14, 18, 21
Managerial accounting applies to all types of businesses, including service, merchandising, and manufacturing, as well as to all forms of business organizations.
True
False
Which of the following statements is not true about managerial accounting?
It is primarily for internal users such as officers and managers.
It does not require an audit by a CPA.
It is highly aggregated.
Reports are generated as needed.
Which of the following statements is true about managerial accounting?
It is primarily for internal users such as stockholders and managers.
It pertains to a business as a whole.
It must be prepared using generally accepting accounting principles.
It provides more detailed information than financial accounting does.
Managerial accounting
Is governed by generally accepted accounting principles.
Pertains to the entity as a whole and is highly aggregated.
Is limited to cost data.
Places emphasis on special-purpose information.
All of the following are distinguishing features of managerial accounting except
To provide special-purpose information.
Reports pertaining to subunits of the entity.
Internal users.
Independent audits.
Which of the following are considered to be management’s three broad functions?
Planning, calculating, and controlling
Planning, directing, and controlling
Controlling, directing, manufacturing
Conducting, directing, manufacturing
Which of the following is considered part of the controlling process?
Implementing planned objectives
Coordinating activities and human resources to produce a smooth running operation
Keeping the company’s activities on track
Looking ahead and establishing objectives
After passage of the Sarbanes-Oxley Act of 2002
CEOs and CFOs must certify that financial statements give a fair presentation of the company’s operating results.
The audit committee, rather than top management, is responsible for the company’s financial statements.
Reports prepared by managerial accountants must comply with generally accepted accounting principles (GAAP).
Reports prepared by managerial accountants must be audited by CPAs.
The management function that requires management to look ahead and establish objectives is
Controlling
Planning
Directing
Evaluating
Indirect material costs are easily traced to products because of their physical association with the finished product.
True
False
Manufacturing overhead consists of costs that are indirectly associated with the manufacture of the finished product.
True
False
Which one of the following is not a manufacturing cost?
Wages of assembly workers
Wheels that are being installed on new automobiles being manufactured
Factory maintenance
Advertising cost
Which of the following answer choices lists the three manufacturing costs?
Indirect materials, indirect labor, and factory-related costs
Work in process, finished goods, and cost of goods sold
Raw materials, work in process, and finished goods
Direct materials, direct labor, and manufacturing overhead
Which of the following costs would a computer manufacturer include in manufacturing overhead?
The wages earned by computer assemblers.
Depreciation on testing equipment.
The cost of the memory chips.
The cost of the disk drives.
Which of the following is not an element of manufacturing overhead?
Product inspector’s salary.
Plant manager’s salary.
Sales manager’s salary.
Factory repairman’s wages.
Manufacturing overhead includes all of the following except
Depreciation
Direct materials
Indirect labor
Maintenance
On average, studies have shown that the smallest component of total manufacturing cost is
Direct labor
Direct materials
Manufactoring overhead
Factory overhead
Product costs are costs that are a necessary and integral part of producing the finished product.
True
False
Barry’s BarBQue incurred the following costs: $1,400 for ribs, 45 hours of labor to cook the ribs at $10 per hour, $50 for seasoning and sauce, $300 for signs to advertise the ribs, $150 to clean the grill after cooking the ribs, and $100 of administrative costs. How much are total product costs?
2050
2150
1850
2350
Which group of costs consists of only product costs?
Indirect labor, factory building depreciation, administrative expenses
Factory maintenance, sales commissions, salaries paid to sales clerks
Direct labor, indirect labor, factory utilities
Direct labor, direct materials, and selling expenses
Direct materials are a Product Cost Manufacturing Overhead Period Cost
Yes yes yes
Yes no no
Yes yes no
No no no
Which of the following costs are classified as a period cost?
Wages paid to an assembly worker.
Wages paid to a factory custodian.
Wages paid to a production department supervisor.
Wages paid to a cost accountant department supervisor.
Product costs include each of the following except
Direct materials
Manufactoring overhead
Selling and administrative expenses
Direct labor
Each of the following is a period cost except
Indirect labor
Non-manufacturing costs
Selling expenses
Administrative expenses
Pharmco incurred the following costs while manufacturing its product: Materials used in production, $120,000; factory depreciation, $60,000; property taxes on the administrative offices, $12,000; labor costs of assembly-line workers, $95,000; factory supplies used, $8,000; advertising expense, $13,000; property taxes on the factory, $20,000; delivery expense, $23,000; salaries of the sales staff, $53,000; and sales commissions, $17,000. The total product costs for Pharmco are
315,000
391,000
303,000
421,000
Manufacturers compute cost of goods sold by adding the beginning finished goods inventory to the cost of goods purchased and subtracting the ending finished goods inventory.
True
False
Which of the following would you find on the income statement of a manufacturing company, but not on the income statement of a merchandising company?
Work in process
Cost of good manufactured
Raw materials
Cost of goods purchased
One key difference appears when comparing the income statements of a manufacturing company to a merchandising company. What is that difference?
Manufacturing companies use cost of goods manufactured and merchandising companies use cost of goods purchased.
Cost of goods manufactured is subtracted from sales to get gross profit on a manufacturing income statement, while cost of goods purchased is subtracted from sales to get gross profit on a merchandising income statement.
Manufacturing companies use work in process, raw materials, and finished goods inventory balances to calculate cost of goods sold, while merchandising companies use only merchandise inventory balances.
Cost of goods sold equals the cost of merchandise purchased for a merchandising company, while cost of goods sold equals the cost of raw materials purchased for a manufacturing company.
For the year, Redder Company has cost of goods manufactured of $600,000, beginning finished goods inventory of $200,000, and ending finished goods inventory of $250,000. The cost of goods sold is
600,000
550,000
450,000
500,000
Cost of goods available for sale is reported on the income statement of
A merchandising company and a manufacturing company.
Neither a manufacturing company nor a merchandising company.
A manufacturing company but not a merchandising company.
A merchandising company but not a manufacturing company.
For a manufacturing firm, cost of goods available for sale is computed by adding the beginning finished goods inventory to
Net purchases
Total manufacturing costs
Cost of goods purchased
Cost of good manufactured
The principal difference between a merchandising and a manufacturing income statement is the
Revenue section
Operating expense section
Cost of goods sold section
Extraordinary item section
Fixed costs are costs that remain the same in total regardless of changes in the activity level.
True
False
What type of cost remains the same per unit at every level of activity?
Semivariable cost
Variable cost
Fixed cost
Mixed cost
Which statement describes a fixed cost?
The unit cost varies directly to the activity level.
The unit costs stay the same at every activity level.
It varies in total at every level of activity.
When activity declines, its cost per unit increases.
Variable costs are costs that
(a) vary in total directly and proportionately with changes in the activity level.
B) remain the same per unit at every activity level.
(c) neither of the above.
D) both (a) and (b) above.
The range over which a company expects to operate during a year is called the relevant range of the activity index.
True
False
Why is determination of a relevant range important?
Cost behavior outside the relevant range may be false
Most companies operate at 100% of capacity.
Costs outside this range cause losses to companies.
Costs that occur outside this range are assumed to be linear.
Which of the following is likely to contain a linear relationship between costs and activities?
The entire range of possible activity
Full capacity
Relevant range
Small-scale operations
Relevant range is
The range of activity in which fixed costs will be curvilinear
The range over which the company expects to operate during a year
The range of activity in which variable costs will be curvilinear
Usually from zero to 100% of operating capacity
Mixed cost
Remain the same per unit at ever level of activity
Change with the volume of production
Remain the same in total at every level of activity
Are costs that vary as activity level changes, but do not stay the same per unit like variable cost
Delivery costs at Hernandez, Inc. Appear below for specific months of operations: Month Amount Units Produced March $20,000 16,000 April $18,000 12,000 Which type of cost are delivery costs at Hernandez?
Variable
Fixed
Mixed
Unable to determine
Delivery costs at Walco, Inc. Appear below for specific months of operations: Month Amount Units Produced June $9,680 11,000 July $8,100 10,800 Which type of costs are delivery costs at Walco?
Fixed
Unable to determine
Variable
Mixed
Mixed cost consist of a
Variable cost element and a relevant cost element
Relevant cost element and a controllable cost element
Fixed cost element and a controllable cost element
Variable cost element and a fixed cost element
Variable cost element and a relevant cost element
Your phone service provider offers a plan that is classified as a mixed cost. The cost per month is $50 flat rate for the first 1,000 minutes plus $0.35 for each minute exceeding 1,000 minutes. If you use 1,200 minutes this month, your cost will be
120
0
50
70
Costs that change in total but not proportionately with changes in the activity level are
Semi fixed costs
Fixed costs
Mixed costs
Variable costs
Cost-volume-profit analysis assumes that changes in activity are the only factors that affect costs.
True
False
When companies prepare a detailed CVP income statement, they provide more detail about specific variable costs but not fixed cost items.
True
False
Which one of the following is not an assumption of cost-volume-profit analysis?
Changes in activity and sales mix are the only factors that affect costs
All units produced are sold
The behavior of costs is linear throughout the relevant range
All costs can be classifies as either variable or fixed
Which one of the following is not an assumption of CVP analysis?
Profit for the period is constant
The sales mix is constant
Volume or level of activity affects costs
Costs can be classifies as variable or fixed
One of the following is not involved in CVP analysis. That factor is
Volume or level of activity
Unit selling price
Fixed cost per unit
Sales mix
Cost-volume-profit analysis includes all of the following assumptions except
Costs can be classifies accurately as either variable or fixed
The behavior of costs is curvilinear throughout the relevant range
Changes in activity are the only factors that affect costs
All units produced are sold
CVP analysis considers the interrelationships among all of the following components except
Volume/level of activity
Fixed costs per unit
Variable cost per unit
Unit selling prices
Cournot Company sells 100,000 wrenches for $12 a unit. Fixed costs are $300,000, and net income is $200,000. What should be reported as variable expenses in the CVP income statement?
500,000
700,000
900,000
1,000,000
Deighan Company had the following amounts from its income statement: Sales revenue (800 units) $80,000 Cost of goods sold -fixed 20,000 Cost of goods sold -variable 18,500 Selling expenses - fixed 7,000 Selling expenses - variable 6,000 Administrative expenses - fixed 5,000 Administrative expenses - variable 7,500 How much is Deighan's contribution margin?
16,000
48,000
61,500
41,500
Starwise Company had the following amounts from its income statement: Sales revenue $100,000 Cost of goods sold -fixed 32,000 Cost of goods sold -variable 25,000 Selling expenses – fixed 9,000 Selling expenses – variable 11,000 Administrative expenses – fixed 12,000 Administrative expenses - variable 8,000 How much is Starwise’s contribution margin?
43,000
56,000
3,000
75,000
The contribution margin ratio is computed by multiplying contribution margin by unit selling price.
True
False
What is contribution margin?
The percent of selling price pertaining to the cost of goods sold.
The amount available to cover fixed and variable costs and contribute to profits.
The amount of revenue remaining after deducting fixed costs.
The amount available to cover fixed costs and contribute to profits.
Which one of the following is correct concerning contribution margin?
It equals sales revenue minus total costs.
It is calculated by subtracting variable manufacturing costs from sales.
It is helpful in determining the effect of changes in sales on net income.
It is calculated by subtracting total manufacturing costs from sales revenue.
Contribution margin
(a) is revenue remaining after deducting variable costs.
B) may be expressed as contribution margin per unit.
C) is selling price less cost of goods sold.
D) both (a) and (b) above.
When comparing a traditional income statement to a CVP income statement
Net income will always be greater on the traditional statement.
Net income will always be less on the traditional statement.
Net income will always by identical on both.
Net income will be greater or less depending on the sales volume.
Contribution margin is
The amount available to cover fixed costs and contribute to income for the company
Sales less fixed costs
The amount of revenue remaining after deducting fixed costs
Unit selling prices less unit fixed costs
The amount of income or loss at each level of sales can be derived from the total sales and total cost lines in a CVP graph.
True
False
Werth Company produces tie racks. Its estimated fixed costs for the year are $288,000, and the estimated variable costs per unit are $14. Werth expects to produce and sell 60,000 racks at a price of $20 per unit. How many units will be sold at breakeven?
48,000
20,571
3,600
14,400
Panera Bread sells a box of bagels for $6 with a contribution margin of 62.5%. Its fixed costs are $150,000 per year. How much sales in dollars does Panera Bread need to break-even per year if bagels are its only product?
93,750
240,000
937,500
333,750
Brownstone Company’s contribution margin ratio is 30%. If Brownstone’s sales revenue is $100 greater than its break-even sales in dollars, its net income
Will be $30
Cannot be determined without knowing the fixed costs
Will be $100
Will be $70
Gossen Company is planning to sell 200,000 pliers for $4 per unit. The contribution margin ratio is 25%. If Gossen will break even at this level of sales, what are the fixed costs?
300,000
100,000
160,000
200,000
The break-even point can be
Computed from a mathematical equation
Computed by using contribution margin
Derived from a cost-volume-profit graph
All of the options are correct
The break-even point in dollars is computed by dividing
Fixed costs by contribution margin ratio
Variable costs by contribution margin ratio
Fixed costs by contribution margin per unit
Variable costs by contribution margin per unit
At the break-even point
Contribution margin equals total fixed costs
Sales equal total fixed costs
Sales equals tool variable costs
Contribution margin equals total variable costs
Walden Company expects to sell 500,000 units for $6 per unit. The contribution margin ratio is 30%. If Walden will break even at this level of sales, fixed costs are
300,000
150,000
900,000
2,100,000
Benson Company produces flash drives for computers which have variable costs of $10 per flash drive to produce. Each flash drive sells for $20 each. During the current month, 1,000 flash drives were sold. Fixed costs for the current month were $4,500. If variable costs increase by 10%, what happens to the breakeven level in units for the month for Benson Company?
It increases by 50 units
It depends on the number of units the company expects to produce and sell
It is 10% lower than the original breakeven point
It is 10% higher than the original breakeven point
Dahlia Company sells a product which has a unit selling price of $5. Variable costs are 60% of the sales and total fixed costs are $200,000. The number of units that the Dahlia Company must sell to break even is
66,667 units
100,000 units
40,000 units
400,000 units
Maya Company manufactures a product which sells for $20 each. Each unit of product has a variable cost of $5 to manufacture. Fixed costs normally incurred are $60,000. Maya Company is considering automating the manufacturing process, which would require a capital investment which would increase fixed costs by $30,000. As a result of the automation, variable costs would decrease by 20%. What would the new breakeven level in units be for Maya Company if it decides to automate the manufacturing process?
6,000 units
4,000 units
5,625 units
3,750 units
Moss, Inc. Has total fixed costs of $56,000 and a contribution margin ratio of 40%. Moss wants to generate net income totaling $35,000. How much will sales revenue be at Moss’ target net income?
57,400
227,500
140,000
127,400
Palms, Inc. Wants to sell enough palm trees to earn a profit of $20,000. If the unit sales price is $40, unit variable cost is $22, and total fixed costs are $120,400, how many trees must be sold to earn a profit of $20,000?
7,800
8,911
6,689
312,000
The mathematical equation for computing required sales to obtain target net income is: Required sales =
Variable cost + target net income
Variable cost + fixed cost + target net income
Fixed cost+ target net income
None of the above
Required sales in dollars to meet a target net income is computed by dividing
Fixed costs plus target net income by contribution margin ratio.
Total costs plus target net income by contribution margin ratio.
Fixed costs plus target net income by contribution margin per unit.
Variable costs plus target net income by contribution margin per unit.
Bergman Company has total fixed costs of $350,000 and a contribution margin ratio of 20%. Hampton’s target net income is $250,000. Sales in dollars to meet the target net income would be
1,750,000
3,000,000
1,250,000
600,000
Simmons Company has required sales of $1,500,000 to meet its target net income. It has fixed costs of $200,000 and the contribution margin ratio is 40%. The company’s target net income is
1,300,000
600,000
500,000
400,000
Budgeting facilitates the coordination of activities within the business by correlating the goals of each segment with overall company objectives. Entry field with correct answer
True
False
Which one of the following is not a benefit of budgeting?
It provides definite objectives for evaluating performance
It provides assurance that the company will achieve its objectives
It requires all levels of management to plan ahead on a recurring basis
It facilitates the coordination of activities
Which one of the following is a primary benefit of budgeting?
It removes the 'plan ahead' from lower level managers so that they can focus on operations
It provides definite objectives for evaluating performance
It eliminated potential problems so that managers do not need to be concerned that things may get out of hand
It eliminates the need for coordination of activities throughout the company
Which of the following is not a benefit of budgeting?
Management can plan ahead
It enables disciplinary action to be taken at every level of responsibility
An early warning system is provide for potential problems
The coordination of activities is facilitated
A budget
May promote efficiency but has no role in evaluating performance
Is the responsibility of management accountants
Ignores the past performance became it represents managements plans for a future time period
Is the primary method of communicating agreed-upon objectives throughout and organization
Which of the following are correct statements about a budget?
It is a formal written statement of management's plans for a specified future time period.
It becomes an important basis for evaluating performance.
It promotes efficiency and serves as a deterrent to waste and inefficiency.
All of these options are correct statements.
The primary benefits of budgeting include all of the following except it
Provides definite objectives for evaluating performance.
Motivates personnel throughout the organization.
Creates an early warning system for potential problems.
Requires only top management to plan ahead and formalize goals.
Which one of the following is necessary if a company expects its budget to be effective?
The budget amounts must be based on those of previous accounting periods.
The company must have a sound organizational structure.
The company’s budget should be a good substitute for management.
Managers must be held responsible for controllable and uncontrollable costs.
The essentials of effective budgeting do not include
Management acceptance
Sound organizational structure
Research and analysis
Top-down budgeting
Compared to budgeting, long-range planning generally has the
Same time period
Same emphasis
Same amount of detail
Longer time period
Coordinating the preparation of the budget is the responsibility of the
President
Chief accountant
Treasurer
Budget committee
The master budget is a set of interrelated budgets that constitutes a plan of action for a specified time period. Entry field with correct answer
True
False
The direct materials budget shows both the quantity and cost of direct materials to be purchased.
True
False
Which of the following lists includes only financial budgets?
Budgeted balance sheet, cash budget, and the capital expenditures budget.
Capital expenditure budget, sales budget, and budgeted income statement.
Cash budget, production budget, and capital expenditures budget.
Budgeted income statement, budgeted balance sheet, and sales budget.
A sales budget is
Management’s best estimate of sales revenue for the year.
Not the starting point for the master budget.
Prepared only for credit sales.
Derived from the production budget.
The formula for the production budget is budgeted sales in units plus
Desired ending merchandise inventory less beginning merchandise inventory.
Beginning finished goods units less desired ending finished goods units.
Desired ending direct materials units less beginning direct materials units.
Desired ending finished goods units less beginning finished goods units.
Direct materials inventories are kept in pounds in Byrd Company, and the total pounds of direct materials needed for production is 9,500. If the beginning inventory is 1,000 pounds and the desired ending inventory is 2,200 pounds, the total pounds to be purchased are
9,700
9,400
9,500
10,700
Operating budgets include all of the following except the
Capital expenditure budget
Production budget
Budgeted income statement
Sales budget
Each of the other budgets in the master budget depends on the
Budgeted income statement
Cash budget
Production budget
Sales budget
In the direct materials budget, the quantity of direct materials to be purchased is computed by adding direct materials required for production to
Desired ending direct materials less beginning direct materials.
Beginning direct materials less desired ending direct materials.
Desired ending direct materials.
Beginning direct materials.
The direct labor budget and the manufacturing overhead budget are prepared directly from the
Sales budget
Budgeted income statement
Cash budget
Production budget
At the beginning of the year, Goldenrod had beginning inventory of 2,000 scooters. Goldenrod estimates it will sell 5,000 units during the first quarter of the current year, with a 10% increase in sales each quarter. It is Goldenrod’s policy to maintain an ending inventory equal to 20% of the next quarter’s budgeted sales. Each scooter costs $100 to produce and sold for $150. How much is the budgeted sales revenue for the third quarter of the current year?
825,000
605,000
500,000
907,500
Microtech plans to sell 2,000 computers in April; 1,900 in May; and 2,000 in June. The company keeps 15% of the next month’s sales as ending inventory. How many units should Microtech produce in May?
1,915
2,200
1,885
Cannot be determined
Tomy Toys is planning to sell 200 action figures and to produce 190 action figures in July. Each action figure requires 100 grams of plastic and a half hour of direct labor. The cost of the plastic used in each action figure is $5 per 100 grams. Employees of the company are paid at a rate of $15.00 per hour. Manufacturing overhead is applied at a rate of 120% of direct labor costs. Tomy Toys has 90,000 grams of plastic in its beginning inventory and wants to have 80,000 grams in its ending inventory. What is the amount of budgeted direct labor cost for the month of July?
2,850
1,500
3,000
1,425
The formula for computing the direct labor budget is to multiply the direct labor cost per hour by the
Total required direct labor hours.
Physical units to be produced.
Equivalent units to be produced.
No correct answer is given.
Windathon, Inc. Expects sales volume totaling $500,000 for June. Data for the month follows: Sales commissions 4% of sales Sales manager's salary $30,000 per month Advertising expense $25,000 per month Shipping expense. 1% of sales Miscellaneous selling expenses $2,100 per month plus 3/4% of sales How much is Windathon’s selling expense budget for June?
85,850
57,100
30,850
83,750
Each of the following budgets is used in preparing the budgeted income statement except the
Sales budget
Direct labor budget
Selling and administrative budget
Capital expenditure budget
Which one of the following budgets is considered to be the most important financial budget?
Cash budget
Budgeted balance sheet
Sales budget
Budgeted income statement
Drew Enterprises reports all its sales on credit, and pays operating costs in the month incurred. Estimated amounts for the months of June through October are: June July August September October Budgeted sales $310,000 $330,000 $300,000 $280,000 $260,000 Budgeted purchases $144,000 $120,000 $128,000 $132,000 $90,000 Customer amounts on account are collected 60% in the month of sale and 40% in the following month. Cost of goods sold is 45% of sales. Drew purchases and pays for merchandise 30% in the month of acquisition and 70% in the following month. How much cash is budgeted to be received during August?
312,000
318,000
180,000
291,000
Scan Design provided the following budgeted information for April through July: April May June July Projected sales $104,000 $123,000 $115,000 $132,000 Projected merchandise purchases $82,000 $92,000 $78,000 $66,000 The cash balance on June 1 is $12,000. The company pays 40% of merchandise purchases in the month purchased and 60% in the following month. General operating expenses are budgeted to be $31,000 per month of which depreciation is $3,000 of this amount. Management pays operating expenses in the month incurred. The company makes loan payments of $4,000 per month of which $600 is interest and the remainder is principal. How much are budgeted cash disbursements for June?
63,200
86,400
118,400
102,800
The format of a cash budget is
Beginning cash balance + Net income- Cash dividends = Ending cash balance.
Beginning cash balance + Cash receipts + Cash from financing – Cash disbursements = Ending cash balance.
Beginning cash balance + Cash revenues – Cash expenses = Ending cash balance.
Beginning cash balance + Cash receipts – Cash disbursements +/– Financing = Ending cash balance.
Expected direct materials purchases in Read Company are $70,000 in the first quarter and $90,000 in the second quarter. Forty percent of the purchases are paid in cash as incurred, and the balance is paid in the following quarter. The budgeted cash payments for purchases in the second quarter are
90,000
78,000
72,000
96,000
Financial budgets consist of all of the following except the
Budgeted balance sheet
Capital expenditure budget
Budgeted income statement
Cash budget
The budget that is often considered to be the most important financial budget is the
Cash budget
Budgeted balance sheet
Budgeted income statement
Capital expenditure budget
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