Accounting Cost 225-900

Test # 1 (Chapter 1,2, and 3)

1. Which of the following statements refers to management accounting information?

A. The audience tends to be stockholders, creditors, and tax authorities.
B. There are no regulations governing the reports.
C. The reports are generally delayed and historical.
D. It primarily measures manager's compensation on reported financial results.

2. In designing strategy, a company must match its opportunities in the marketplace with ________.
A. the requirements of credit rating agencies
B. its resources and capabilities
C. branding opportunities
D. environmentally friendly goals

3. Which of the following statements about customer value is true?

A. Customer value is shown in a corporation's balance sheet.
B. Customer value is lost with increase in costs of the product.
C. Creating value for customers is an important part of planning and implementing strategy.
D. Customer value is the only focus that helps managers to formulate strategies.

4. The value chain is the sequence of business functions in which ________.

A. usefulness is added to the products or services of an organization
B. value is deducted from the products or services of an organization
C. products and services are evaluated with respect to their value to the supply chain
D. producing and delivering the product or service is of prime importance

5. Place the five steps in the decision-making process in the correct order:
A = Obtain information
B = Make decisions by choosing among alternatives
C = Identify the problem and uncertainties
D = Implement the decision, evaluate performance, and learn
E = Make predictions about the future
A. C D B E A
B. E D A B C
C. C A E B D
D. A E B D C

6. In a cost-benefit approach, managers should spend resources if the ________.

A. marginal costs to the company exceed the marginal benefits
B. marginal costs to the company equal the marginal benefits
C. expected benefits to the company equal the expected costs
D. expected benefits to the company exceed the expected costs
7. The Standards of Ethical Conduct for management accountants include concepts related to
________.
A. diligence, objectivity, conflicts of interest, and credibility
B. competence, performance, diligence, and reporting
C. competence, confidentiality, integrity, and credibility
D. experience, diligence, reporting, and objectivity

8. Budgeted costs are ________.

A. the costs incurred last year
B. planned or expected costs
C. the costs incurred this year
D. competitor's costs

9. Cost assignment ________.

A. includes future and arbitrary costs
B. is the same as cost accumulation
C. is the difference between budgeted and actual costs
D. associates accumulated costs with certain cost objects

10. When costs can be traced to a particular cost object in an economically feasible way, the cost is a:
A. direct cost
B. Budgeted cost
C. allocated cost
D. indirect cost

11. The determination of a cost as either direct or indirect depends upon the ________.
A. cost object chosen
B. accounting standards
C. tax system chosen
D. inventory valuation

12. Indirect manufacturing costs ________.

A. may include both variable and fixed costs
B. generally include the cost of material and the cost of labor
C. can be easily identified with the cost object
D. can be traced to the product that created the costs

13. Which of the following is true if the production volume decreases?

A. variable cost per unit increases
B. variable cost per unit decreases
C. average cost per unit decreases
D. fixed cost per unit increases
14. Rally Synthesis Inc. manufactures and sells 100 bottles per day. Fixed costs are $22,000 and the
variable costs for manufacturing 100 bottles are $30,000. Each bottle is sold for $1,200. How would the
daily profit be affected if the daily volume of sales drop by 10%?
A. profits are reduced by $59,000
B. profits are reduced by $9,000
C. profits are reduced by $12,000
D. profits are reduced by $3,000

15. A band of normal activity or volume in which specific cost minus volume relationships are
maintained is referred to as the ________.
A. average range
B. relevant range
C. cost minus allocation range
D. cost driver range

16. The following information pertains to Alleigh's Mannequins:

Manufacturing costs $2,170,000
Units manufactured 31,000
Units sold 28,500
units sold for $90 per unit
Beginning inventory 0 units
What is the amount of gross margin?
A. $570,000
B. $1,995,000
C. $2,170,000
D. $2,565,000

17. Inventoriable costs are expensed on the income statement ________.

A. when direct materials for the product are purchased
B. when the products are sold
C. when the goods move from work minus in process to finished goods account
D. when the direct materials are used in production.

18. Total manufacturing costs are comprised of ________.

A. prime costs and period costs
B. direct materials costs, direct manufacturing labor costs, and manufacturing overhead costs
C. indirect materials costs, indirect manufacturing labor costs, and manufacturing overhead costs
D. direct materials costs and period costs
19. All Rite Manufacturing reported the following:
Revenue $460,000
Beginning inventory of direct materials, January 1, 2015 26,000
Purchases of direct materials 156,000
Ending inventory of direct materials, December 31, 2015 14,000
Direct manufacturing labor 30,000
Indirect manufacturing costs 41,000
Beginning inventory of finished goods, January 1, 2015 46,000
Cost of goods manufactured 239,000
Ending inventory of finished goods, December 31, 2015 45,000
Operating costs 150,000
What is Leslie's cost of goods sold?
A. $239,000
B. $389,000
C. $390,000
D. $240,000

20. Under GAAP, only ________ can be assigned to inventories in the financial statements.
A. historical costs
B. cost of goods sold
C. manufacturing costs
D. period costs

21. Ralph Johnson is paid $30 an hour for straight minus time and $40 an hour for overtime. One week
he worked 39 hours, which included 9 hours of overtime, and 4 hours of idle time caused by material
shortages. What is the direct labor cost incurred to the company?
A. $1,100
B. $1,140
C. $1,050
D. $1,260

22. Atlas Manufacturing produces a unique valve and has the capacity to produce 50,000 valves
annually. Currently Atlas produces 40,000 valves and is thinking about increasing production to 45,000
valves next year. What is the most likely behavior of total manufacturing costs and unit manufacturing
costs given this change?
A. Total manufacturing costs will stay the same and unit manufacturing costs will stay the same.
B. Total manufacturing costs will increase, and unit manufacturing costs will stay the same.
C. Total manufacturing costs will increase, and unit manufacturing costs will also increase.
D. Total manufacturing costs will increase, and unit manufacturing costs will decrease.
23. Ridez Manufacturing currently produces 4,000 bicycles per month. The following per unit data
apply for sales to regular customers:
Direct materials $53
Direct manufacturing labor 10
Variable manufacturing overhead 12
Fixed manufacturing overhead 14
Total manufacturing costs $89
The plant has capacity for 6,000 bicycles and is considering expanding production to 5,000 bicycles.
What is the per unit cost of producing 5,000 bicycles?
A. $91.80 per unit
B. $111.25 per unit
C. $69.80 per unit
D. $86.20 per unit

24. Managers use cost minus volume minus profit (CVP) analysis to ________.
A. estimate the risks associated with a given job
B. to study the behavior of and relationship among the elements such as total revenues, total costs, and
income
C. analyze a firm's profitability and help to decide wealth distribution among its stakeholders
D. forecast the cost of capital for a given period of time

25. Which of the following is true of cost minus volume minus profit analysis?
A. The theory assumes that units manufactured equal units sold.
B. The theory assumes that all costs are variable.
C. The theory states that total variable costs remain the same over a relevant range.
D. The theory states that total costs remain the same over the relevant range.

26. Which of the following is an assumption of CVP analysis?

A. Total costs can be divided into a fixed component and a component that is variable with respect to the
level of output.
B. Total costs can be divided into inventoriable and period costs with respect to the level of output.
C. When graphed, total costs curve upward.
D. The unit minus selling price is variable as it is subject to demand and supply.

27. The contribution margin income statement ________.

A. reports gross margin
B. can be used to predict operating income at different levels of activity
C. categorizes costs as either direct or indirect
D. is allowed for external reporting to shareholders
28. Sparkle Jewelry sells 800 units resulting in $9,000 of sales revenue, $3,000 of variable costs, and
$1,500 of fixed costs. Contribution margin per unit is ________. (Round the final answer to the nearest
cent.)
A. $13.75
B. $7.50
C. $5.00
D. $11.25

29. Tally Corp. sells software during the recruiting seasons. During the current year, 10,000 software
packages were sold resulting in $470,000 of sales revenue, $130,000 of variable costs, and $48,000 of
fixed costs.
If sales increase by $80,000, operating income will increase by ________. (Round interim calculations
to two decimal places and the final answer to the nearest whole dollar.)
A. $57,872
B. $30,588
C. $32,000
D. $48,000

30. SaleCo sells 11,000 units resulting in $110,000 of sales revenue, $50,000 of variable costs, and
$45,000 of fixed costs. To achieve $150,000 in operating income, sales must total ________. (Round
intermediate calculations to two decimal places and the final answer to the nearest dollar.)
A. $253,846
B. $160,000
C. $357,500
D. $245,000

31. Sparkle Jewelry sells 600 units resulting in $75,000 of sales revenue, $32,000 of variable costs, and
$26,000 of fixed costs.
Breakeven point in units is ________. (Round to the nearest whole unit.)
A. 810 units
B. 684 units
C. 447 units
D. 363 units

32. The controller at TellCo is examining her books. She determines that at the breakeven point of
5,000 units, variable costs total $4,000 and fixed costs total $7,000. Therefore, 5,001st unit sold will
contribute ________ to profits. (Round the final answer to the nearest cent.)
A. $1.40
B. $2.20
C. $0.60
D. $0.80
33. Rosewood company sells wooden carvings for $300 each. The direct materials cost per unit is $160
and the direct labor is 2 hours at a rate of $26 per hour. Manufacturing overhead is applied on the
basis of labor hours at a rate of $36 per hour. Rosewood makes and sells 1,000 units per period. How
many units must Rosewood sell to breakeven?
A. 818 units
B. 240 units
C. 409 units
D. 450 units

34. Firebird Ltd. sells packaged birdseed for $6.00 per package. Variable product costs are $3.00 per
package. Fixed costs are $12,000 per period. How many packages must Firebird sell to earn a target
operating income of $7,900?
A. 6,633 packages
B. 2,633 packages
C. 4,000 packages
D. 3,317 packages

35. Quality Stores, Inc., sells several products. Information of average revenue and costs is as follows:
Selling price per unit $20
Variable costs per unit:
Direct material $4
Direct manufacturing labor $1.80
Manufacturing overhead $0.40
Selling costs $3
Annual fixed costs $96,000
What is the contribution margin percentage? (Round your answer to the nearest whole percent.)
A. 47%
B. 69%
C. 43%
D. 54%

36. Which of the following will increase a company's breakeven point?

A. increasing contribution margin per unit
B. reducing its total fixed costs
C. increasing the selling price per unit
D. increasing variable cost per unit
37. Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,200,
variable costs are $700, and fixed costs are $100,000. How many dresses must the Bridal Shoppe sell
to yield after minus tax net income of $20,000, assuming the tax rate is 40%?
A. 400 dresses
B. 240 dresses
C. 267 dresses
D. 200 dresses

38. Which of the following statements about net income (NI) is true?
A. NI = operating income plus operating costs.
B. NI = operating income less income taxes.
C. NI = operating income less cost of goods sold.
D. NI = operating income plus nonoperating revenue.

39. Assume the following cost information for Fernandez Company:

Selling price $200 per unit
Variable costs $60 per unit
Total fixed costs $80,000
Tax rate 30%
What is the number of units that must be sold to earn an after minus tax net income of $50,000? (Do
not round interim calculations and round the final answer to the nearest unit.)
A. 929 units
B. 1,082 units
C. 650 units
D. 817 units

40. In CVP analysis, focusing on target net income rather than operating income ________.
A. will help managers construct a better capital policy
B. will increase the breakeven point
C. will decrease the breakeven point
D. will not change the breakeven point

41. The Marietta Company has fixed costs of $75,000 and variable costs are 75% of the selling price. To
realize operating income of $10,000 from sales of 80,000 units, the selling price per unit ________.
(Round the answer to the nearest cent.)
A. must be $4.25
B. must be $1.06
C. must be $1.42
D. must be $3.75
42. Blistre Company operates on a contribution margin of 30% and currently has fixed costs of
$550,000. Next year, sales are projected to be $3,100,000. An advertising campaign is being evaluated
that costs an additional $120,000. How much would sales have to increase to justify the additional
expenditure?
A. $400,000
B. $930,000
C. $550,000
D. $280,000

43. Sensitivity analysis is _______.

A. a way of seeing how employees will be affected by changes
B. a way of determining how customers will react to new products
C. a way of determining what will happen if assumptions change
D. a way of seeing how far from budget actual results are

44. Globus Autos sells a single product. 8,000 units were sold resulting in $83,000 of sales revenue,
$21,000 of variable costs, and $10,000 of fixed costs. If Globus reduces the selling price by $1.20 per
unit, the new margin of safety is:
A. 8,000 units
B. 4,958 units
C. 6,911 units
D. 3,042 units

45. Answer the following questions using the information below:

Southwestern College is planning to hold a fund-raising banquet at one of the local country clubs. It
has two options for the banquet:
OPTION one: Crestview Country Club
a. Fixed rental cost of $1,000
b. $12 per person for food
OPTION two: Tallgrass Country Club
a. Fixed rental cost of $3,000
b. $8.00 per person for food
Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire
a band which will cost another $800. Tickets are expected to be $30 per person. Local business
supporters will donate any other items required for the event.
Which option provides the least amount of risk?
A. Option one
B. Option two
C. Both options provide the same amount of risk.
D. It depends on how many donations it receives.
46. Answer the following questions using the information below:
Southwestern College is planning to hold a fund-raising banquet at one of the local country clubs. It
has two options for the banquet:
OPTION one: Crestview Country Club
a. Fixed rental cost of $1,000
b. $12 per person for food
OPTION two: Tallgrass Country Club
a. Fixed rental cost of $3,000
b. $8.00 per person for food
Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire
a band which will cost another $800. Tickets are expected to be $30 per person. Local business
supporters will donate any other items required for the event.
Which option has the lowest breakeven point?
A. Option one
B. Option two
C. Both options have the same breakeven point.
D. The lowest breakeven point cannot be determined.

47. Answer the following questions using the information below:

Southwestern College is planning to hold a fund-raising banquet at one of the local country clubs. It
has two options for the banquet:
OPTION one: Crestview Country Club
a. Fixed rental cost of $1,000
b. $12 per person for food
OPTION two: Tallgrass Country Club
a. Fixed rental cost of $3,000
b. $8.00 per person for food
Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire
a band which will cost another $800. Tickets are expected to be $30 per person. Local business
supporters will donate any other items required for the event.
Which option provides the greatest operating income if 600 people attend?
A. Option one
B. Option two
C. Operating incomes are identical.
D. It depends on how many donations it receives.
 48. The following information is for the Jeffries Corporation:
Product A:
  Revenue $16.00
  Variable Cost $12.00
Product B:
  Revenue $24.00
  Variable Cost $16.00
Total fixed costs $75,000
Assume the sales mix consists of three units of Product A and one unit of Product B. If the sales mix
shifts to four units of Product A and one unit of Product B, then the weighted minus average
contribution margin will ________.
A. decrease per unit
B. cannot be determined from this information
C. increase per unit
D. stay the same

49. The following information is for the Jeffries Corporation:

Product A:
  Revenue $16.00
  Variable Cost $12.00
Product B:
  Revenue $24.00
  Variable Cost $16.00
Total fixed costs $75,000
Assume the sales mix consists of three units of Product A and one unit of Product B. If the sales mix
shifts to four units of Product A and one unit of Product B, then the breakeven point will ________.
A. decrease
B. cannot be determined from this information
C. increase
D. stay the same

50. Helping Hands is a nonprofit organization that supplies electric fans during summer for individuals
in need. Fixed costs are $290,000. The fans cost $26 each. The organization has a budgeted
appropriation of $675,000. How many people can receive a fan during summer?
A. 11,154 people
B. 25,962 people
C. 14,808 people
D. 37,116 people