ACCT-202 Final Exam Study Guide

The Family Restaurant chain had a 10% return on a $80,000 investment in new ovens. The investment resulted in increased sales and an increase in income that was 5% of the increase in sales. The increase in sales was:

$160,000.

Fairpoint Products provided the following selected information about its consumer products division for the current year: Desired ROI 10%Net Income$138,000 Residual Income$79,000 Based on this information, the division's investment amount was:

$590,000

Coleridge Company estimates that its production workers will work 125,000 direct labor hours during the upcoming period and that overhead costs will amount to $750,000. Assume overhead to be allocated on the basis of direct labor hours. What predetermined overhead rate would be used to apply overhead to production during the period?

$6.00 per direct labor hour

Timberlake Company planned for a production and sales volume of 12,000 units. However, the company actually makes and sells 13,000 units. Per unit standards Static Budget Flexible BudgetNumber of units 12,000 13,000 Sales revenue$65.00 $780,000 $845,000 Variable manufacturing costs: Materials$11.00 132,000 143,000 Labor$9.00 108,000 117,000 Overhead$4.20 50,400 54,600 Variable general, selling, and administrative costs$11.00 132,000 143,000 Contribution margin $357,600 $387,400 Fixed costs Manufacturing overhead 100,800 100,800 General, selling, and administrative costs 45,000 45,000 Net income $211,800 $241,600 What was the sales volume variance?

$65,000 favorable

Howard Company provided the following selected information about its consumer products division for the current year: Desired ROI 10%Net Income$326,000 Residual Income$260,000 Based on this information, the division's investment amount was:

$660,000.

Jones Company developed the following static budget at the beginning of the company's accounting period: Revenue (8,000 units)$16,000 Variable costs 4,000 Contribution margin$12,000 Fixed costs 4,000 Net income$8,000 If actual production totals 8,200 units, the flexible budget would show total costs of:

$8,100

Joseph Company has an investment in assets of $450,000, operating income that is 10% of sales, and an ROI of 18%. From this information the amount of operating income would be:

$81,000

Which of the following is incorrect regarding a job-order costing system?

Costs are accumulated for homogenous products that are produced through a continuous process.

Select the incorrect statement concerning the application of the controllability concept to responsibility accounting.

Each manager should be evaluated on the costs but not the revenues that are under his or her control.

Assuming actual volume is 10,000 units and planned volume is 12,000 units, the sales volume variance in units:

Equals 2,000 units unfavorable.

A static budget is one that shows estimated revenues and costs at multiple activity levels.

False

Actual overhead costs are charged to the Work in Process account as they occur.

False

An investment opportunity with a residual income that equals or exceeds the company's required rate of return should be accepted.

False

Product costs flow through the manufacturer's inventory accounts in the following order: raw materials, finished goods, and cost of goods sold.

False

Sales volume variances are attributable to differences between planned and actual activity volumes, as well as differences in selling price.

False

Suboptimization refers to actions taken by a manager that are in the best interest of the firm as a whole but not in his/her own best interest.

False

The absorption costing approach uses the contribution margin income statement format.

False

Which of the following statements regarding responsibility accounting is not correct?

It requires top management to prepare a budget for the entire company and communicate that plan to lower levels of management.

Which of the following should not be included in the investment base used to compute residual income?

Land held for future use

Select the response that indicates the correct sequence of product cost flows from production to sale.

Raw materials, work in process, finished goods, and cost of goods sold

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?

Residual income

To avoid suboptimization, many companies prefer to evaluate their investment centers using:

Residual income instead of return on investment.

Static and flexible budgets are similar in that:

They both are based on the same per-unit variable amounts and the same fixed costs.

A balanced scorecard includes financial and non-financial performance measures.

True

A cost variance is unfavorable if actual cost exceeds standard cost.

True

Generally accepted accounting principles require all product costs, both variable and fixed, be reported as inventory until the products are sold.

True

In a job-order costing system, a separate job cost sheet is maintained for each job in order to facilitate costing.

True

Job-order costing systems accumulate costs by individual products.

True

Process costing is used for products produced in mass quantities through a continuous process that provides similar inputs to each unit produced.

True

Responsibility reports should be simple, show variances between the budgeted and actual amounts of controllable revenue and expense items, and be timely.

True

The Work in Process account increases when production workers are paid.

True

The differences between the standard and actual amounts are called variances.

True

The predetermined overhead rate is found by dividing total estimated overhead costs by the total estimated volume of the overhead allocation base.

True

The sales volume variance is favorable if actual sales volume is higher than the budgeted volume.

True

The work in process inventory account increases when raw materials are placed into production.

True

Which of the following statements regarding a process costing system is false?

Use of a process costing system would be appropriate for a company that manufactures luxury yachts.

Achieving the sales volume in the master budget is known as:

making the numbers

When using residual income as a project-screening tool, management should accept a project if the residual income is:

positive.

The sales volume variance is the difference between the:

static budget (based on planned volume) and the flexible budget (based on actual volume).

A difference between the static budget based on planned volume and a flexible budget prepared at actual volume is called a:

volume variance

Lexington Company's predetermined overhead rate is $4.00 per direct labor hour. Which of the following equations correctly computes the amount of overhead cost that should be applied to work in process assuming a job required 100 hours but was estimated to require 90 hours?

100 hours × $4 = $400

Spark Company's static budget is based on a planned activity level of 58,000 units. At the same time the static budget was prepared, the management accountant prepared two additional budgets, one based on 53,000 units and one based on 63,000. The company actually produced and sold 62,000 units. In evaluating its performance, management should compare the company's actual revenues and costs to which of the following budgets?

A budget based on 62,000 units

A process costing system is used when:

A company produces unique, one-of-a-kind inventory items.

Select the incorrect statement regarding flexible budgets.

A flexible budget is also known as a master budget.

Which of the following is not typically found in a decentralized organization?

Decision center

Which of the following is a valid reason for using variable costing?

Absorption costing may motivate managers to overproduce in order to increase profits.

Which of the following reason(s) cause flexible budgets to be useful planning tools?

All of these answers are correct.

Which of the following statements regarding a balanced scorecard is correct?

All of these answers are correct.

A tool that is often used to depict the lines of authority and responsibility within a firm is:

An organization chart.

In which of the following industries would a job-order costing system most likely be used?

Construction of cell towers

A major benefit of a decentralized organization is that:

Managers are more motivated to improve productivity.

In which account is the actual amount of costs such as factory utilities and maintenance initially recorded?

Manufacturing Overhead

When would a variance be labeled as unfavorable?

None of these answers are correct.

When would a variance be labeled as favorable?

When actual costs are less than standard costs

When would a sales price variance be listed as unfavorable?

When the actual sales price is less than the standard sales price.

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:

absorption costing.