Basic Accounting Practice Questions
Course Introduction
Basic Accounting introduces students to the foundational principles and practices in accounting, including the systematic recording, classification, and summarization of financial transactions. The course covers key topics such as the accounting cycle, preparation of financial statements, double-entry bookkeeping, and the rules governing debits and credits. Students will gain practical skills in analyzing business transactions, managing ledgers, and understanding the significance of accuracy and integrity in financial reporting. Basic Accounting forms the essential groundwork for further studies in finance, business, and management.
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College Accounting Chapters 1 to 30 15th Edition by John Price
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Page 2
Chapter 1: Accounting: The Language of Business
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Q1) The area of accounting that involves the preparation of internal reports for a firm's executives and the analysis of the data in these reports to aid in decision making is known as
A)managerial accounting.
B)cost accounting.
C)financial accounting.
D)auditing.
Answer: A
Q2) Most owners and managers rely heavily on the accountant's judgment and knowledge when making financial decisions.
A)True
B)False
Answer: True
Q3) The SEC uses financial information to determine a company's tax base.
A)True
B)False
Answer: False
Q4) The owners of a corporation are called ________. Answer: stockholders or shareholders
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Chapter 2: Analyzing Business Transactions
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Q1) In a business transaction, when revenue increases, owner's equity will ________ .
Answer: increase
Q2) Ginger Yale Ice Company receives money from a customer on account. Recording this transaction will:
A)decrease Accounts Payable.
B)increase Cash.
C)increase Accounts Receivable.
D)decrease G. Yale, Capital.
Answer: B
Q3) When equipment is purchased on credit,
A)assets increase and liabilities decrease.
B)assets and owner's equity increase.
C)assets and expenses increase.
D)assets and liabilities increase.
Answer: D
Q4) Purchased Equipment on credit
Answer: plus Equipment; plus Accounts Payable
Q5) In a business transaction, when expenses increase, owner's equity will ________. Answer: decrease
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Chapter 3: Analyzing Business Transactions Using T Accounts
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Q1) A business transaction must affect at least two accounts. A)True
B)False
Answer: True
Q2) An entry on the left side of an account is called a(n)________.
Answer: debit
Q3) Using the information shown, create a Chart of Accounts with appropriate account numbers for the accounts given for Dom's Delivery Service.
Answer: Note:Student answers will vary. Look for basic numbering blocks with categories in the same block. Whether or not titles are required is at the instructor's discretion. 11ea7d89_88ee_e30e_8568_5d1999cf8518_TB3077_00
Q4) Issued a check for $3,400 to pay salaries
Answer: Debit Salaries Expense $3,400; credit Cash $3,400
Q5) When equipment is purchased for cash, the cash account is credited and the ________ account is debited.
Answer: equipment
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Page 5
Chapter 4: The General Journal and the General Ledger
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Q1) The Posting Reference column of a journal is used to:
A)record the number of the ledger account to which the information is posted.
B)record the number of amounts posted to that ledger account since the beginning of the current accounting period.
C)record the page number of the ledger account.
D)record the date on which an amount is posted to a ledger account.
Q2) On July 3, the ABC Company received $865 in cash on account from customers. The correct journal entry to record this transaction is:
A)debit Cash, $865; credit Accounts Receivable, $865
B)debit Accounts Receivable, $865; credit Cash, $865
C)debit Cash, $865; credit Accounts Payable, $865
D)debit Cash, $865; credit Income from Services, $865
Q3) The revenue accounts come before the expense accounts in the general ledger.
A)True
B)False
Q4) The process of transferring data from a journal to a ledger is known as ________.
Q5) The______ is referred to as the record of final entry.
Q6) A ________ is referred to as a record of original entry.
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Chapter 5: Adjustments and the Worksheet
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Q1) Read the description of following adjustments that are required at the end of the accounting period for Hubbard Repair Services. Determine the account and amount to be debited and the account and amount to be credited.
A. Purchased supplies for $2,000 on November 1, 2019. Inventory of supplies was $600 on November 30, 2019. Record the adjustment for the amount of the supplies that were used during the month of November 2019.
B. Signed a 4-month contract for $2,400 of prepaid advertising on November 1, 2019. Record the adjustment for the amount of the advertising contract that expired during the month of November 2019.
C. Prepaid rent for the year on November 1, 2019. Rent expired during the month of November 2019, $1,500. Record the adjustment on November 30, 2019.
D. Depreciation is computed using the straight-line method. Equipment purchased on November 1, 2019, for $6,000 has an estimated useful life of 5 years with no salvage value. Record the adjustment on November 30, 2019.
Q2) On a worksheet, the adjusted balance of Supplies is extended from the Adjusted Trial Balance Debit column to the ________ Debit column.
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Chapter 6: Closing Entries and Teh Postclosing Trial Balance
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Q1) After all the closing entries are posted to the ledger, the Income Summary account will have a________ balance.
Q2) The temporary owner's equity accounts are closed because they apply to only one accounting period.
A)True
B)False
Q3) Data for the first two closing entries is taken from the___________ section of the worksheet.
Q4) The final closing entry transfers the balance of the ________ account to the owner's capital account.
Q5) A post-closing trial balance could include all of the following accounts except the:
A)Accounts Receivable account.
B)Fees Income account.
C)owner's capital account.
D)Cash account.
Q6) If the Income Summary account has a debit balance before it is closed, the firm experienced a net________ from operations.
Q7) The postclosing trial balance lists only the ________, and accounts.
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Chapter 7: Accounting for Sales and Accounts Receivable
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Q1) A wholesale business sells goods with a list price of $1,200 and a trade discount of 30 percent. The amount credited to the Sales account for the sale is
A)$765.00
B)$840.00
C)$360.00
D)$1,560.00
Q2) Kay Sadia sold merchandise for $15,200 subject to a 7% sales tax. The entry in the sales journal will include a credit to Sales for
A)$14,136.00
B)$12,664.00
C)$15,200.00
D)$16,264.00
Q3) Which of the following describes Sales Returns and Allowances?
A)A revenue account with a normal credit balance.
B)A contra revenue account with a normal debit balance.
C)A contra expense account with a normal credit balance.
D)An expense account with a normal debit balance.
Q4) Sales Tax Payable is classified as a(n)________ account.
Q5) A(n)-------- business sells goods that it purchases in finished form for resale.
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Chapter 8: Accounting for Purchases and Accounts Payable
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Q1) Purchased merchandise with terms of net 30 days.
A)CR for cash receipts journal
B)CP for cash payments journal
C)S for sales journal
D)P for purchases journal
E)G for general journal.
Q2) To record a return of merchandise purchased on credit on the books of the buyer, the accountant would:
A)debit Purchases and credit Purchases Returns and Allowances.
B)debit Purchases Returns and Allowances and credit Accounts Receivable.
C)debit Purchases Returns and Allowances and credit Purchases.
D)debit Accounts Payable and credit Purchases Returns and Allowances.
Q3) If an amount recorded in the general journal requires two postings, a diagonal line is used to separate the two posting references in the posting reference column.
A)True
B)False
Q4) Purchases returns and allowances are recorded in the ________ journal if a firm does not have a purchases returns and allowances journal.
Page 10
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Chapter 9: Cash Receipts, Cash Payments, and Banking Procedures
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Q1) Checks written by a firm that were paid by the bank are called ________ checks.
Q2) Included on a firm's bank statement was a credit memorandum, which could indicate:
A)a bank service charge deducted from the firm's account balance.
B)an addition to the firm's account balance because the bank collected the amount due on a promissory note from a customer of the firm.
C)the bank's return of a dishonored (NSF)check that was issued by a credit customer of the firm.
D)a fee for printing new business checks.
Q3) Read each of the following transactions. Determine the accounts and amounts to be debited and credited.
A)Issued a check for $2,500 to Jaime Gomez, the owner, as a cash withdrawal for personal use.
B)Issued a check for $75 to establish a petty cash fund.
C)Issued a check for $50 to replenish the petty cash fund. An analysis of the payments from the fund showed the following totals: Supplies, $25; Delivery Expense, $10; Miscellaneous Expense, $15)
Q4) The Petty Cash Fund account has a(n)________ balance.
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Chapter 10: Payroll Computations, Records, and Payment
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Q1) Rick O'Shea, the only employee of Hunter Furniture Company, makes $30,000 per year and is paid once a month. For the month of July, his federal income taxes withheld are $180, state income taxes withheld are $37, social security tax is 6.2%, Medicare tax is 1.45%, State Unemployment Tax is 4%, and Federal Unemployment tax is 0.6%. What is Rick's net pay for July?
A)$2,500.00
B)$2,091.75
C)$2,308.75
D)$2,283.00
Q2) Which of the following statements is not correct?
A)Medicare taxes are levied in an equal amount on both employers and employees.
B)The amount of social security tax withheld depends on an employee's gross earnings, marital status, and number of withholding allowances.
C)Once an employee's year-to-date wages reach a certain amount prescribed by law, social security tax is no longer withheld.
D)Federal law requires that social security, Medicare, and federal income taxes be deducted from the gross pay of most employees.
Q3) FICA tax is commonly referred to as ________ tax.
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Chapter 11: Payroll Taxes, Deposits, and Reports
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Q1) Mr. Zee worked 48 hours during the week ended January 18, 2019. He is paid $12 per hour, and is paid time-and-a-half for all hours over 40 in a week. He had $100 withheld from his pay for federal income taxes, and $20 withheld for health insurance. The combined social security and Medicare tax rate is 7.65%, and the federal and state unemployment tax rates are 0.6% and 3.8%, respectively. All earnings are taxable. What is the total employer payroll tax expense for Mr. Zee's current paycheck?
A)$47.74
B)$75.19
C)$0
D)$27.45
Q2) After the Marion Corporation paid its employees on November 15, 2019, and recorded the corporation's share of payroll taxes for the payroll paid that date, the firm's general ledger showed a balance of $1,925 in the Social Security Tax Payable account, a balance of $519 in the Medicare Tax Payable account, and a balance of $2,105 in the Employee Income Tax Payable account. On November 16, 2016, the business issued a check to deposit the taxes owed in the local bank. Record this transaction on page 5 of a general journal.
Q3) The premium rate on ________ insurance is determined by the risk involved in the work performed.
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Page 13
Chapter 12: Accruals, Deferrals, and the Worksheet
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Q1) Which of the following statements is correct?
A)Income that has been earned but not yet received is called accrued income.
B)Under the accrual basis of accounting, revenue is recognized and recorded in the period when it is earned regardless of when cash related to the transaction is received.
C)Unearned Subscription Income is a liability account.
D)All of these statements are correct.
Q2) Determine the account and amount to be debited and the account and amount to be credited for the following adjustment. During December, the firm received $6,000 in fees in advance and properly recorded the amount as Unearned Fees. An analysis shows that $2,000 applies to services provided in December.
Q3) On October 1, 2019, Paige Turner Publishing received $5,400 in cash for subscriptions covering one year, recording the entry as a debit to Cash and a credit to Unearned Subscriptions. The correct adjusting entry at December 31, 2019, is
A)Debit Unearned Subscriptions $1,350; credit Subscriptions Income $1,350.
B)Debit Unearned Subscriptions $450; credit Subscriptions Income $450.
C)Debit Unearned Subscriptions $5,400; credit Subscriptions Income $5,400.
D)Debit Subscriptions Income $1,350; credit Unearned Subscriptions $1,350.
Q4) Uncollectible Accounts Expense is a(n)________ account.
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Chapter 13: Financial Statements and Closing Procedures
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Q1) For the current fiscal year, Purchases were $187,000, Purchase Returns and Allowances were
$4,200 and Freight In was $10,500. If the beginning merchandise inventory was $98,000 and the ending merchandise inventory was $103,000, the Cost of Goods Sold is:
A)$ 167,300
B)$196,700
C)$193,300
D)$188,300
Q2) A gross profit percentage of 45 percent means that for every $1 of net sales, gross profit amounts to$________.
Q3) The difference between net sales and the cost of goods sold is called the ________ on sales.
Q4) The owner of a firm had capital of $170,000 on January 1, 2019, and made withdrawals of $96,000 during 2019. The business earned a net income of $90,000 for the year.
1. What amount of capital was shown as of December 31, 2019, on the statement of owner's equity?
2. How much was the increase or decrease in capital for the year?
Q5) Each reversing entry is the exact opposite of the related________ entry.
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Chapter 14: Accounting Principles and Reporting Standards
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Q1) If an expenditure that is expected to benefit future periods is made during one accounting period, the cost should be divided and charged as an expense during each period benefited.
A)True
B)False
Q2) Why is the cost principle dependent on the going concern assumption?
Q3) Why are notes important in financial statements and when should they be provided?
Q4) For convenience, accountants assume that the value of money is stable or that changes in its value are not great enough to affect the recorded financial data.
A)True
B)False
Q5) Under the ________ basis of accounting, income is recorded in the period in which it is earned.
Q6) What two tests must be met in order for revenues to be recognized?
Q7) The accountant records an expense for wages earned by employees during the last four days of the year, even though the wages will not be paid in that year. The accountant is following the________ principle.
Page 16
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Chapter 15: Accounts Receivable and Uncollectible Accounts
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Q1) Uncollectible Accounts Expense is classified as
A)a Contra Asset on the Balance Sheet.
B)a Liability on the Balance Sheet.
C)a Contra Expense on the Income Statement.
D)an Expense on the Income Statement.
Q2) The balance in Allowance for Doubtful Accounts after adjustment is:
A)$5,620.
B)$3,980.
C)$4,800.
D)$5,080.
Q3) On December 31, prior to adjustments, the balance of Accounts Receivable is $32,000 and Allowance for Doubtful Accounts has a credit balance of $290. The firm estimates its losses from uncollectible accounts to be 5.5% of accounts receivable at the end of the year. The adjusting entry needed to record the estimated losses from uncollectible accounts is
A)$290.
B)$1,470.
C)$1,310.
D)$1,760.
Q4) The longer an account is past due, the ________ likely it is to be collected.
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Chapter 16: Notes Payable and Notes Receivable
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Questions
Q1) On October 10, 2019, the Berkeley Company accepted a 60-day, 9 percent note from Devon Reed in settlement of his past-due account for $3,000. On November 9, Berkeley Company discounted the note at the Security Bank. The bank charged a discount rate of 12 percent. Answer the following questions. (round your answers to 2 decimal places)
1. What is the maturity date of the note?
2. What is the maturity value of the note?
3. How many days are in the discount period?
4. What is the amount of the discount?
5. What is the amount of the proceeds?
Q2) The Notes Receivable Discounted account
A)has a debit balance.
B)is shown as a deduction from Notes Receivable on the balance sheet.
C)is used to record the amounts due on dishonored notes.
D)is used to record the amount of interest deducted by the bank when a note is discounted.
Q3) Interest Income is classified as a current asset.
A)True
B)False
Q4) Compute the amount of interest owed on a 6-month, 12 percent note for $18,000.
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Chapter 17: Merchandise Inventory
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Q1) A company has inventory with a sales value of $34,000, current net realizable value of $22,000 and a total cost of $23,400. Since the sales value exceeds both cost and net realizable value, no write down in inventory value is required.
A)True
B)False
Q2) Adams Company uses the specific identification method. At the end of the year, it had 24 units of its giant floating tricycles that are sold for use by tourists in the ocean or on large lakes. Explain how the physical count of inventory and the cost of ending inventory will be calculated.
Q3) Distinguish between periodic inventory, perpetual inventory, and physical inventory.
Q4) Inventory valuation is very important in computing federal income tax because the value placed on the inventory determines the net income reported.
A)True
B)False
Q5) A merchant who deals in one-of-a-kind items with large unit costs may account for inventory by the--------- method.
Q6) What is RFID? What is the benefit to RFID?
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Page 19
Chapter 18: Property, Plant, and Equipment
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Q1) When computing depreciation, the salvage value should be ignored (except that a company should not depreciate below it)if a company uses:
A)the declining-balance method.
B)the sum-of-the-years'-digits method.
C)the units-of-output method.
D)the straight-line method.
Q2) Net Book Value is the difference between the net acquisition cost of an asset and its fair market value.
A)True
B)False
Q3) ASB Ceramics purchased equipment used in the business three years ago for $32,000. The accumulated depreciation account related to the equipment asset account had a balance of $15,000. The equipment had an estimated salvage (residual)value of $2,000 and had an estimated life of six years. A full year's depreciation was taken the first year. ASB uses the straight-line depreciation method. All depreciation is usually recorded at year-end. The company sold the equipment in exchange for a promissory note on July 1 of the fourth year for $13,000. Record the appropriate entries necessary.
Q4) The normal balance of Accumulated Depreciation is a(n)----------- .
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Chapter 19: Accounting for Partnerships
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Q1) Amounts withdrawn by partners for their personal living expenses are debited to their----------accounts.
Q2) Ben White and Lisa Green are partners, and each has a capital balance of $90,000.
To gain admission to the partnership, John Brown pays $55,000 directly to White for one-half of his equity. After the admission of Brown, the total partners' equity in the records of the partnership will be
A)$125,000.
B)$180,000.
C)$207,500.
D)$235,000.
Q3) If an individual invests more cash for an interest in an existing partnership than the book value of his or her interests, an entry is made to debit
A)Cash and credit the Income Summary account for the excess.
B)Cash and credit the drawing account of each existing partner.
C)Cash and credit the capital account of each existing partner.
D)each existing partner's capital account and credit Cash.
Q4) Withdrawals of assets from a partnership that are intended to permanently reduce the invested capital are recorded as debits to the partners'--------- accounts.
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Page 21
Chapter 20: Corporations: Formation and Capital Stock
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Q1) The Odegard Corporation has outstanding 80,000 shares of 5%, $100 par-value, noncumulative, nonparticipating preferred stock and 160,000 shares of $2 par-value common stock, sold at an average price of $20 per share. There were no dividends in arrears. The board of directors voted to distribute $240,000 as dividends in 2019, $410,000 in 2020, and $520,000 in 2021.
Compute the following:
1. Total dividend paid to preferred stockholders in 2019.
2. Total dividend paid to common stockholders in 2019.
3. Total dividend paid to preferred stockholders in 2020.
4. Total dividend paid to common stockholders in 2020.
5. Total dividend paid to preferred stockholders in 2021.
6. Total dividend paid to common stockholders in 2021.
Q2) The stockholders of a corporation are agents of the corporation empowered to act for the firm.
A)True
B)False
Q3) Ari Hightower owns 250 shares of preferred stock that is convertible into common stock at the rate of 3 shares for every share of preferred stock surrendered. If she surrenders all her preferred stock, she will receive------------ shares of common stock.
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Chapter 21: Corporate Earnings and Capital Transactions
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Q1) The entry to record the payment of a cash dividend includes a debit to Retained Earnings and a credit to Cash.
A)True B)False
Q2) The entry to record the distribution of a stock dividend includes a debit to Common Stock Dividend Distributable.
A)True B)False
Q3) Accumulated profits that are kept in the business, as opposed to being distributed as dividends to stockholders, are called---------- .
Q4) Aspen Corporation reported net income of $120,000 for its fiscal year and declared and paid cash dividends of $60,000 during the year. In November, the 10,000 shares of $10 par, common stock split, 2 for 1. If the ending balance of the Retained Earnings prior to the split was $200,000, the beginning balance was:
A)$120,000.
B)$140,000.
C)$150,000.
D)$160,000.
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Chapter 22: Long-Term Bonds
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Q1) The Bond Interest Expense account is usually listed under Operating Expenses on the income statement.
A)True B)False
Q2) When bonds are issued at a price below face value, the Discount on Bonds Payable account is debited for the difference between the issue price and the face value.
A)True B)False
Q3) A company issues 9%, 20-year bonds with a face value of $400,000. The current market rate of interest is 8%. The amount of interest owed to the bondholders for each semiannual interest payment is:
A)$36,000.
B)$32,000.
C)$18,000.
D)$16,000.
Q4) On September 1, 2019, a corporation paid $620,000 to retire bonds with a face value of $600,000 and an unamortized bond premium of $10,000. Record the transaction on page 8 of a general journal. Omit the description.
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Chapter 23: Financial Statement Analysis
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Q1) A firm reported total liabilities of $50,000 and total stockholders' equity of $150,000. The amount of total liabilities is---------- percent of total assets.
Q2) In vertical analysis, it is customary to express each item on the balance sheet as a percentage of either the total assets or the total of liabilities and stockholders' equity.
A)True
B)False
Q3) Common-size statements present comparative data side by side with items expressed as percentages.
A)True
B)False
Q4) The price-earnings ratio compares the present market value of a corporation's common stock with the earnings per share of that stock.
A)True
B)False
Q5) Cost of goods sold divided by average inventory equals the----------- .
Q6) Using the information given, analyze the liquidity of Sybaritic Corporation for the year 2020.
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Chapter 24: The Statement of Cash Flows
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Q1) loss on early redemption of bonds
A)source
B)use
C)neither
Q2) On the statement of cash flows, the------------ is reconciled with the net cash provided by operating activities.
Q3) Eleemosynary Organization acquired land valued at $56,000 for 4,200 shares of its stock. Where on the Statement of Cash flows is this transaction reported?
A)Operating Activities
B)Investing Activities
C)Financing Activities
D)Disclosures
Q4) The resale of treasury stock for cash is classified as a cash inflow from financing activities.
A)True
B)False
Q5) Explain the differences between the direct and the indirect methods of preparing the operating activities section of the statement of cash flows.
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Chapter 25: Departmentalized Profit and Cost Centers
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Q1) A systematic and logical way to allocate the---------- for a building to various sales departments would be on the basis of floor space.
Q2) The departments of Cacophony Music Company are listed below. For each, determine whether it is a cost center or a profit center.
------1. Instrument Rental Department
------2. Instrument Repair Department
------3. Accounting Department
------4. Recording Studio
------5. Maintenance Department
------6. Sheet Music Department
------7. Storeroom
------8. Customer Service
------9. CDs and Tapes Department
------10. Purchasing & Receiving
Q3) Instrument Rental Department
A)Cost
B)Profit
Q4) Eliminating a department should eliminate all --------------expenses of the department.
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Chapter 26: Accounting for Manufacturing Activities
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Q1) Keyes Company manufactured 1,000 widgets for $37.00 per unit. The material cost assigned to each unit is $13. Direct labor accounts for 25% of the total manufacturing cost. What is the Per-unit cost of manufacturing overhead?
A)$9.25.
B)$14.75.
C)$14.25.
D)$18.00.
Q2) Once the financial statements have been prepared, the steps in the accounting cycle are complete. Which of the following is NOT one of the steps in the accounting cycle?
A)Adjusting entries
B)Post Closing Trial Balance
C)Closing Trial Balance
D)Closing entries
Q3) Stellar Manufacturing had a beginning raw materials inventory of $235,000. The firm had net purchases of $636,000 for the period and an ending raw materials inventory of $199,000. What was the cost of raw materials used?
Q4) The salary paid to a factory supervisor is classified as ----------.
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Chapter 27: Job Order Cost Accounting
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Q1) Job order cost accounting is appropriate:
A)when there are continuous operations on standard types of products.
B)only for goods produced on special order.
C)when a company produces more than one product in batches rather than on a continuous basis.
D)for all manufacturing companies.
Q2) Martinez Manufacturing applies overhead based on direct labor hours. The company estimates that their overhead for the year will be $180,000, and that they will use 72,000 direct labor hours. During the year, Martinez Manufacturing actually used 71,000 direct labor hours and actual overhead costs were $184,000. At the end of the year, manufacturing overhead was:
A)Overapplied by $6,500.
B)Overapplied by $4,000.
C)Underapplied by $4,000.
D)Underapplied by $6,500.
Q3) Perpetual inventory records are maintained through the use of subsidiary ledger cards or their automated equivalents.
A)True
B)False
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Chapter 28: Process Cost Accounting
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Q1) Kobold Company manufactures lamps. In May, Department B started 4,500 units. None had been transferred in from a prior department. Of the 4,500 units started, 4,250 were transferred out
-3,850 to the next department, Department C, and 400 were transferred to Finished Goods. All the materials issued during May were used in production while only 70% of the labor and overhead was added to the ending inventory. Calculate the equivalent units for material and for the labor and manufacturing overhead.
Q2) A department transferred 7,000 units to the finished goods storeroom during a month. There was no beginning work in process inventory, but 500 units were still in process at the end of the month. Equivalent production for the month was 7,400 units, and production costs incurred totaled $23,960. Inventory costs would be determined using a unit cost (rounded to two decimal places)of
A)$3.03.
B)$3.24.
C)$3.19.
D)$3.37.
Q3) Prepare a cost of production report for the Fabricating Department.
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Chapter 29: Controlling Manufacturing Costs: Standard Costs
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Q1) As the level of activity increases, the total fixed costs for the period A)increase.
B)decrease.
C)do not change.
D)may increase or decrease.
Q2) The quantity variance for an item is the difference between its actual quantity and its standard quantity, multiplied by the-------- cost of the item.
Q3) The following production information is available for January: \(\begin{array}{lrr}
\text { Actual Hours used } & 45,000 \\
\text { Actual Rate per hour } & \$ 15 \\
\text { Standard Rate per hour } & \$ 14 \\
\text { Standard hours for units produced } & 47,000 \end{array}\)
The direct materials price variance is:
A)$28,000 unfavorable
B)$45,000 unfavorable
C)$28,000 favorable
D)$45,000 favorable
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Q4) As the volume of output increases, the------- cost per unit of output decreases.
Chapter 30: Cost-Revenue Analysis for Decision Making
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Q1) Using the absorption costing method, the value of ending inventory of finished goods is:
A)$100,000
B)$140,000
C)$120,000
D)$220,000
Q2) Income statements prepared on an absorption-costing basis are usually more useful for internal decision making than income statements prepared on a direct costing basis.
A)True
B)False
Q3) The Sloan Corporation is considering the purchase of a new factory machine at a cost of $36,000. The machine would perform a function that is now being performed by hand. The new machine would have a life of six years and would produce 6,000 units a year (the current output). Direct labor costs would be reduced by $1.10 a unit. Variable overhead costs would be reduced by $0.35 a unit. Fixed costs, other than depreciation, would increase by $2,800 a year.
1. Should the machine be purchased?
2. What impact would the decision have on annual net income?
Q4) The difference in cost between two alternatives is called a(n)------------cost.
Page 32
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