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Question 1 Which of the following is an advantage of corporations relative to partnerships and sole proprietorships? Harder to transfer ownership. Most common form of organization. Reduced legal liability for investors. Lower taxes. Question 2 The group of users of accounting information charged with achieving the goals of the business is its creditors. investors. managers. auditors. Question 3 Which of the following financial statements is concerned with the company at a point in time? Income statement.
Balance sheet. Retained Earnings statement. Statement of cash flows. Question 4 An income statement reports the changes in assets, liabilities, and stockholders’ equity over a period of time. reports the assets, liabilities, and stockholders’ equity at a specific date. presents the revenues and expenses for a specific period of time. summarizes the changes in retained earnings for a specific period of time. Question 5 The most important information needed to determine if companies can pay their current obligations is the relationship between short-term and long-term liabilities. net income for this year. projected net income for next year. relationship between current assets and current liabilities. Question 6 A liquidity ratio measures the ability of a company to survive over a long period of time. short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash. income or operating success of a company over a period of time. percentage of total financing provided by creditors. Question 7 The convention of consistency refers to consistent use of accounting principles among firms. throughout the accounting periods. among accounting periods. within industries. Question 8 Horizontal analysis is also known as vertical analysis. trend analysis. common size analysis. linear analysis. Question 9 Horizontal analysis is a technique for evaluating a series of financial statement data over a period of time that has been arranged from the lowest number to the highest number. to determine which items are in error. to determine the amount and/or percentage increase or decrease that has taken place. that has been arranged from the highest number to the lowest number.
Question 10 Vertical analysis is a technique that expresses each item in a financial statement in dollars and cents. as a percent of the item in the previous year. as a percent of a base amount. starting with the highest value down to the lowest value. Question 11 Process costing is used when the production process is continuous. production is aimed at filling a specific customer order. dissimilar products are involved. costs are to be assigned to specific jobs. Question 12 An important feature of a job order cost system is that each job must be completed before a new job is accepted. consists of one unit of output. must be similar to previous jobs completed. has its own distinguishing characteristics. Question 13 In a process cost system, product costs are summarized: after each unit is produced. on production cost reports. when the products are sold. on job cost sheets. Question 14 An activity that has a direct cause-effect relationship with the resources consumed is a(n) cost pool. product activity. cost driver. overhead rate. Question 15 Activity-based costing assigns activity cost pools to products and services, then allocates overhead back to the activity cost pools. allocates overhead to multiple activity cost pools, and it then assigns the activity cost pools to products and services by means of cost drivers. allocates overhead directly to products and services based on activity levels. accumulates overhead in one cost pool, then assigns the overhead to products and services by means of a cost driver. Question 16 A cost which remains constant per unit at various levels of activity is a fixed cost.
variable cost. mixed cost. manufacturing cost. Question 17 The break-even point is where total variable costs equal total fixed costs. total sales equal total fixed costs. contribution margin equals total fixed costs. total sales equal total variable costs. Question 18 Fixed costs are $600,000 and the contribution margin per unit is $150. What is the break-even point? 4,000 units $1,500,000 $4,000,000 1,500 units Question 19 When a company assigns the costs of direct materials, direct labor, and both variable and fixed manufacturing overhead to products, that company is using product costing. variable costing. operations costing. absorption costing. Question 20 If a division manager’s compensation is based upon the division’s net income, the manager may decide to meet the net income targets by increasing production when using absorption costing, in order to increase net income. variable costing, in order to increase net income. absorption costing, in order to decrease net income. variable costing, in order to decrease net income. Question 21 An unrealistic budget is more likely to result when it is developed with performance appraisal usages in mind. has been developed in a bottom up fashion. has been developed in a top down fashion. has been developed by all levels of management. Question 22 A major element in budgetary control is the preparation of long-term plans. approval of the budget by the stockholders. the comparison of actual results with planned objectives. the valuation of inventories.
Question 23 The purpose of the sales budget report is to determine whether income objectives are being met. control selling expenses. control sales commissions. determine whether sales goals are being met. Question 24 The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-day decisions about activities in an area is called flexible accounting. static reporting. master budgeting. responsibility accounting. Question 25 Variance reports are (a) external financial reports. (b) SEC financial reports. (c) internal reports for management. (d) all of these. Question 26 Internal reports that review the actual impact of decisions are prepared by the controller. department heads. management accountants. factory workers. Question 27 The process of evaluating financial data that change under alternative courses of action is called contribution margin analysis. cost-benefit analysis. double entry analysis. incremental analysis. Question 28 Seasons Manufacturing manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows: Income would increase by $140,000. Income would increase by $40,000. Income would increase by $8,000. Income would decrease by $8,000. Question 29
Carter, Inc. can make 100 units of a necessary component part with the following costs: Direct Materials $120,000 Direct Labor 20,000 Variable Overhead 60,000 Fixed Overhead 40,000 If Carter can purchase the component externally for $220,000 and only $10,000 of the fixed costs can be avoided, what is the correct make-or-buy decision? Make and save $30,000 Buy and save $30,000 Make and save $10,000 Buy and save $10,000 Question 30 A company has a process that results in 15,000 pounds of Product A that can be sold for $16 per pound. An alternative would be to process Product A further at a cost of $200,000 and then sell it for $28 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action? Sell now, the company will be better off by $200,000. Process further, the company will be better off by $20,000. Sell now, the company will be better off by $20,000. Process further, the company will be better off by $180,000.