ac 201 exam 1

which of the following statements is true? a.) operating leverage may help a company increase its profitability, but it cannot decrease profitability b.) operating leverage refers to a company's ability to increase its sales volume wile decreasing its total fixed cost c.) to benefit from operating leverage a company must have both fixed and variable costs d.) a company that has only variable cost cannot benefit from operating leverage

*****lo 2-2 question2

use the following information to calculate the sales price of a boat under both gaap and for internal decision purposes number of boats to be sold: 500 upstream costs: $5,000,000 direct materials per boat: $50,000 direct labor per boat: $30,000 overhead per boat: $20,000 downstream costs: $2,000,000 assume the company wants to sell each boat for 20% more than the cost to produce the boat. which of the following would be the sales price under gaap and for internal decision purposes gaap/internal decision a.) $120,000/$136,800 b.) $136,000/ $136,800 c.) $120,000/$114,000 d.) $136,800/$114,000

a.) $120,000/$136,800 Under GAAP, the cost of the boat would include only the midstream costs of direct materials, direct labor, and overhead. In contrast, for internal decision making the cost of the boat would include all types of costs (i.e., downstream, midstream, and upstream) in determining the total cost per boat. Under both scenarios the total cost is increased by 20% to arrive at the final sales price. Sales price under GAAP = ($50,000 + $30,000 + $20,000) × 1.20 = $120,000 Sales price for internal decision = ([$5,000,000/500] + $50,000 + $30,000 + $20,000 + [$2,000,000 / 500]) × 1.20 = $136,800

brock company makes candy. during the most recent accounting period brock paid $3000 for raw materials, $4000 for labor, and $2000 for overhead costs that were incurred to make candy. brock started and completed 10000 units of candy, of which 8000 were sold. based on this information, the balance in the inventory account on brock's balance sheet would be a.) $1800 b.) $2000 c.) $9000 d.) none of the above

a.) $1800 materials $3000 labor 4000 overhead 2000 units total product cost $9000 $9000/10000= 0.90 cost per unit 0.90*2000 units in inventory= $1800 inventory

based on the behavior shown in the following table, which of the following is a variable cost? units produced 2/3/4/5 a. cost per unit of materials: 500/500/500/500 b. total labor cost: 3500/4500/5500/6500 c. total utilities cost: 4500/4500/4500/4500 a.) cost per unit of materials b.) total labor cost c.) total utilities cost d.) both the cost per unit of materials and the total labor cost are variable costs

a.) cost per unit of materials When volume increases variable cost per unit remains constant. Since the per unit cost of materials remains constant regardless of the number of units produced, it is a variable cost. Also, when volume increases total variable cost increases. Since the total labor cost does not increase in proportion to the increase in number of units produced it is a mixed cost.

the graph below depicts dove company's monthly warehouse rental cost $ I I__________________________ I I I I____________________________ 0 units based on the graph, the rental cost is a a.) fixed cost b.) variable cost c.) mixed cost d.) the answer cannot be determined from the information provided

a.) fixed cost the graph shows that the total monthly rental cost remains constant regardless of changes in volume (the number of units). this type of behavior is commonly called fixed cost behavior

which of the following costs would not be included as part of manufacturing overhead? a.) insurance on sales vehicles b.) depreciation of production equipment c.) lubricants for production equipment d.) maintenance workers salaries at the factory

a.) insurance on sales vehicles insurance on sales vehicles is a cost incurred to sell a product that would be classified as manufacturing overhead

which of the following describes the flow of product costs in a manufacturing company? a.) product costs are first accumulated in an asset account (inventory) and then transferred to an expense account (cost of goods sold) when the products are sold b.) product costs are first accumulated in an expense account (cost of goods sold) and then transferred to an asset account (inventory) when the goods are sold c.) product costs are recorded in an expense account (cost of goods sold) as the goods are being manufactured d.) product costs are never expensed

a.) product costs are first accumulated in an asset account (inventory) and then transferred to an expense account (cost of goods sold) when the products are sold the answer is self-explanatory

in a manufacturing firm, costs incurred to research a more fuel efficient engine would be classified as a.) upstream costs b.) midstream costs c.) downstream costs d.) both midstream and downstream costs

a.) upstream costs upstream costs are incurred to develop or design a product. cost incurred to research a more fuel efficient engine would fit this description

at a production and sales level of 3,000 units. bastion company incurred $60,000 of fixed cost and $36,000 of variable cost. when 4000 units of product are produced and sold, the company's per unit cost is: a.) $32 b.) $27 c.) $24 d.) $29

b.) $27 variable cost per unit= $36,000/3,000 units= $12. total cost at 4,000 units is: variable (4,000 units*$12): $48,000 fixed: 60,000 total: $108,000 cost per unit= $108,000/4000 units= $27 per unit

use the following information to determine net income in the financial statements under gaap: number of boats to be sold: 500 upstream costs: $5,000,000 direct materials per boat: $50,000 direct labor per boat: $30,000 overhead per boat: $20,000 downstream costs: $2,000,000 assume the company wants to sell each boat for 20% more than the cost to produce the boat a.) $10,000,000 b.) $3,000,000 c.) $7,000,000 d.) $5,000,000

b.) $3,000,000 the following illustrates the financial statements prepared under gaap sales revenue ($120,000*500): $60,000,000 cost of goods sold ($100,000*500): (50,000,000) *gross margin: = 10,000,000* admin costs: upstream cost: $5,000,000 downstream cost: 2,000,000 *total admin costs: ($7,000,000)* *net income: $3,000,000* note that gaap based statements can show a loss whereas statements prepared based on internal decision making would show a profit in this scenario

celestin manufacturing company incurred $5000 of depreciation on its manufacturing equipment during its first year of operation. during this year the company made 2500 units of product and sold 2000 units of product. based on the information alone, the company would show a.) $5000 of depreciation expense on its income statement b.) $4000 of cost of goods sold expense on its income statement c.) $5000 of inventory on its balance sheet d.) $4000 of inventory on its balance sheet

b.) $4000 of cost of goods sold expense on its income statement The cost of depreciation on manufacturing equipment is an overhead cost which is a product cost. The amount of the depreciation is first placed in the Inventory account and then transferred to the Cost of Goods Sold account when the units are sold. Since the company made 2,500 units of product and sold 2,000 of them, the amount of cost transferred to the Cost of Goods Sold account is $4,000 (5,000 depreciation / 2,500 units = $2 per unit; $2 per unit × 2,000 units sold = $4,000 cost of goods sold. The remaining $1,000 of depreciation would remain in the inventory account until the time the remaining goods are sold.

mary's manufacturing company used supplies in its accounting department. which of the following choices reflects how this event would affect the company's balance sheet and income statement a.) +-/na /na // na/na/na b.) -/na/- // na/+/- c.) -/na/- // na/na/na d.) +-/na/na // na/+/-

b.) -/na/- // na/+/- since the accounting department does not make products the cost of supplies used in the department is not a product cost. instead, the cost of the used supplies is an administrative expense. recognizing the expense causes assets and equity to decrease. on the income statement, expenses increase and net income decreases. had the supplies been used to produce a product the effects would have been different. specifically, using manufacturing supplies is an asset exchange transaction that does not affect the income statement immediately. instead, the income statement would be effected in a subsequent transaction when the goods are sold.

manco manufacturing company paid cash for commissions paid to sales staff. which of the following choices reflects how this event would affect the company's balance sheet and income statement? assets=liability+equity//rev-exp=NI a.) +-/na /na // na/na/na b.) -/na/- // na/+/- c.) -/na/- // na/na/na d.) +-/na/na // na/+/-

b.) -/na/- // na/+/- when manco pays cash to the sales staff the company is paying to sell the product. selling expenses are downstream costs that are incurred after the product has been made. they are period costs as opposed product cost. selling costs are expensed in the period they are incurred. as a result, the asset account (cash) decreases and the expense recognition causes equity (retained earnings) to decrease. on the income statement expenses increase and net income decreases

select the true statement a.) as volume increases, fixed cost per unit remains constant b.) as volume decreases, fixed cost per unit increases c.) as volume increases, variable cost per unit increases d.) as volume increases, variable cost per unit decreases

b.) as volume decreases, fixed cost per unit increases Fixed cost per unit is determined by dividing the amount of total fixed cost by the number of units. If volume (number of units) increases or decreases total fixed cost remains constant. When total fixed cost (numerator) remains constant while the number of units (denominator) increases the cost per unit decreases. When total fixed cost remains constant while the number of units decreases, fixed cost per unit increases. Variable cost per unit remains constant regardless of changes in volume.

fran company is currently operating profitable. the company has a fixed cost structure. based on this information which of the following statements is true? a.) if volume increases by 20%, profitability will increase by less than 20% b.) if volume increases by 20%, profitability will increase by more than 20% c.) if volume increases by 20%, profitability will increase by 20% d.) if volume increases by 20%, profitability will decrease by 20%

b.) if volume increases by 20%, profitability will increase by more than 20% Since total fixed costs do not change as volume increases, they act as a lever that causes small changes in revenue to have disproportionate effects on net income. A small percentage increase in revenue will cause a larger percentage increase in net income. A small percentage decrease in revenue will cause a larger percentage decrease net income. This phenomenon is called operating leverage. Since Fran Company has a fixed cost structure, it has operating leverage and a 20% percentage increase revenue results in a greater than 20% percentage increase in net income.

product costs are placed in which financial statement account when incurred? a.) cost of goods sold b.) inventory c.) selling expense d.) property, plant, and equipment

b.) inventory when product costs are incurred, they are first placed into an inventory account on the balance sheet. these costs are not recognized as an expense on the income statement until the product is sold

according to gaap, which type of costs are classified as product cost? a.) downstream costs b.) midstream costs c.) upstream costs d.) both downstream and upstream costs

b.) midstream costs According to GAAP, downstream costs (e.g., research and development) and upstream costs (e.g., selling expenses) are immediately expensed. Only midstream costs (e.g., direct materials, labor, and overhead) are considered product cost.

calagry manufacturing company makes chairs and desks. the following costs were incurred in making its products during its first year of operation chairs/desks/total direct materials $4000 6000 $10000 direct labor 12000 8000 20000 also the company incurred $14000 of employee benefits cost. since these overhead costs are driven by the use of labor they are allocated to the products based on the direct labor dollars. based on this information alone the total cost of making chairs is a.) $16000 b.) 30000 c.) $24400 d.) none of the answers is correct

c.) $24400 cost to be allocated/ allocation base= allocation rate $14000/$20000= $0.70 per labor dollar overhead cost allocated to chairs: $12000*0.70=$8400 overhead cost allocated to desks: $8000*0.70=$5600 total overhead cost allocated: $14000

brock company makes candy. during the most recent accounting period brock paid $3000 for raw materials, $4000 for labor, and $2000 for overhead costs that were incurred to make candy. brock started and completed 10000 units of candy, of which 8000 were sold. based on this information, brock would recognize which of the following amounts of expense on its income statement? a.) $4000 b.) $9000 c.) $7200 d.) none of the above

c.) $7200 materials $3000 labor 4000 overhead 2000 total product cost $9000 $9000/10000= 0.90 cost per unit 0.90 * 8000 units sold = $7200 cost of goods sold expense

manco manufacturing company paid cash for wages of production workers. which of the following choices reflects how this event would affect the company's balance sheet and income statement? assets=liability+equity//rev-exp=NI a.) +-/na /na // na/+/- b.) -/na/- // na/+/- c.) +-/na/na // na/na/na d.) -/na/- // na/na/na

c.) +-/na/na // na/na/na when manco pays cash for production workers the company is paying money to make inventory. as a result, one asset account (cash) decreases and another asset account (inventory) increases, the total amount of assets is not affected. the income statement is not affected until the time goods are sold

the cost of manufacturing a product includes all of the following except a.) materials b.) labor c.) advertising d.) overhead

c.) advertising advertising is a cost of selling products as opposed to making them

the cost of denim used to manufacture blue jeans would most likely be classified as a.) indirect material b.) direct labor c.) direct material d.) manufacturing overhead

c.) direct material denim represents a material that is directly related to the manufacturing of blue jeans and would likely be easily traceable to the individual product. material costs that are directly related and easily traceable to the product are classified as direct material

the costs incurred to sell a product would be classified as a.) upstream costs b.) midstream costs c.) downstream costs d.) none of the above

c.) downstream costs the answer is self-explanatory

At lunchtime, Pete's Chilly Dogs sells hot dogs, chips, and soft drinks from five portable hot dog carts stationed on busy street corners. The depreciation cost on the carts is $1,000 per year for each cart. The company buys supplies (hot dogs, chips, cups, napkins) as needed. The 5 cart operators are each paid $8,000 per year plus 5% of sales revenue. Relative to the number of customers at a particular hot dog stand, the depreciation cost is a.) variable b.) mixed c.) fixed d.) strategic

c.) fixed since total depreciation charge does not change in relation to the number of customers at a particular stand, it is a fixed cost

the primary difference between midstream costs incurred at a manufacturing firm versus a service firm is a.) inventory at a service company can be stored for future use as opposed to being immediately consumed at a manufacturing firm b.) costs that would ordinarily be classified as upstream in a manufacturing firm would be classified as downstream in a service firm c.) inventory at a service company is consumed immediately as opposed to being stored for future use at a manufacturing firm d.) costs that would ordinarily be classified as upstream in a service would be classified as downstream in a manufacturing firm

c.) inventory at a service company is consumed immediately as opposed to being stored for future use at a manufacturing firm the cost classifications between a manufacturing firm and a service firm are practically the same. the primary difference between the two firm types is that in a manufacturing firm inventory can be stored for future use. in contrast, inventory at a service firm is immediately consumed

which of the following statements is true? a.) managerial accounting standards are established by the federal government b.) managerial accounting data are prepared for external users c.) managerial accounting reports are less regulated than financial accounting d.) managerial accounting is characterized by its objectivity, reliability, consistency and historical nature

c.) managerial accounting reports are less regulated than financial accounting Managerial accounting focuses on preparing information for internal users. The types and quality of information are dictated by the management of the reporting entity and are not subject to regulatory requirements.

the wages of factory maintenance personnel would usually be considered as: Indirect Labor/Manufacturing Overhead a) No Yes b) Yes No c) Yes Yes d) No No

c.) yes yes the wages of factory maintenance personnel would not be easily traceable to an individual product and therefore would be classified as indirect labor, which is a component of manufacturing overhead

The Financial Accounting Standards Board (FASB) establishes standards for the preparation of financial accounting reports while the Securities and Exchange Commission (SEC) establishes standards for the preparation of managerial accounting reports. This statement is... true false

false The FASB and the SEC provide standards, rules, and guidance for financial reporting. Managerial accounting is largely unregulated.

the primary difference between cost classification for a manufacturing firm versus a merchandising firm is a.) all costs for a merchandising firm are downstream costs for a manufacturing firm b.) all downstream costs for a merchandising firm are midstream costs for a manufacturing firm c.) all midstream costs for a merchandising firm are upstream cost for a manufacturing firm d.) all costs for a manufacturing firm are midstream costs for a merchandising firm

d.) all costs for a manufacturing firm are midstream costs for a merchandising firm manufacturing firms actually make the products whereas a merchandising firm purchases products (inventory) from a manufacturing firm. when a manufacturing firm sells products it must charge a price that will allow the company to recover all of the costs that were incurred to develop, make, and sell the products plus a profit margin. therefore the price a merchandising firm pays to purchase its inventory includes the upstream, midstream, and downstream costs that were originally incurred by the manufacturing company. inventory at a merchandising form is considered a midstream cost

which of the following are characteristics of managerial accounting information? a.) provides information to the company's management team b.) is future oriented c.) is more willing to sacrifice reliability to gain relevance than is financial accounting d.) all of the answers describe characteristics of managerial accounting information

d.) all of the answers describe characteristics of managerial accounting information the answer is self-explanatory

the cost of a small amount of glue used to manufacture a product may be called a.) an overhead cost b.) a product cost c.) an indirect cost d.) all of the choices are terms that may be used to describe small quantities of materials consumed in the process of making products

d.) all of the choices are terms that may be used to describe small quantities of materials consumed in the process of making products the answer is self-explanatory

At lunchtime, Pete's Chilly Dogs sells hot dogs, chips, and soft drinks from five portable hot dog carts stationed on busy street corners. The depreciation cost on the carts is $1,000 per year for each cart. The company buys supplies (hot dogs, chips, cups, napkins) as needed. The 5 cart operators are each paid $8,000 per year plus 5% of sales revenue. Relative to the number of hot dog carts, the depreciation cost is a.) mixed b.) fixed c.) strategic d.) variable

d.) variable The more hot dog carts in use the greater the total depreciation charge. Since the total amount of depreciation cost increases or decreases in proportion to the number of carts in service, it is a variable cost under these circumstances.

managerial accounting focuses on the needs of external users while financial accounting focuses on the needs of internal users. this statement is true false

false The relationships described in this statement are reversed. Specifically, managerial accounting focuses on internal users while financial accounting focuses on external users.

which of the following branches of accounting focuses more in historical data? managerial accounting financial accounting

financial accounting Managerial accounting focuses more on current and future data while financial accounting focuses on reports that explain historical data. For example, financial accounting seeks to determine the amount of income that has been earned in the past while managerial accounting provides information that will facilitate the amount of income to be earned in the future.