accounting exam 2
The margin of safety ratio can be defined as the:
Excess of budgeted sales over break-even sales divided by budgeted sales
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:
Debt to equity ratio
Wu Company incurred $40,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold. If the company's volume doubles, the total cost per unit will:
Decrease
Which of the following statements concerning manufacturing costs is incorrect?
Depreciation on manufacturing equipment is a period cost.
Managerial accounting information is limited or restricted by which of the following authorities or principles?
Value-Added Principle
All of the following are considered to be measures of a company's short-term debt-paying ability except:
earnings per share
Net income divided by sales is the formula for which of these analytical measures?
Net margin
For a manufacturing company, product costs include all of the following except:
warehousing costs
Which ratio measure the percentage of company's assets that are financed by debt?
Debt to assets ratio
Select the correct statement from the following
A fixed cost structure offers greater risk but higher opportunity for profitability than does a variable cost structure.
Which of the following statements is generally incorrect from an investor's perspective?
A 1:1 current ratio is generally preferred over a 1.5:1 current ratio
Which of the following costs should be recorded as an expense?
Administrative employee salaries
Which of the following statements regarding horizontal analysis is incorrect?
A horizontal analysis of cost of goods sold on the income statements includes dividing net income by total revenue
Two ratios that provide insight on the relationship between credit sales and receivables are:
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?
Acid-test ratio
Costs associated with holding inventory often include:
All of these
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?
All of these answers are correct
Factor involved in communicating useful information is (are):
All of these answers are correct
Financial ratios can be used to asses which of the following aspects of a firm's performance?
All of these answers are correct
Financial statement analysis involves forms of comparison including:
All of these answers are correct
Select the correct statement regarding vertical analysis.
All of these answers are correct
Which of the following is a potential limitation of financial statement analysis?
All of these answers are correct
Which of the following is an (are) objective(s) of ratio analysis?
All of these answers are correct
Which type of approach should be used when evaluating corporate results using horizontal analysis?
All of these answers are correct
Select the current statement regarding fixed costs
All of these answers are correct statements
Why do accountants normally calculate cost per unit as an average?
All of these are justifications for computing average unit costs
Which ratio measures how effectively a company is using assets to generate revenue?
Asset turnover
Ashley Bradshaw is the manager of one department in a large store. In this capacity, which of the following kinds of information would she be interested in?
Both Financial data and Nonfinancial data
Manufacturing costs that cannot be traced to specific units of product in a cost-effective manner include:
Both depreciation on production equipment and indirect labor
At the break-even point
Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct
At the break-even point:
Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct
Which of the following costs would be classified as a direct cost for a company that produces motorcycles?
Both seats used in the motorcycles and wages of motorcycle assembly workers are correct.
The excess of revenue over variable costs is referred to as:
Contribution margin
What is the formula for calculating contribution margin ratio?
Contribution margin/ sales
Which of the following is a product cost for a construction company?
Cost of transporting raw materials to the job site
The manager of Kenton Company stated that 45% of its total costs were fixed. The manager was describing the company's:
Cost structure
Milton company has total current assets of $46,000, including inventory of $10,000 and current liabilities of $20,000. The company's current ratio is:
Current assets / current liabilities
Working capital is defined as:
Current assets less current liabilities
Which of the following costs typically include both fixed and variable components?
Factory overhead
Select the correct statement regarding managerial and financial accounting.
Financial accounting is more highly regulated than managerial accounting
Which of the following statements regarding the information disclosed in financial statements is incorrect?
Financial statements should be detailed enough to answer any financial-related question an investor might have
Mug Shots operates a chain of coffee shops. The company pays rent of $15,000 per year for each shop. Supplies (napkins, bags and condiments) are purchased as needed. The managers of each shop are paid a salary of $2,500 per month and all other employees are paid on an hourly basis. The cost of rent relative to the number of customers in a particular shop and relative to the number of customers in the entire chain of shops is which kind of cost, respectively?
Fixed cost and fixed cost
Select the correct statement regarding fixed costs
Fixed cost per unit decreases when volume increases.
Which of the following costs is not considered to be a period cost?
Freight paid on a purchase of raw materials
Current financial reporting standards assume that users of accounting information:
Have a reasonably informed knowledge of business
The accounting concept or principal that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:
Historical cost principle
The study of an individual financial statement item over several accounting periods is called:
Horizontal analysis
The study of an individual item or account over several periods in the same financial year or over many years is known as:
Horizontal analysis
All of the following would be considered a fixed cost for a bottled water company except:
Hourly wages for machine operators
Cost of goods sold divided by average inventory is the formula for which of these analytical measures?
Inventory turnover
Larry's Lawn Care incurs significant gasoline costs. This cost would be classified as a variable cost if the total gasoline cost:
Increases in direct proportion to the number of hours the lawn equipment is operated
Common methods of financial statement analysis include all of the following except :
Incremental analysis
Which of the following most exemplifies the value-added principle?
Information gathering and reporting activities should be restricted to those activities that add value in excess of their cost
Which of the following best represents a characteristic of managerial accounting?
Information is based on estimates and it bounded by relevance and timeliness.
Which of the following statements is correct?
Investors need to understand that the value of a company's earning per share is affected by its choices of accounting principles and assumptions
Choose the answer that is NOT a distinguishing characteristic if financial accounting information.
It is focused primarily on the future
Levenworth Company incurs unnecessary costs each period because of the excess quantities of inventory maintained to meet unexpected customer demand. The costs of inventory financing, storage, supervision, and obsolescence could most likely be reduced by which of the following practices?
Just-in-time inventory
Short-term creditors are usually most interested in assessing:
Liquidity
Solvency ratios are used to assess a company's:
Long-term debt paying ability
Select the incorrect statement regarding cost and expenses.
Manufacturing- related costs are initially recorded as expenses
A company that uses a just in time inventory system:
May find that having less inventory actually leads to increased customer satisfaction
Select the incorrect statement regarding the relationship between type of user and type of information
Senior executives need less aggregated information than do lower-level managers
Southern Food Service operates six restaurants in the Atlantic area. The company pays rent of $20,000 per year for each shop. The managers of each shop are paid a salary of $4,200 per month and all other employees are paid on an hourly basis. Relative to the number of hours worked, total compensation cost for a particular shop is which kind of cost?
Mixed cost
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:
Net margin
Which of the following is not included in the computation of the quick ratio?
Prepaid expenses
Which ratio compares the earnings per share of a company to the market price for a share of the company's stock?
Price-earnings ratio
Wages paid to factory machine operators in producing the dog houses should be categorized as a:
Product cost and recorded in the inventory account
Which of the following statements is true with regard to product costs versus general, selling, and administrative costs?
Product costs associated with units sold appear on the income statements as cost of goods sold.
Which of the following is not classified as manufacturing overhead?
Product delivery costs
Which of the following statements regarding ratio analysis is incorrect?
Ratio analysis is a specific form of horizontal analysis
The return on investment measure is also referred to as:
Return on assets
Which of the following types of labor costs will never flow through the balance sheet?
Sales commissions
In vertical analysis, each item is expressed as a percentage of:
Sales on the income statement, Total assets on the balance sheet
Which of the following items would be reported directly on the income statement as a period cost?
Selling and administrative salaries
Long-term creditors are usually most interested in evaluating:
Solvency
Which ratios measure a company's long-term debt paying ability and its financing structure?
Solvency
Chesterfield Corporation has been operating well above its break-even point. What will happen to Chesterfield's margin of safety if the variable cost per unit increases?
The break-even point would increase, and the margin of safety would decrease
Which of the following statements about financial statements is incorrect?
The debt to assets ratio is a liquidity ratio
Which of the following statements regarding the quick ratio is incorrect?
The quick ratio equals quick assets divided by total liabilities
Which of the following statement is correct regarding the quick ratio?
The quick ratio is a more conservative variation of the current ratio
Which of the following statements about financial statement analysis is incorrect?
The reason behind a financial statement ratio or percentage analysis result is usually self-evident and does not require further study or analysis
Which of the following statements regarding net margin is incorrect?
The smaller the net margin the better
Select the incorrect statement regarding the relevant range of volume
Total cost per unit is expected to remain constant
Horizontal analysis is also known as:
Trend analysis
Select the incorrect statement regarding upstream and downstream costs.
Upstream and downstream costs are reported as product costs on the income statement
Which of the following statements regarding the analysis of absolute amounts of various accounts reported on the financial statements is incorrect?
Using absolute amounts eliminates the problem of varying materiality levels
Taste of the Town, Inc. operates a gourmet sandwich shop. The company orders bread, cold cuts, and produce several times a week. If the cost of these items remains constant per customer served, the cost is said to be:
Variable
In the graph below, which depicts the relationship between units produced and total cost, the dotted line depicts which type of total cost?
Variable cost
Java Joe operates a chain of coffee shops. The company pays rent of $20,000 per year for each shop. Supplies (napkins, bags and condiments) are purchased as needed. The manager of each shop is paid a salary of $3,000 per month, and all other employees are paid on an hourly basis. Relative to the number of customers for a shop, the cost of supplies is which kind of cost?
Variable cost
An analysis procedure that uses percentages to compare each of the parts of an individual statement to a key dollar amount from the financial statement is:
Vertical analysis
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:
Working capital
Rock Creek Bottling Company pays its production manager a salary of $6,000 per month. Salespersons are paid strictly on commission, at $1.50 for each case of product sold. For Rock Creek Bottling Company, the production manager's salary is an example of:
a fixed cost
Rock Creek Bottling Company pays its production manager a salary of $6,000 per month. Salespersons are paid strictly on commission, at $1.50 for each case of product sold. For Rock Creek Bottling Company, the cost of the salespersons' commissions is an example of:
a variable cost
Whether a cost behaves as a fixed cost or as a variable cost depends upon the:
activity based used.
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:
average days to collect receivables
The excess of a product's selling price over its variable costs is referred to as:
contribution margin
In order to prepare a contribution format income statement:
costs must be separated into variable and fixed costs
Fixed cost per unit
decreases as production volume increases
Once sales reach the break-even point, each additional unit sold will:
increased profit by an amount equal to the per unit contribution margin
The benefits of a Just-in-time system would include all of the following except:
increased warehousing costs
All of the following are features of managerial accounting except:
information is characterized by objectivity, reliability, consistency, and accuracy.
A cost that contains both fixed and variable elements is referred to as a
mixed cost
A cost that contains both fixed and variable elements is referred to as a:
mixed cost
Craft, Inc. normally produces between 120,000 and 150,000 units each year. Producing more than 150,000 units alters the company's cost structure. For example, fixed costs increase because more space must be rented, and additional supervisors must be hired. The production range between 120,000 and 150,000 is called the:
relevant range
All of the following are downstream costs except:
research and development
Operating leverage exists when:
small percentage changes in revenue produce large percentage changes in profit.
A systematic problem-solving philosophy that encourages front line workers to achieve zero defects is known as:
total quality management (TQM)
In order to prepare a contribution format income statement, cost must be separated into:
variable and fixed costs
