rate of return for the project is less than the 10% minimum or required rate of return. C. If the net present value is negative; the expected rate of return for the project is equal to the 10% minimum or required rate of return. D. None of the other answers are correct.
If the net present value is negative; the expected rate of return for the project is less than the 10% minimum or required rate of return.
Which of the following is not a major cash inflow from a capital investment? A. Incremental revenue B. Increase in working capital C. Cost savings D. Salvage value
Increase in working capital
O'Hare Company is a manufacturing firm that uses a job-order cost system to determine the costs of its products. O'Hare Company sold job #132 for $8,200 cash. The job cost sheet for that job reported total manufacturing costs of $5,900. The recognition of this event on the financial statements would include a(n): A. Decrease to total assets and total equity. B. Decrease to total liabilities. C. Increase to total assets, total equity and net income. D. Decrease to net income.
Increase to total assets, total equity and net income.
As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant recorded cost of goods sold of $4,100. As a result of this transaction, Gant's quick ratio will: A. Decrease. B. Increase. C. Remain the same. D. Cannot be determined.
Increase.
Benson Company declared and paid a cash dividend totaling $500,000 on its common stock. As a result of this transaction, the company's debt to assets ratio will: A. Decrease. B. Increase. C. Remain the same. D. Cannot be determined.
Increase.
Benson Company received cash of $5,000,000 by issuing 20-year bonds payable. As a result of the this transaction, the company's current ratio will: A. Remain the same. B. Increase. C. Decrease. D. Cannot be determined.
Increase.
Common methods of financial statement analysis include all of the following except: A. Incremental analysis. B. Horizontal analysis. C. Vertical analysis. D. Ratio analysis.
Incremental analysis.
All of the following transactions lead to an entry on the job cost sheet except: A. Indirect material used on the job. B. A materials requisition for material used on a job. C. Work ticket for direct labor incurred on the job. D. Application of estimated overhead to the job.
Indirect material used on the job.
The resources used in the manufacturing process are frequently called: A. Variances. B. Standards. C. Inputs. D. Outputs.
Inputs.
Which method of evaluating capital investment decisions uses the concept of present value to compute a rate of return? A. Internal rate of return B. Unadjusted rate of return C. Net present value D. Payback
Internal rate of return
Cost of goods sold divided by average inventory is the formula for which of these analytical measures? A. Number of day's sales in inventory B. Return on investment C. Inventory turnover D. Debt to assets ratio
Inventory turnover
Which section is not included on the cash budget? A. Investing B. Cash payments C. Cash receipts D. Financing
Investing
Which of the following statements is correct? A. Investors need to understand that the value of a company's earnings per share is affected by its choices of accounting principles and assumptions. B. Earnings per share is calculated for a company's preferred stock. C. The most widely quoted measure of a company's earnings performance is return on equity. D. The book value per share measures the market value of a corporation's stock.
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 regarding responsibility accounting is not correct? A. It calls for the preparation of reports containing detailed information regarding the performance of a responsibility center. B. It is most effective in a decentralized business structure where many managers exert control over various segments of a company's operations. C. It calls for the preparation of responsibility reports listing the budgeted and actual revenue and/or expense items over which the manager has control. D. It requires top management to prepare a budget for the entire company and communicate that plan to lower levels of management.
It requires top management to prepare a budget for the entire company and communicate that plan to lower levels of management.
Which source document provides information for the journal entry to transfer costs from the Work in Process Inventory account to the Finished Goods Inventory account? A. Job cost sheet B. Work ticket C. Standard cost card D. Materials requisition
Job cost sheet
Marcy is plant manager for Diversified Industries. She and the managers of four other plants report to the vice president in charge of manufacturing operations. Three department managers report to Marcy. Select the incorrect statement regarding the preparation of responsibility reports. A. Marcy's responsibility report should include a detailed account of the individual items for which she is personally responsible. B. The vice president's responsibility report would contain information for Marcy's plant rolled together with that of the other four plants. C. Marcy's administrative costs should be included on the reports of her three department managers. D. Marcy's responsibility report should contain only summary information about the operations of the three departments in her chain of command.
Marcy's administrative costs should be included on the reports of her three department managers.
Which manager is generally held responsible for the sales volume variance? A. Purchasing agent B. Marketing manager C. Plant manager D. Production manager
Marketing manager
Multiplying the difference between actual materials price per unit and the standard materials price per unit by actual quantity of materials used is known as the: A. Sales volume variance. B. Materials price variance. C. Labor price variance. D. Materials usage variance.
Materials price variance.
Select the incorrect statement about budgeting committees. A. Membership on the budget committee is restricted most often to accountants because the budget involves numbers. B. Budget committees usually have responsibility for the coordination of budgeting activities. C. The budget committee is responsible for settling disputes between various departments over budget matters. D. One of the responsibilities of the budget committee is to monitor the organization's progress toward achieving its budget standards.
Membership on the budget committee is restricted most often to accountants because the budget involves numbers.
Which of the following is not an inventory account maintained by a manufacturing company? A. Finished Goods Inventory B. Work in Process Inventory C. Raw Materials Inventory D. Merchandise Inventory
Merchandise Inventory
Which of the following statements is true for a company that uses variable costing? A. The manufacturing cost per unit decreases when the volume of production increases. B. Net income is not affected by fluctuations in production. C. Fixed manufacturing overhead is treated like a product cost. D. Fixed manufacturing overhead costs incurred in the current period may be recognized as expense in a later period.
Net income is not affected by fluctuations in production.
Net income divided by sales is the formula for which of these analytical measures? A. Return on assets B. Return on equity C. Earnings per share D. Net margin
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. Number of times interest is earned. B. Debt to assets ratio. C. Debt to equity ratio. D. Net margin.
Net margin.
Which method for evaluating capital investment proposals reduces the present value of cash outflows from the present value of cash inflows? A. Payback method B. Internal rate of return C. Net present value D. Unadjusted rate of return
Net present value
Rialto Company collected $5,000 on account. What impact will this transaction have on the firm's current ratio? A. No impact B. Increase it C. Decrease it D. Not enough information is provided to answer the question.
No impact
Benson Corporation is considering an investment in equipment that would cost $50,000 and provide annual cash inflows of $14,000. The company's required rate of return is 12%; the internal rate of return for the investment is 10.5%. Should the company make this investment? A. No, since the internal rate of return is more than the company's required rate of return. B. Yes, since the internal rate of return is less than the company's required rate of return. C. No, since the internal rate of return is less than the company's required rate of return. D. The answer cannot be determined.
No, since the internal rate of return is less than the company's required rate of return.
When would a variance be labeled as unfavorable? A. When standard costs are more than actual costs B. When expected sales are less than actual sales C. When actual sales are equal to expected sales D. None of these answers is correct.
None of these answers is correct.
Which of the following statements is incorrect? A. In deciding whether to investigate a variance, managers should not consider the materiality of the variance. B. A material variance is one that will influence stockholders' investment decisions. C. The primary advantage of a standard cost system is to price products consistently. D. None of these answers is correct.
None of these answers is correct.
Earnings before interest and taxes divided by interest expense is the formula for which of these analytical measures? A. Debt to assets ratio B. Earnings per share C. Return on investment D. Number of times interest is earned
Number of times interest is earned
Which of the following items would be least useful in preparing a schedule of cash receipts? A. Expected revenue from cash sales. B. Number of units expected to be purchased. C. Service charges for credit card sales. D. Past accounts receivable collection experience.
Number of units expected to be purchased.
Cash outflows can be categorized into all of the following groups except: A. opportunity costs associated with selecting a specific capital project. B. outflows associated with the initial investment. C. working capital commitments. D. increases in operating expenses.
Opportunity costs associated with selecting a specific capital project.
Harvey wants to determine the net present value for a proposed capital investment. He has determined the desired rate of return, the expected investment time period, a series of cash inflows of equal amount, the salvage value of the investment, and the required cash outflows. Which of the following tables would most likely be used to calculate the net present value of the investment? A. Present value of annuity. B. Future value of a lump sum. C. Present value of annuity and present value of a lump sum. D. Future value of annuity and future value of a lump sum.
Present value of annuity and present value of a lump sum.
The preferred method for setting transfer prices generally is some form of: A. Price based on negotiation. B. Price based on industry cost averages. C. Price based on historical costs. D. Price based on market forces.
Price based on market forces.
Which ratio compares the earnings per share of a company to the market price for a share of the company's stock? A. Price-earnings ratio B. Dividend yield C. Book value per share D. Return on equity
Price-earnings ratio
Which product costing system distributes costs evenly across total production? A. Process cost system B. Job order cost system C. Standard cost system D. Variable cost system
Process cost system
A laundry detergent manufacturer would most likely use: A. Process costing. B. Job order costing. C. Hybrid order costing. D. Batch order costing.
Process costing.
Select the incorrect statement regarding cost flows through a process cost system. A. The process cost system is patterned after the physical flow of products as they move through the production process. B. The three inventory accounts used are maintained on a perpetual basis. C. Product costs are accumulated separately by job. D. A separate work in process account is maintained for each department or process.
Product costs are accumulated separately by job.
Which manager is usually held responsible for labor price variances? A. Sales manager B. Purchasing agent C. Marketing manager D. Production supervisor
Production supervisor
Which manager is usually held responsible for materials usage variances? A. Production supervisor B. Marketing manager C. Purchasing agent D. None of these answers is correct.
Production supervisor
An organizational unit of a business that incurs costs and generates revenues is known as a(n): A. Cost center. B. Sales center. C. Profit center. D. Investment center.
Profit center.
Which of the following is not an advantage of budgeting? A. Provides assurance that accounting records are in accordance with generally accepted accounting principles B. Forces coordination among departments to promote decisions in the best interests of the company as a whole C. Provides advance notice of potential shortages, bottlenecks, or other weaknesses in operating plans D. Provides a way to evaluate performance
Provides assurance that accounting records are in accordance with generally accepted accounting principles
Which manager is usually held responsible for materials price variances? A. Plant manager B. Purchasing agent C. Production supervisor D. Marketing manager
Purchasing agent
Which of the following statements about return on investment (ROI) is false? A. ROI equals margin divided by investment turnover. B. ROI is used to measure the performance of investment centers. C. Seeking to maximize ROI can result in a conflict between the interest of a particular manager and the interest of the business as a whole. D. Companies may minimize motivational problems by using original cost instead of book value in the denominator of the ROI formula.
ROI equals margin divided by investment turnover.
Which of the following statements is incorrect? A. ROI is calculated as revenue divided by operating assets. B. Operating assets are assets that are actually used to generate revenue. C. Non-operating assets are not included in the calculation of return on investment. D. Operating assets include both current and long-term assets.
ROI is calculated as revenue divided by operating assets.
Which of the following statements regarding ratio analysis is incorrect? A. Ratio analysis is a specific form of horizontal analysis. B. There are many different ratios available for evaluating a firm's performance. C. Some ratios involve an account from the balance sheet and one from the income statement. D. Ratio analysis involves making comparisons between different accounts in the same set of financial statements.
Ratio analysis is a specific form of horizontal analysis.
For a manufacturing business, cost of indirect materials is first recorded in the: A. Raw Materials Inventory account. B. Supplies Inventory account. C. Work In Process Inventory account. D. Manufacturing Overhead account.
Raw Materials Inventory account.
Select the response that indicates the correct sequence of product cost flows from production to sale. A. Raw materials, finished goods, and cost of goods sold B. Cost of goods sold, finished goods, work in process, raw materials C. Work in process, finished goods, and cost of goods sold D. Raw materials, work in process, finished goods, and cost of goods sold
Raw materials, work in process, finished goods, and cost of goods sold
As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant collected $5,200 of accounts receivable. As a result of this transaction, Gant's working capital will: A. Increase. B. Decrease. C. Remain the same. D. Cannot be determined.
Remain the same.
Which ratios measure a company's long-term debt paying ability and its financing structure? A. Solvency B. Liquidity C. Profitability D. None of these answers is correct.
Solvency
Prentiss Company is decentralized with three divisions. While all three division managers have responsibility for costs, only the Division Three manager has responsibility for generating revenues. Select the correct statement from the following. A. Prentiss Company is not large enough to benefit from preparing responsibility reports. B. Responsibility reports should be prepared for Division Three only. C. Responsibility reports should be prepared for all three divisions. D. Responsibility reports should be prepared for Divisions One and Two only.
Responsibility reports should be prepared for all three divisions.
The return on investment measure is also referred to as: A. Net margin. B. Return on equity. C. Return on debt. D. Return on assets.
Return on assets.
Which of the following statements is incorrect? A. Turnover is calculated by dividing sales by average operating assets. B. Margin is a measure of the profits generated from sales. C. Return on investment can be improved by increasing sales, decreasing expenses, or increasing the asset base. D. If return on investment increases when sales increase, that change usually is due at least in part to the effect of fixed costs (operating leverage).
Return on investment can be improved by increasing sales, decreasing expenses, or increasing the asset base.
Which event results in the transfer of product costs from the balance sheet to the income statement? A. Purchase of materials B. Sale of goods C. Production of goods D. Application of estimated manufacturing overhead to job
Sale of goods
Which of the following formats is typically used in year-to-date income statements prepared for internal use under a responsibility accounting system? A. Sales - Cost of Goods Sold = Gross Margin; Gross Margin - Operating Expenses = Net Income B. Sales - Manufacturing Costs = Manufacturing Margin; Manufacturing Margin - Selling and Administrative Costs = Net Income C. Sales - Variable Costs = Contribution Margin; Contribution Margin - Fixed Costs = Net Income D. None of these.
Sales - Variable Costs = Contribution Margin; Contribution Margin - Fixed Costs = Net Income
Which of the following income statement formats is most commonly used with flexible budgeting? A. Sales - Variable costs = Contribution margin; Contribution margin - Fixed costs = Net income B. Sales - Cost of goods sold = Gross margin; Gross margin - Operating expenses = Net income C. Sales - Manufacturing costs - Selling and administrative costs = Net income D. None of these answers is correct.
Sales - Variable costs = Contribution margin; Contribution margin - Fixed costs = Net income
The inventory purchases budget is based on which budget? A. Cash budget B. Sales budget C. Selling and administrative expense budget D. None of the above answers are correct.
Sales budget
Which of the following budgets needs to be prepared prior to preparing an inventory purchases budget? A. Selling and administrative expense budget B. Sales budget C. Cash budget D. All of the answers are correct.
Sales budget
In vertical analysis, each item is expressed as a percentage of: A. Total expenses on the income statement. B. Net income on the income statement. C. Sales on the income statement. D. None of these answers is correct.
Sales on the income statement.
Which of the following accounts would appear on the sales budget and the pro forma income statement? A. Selling and administrative expenses B. Sales revenue C. Accounts receivable D. Both B and C are correct
Sales revenue
Which of the following would represent the order in which most master budgets are prepared? A. Sales, Income Statement, Cash, Purchases B. Purchases, Cash, Sales, Income Statement C. Purchases, Sales, Cash, Income Statement D. Sales, Purchases, Cash, Income Statement
Sales, Purchases, Cash, Income Statement
Which of the following is generally included in a sales budget? A. Schedule of cash receipts for the projected sales B. Desired ending inventory C. Budgeted cost of goods sold D. Schedule of cash payments for inventory purchases
Schedule of cash receipts for the projected sales
Which one of the following statements best describes an ordinary annuity? A. Series of cash inflows of varying amounts collected at the end of each period B. Series of cash flows of equal amounts collected at the end of each period C. Series of cash flows of varying amounts collected at the beginning of each period D. Series of cash flows of equal amounts collected at the beginning of each period
Series of cash flows of equal amounts collected at the end of each period
Select the incorrect statement regarding service companies. A. Service companies do not maintain a Finished Goods Inventory account. B. Service companies accumulate their service costs in a Work in Process Inventory account similar to manufacturers. C. Service companies may have raw material costs. D. Understanding the cost of providing a service is just as important as knowing the cost of making a product.
Service companies accumulate their service costs in a Work in Process Inventory account similar to manufacturers.
A process cost system would be appropriate for all of the following except: A. Production of gasoline. B. Manufacture of smart phones. C. Services provided by public accounting firm. D. Manufacture of granola bars.
Services provided by public accounting firm.
The master budget details: A. Long-term objectives. B. Intermediate objectives. C. Short-term objectives. D. All of the answers are correct.
Short-term objectives.
Lilly's Corporation has working capital of $620,000, and Harmon Corporation has working capital of $840,000. Which of the following statements is incorrect? A. Since working capital is an absolute amount, other factors such as size of the company and materiality will help to determine liquidity of these two companies. B. Since Harmon's working capital exceeds Lilly's working capital, it is safe to conclude that Harmon is more liquid than Lilly. C. If Lilly Corporation is smaller than Harmon or has lower current liabilities; Lilly could be more liquid than Harmon. D. None of these answers is correct.
Since Harmon's working capital exceeds Lilly's working capital, it is safe to conclude that Harmon is more liquid than Lilly.
Which of the following is a difference between a static and a flexible budget? A. Static budgets use the same fixed cost amounts, whereas flexible budgets change the amount of fixed costs at different levels of activity. B. Static budgets are based on the same per unit variable amount, whereas flexible budgets are based on multiple per unit variable amounts. C. Static budgets are based on single estimate of volume, whereas flexible budgets show estimated costs and revenues at a variety of activity levels. D. None of these answers is correct.
Static budgets are based on single estimate of volume, whereas flexible budgets show estimated costs and revenues at a variety of activity levels.
What budget is generally not included in a master budget? A. Strategic budget B. Capital budget C. Operating budget D. All of the answers are correct.
Strategic budget
The type of planning that involves long term decisions, such as defining the scope of the business and deciding what products to make is known as: A. Continuous planning B. Strategic planning C. Capital budgeting D. Operations budgeting
Strategic planning
Which of the following is an advantage of using cost-based transfer prices? A. Such prices are an objective measure and easy to compute. B. Such prices motivate the buying division to control cost. C. Such prices provide a sense of fairness. D. Such prices will usually exceed the market based or negotiated transfer prices.
Such prices are an objective measure and easy to compute.
Select the correct statement about budgeting and human behavior. A. People are usually very comfortable with budgets. B. The attitudes of upper managers significantly impact budget effectiveness. C. Budgets increase individual freedom within an organization. D. Participative budgeting contributes to fear and resentment.
The attitudes of upper managers significantly impact budget effectiveness.
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 debt to assets ratio is a liquidity ratio. D. The dividend yield is a stock market ratio.
The debt to assets ratio is a liquidity ratio.
All of the following factors should influence the decision to investigate a variance except: A. Frequency of occurrence. B. Materiality of the variance amount. C. The direction of the variance (favorable or unfavorable). D. Capacity for management to control.
The direction of the variance (favorable or unfavorable).
Which of the following is not an advantage of using a standard cost system? A. Promotes the efficient use of management talent to control costs B. Provides immediate feedback that permits rapid response to problems C. The easiest cost system to develop and maintain D. Can boost morale and motivate employees
The easiest cost system to develop and maintain
Which statement characterizes the time value of money concept? A. The future value of a present dollar is greater than one dollar. B. The present value of a future dollar is greater than one dollar. C. The timing of cash flows is not relevant to decision making. D. None of these answers is correct.
The future value of a present dollar is greater than one dollar.
Select the incorrect statement concerning the internal rate of return (IRR) method of evaluating capital projects. A. The higher the IRR the better. B. The internal rate of return is that rate that makes the present value of the initial outlay equal to zero. C. If a project has a positive net present value then its IRR will exceed the hurdle rate. D. A project whose IRR is less than the cost of capital should be rejected.
The internal rate of return is that rate that makes the present value of the initial
Select the incorrect statement about the planning process. A. The longer the time period, the more specific the plans. B. Planning decisions can often be sub-divided into three distinct planning phases, short- term, intermediate-term, and long-term. C. The nature of planning changes with the length of the time period being considered. D. The shorter the time period, the less general the plans.
The longer the time period, the more specific the plans.
Select the incorrect statement concerning the present value index (PVI). A. The PVI is computed by dividing the total present value of the cash inflows by the present value of the cash outflows. B. The PVI should be used to evaluate two or more projects whose initial investments differ. C. The lower the PVI, the better. D. A project whose PVI is positive will also have a positive net present value.
The lower the PVI, the better.
Select the correct statement about the master budget. A. The master budget is a group of detailed budgets and schedules representing the company's operating and financial plans for the past accounting period. B. The master budget usually includes operating budgets and capital budgets, and pro forma financial statements. C. The budgeting process usually begins with preparing the strategic budgets. D. Preparing the master budget begins with the cash budget.
The master budget usually includes operating budgets and capital budgets, and pro forma financial statements.
Which of the following statements describes the cost of capital? A. The internal rate of return on investments B. The maximum acceptable rate of return on investments C. The minimum rate of return on investments D. The interest rate the bank charges its best customers
The minimum rate of return on investments
Equivalent units of production would best be defined as: A. The number of whole units that could have been completed with direct material, direct labor and overhead used during the period. B. Completed units that are produced through the same process. C. Number of units transferred out during the period, regardless of when the units were started into production. D. Units of production that are the same kind of product.
The number of whole units that could have been completed with direct material, direct labor and overhead used during the period.
An example of a product or service that would most likely be accounted for using a process cost system would be: A. Vitamin manufacturer. B. Printing services. C. Manufacturer of motor homes. D. Auto repair services.
Vitamin manufacturer.
Which of the following statements about postaudits is correct? A. A postaudit should be conducted at the time a capital investment is purchased. B. The postaudit of a capital investment project should be made using the same analytical technique that was used in deciding to make the investment. C. The purpose of postaudits is to improve a company's cost-volume-profit analysis. D. The postaudit process uses expected cash flows and the company's cost of capital.
The postaudit of a capital investment project should be made using the same analytical technique that was used in deciding to make the investment.
Which of the following statements regarding the quick ratio is incorrect? A. The quick ratio is also known as the acid-test ratio. B. The quick ratio ignores some current assets that are less liquid than others. C. The quick ratio is a conservative variation of the current ratio. D. The quick ratio equals quick assets divided by total liabilities.
The quick ratio equals quick assets divided by total liabilities.
Which of the following statement is correct regarding the quick ratio? A. The numerator for the quick ratio is current assets minus inventory minus accounts receivable. B. The numerator for the quick ratio is current assets. C. The quick ratio is also called the working capital ratio. D. The quick ratio is a more conservative variation of the current ratio.
The quick ratio is a more conservative variation of the current ratio.
Which of the following statements about financial statement analysis is incorrect? A. 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. B. Vertical analysis compares two or more financial statement items within the same time period. C. 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. D. The reason behind a financial statement ratio or percentage analysis result is usually self-evident and does not require further study or analysis.
The reason behind a financial statement ratio or percentage analysis result is usually self-evident and does not require further study or analysis.
Select the incorrect statement regarding the cost of production report. A. The report consists of two sections, a units section and a costs section. B. The report is produced monthly by job or batch. C. The cost inputs on the report come from the work in process account. D. The report indicates the cost of units transferred out.
The report is produced monthly by job or batch.
Select the incorrect statement concerning responsibility reports. A. The reports should be stated in simple terms. B. The reports should show clearly the budgeted and actual amounts of controllable revenues and expenses. C. At the corporate level, responsibility reports generally include year-to-date contribution format income statements. D. The reports become more specific for higher levels within the organization
The reports become more specific for higher levels within the organization
Which of the following statements regarding the schedule of cost of goods manufactured and sold is correct? A. The schedule is an internal document, which is not presented with the company's financial statements. B. The schedule of cost of goods manufactured and sold shows the amount of cash paid for raw materials. C. The schedule of cost of goods manufactured and sold reports the amount of direct raw materials used during the period. D. The schedule is an internal document, which is not presented with the company's financial statements, and, in addition, the schedule of cost of goods manufactured and sold reports the amount of direct raw materials used during the period.
The schedule is an internal document, which is not presented with the company's financial statements, and, in addition, the schedule of cost of goods manufactured and sold reports the amount of direct raw materials used during the period.
Which of the following statements regarding net margin is incorrect? A. Net margin refers to the average amount of each sales dollar remaining after all expenses are subtracted. B. Net margin may be calculated in several ways. C. The amount of net margin is affected by a company's choices of accounting principles. D. The smaller the net margin the better.
The smaller the net margin the better.
Select the correct statement. A. The four advantages of budgeting include planning, coordination, performance measurement, and reporting. B. In a participative budgeting system, budget information flows in one direction only, from bottom to top. C. The three major categories of the master budget are operating budgets, capital budgets, and pro forma financial statements. D. The accounting department normally coordinates the development of the sales forecast.
The three major categories of the master budget are operating budgets, capital budgets, and pro forma financial statements.
Select the incorrect statement regarding the cash budget. A. The cash budget helps managers to anticipate cash shortages and excess cash balances. B. Cash inflows and outflows indicated on the cash budget are reported on a company's pro forma statement of cash flows. C. Cash payments may include outflows for inventory, selling and administrative expenses, and equipment purchases. D. The total cash available is calculated by adding cash receipts and the ending cash balance.
The total cash available is calculated by adding cash receipts and the ending cash balance.
Heartwood Company reported a $4,000 favorable direct labor price variance and a $1,500 unfavorable direct labor usage variance. Select the correct statement from the following. A. It took the employees less time to produce the outputs than expected. B. The total direct labor variance is $2,500 favorable. C. The actual direct labor rate must have exceeded the standard direct labor rate. D. It is probable that the supervisor attempted to use more highly skilled (and paid) employees than allowed for by the direct labor standards.
The total direct labor variance is $2,500 favorable.
O'Hare Company, is a manufacturing firm that uses a job-order cost system to determine the costs of its products. During the current accounting period, O'Hare recognized depreciation of $600 on manufacturing equipment. Which of the following describes the effect of this event on the accounting equation? A. Total assets and total equity are unaffected. B. Both total assets and total equities increase. C. Total assets and net income decrease. D. Total assets increase and net income increase.
Total assets and total equity are unaffected.
In vertical analysis, each item is expressed as a percentage of: A. Total assets on the balance sheet. B. Total cash on the balance sheet. C. Total current assets on the balance sheet. D. None of these answers is correct.
Total assets on the balance sheet.
What information does the sales budget provide for pro forma financial statements? A. Total budgeted sales to be used on the pro forma income statement B. Cash collections from customers to be used on the pro forma balance sheet C. The ending balance in accounts payable which appears on the pro forma balance sheet D. All of the answers are correct.
Total budgeted sales to be used on the pro forma income statement
Horizontal analysis is also known as: A. Liquidity analysis. B. Trend analysis. C. Revenue analysis. D. Variance analysis.
Trend analysis.
Which of the following statements is true? A. Under absorption costing some fixed manufacturing costs are deferred in ending inventory if production is lower than sales. B. When production and sales are equal, net income will be greater under variable costing than it will be under absorption costing. C. Under absorption costing only the fixed manufacturing cost associated with inventory produced are expensed. D. Under variable costing fixed manufacturing costs are expensed in the period in which they are incurred regardless of when the inventory is sold.
Under variable costing fixed manufacturing costs are expensed in the period in which they are incurred regardless of when the inventory is sold.
Which of the following statements is false? A. Under variable costing, the income statement is prepared using a contribution margin approach. B. Variable costing is not allowed for external financial reporting, but many companies find it useful for internal managerial reports. C. Under variable costing, an increase in production increases the amount of profit reported on the income statement, even if the additional units are not sold. D. Under variable costing, fixed manufacturing costs are expensed in the period incurred.
Under variable costing, an increase in production increases the amount of profit reported on the income statement, even if the additional units are not sold.
Which manager is normally held responsible for fixed cost volume variances? A. Production supervisor B. Upper level marketing managers C. Plant manager D. Purchasing agent
Upper level marketing managers
Which of the following is a not an advantage of decentralization? A. Lower level managers are trained for increased responsibilities. B. Managers are motivated to improve productivity. C. Upper-level managers are able to concentrate on routine decisions.. D. All of these are advantages of decentralization.
Upper-level managers are able to concentrate on routine decisions.
Which of the following statements regarding a process cost system is false? A. Use of a process cost system would be appropriate for a company that manufactures luxury yachts. B. Unit costs are computed for each department. C. The number of equivalent whole units for a period takes into account the stage of completion of ending work in process inventory. D. Unit cost is determined for a designated period of time.
Use of a process cost system would be appropriate for a company that manufactures luxury yachts.
Which of the following statements regarding the analysis of absolute amounts of various accounts reported on the financial statements is incorrect? A. Financial statement users with expertise in particular industries can look at absolute amounts and assess a company's performance in a certain area. B. To correctly evaluate an absolute amount, the analyst must consider its relative importance. C. Economic statistics such as the gross national product are built upon totals of absolute amounts reported by businesses. D. Using absolute amounts eliminates the problem of varying materiality levels.
Using absolute amounts eliminates the problem of varying materiality levels.
Select the correct statement regarding general, selling, and administrative (GS&A) costs. A. Variable general, selling, and administrative costs can have price variances. B. Variable general, selling, and administrative costs cannot have usage variances. C. Cost variances are not generally computed for fixed general, selling, and administrative costs. D. All of these answers are correct.
Variable general, selling, and administrative costs can have price variances.
Volume variances are computed for which of the following costs? A. Fixed manufacturing costs only B. Variable selling and administrative costs only C. Variable manufacturing and selling and administrative costs D. Variable manufacturing costs only
Variable manufacturing and selling and administrative costs
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. Ratio analysis. B. Contribution analysis. C. Horizontal analysis. D. Vertical analysis.
Vertical analysis.
Which of the following statements is incorrect? A. The further into the future a cash receipt is expected to occur, the lower is its present value. B. The return on investment measures the compensation a company expects to receive from investing in capital assets. C. Most companies use their cost of capital to estimate the minimum return on investment required from capital investments. D. When a company invests in capital assets, it sacrifices future dollars for the opportunity to receive present dollars.
When a company invests in capital assets, it sacrifices future dollars for the opportunity to receive present dollars.
When would a variance be labeled as favorable? A. When actual costs are less than standard costs B. When standard costs are equal to actual costs C. When standard costs are less than actual costs D. When estimated costs are greater than actual costs
When actual costs are less than standard costs
When would a cost variance be listed as unfavorable? A. When actual costs are less than budgeted costs B. When actual costs exceed budgeted costs C. When actual costs are equal to budgeted costs D. When actual sales are less than budgeted sales
When actual costs exceed budgeted costs
When would a sales variance be listed as favorable? A. When actual sales exceed budgeted or expected sales B. When actual sales are less than budgeted or expected sales C. When actual sales are equal to budgeted or expected sales D. None of these answers is correct.
When actual sales exceed budgeted or expected sales
When would a sales price variance be listed as unfavorable? A. When the actual sales price is less than the standard sales price. B. When the actual sales price is equal to the standard sales price. C. When the actual sales price is greater than the standard sales price. D. When the actual sales volume is less than the budgeted sales volume.
When the actual sales price is less than the standard sales price.
In a manufacturing business, the cost of direct materials being used is recorded in the: A. Supplies Inventory account. B. Work In Process Inventory account. C. Raw Materials Inventory account. D. Manufacturing Overhead account.
Work In Process Inventory account.
Pinkston Company completed 12,000 units of product at a total cost of $28,000. The recording of the product completed would include a decrease to: A. Manufacturing Overhead. B. Cost of Goods Manufactured. C. Finished Goods Inventory. D. Work In Process Inventory.
Work In Process Inventory.
O'Hare Company, is a manufacturing firm that uses a job-order cost system to determine the costs of its products. During the current accounting period, O'Hare used $1,200 of direct raw materials for job #132. The recognition of this event would reflect an increase in which of the following accounts? A. Work in Process Inventory B. Finished Goods Inventory C. Raw Materials Inventory D. Cost of Goods Sold
Work in Process Inventory
When manufacturing overhead is applied to production in a job order cost system, the accounting records would reflect an increase in which of the following accounts? A. Work in Process Inventory B. Cost of Goods Sold C. Finished Goods Inventory D. Raw Materials Inventory
Work in Process Inventory
In a job-order cost system, as goods are produced, product costs (direct material, direct labor, and overhead) are accumulated in the: A. Work in Process Inventory account. B. Raw Materials Inventory account. C. Finished Goods Inventory account. D. Cost of Goods Sold account.
Work in Process Inventory account.
O'Hare Company, is a manufacturing firm that uses a job-order cost system to determine the costs of its products. During the current accounting period, O'Hare paid $2,100 to production employees who worked on job #132. The entry to record these wages would include an increase to which of the following accounts? A. Cost of Goods Sold. B. Work in Process Inventory. C. Finished Goods Inventory. D. Wage Expense.
Work in Process Inventory.
The source document used to record the amount of time worked by an employee on a job is called the: A. Requisition sheet. B. Pay stub. C. Job cost sheet. D. Work ticket.
Work ticket.
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. Dividend yield. B. Earnings per share. C. Working capital. D. Price-earnings ratio.
Working capital.
Abbot Company spent less than expected for materials and more than expected for labor. Select the incorrect statement from the following. A. You can always expect unfavorable labor variances if you have favorable material variances. B. In order to facilitate cost control, it will be necessary to analyze the price and quantity of each resource used in production. C. It cannot be determined from the information provided whether employees were paid higher wages or if they worked more hours. D. It cannot be determined from the information provided whether the company paid a lower purchase price for materials or if workers used less materials.
You can always expect unfavorable labor variances if you have favorable material variances.
When calculating the present value of an ordinary annuity, it is assumed that: A. cash flows will be reinvested at the required rate of return. B. cash flows occur at the end of each accounting period. C. the investor will wait until the end of the investment period to withdraw cash flows. D. cash flows will be reinvested at the required rate of return and cash flows occur at the end of each accounting period.
cash flows will be reinvested at the required rate of return and cash flows occur at the end of each accounting period.
All of the following are characteristics that are required for effective responsibility accounting except: A. motivation. B. accountability. C. centralization. D. none of these.
centralization.
The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planning horizon, is referred to as: A. participative budgeting. B. capital budgeting. C. continuous budgeting. D. zero-based budgeting.
continuous budgeting.
Kelly Company's manufacturing overhead costs totaled $2,871,400 during the year. At the end of the year, manufacturing overhead had been underapplied by $5,310. As a result: A. cost of goods sold increases. B. manufacturing overhead increases. C. cost of goods sold decreases. D. none of these.
cost of goods sold increases.
A credit to the Finished Goods Inventory account represents the: A. cost of goods available for sale. B. cost of goods manufactured. C. cost of goods sold. D. cost of goods used.
cost of goods sold.
Delegating authority and responsibility throughout an organization is known as: A. centralization. B. decentralization. C. management by exception. D. suboptimization.
decentralization.
If manufacturing overhead is underapplied, the entry to close the overhead account at the end of the accounting period will: A. decrease net income. B. not effect total assets. C. increase net income. D. decrease cash flow from operating activities.
decrease net income.
Cash outflows generated by capital investments include all of the following except: A. depreciation expense B. transportation costs C. increased operating expenses D. increase in the required amount of working capital
depreciation expense
All of the following costs are accumulated in the Work in Process Inventory account except: A. depreciation on factory equipment. B. direct labor costs. C. manufacturing overhead costs. D. direct material costs.
depreciation on factory equipment.
For a capital investment project to be acceptable, it must generate a rate of return: A. less than the hurdle rate. B. equal to or greater than the cost of capital. C. equal to the conversion rate. D. none of these answers is correct.
equal to or greater than the cost of capital.
Responsibility reports are prepared: A. for each manager who controls a responsibility center. B. only at the end of the accounting period. C. to identify and punish managers who fail to control their costs. D. for senior level managers only.
for each manager who controls a responsibility center.
The cost of direct materials purchased on account is expensed at the time the: A. goods made in the manufacturing process are sold. B. cash is paid to settle the associated accounts payable. C. manufacturing process is complete. D. materials are purchased.
goods made in the manufacturing process are sold.
An investment that cost $30,000 provided annual cash inflows of $9,000 per year for five years. The desired rate of return is 10%. What is the internal rate of return from the investment? A. less than the desired rate of return. B. equal to the desired rate of return. C. greater than the desired rate of return. D. the answer cannot be determined from the information provided.
greater than the desired rate of return.
Cash inflows generated by capital investments include all of the following except: A. incremental revenues. B. cost savings. C. reduction in the amount of required working capital. D. increase in operating expenses.
increase in operating expenses.
Cash outflows from a capital investment project include: A. increases in operating expenses. B. the reduction in the amount of working capital. C. terminal salvage value. D. all of these answers are correct.
increases in operating expenses.
The rate of return that equates the present value of cash inflows and outflows is the: A. minimum rate of return. B. internal rate of return. C. desired rate of return. D. hurdle rate.
internal rate of return.
Budgeted cash payments for inventory would appear on the: A. inventory purchases budget and the pro forma income statement. B. capital budget and pro forma statement of cash flows. C. cash budget and pro forma balance sheet. D. inventory purchases budget and pro forma statement of cash flows.
inventory purchases budget and pro forma statement of cash flows.
Sometimes the sales staff will deliberately underestimate the amount of expected sales. This practice is known as: A. making the numbers. B. cooking the books. C. lowballing. D. budget slack.
lowballing.
Achieving the sales volume in the master budget is known as: A. making the numbers. B. lowballing. C. cooking the books. D. budget slack.
making the numbers.
A company's numerous specific budgets (sales, inventory purchases, etc.) together are referred to as the: A. grand plan. B. strategic plan. C. current budget. D. master budget
master budget
Recording depreciation on manufacturing equipment will: A. decrease total assets, total equity, and net income. B. not affect total assets or net income. C. decrease total assets, decrease net income, and increase total equity. D. not affect total assets, and decrease net income.
not affect total assets or net income.
Haas Company paid $48,000 cash to purchase raw materials. The recognition of this event will: A. not affect total assets, decrease net income, and decrease cash flow. B. decrease total assets, total equity, and net income. C. not affect total assets, total equity, or net income. D. decrease total assets, net income, and net cash flow from investing activities.
not affect total assets, total equity, or net income.