TEST BANK for Managerial Accounting 1st Edition by Cainas Jennifer, Jozsi Celina, Richmond Pope Kell

Managerial Accounting, 1e (Cainas, Pope, Joszi) Chapter 1 Managerial Accounting: An Information System Learning Objective 1.1 1) Financial accounting emphasizes relevant, detailed information that may be used to forecast future performance.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 2) Managerial accounting requires accountants to follow generally accepted accounting principles (GAAP) when producing operational reports.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 3) The annual tax return filed with the Internal Revenue Service (IRS) is an example of a report generated from a financial accounting system.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 4) The number of defective materials received from vendors could be directly reported for managerial accounting but not financial accounting.

Answer: TRUE Objective: 1 AACSB: Reflective thinking 5) Financial accounting and managerial accounting differ in that: A) financial reporting is focused on forecasted future performance.

B) managerial accounting reporting requirements are based on the needs of management.

C) managerial accounting information is primarily used by individuals external to the business.

D) financial reporting provides relevant and detailed information.

Answer: B Objective: 1 AACSB: Application of knowledge 6) The objective of financial accounting is to: A) provide summarized reports to external stakeholders for decision making.

B) provide detailed information to operational and upper-level managers for decision making.

C) generate reports that meet the needs of management.

D) emphasize current, relevant performance.

Answer: A Objective: 1 AACSB: Application of knowledge 1 Copyright © 2023 Pearson Education, Inc.

7) A report detailing the number of on-time deliveries by geographic area is most likely used by a(n): A) investor.

B) upper-level manager.

C) vendor.

D) operations manager.

Answer: D Objective: 1 AACSB: Reflective thinking 8) A staff accountant is provided with information about the projected profitability of a company's three product lines for the upcoming year.

What is NOT a reason this represents a managerial report?

A) The information was provided to an external user.

B) The report's focus is on forecasted future performance.

C) The information is detailed.

D) The data is related to both financial and operational functions.

Answer: A Objective: 1 AACSB: Reflective thinking 9) Which of the following uses managerial accounting information?

A) City governments and universities.

B) An International consulting firm.

C) Small, individually owned business.

D) All of the above.

Answer: D Objective: 1 AACSB: Reflective thinking Learning Objective 1.2 1) Planning is a more important function than control because it is done first.

Answer: FALSE Objective: 2 AACSB: Reflective thinking 2) Identify the appropriate order in which the specified managerial functions should be performed.

A) Implementing & Controlling; Planning; Decision Making B) Decision Making; Implementing & Controlling; Planning C) Planning; Implementing & Controlling; Decision Making D) Implementing & Controlling; Decision Making; Planning Answer: C Objective: 2 AACSB: Application of knowledge 2 Copyright © 2023 Pearson Education, Inc.

3) Decreasing costs by 5% this year is an example of a long-term goal.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 4) Which is NOT an example of an activity performed in the planning stage?

A) Compare the results of current year activities against the plan and investigate all significant deviations.

B) Review historical sales data for the business and its competitors.

C) Consider new products under development.

D) Obtain certain economic and industry data to understand the current marketplace conditions.

Answer: A Objective: 2 AACSB: Reflective thinking 5) Control involves comparing the company's plan (budget) to the actual results achieved and investigating unusual differences.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 6) Operational decisions relate to which markets, customers, services, or products to provide.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 7) The current challenge with obtaining data for decision making is identifying both relevant and useful data.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 8) Information must be presented in the form of a report to be useful for decision making.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 9) Planning is to setting goals and objectives as Decision Making is to: A) turning a business plan into action.

B) selecting a course of action for the business.

C) monitoring actual results against the plan.

D) identifying a strategic vision for the business.

Answer: B Objective: 2 AACSB: Application of knowledge 3 Copyright © 2023 Pearson Education, Inc.

Learning Objective 1.3 1) The information needs of operations and upper-level management are the same.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 2) Examples of daily reports received by operations managers include: payments received by customers, number of on-time deliveries, and customer satisfaction surveys.

Answer: TRUE Objective: 3 AACSB: Reflective thinking 3) Upper-level managers are to "who are my biggest competitors?" as operations managers are to: A) "are my employees performing efficiently and effectively?"

B) "do we require funding for upcoming warehouse upgrades?"

C) "should I provide additional services to customers?"

D) "what is my target market?"

Answer: A Objective: 3 AACSB: Reflective thinking Learning Objective 1.4 1) Managers use managerial accounting information to create value for planning and control decisions but not for product costing and non-routine decisions.

Answer: FALSE Objective: 4 AACSB: Application of knowledge 2) Planning and control decisions should include analysis of both financial and non-financial information.

Answer: TRUE Objective: 4 AACSB: Application of knowledge 3) Identify the characteristics of information necessary for successful decision making.

A) Nonfinancial, historical, and conservative.

B) Historical, conservative, and useful.

C) Timely, relevant, and useful.

D) Relevant, prospective, and qualitative.

Answer: C Objective: 4 AACSB: Reflective thinking

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4) A non-routine decision is to switching accounting software as a product costing decision is to: A) considering expanding into a new state.

B) evaluating the results of advertising.

C) measuring customer satisfaction.

D) identifying the direct manufacturing costs.

Answer: D Objective: 4 AACSB: Reflective thinking 5) Identify the decisions or actions that management would perform during the planning and control process.

A) Forecasting the profit at different sales levels; Identifying why production goals were not met B) Evaluating a new technology platform; Forecasting profit at different sales levels C) Evaluating a new technology platform; Buying or leasing new copier D) Analyzing whether to buy or lease a new copier; Determining the direct costs and margin of various product lines Answer: A Objective: 4 AACSB: Reflective thinking 6) Which of the following is NOT an example of a question asked when making a non-routine decision?

A) Should we expand into the e-commerce (online) market?

B) What are the costs involved with manufacturing a product?

C) How should each of the products be priced to obtain a certain profit?

D) Should we automate our operations by investing in new technology?

Answer: B Objective: 4 AACSB: Reflective thinking Learning Objective 1.5 1) Prescriptive analytics is the simplest form of analytics that often summarizes past trends in the business.

Answer: FALSE Objective: 5 AACSB: Application of knowledge 2) Why something happened is to diagnostic analytics as what is likely to happen is to: A) predictive analytics.

B) descriptive analytics.

C) prescriptive analytics.

D) big data analytics.

Answer: A Objective: 5 AACSB: Application of knowledge 5 Copyright © 2023 Pearson Education, Inc.

3) Prescriptive analytics is to machine learning as descriptive analytics is to: A) prediction models.

B) root cause analysis.

C) historical trends.

D) artificial intelligence.

Answer: C Objective: 5 AACSB: Reflective thinking 4) Unstructured data is data that is not standardized and cannot be used in data analytics or decision making.

Answer: FALSE Objective: 5 AACSB: Application of knowledge 5) Unstructured data is to customer reviews as structured data is to: A) customer sales calls.

B) comments on social media.

C) digital photos.

D) customer purchase data.

Answer: D Objective: 5 AACSB: Reflective thinking Learning Objective 1.6 1) A managerial accounting system captures data (inputs), converts the data (process), and provides useful information for decision making (outputs). This is referred to as the IPO framework.

Answer: TRUE Objective: 6 AACSB: Application of knowledge 2) Which of the following is NOT a correct statement regarding the input-process-output (IPO) framework?

A) It includes the acquisition and evaluation of only quantitative information.

B) It supports a data analytic approach to a management accounting system.

C) The results can assist with improved managerial decision making.

D) Emphasizes the importance of understanding how operations influence accounting information.

Answer: A Objective: 6 AACSB: Application of knowledge

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3) Identify the item that represents non-financial information that can be used as an input for decision making.

A) Materials cost.

B) Supplier quality.

C) Employee wages.

D) Selling price.

Answer: B Objective: 6 AACSB: Reflective thinking 4) Qualitative information is easier to gather and analyze than? quantitative information.

Answer: FALSE Objective: 6 AACSB: Application of knowledge 5) Technology has enabled data to be captured and processed much more efficiently.

Answer: TRUE Objective: 6 AACSB: Application of knowledge 6) A performance report is an input to the managerial accounting system and compares budgeted amounts to actual amounts for decision making.

Answer: FALSE Objective: 6 AACSB: Reflective thinking 7) Identify the qualitative information that could be used as an input in the decision making process.

A) Number of units sold; supplier quality B) Online customer review comments; customer review ratings C) Customer review rating; Number of units sold D) Supplier quality; online customer review comments Answer: D Objective: 6 AACSB: Reflective thinking 8) Which of the following does NOT improve the usefulness of inputs in decision making?

A) Capturing relevant data.

B) Asking the right questions.

C) Collecting a large volume of relevant and irrelevant data.

D) Correct recording of data.

Answer: C Objective: 6 AACSB: Application of knowledge

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9) Which of the following would you not consider when evaluating the completeness and accuracy of the inputs into a managerial accounting system?

A) The policies and procedures of the competitor.

B) Reliability of software used to acquire the data.

C) The ability of employees to commit fraud or errors.

D) The skills and competencies of individuals if data is acquired manually.

Answer: A Objective: 6 AACSB: Reflective thinking 10) An internal factor is to budgeting and financial planning as an external factor is to: A) customer satisfaction.

B) the number of defective units.

C) job complexity.

D) gross domestic product (GDP) trends.

Answer: D Objective: 6 AACSB: Application of knowledge 11) Major corporations use the technique of direct observation as the primary accounting system input to prepare financial statements.

Answer: FALSE Objective: 6 AACSB: Application of knowledge 12) The cost-benefit constraint states that the cost of obtaining the inputs and processing into useful information for decision making must be less than the benefits obtained from the information.

Answer: TRUE Objective: 6 AACSB: Application of knowledge 13) What are examples of methods used to obtain data (inputs)?

A) Product costing, planning and controlling, and decision making.

B) Descriptive analytics, diagnostic analytics, predictive analytics, prescriptive analytics.

C) Structured data, unstructured data, financial data, nonfinancial data.

D) Direct observation, interviewing, storyboarding.

Answer: D Objective: 6 AACSB: Application of knowledge

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14) Identify the statement that is true regarding information gathering.

A) The three means to gather managerial accounting data include direct observation, interviewing, and storyboarding.

B) Direct observation requires minimal time to acquire and record data.

C) The most valuable interview data comes from inexperienced or new individuals.

D) Storyboarding is typically performed one-on-one and results in a standardized report.

Answer: A Objective: 6 AACSB: Application of knowledge 15) A company is looking to expand operations. Which of the following questions does upperlevel management not need to consider when gathering information to make the decision to expand operations?

A) What are the additional costs that would be incurred?

B) What descriptive analytics are available to assist with the decision?

C) Do our competitors have a competitive advantage and are they expanding?

D) What are customer demands and preferences?

Answer: B Objective: 6 AACSB: Reflective thinking 16) Technology has made it harder to perform a "what-if" or sensitivity analysis.

Answer: FALSE Objective: 6 AACSB: Reflective thinking 17) What is NOT an example of a technology that has made processing data into information easier?

A) Spreadsheet programs (Microsoft Excel).

B) Journals and ledgers (General Journal).

C) Relational Databases (SAP).

D) Visualization Tools (Tableau).

Answer: B Objective: 6 AACSB: Reflective thinking 18) Output from a management accounting system should be easily understood by management and can only take the form of financial statements.

Answer: FALSE Objective: 6 AACSB: Application of knowledge

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19) Identify the item that would not appear on a managerial report for a boat rental company.

A) Cost of gas B) Cost of boat slip lease C) Cost of inventory D) Wages paid to hourly employees Answer: C Objective: 6 AACSB: Reflective thinking 20) Management believes increased competition in the market is causing lower sales and profits for a company. What is a potential cause of customer dissatisfaction that management should analyze further?

A) Problems with meeting scheduled deliveries.

B) Expansion of the market to new participants.

C) Increased social media advertising.

D) Focused training to up-skill current employees.

Answer: A Objective: 6 AACSB: Reflective thinking Learning Objective 1.7 1) The following table presents a comparison of the budgeted income statement and the actual income statement along with the calculation of the differences (variances).

Identify the statement that does not appropriately explain why you would or would not want to investigate the variance further.

A) The selling and administrative expenses should not be investigated further because it is the smallest variance.

B) Since a flexible budget was prepared, the only variances are due to changes in the selling price or in the cost per unit.

C) The revenue variance should be investigated to figure out why the average selling price was higher than expectations.

D) The gross profit and operating income variances do not need to be investigated further as they are functions of revenues, cost of goods sold, and selling & administrative expenses.

Answer: A Objective: 7 AACSB: Reflective thinking 10 Copyright © 2023 Pearson Education, Inc.

2) Cruise lines were forced to stop sailing during the COVID-19 pandemic. What is NOT an example of a one-time (non-recurring) cost that cruise lines had to incur to restart sailings?

A) Re-launch marketing costs.

B) Repositioning the cruise ship to sail out of new ports.

C) Implementation of new health and safety protocols.

D) Purchasing food and beverages for sailing.

Answer: D Objective: 7 AACSB: Reflective thinking 3) The following pie chart breaks down operating expenses by category.

Identify the statement that is false or unable to be answered based on the information provided within the pie chart.

A) Advertising and salaries are the categories with the lowest spending.

B) The company is most likely a service company.

C) Maintenance costs are lower than expectations.

D) Examples of website costs could be the fee for the domain name and monthly hosting costs.

Answer: C Objective: 7 AACSB: Reflective thinking

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4) The following bar chart compares budgeted costs to actual costs.

Identify the false statement.

A) A line graph would be more helpful to show the differences between budgeted and actual costs across all categories.

B) Actual total costs exceeded total budgeted costs.

C) Multimedia capability is the only category with actual costs lower than expectations.

D) Maintenance costs are greater than the combined cost of content management, salaries, and advertising.

Answer: A Objective: 7 AACSB: Reflective thinking

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5) Erin is looking to start a bookstore. The following monthly costs are identified.

— Lease for bookstore $1000 per month — Utilities are $150 per month — Depreciation expense on furniture & fixtures is $520 per month — Repairs and maintenance is $70 per month — Average cost of each book sold $4 per book — Average selling price of each book $13 per book Assume, 130 books are sold in the first month. Which of the following statements is true?

A) The gross margin is $4 per book.

B) Total costs for the month are $1740.

C) The operating loss for the month is $570.

D) The bookstore needs to sell 60 more books to generate a profit.

Answer: C Explanation: C) Monthly Income Statement Sales (130 books x $13 per book) $1690 COGS (130 books x 4 per book) 520 Gross margin 1170 Rent expense 1000 Utilities 150 Depreciation expense 520 Repairs and maintenance expense 70 Operating income (loss) (570) Objective: 7 AACSB: Analytical thinking

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6) The following information is known about Ponte for the first year of operations.

Sales Cost of goods sold Gross margin Selling & administrative expenses Operating income

$25,000 10,000 15,000 10,000 5,000

What other factors are not relevant to better understanding the results of the first year of operations?

A) Is Ponte responsible for correcting product defects after customers receive the products?

B) What is the bonus structure of the vendor supplying the materials?

C) What is the quality of the products?

D) Are there upcoming changes to regulations such as updates to the IRS Tax Code?

Answer: B Objective: 7 AACSB: Reflective thinking

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7) The following information is known about Lochs LLC for May: Operating income Cost of goods sold Gross margin

$1000 $15,000 $58,000

Which of the following statements is correct?

A) Sales are $16,000 and selling & administrative expenses are $43,000.

B) Sales are $59,000 and selling & administrative expenses are $43,000.

C) Sales are $16,000 and selling & administrative expenses are $57,000.

D) Sales are $73,000 and selling & administrative expenses are $57,000.

Answer: D Explanation: D) Lochs LLC Income Statement Month of May Sales ???

COGS 15,000 Gross margin 58,000 SG&A expenses ???

Operating income 1000 Sales = COGS + Gross margin = $15,000 + $58,000 = $73,000 SG&A expenses = Gross margin - operating income = $58,000 - $1000 = $57,000 Objective: 7 AACSB: Analytical thinking Learning Objective 1.8 1) Effectiveness refers to achieving the goals, whereas efficiency relates to the resources used to create the actual results.

Answer: TRUE Objective: 8 AACSB: Application of knowledge 2) If a sales call center employee answers customer complaints in less average time per call than budgeted, but many customers have to call back because the employee did not properly resolve the customer's concern or problem, the employee was effective but inefficient.

Answer: FALSE Objective: 8 AACSB: Application of knowledge

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3) You write yourself a check to cover the bonus that you did not receive last year due to economic cutbacks in your company. This does not violate one of the IMA ethical standards.

Answer: FALSE Objective: 8 AACSB: Ethical understanding and reasoning 4) Identify the four standards in the IMA's Statement of Ethical Professional Practice.

A) Confidentiality; Competence; Fairness; Justice B) Confidentiality; Competence; Credibility; Fairness C) Confidentiality; Competence; Credibility; Integrity D) Competence; Credibility; Integrity; Relevance Answer: C Objective: 8 AACSB: Ethical understanding and reasoning 5) Confidentiality is to telling individuals outside of the business about information that is not public knowledge as Competence is to: A) failing to record wages earned but unpaid because the employee does not understand accrual concepts.

B) not disclosing the fact that a manager's spouse is a significant owner of one of the Company's main suppliers.

C) withholding important relevant information related to a decision.

D) reporting higher meals and entertainment expenses for a recent business trip.

Answer: A Objective: 8 AACSB: Ethical understanding and reasoning 6) Which of the following situations violates the confidentiality standard outlined in the IMA's Statement on Ethical Professional Practice?

A) You handwrite all financial statements because you do not know how to use Excel.

B) You write yourself a check to cover the bonus that you did not receive last year due to economic cutbacks in your company.

C) You tell your best friend about a new service line your company plans to release early next year.

D) You do not tell your boss that your sibling holds a significant amount of stock in the company.

Answer: C Objective: 8 AACSB: Ethical understanding and reasoning Learning Objective Appendix 1) The Statement of Cash Flows reports how much cash was earned and the liabilities owed for a period of time.

Answer: FALSE Objective: Appx.

AACSB: Application of knowledge 16 Copyright © 2023 Pearson Education, Inc.

2) The proper order of preparing financial statements is (1) income statement, (2) statement of retained earnings, (3) balance sheet, and (4) statement of cash flows.

Answer: TRUE Objective: Appx.

AACSB: Application of knowledge 3) The balance sheet is the only financial statement that reports as of a point in time. The income statement, statement of retained earnings, and statement of cash flows all report over a period of time.

Answer: TRUE Objective: Appx.

AACSB: Application of knowledge 4) Identify the transaction that increases net income.

A) Signed a note with the bank and received financing.

B) Recorded depreciation on equipment.

C) Prepaid for several months of advertising and recorded with prepaid advertising account.

D) Sold merchandise at more than cost.

Answer: D Objective: Appx.

AACSB: Application of knowledge 5) Identify the transaction that results in an increase to one account and a decrease to another account.

A) Recorded depreciation on equipment.

B) Employees worked for the week but will be paid next week.

C) Purchased merchandise on credit.

D) Paid rent for the month.

Answer: D Objective: Appx.

AACSB: Application of knowledge 6) Identify the improper account classification.

A) Accumulated Depreciation is a balance sheet account.

B) Unearned Revenue is an income statement account.

C) Gain on sale of the building is an income statement account.

D) Accounts payable is a balance sheet account.

Answer: B Objective: Appx.

AACSB: Application of knowledge

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Managerial Accounting, 1e (Cainas, Pope, Joszi) Chapter 2 Understanding Product Costs Learning Objective 2.1 1) A service company uses labor, equipment, and manufacturing facilities to convert raw materials into finished goods.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 2) Merchandising companies are similar to service companies in that there is no Cost of Goods Sold account for tracking product costs.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 3) A company has to be classified as a service, merchandising, or manufacturing company. It cannot have elements of more than one type.

Answer: FALSE Objective: 1 AACSB: Reflective thinking 4) Which of the following statements is correct?

A) Company A would periodically prepare a schedule of cost of goods manufactured.

B) Company B could have raw materials, direct labor, and overhead costs.

C) Company C manufactures its products in a manufacturing plant.

D) Company B's Income Statement would report Cost of Goods Sold.

Answer: C Objective: 1 AACSB: Reflective thinking

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5) Which of the following accounts would typically not appear on a service company's financial statements?

A) Accounts Payable.

B) Selling, General, and Administrative Expenses.

C) Inventory.

D) Operating Income (Loss).

Answer: C Objective: 1 AACSB: Application of knowledge 6) A merchandising company is to a grocery store as a manufacturing company is to: A) a home construction company.

B) a gym.

C) a book store.

D) a law firm.

Answer: A Objective: 1 AACSB: Reflective thinking Learning Objective 2.2 1) A cost object is anything for which costs are separately tracked. Cost objects can include products or services, processes, customers, or suppliers.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 2) Why is it important to accurately identify and capture data related to cost objects?

A) To create efficient visualizations.

B) To reduce ineffective or inefficient decisions.

C) To achieve a desired level of operating income.

D) To minimize income tax expense.

Answer: B Objective: 2 AACSB: Reflective thinking 3) The classification of costs as direct or indirect depends on the cost object.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 4) Direct costs are costs that become a part of the product. Indirect costs are costs that do not become part of the product.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 2 Copyright © 2023 Pearson Education, Inc.

5) For a clothing manufacturer, ________ would typically include thread while ________ would typically include fabric and buttons.

A) indirect labor, direct labor B) direct materials, indirect materials C) indirect materials, direct materials D) direct labor, indirect labor Answer: C Objective: 2 AACSB: Reflective thinking 6) Direct costs are to a tax accountant as indirect costs are to: A) server at a restaurant.

B) veterinarian at the humane society.

C) teller at a bank.

D) office staff at a doctor's office.

Answer: D Objective: 2 AACSB: Reflective thinking 7) The Roanoke Company reported the following information: Indirect labor Selling expenses Rent on factory Direct materials

$46,000 $23,000 $18,000 $53,000

What is the total indirect (manufacturing overhead) cost?

A) $87,000 B) $140,000 C) $46,000 D) $64,000 Answer: D Explanation: D) Indirect costs are costs incurred in the manufacturing process that cannot easily and accurately be traced to a cost object. = indirect labor + rent on factory = $46,000 + $18,000 = $64,000 Selling expenses are considered to be a period cost and direct materials is considered to be a direct product cost.

Objective: 2 AACSB: Analytical thinking

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8) A carpenter's salary for a company that builds houses is both a period cost and a prime cost.

Answer: FALSE Objective: 2 AACSB: Reflective thinking 9) Direct materials and direct labor combined are known as conversion costs.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 10) Which of the following is NOT a conversion cost for a computer manufacturer?

A) Depreciation on the assembly machine.

B) Circuit board.

C) Utilities for the factory where the computers are manufactured.

D) Assemblers.

Answer: B Objective: 2 AACSB: Reflective thinking 11) For a bakery: Conversion costs are to salt and pepper as prime costs are to: A) eggs.

B) depreciation on the oven.

C) janitor's wages.

D) insurance on the bakery.

Answer: A Objective: 2 AACSB: Reflective thinking

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12) The Green Light Company recorded the following quarterly manufacturing costs: Direct materials Direct labor Manufacturing overhead Selling and administrative costs

$39,000 71,000 82,000 47,000

What are the conversion costs?

A) $153,000 B) $110,000 C) $86,000 D) $192,000 Answer: A Explanation: A) Conversion costs are the costs incurred to convert direct materials into a finished product. = direct labor + overhead = $71,000 + $82,000 = $153,000 Objective: 2 AACSB: Analytical thinking Learning Objective 2.3 1) The value chain is used by service and merchandising companies but not by manufacturing companies.

Answer: FALSE Objective: 3 AACSB: Reflective thinking 2) Identify all elements of the value chain.

A) Research and Development, Design, Production, Marketing, Distribution, Customer Service B) Research and Development, Design, Social Media, Marketing, Advertising, Customer Service C) Design, Implementation, Production, Marketing, Distribution, Customer Service D) Target market analysis, Design, Production, Advertising, Distribution, Customer Service Answer: A Objective: 3 AACSB: Application of knowledge 3) Wages for an IT employee that services the entire organization are period costs for manufacturers, retailers, and service organizations.

Answer: TRUE Objective: 3 AACSB: Reflective thinking

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4) If a manufacturer or a retailer must pay freight on inventory received from a vendor, the transportation cost is a product cost.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 5) In an environment where more employees work from home instead of in the office, what is a correct statement regarding costs?

A) The period costs likely to increase are the cost of insurance and depreciation expense.

B) The product costs will significantly decrease.

C) The cost of leasing corporate headquarters could decrease.

D) The period costs likely to decrease are corporate training and technology.

Answer: C Objective: 3 AACSB: Application of knowledge 6) Identify the correct statement of when costs appear on the income statement.

A) Product Costs: when product is sold Period Costs: when cost is depleted B) Product Costs: when product is incurred Period Costs: when cost is sold C) Product Costs: when product finishes production Period Costs: when cost is incurred D) Product Costs: when product is sold Period Costs: when cost is incurred Answer: D Objective: 3 AACSB: Application of knowledge 7) Which of the following is an example of a period cost?

A) The salary of a factory supervisor.

B) The salary of the chief executive officer.

C) The depreciation of a machine used in production.

D) Overtime premium paid to the night shift at the plant.

Answer: B Objective: 3 AACSB: Application of knowledge

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8) Period cost is to salary of a salesperson as product cost is to: A) salary of an administrative assistant.

B) salary of a chief executive officer.

C) salary of the computer technician for the office.

D) salary of a factory supervisor.

Answer: D Objective: 3 AACSB: Reflective thinking 9) The Shenandoah Company reported the following information: Indirect labor Selling expenses Rent Direct materials

$83,000 $53,000 $37,000 $94,000

Which of the following statements is incorrect assuming rent is 75% related to the factory and 25% to the headquarters?

A) Total product costs are $214,000.

B) Total manufacturing overhead costs are $110,750.

C) Total prime costs are $94,000.

D) Total period costs are $62,250.

Answer: A Explanation: A) The incorrect answer relates to the calculation of product costs. For a manufacturer, product costs encompass all costs related to making the product, including direct materials, direct labor, and manufacturing overhead. = direct materials + direct labor + overhead* = $94,000 + 0 + $83,000 + $37,000 x 75% = $204,750 *overhead includes indirect labor and a portion of rent that relates to factory The correct answer allocates rent between product (75%) and period (25%) costs. Selling costs are considered to be a period cost.

Objective: 3 AACSB: Analytical thinking Learning Objective 2.4 1) Raw materials, work in process, and finished goods accounts are inventory accounts and are presented in the current assets section of the balance sheet.

Answer: TRUE Objective: 4 AACSB: Application of knowledge

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2) Raw materials ending inventory plus work in process ending inventory equals finished goods ending inventory.

Answer: FALSE Objective: 4 AACSB: Application of knowledge 3) The cost of goods finished during the period represents the cost of goods available for sale.

Answer: FALSE Objective: 4 AACSB: Application of knowledge 4) If a company's cost of goods manufactured is less than its cost of goods sold for the period, finished goods inventory decreased during the period.

Answer: TRUE Objective: 4 AACSB: Reflective thinking 5) Which of the following statements is incorrect?

A) When materials are transferred to production, materials inventory decreases.

B) When products are finished and moved out of production, the cost of goods sold increases.

C) The incurrence of indirect materials results in an increase to overhead.

D) When direct labor is used to manufacture products, work in process inventory increases.

Answer: B Objective: 4 AACSB: Reflective thinking 6) Direct labor costs were incorrectly classified as a period cost. Less units were sold than were produced. What was the effect on the cost of goods sold reported on the income statement and on the current assets on the balance sheet?

A) COGS is understated and current assets are understated.

B) COGS is overstated and current assets are understated.

C) COGS is overstated and current assets are overstated.

D) There is no impact on COGS or current assets.

Answer: A Objective: 4 AACSB: Reflective thinking 7) Cost of goods manufactured is to finished goods inventory as direct materials issued to production is to: A) work in process inventory.

B) raw materials inventory.

C) finished goods inventory.

D) cost of goods sold.

Answer: A Objective: 4 AACSB: Reflective thinking 8 Copyright © 2023 Pearson Education, Inc.

8) Identify the incorrect classification.

A) 7: Cost of Goods Sold B) 6: Cost of Goods Manufactured C) 4: Direct Labor D) 2: Indirect Materials Answer: D Objective: 4 AACSB: Reflective thinking

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9) Which of the following graphs most efficiently answers the question, "Is the overall product cost driven by prime or conversion costs and by what percent"?

A)

B)

C)

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D)

Answer: A Objective: 4 AACSB: Reflective thinking 10) The following line graph presents trends in product costs over time.

Which of the following questions would NOT be beneficial to investigate further based on the information presented in the line chart?

A) What are the number of units manufactured each year?

B) Has there been a change in the quality of raw materials purchased?

C) Is depreciation on the factory building and equipment calculated using the straight-line or the units of production method?

D) Are there any changes to the vendors over the past three years?

Answer: C Objective: 4 AACSB: Reflective thinking

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11) Which of the following statements is true when accounting for costs of a manufacturing company?

A) The salary of assembly line workers is an indirect product cost and is expensed when the product is sold.

B) Advertising on social media platforms and search engines is an indirect product cost that is expensed when incurred.

C) The cost of materials issued to production that can be traced to units is a direct product cost and is expensed when the product is sold.

D) Depreciation on the headquarters facility is a period costs and is expensed when the product is sold.

Answer: C Objective: 4 AACSB: Reflective thinking 12) Collin Inc had the following monthly information: Direct materials Indirect materials Electricity for the factory CEO's salary Factory supervisor's salary Sales commissions Direct employee's salary Advertising expense

$390 $30 $240 $3,200 $1,300 $750 $2,500 $350

Which of the following statements is incorrect?

A) Manufacturing overhead costs were $1,570.

B) Prime costs were $2,890.

C) Period costs were $4,300.

D) Conversion costs were $4,460.

Answer: D Explanation: D) The incorrect answer relates to the calculation of conversion costs.

Conversion costs are the costs incurred to convert direct materials into a finished product. = direct labor + overhead* = $2,500 + $30 + $240 + $1,300 = $4,070 *Overhead relates to indirect materials, electricity for the factory, factory supervisor's salary Direct materials are classified as a product cost and a prime cost. Sales commissions and CEO's salary are period costs.

Objective: 4 AACSB: Analytical thinking

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Learning Objective 2.5 1) Raw materials inventory includes all materials that have been purchased but not used in production.

Answer: TRUE Objective: 5 AACSB: Application of knowledge 2) Raw materials purchased and direct materials used in production will always be the same amount.

Answer: FALSE Objective: 5 AACSB: Reflective thinking 3) The following information is known.

Beginning Balance Purchases Ending Balance

Raw Materials Inventory $17,000 Direct Materials Used ??? Indirect Materials Used $13,500

$13,000 $5,500

What is the amount of raw materials purchases during the period?

A) $22,000 B) $15,000 C) $1,500 D) $24,500 Answer: B Explanation: B) Ending Balance = Beginning Balance + Purchases - Direct Materials Used Indirect Materials Used 13,500 = 17,000 + Purchases - 13,000 - 5,500 13,500 - 17,000 + 13,000 + 5,500= Purchases Purchases = 15,000 Objective: 5 AACSB: Analytical thinking

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4) Carly Company had the following information for March: Raw materials inventory, March 1: Raw materials inventory, March 31: Raw materials purchased in March:

$250 $1,000 $1,800

What is the amount of raw materials issued to production in March?

A) $1,050 B) $550 C) $1,800 D) $3,050 Answer: A Explanation: A) Ending Balance = Beginning Balance + Purchases - Raw Materials Issued to Production 1,000 = 250 + 1,800 - Raw Materials Issued to Production Raw materials issued to production = 250 + 1,800 - 1,000 Raw materials issued to production = 1,050 Objective: 5 AACSB: Analytical thinking 5) The following information is known.

Work in Process Inventory January 1 $12,000 Direct Materials $7,750 Cost of Goods Manufactured $10,300 Direct Labor $2,700 Overhead $5,200 January 31 $17,350 Which of the following is a correct statement based on the information presented in the Work in Process T-Account?

A) The manufacturing process relies more on labor than automation.

B) Conversion costs are $10,450.

C) Prime costs are $7,900.

D) Cost of goods available for sale cannot be determined from the information given.

Answer: D Objective: 5 AACSB: Reflective thinking

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6) Identify the correct calculation of beginning work in process inventory.

A) = beginning work in process inventory + direct materials + direct labor + overhead - cost of goods manufactured B) = beginning work in process inventory - direct materials - direct labor - overhead + cost of goods sold C) = ending work in process inventory + cost of goods manufactured - direct materials - direct labor - overhead D) = ending work in process inventory + indirect materials + indirect labor + overhead + cost of goods manufactured Answer: C Objective: 5 AACSB: Analytical thinking 7) The following information is known.

Work in Process Inventory Beginning Balance ???

Direct Materials $5,200 Cost of Goods Manufactured Direct Labor $4,000 Overhead $3,300 Ending Balance $1,300

$14,000

What is the beginning balance in work in process inventory?

A) $1,500 B) $200 C) $2,800 D) $0 Answer: C Explanation: C) Ending Balance = Beginning Balance + Direct Materials + Direct Labor + Overhead - Cost of Goods Manufactured 1,300 = Beginning Balance + 5,200 + 4,000 + 3,300 - 14,000 1,300 - 5,200 - 4,000 - 3,300 + 14,000 = Beginning Balance 2,800 = Beginning Balance Objective: 5 AACSB: Analytical thinking

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8) Assume the following about Quilliam Company for July: Cost of goods manufactured Beginning work in process inventory Beginning finished goods inventory Direct materials Direct labor Manufacturing overhead Cost of goods sold

$236,000 35,000 55,000 35,000 83,000 109,000 223,000

What is Quilliam's July ending work in process inventory?

A) $46,000 B) $26,000 C) $39,000 D) $68,000 Answer: B Explanation: B) Ending Balance = Beginning Balance + Direct Materials + Direct Labor + Overhead - Cost of Goods Manufactured Ending Balance = 35,000 + 35,000 + 83,000 + 109,000 - 236,000 Ending Balance = 26,000 Objective: 5 AACSB: Analytical thinking

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9) Monte reported the following for May: Gross profit: Factory overhead: Conversion costs: Sales:

$28,000 $12,000 $24,000 $70,000

Monte had no beginning or ending balances in work in process or finished goods. What was the amount of direct materials used in production in May? A) $30,000 B) $6,000 C) $18,000 D) $34,000 Answer: C Explanation: C) Ending Balance = Beginning Balance + Direct Materials + Direct Labor + Overhead - Cost of Goods Manufactured Ending Balance = Beginning Balance + Direct Materials + Conversion Costs - Cost of Goods Manufactured 0 = 0 + direct materials used in production + 24,000 - Cost of goods manufactured There are multiple unknowns so we need to solve for cost of goods manufactured before solving for direct materials.

There is no beginning or ending inventory in finished goods so the cost of goods manufactured must equal the cost of goods sold.

COGS = Sales - Gross Profit COGS = 70,000 - 28,000 COGS = 42,000 = Cost of Goods Manufactured Now we are able to solve for direct materials: Direct Materials = 42,000 - 24,000 Direct Materials = 18,000 Objective: 5 AACSB: Analytical thinking

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10) Assume the following about Cherry Company for June: Total June manufacturing costs: Prime costs: Direct labor:

$62,000 $44,000 2 × factory overhead

Cherry had no beginning or ending balances in work in process or finished goods. What was the amount of Cherry's direct labor in June?

A) $36,000 B) $18,000 C) $44,000 D) $9,000 Answer: A Explanation: A) Total Manufacturing Costs = Direct Materials + Direct Labor + Overhead Total Manufacturing Costs = Prime Costs + Overhead 62,000 = 44,000 + Overhead Overhead = 18,000 Direct Labor = 2 x Overhead Direct Labor = 2 x 18,000 Direct Labor = 36,000 Objective: 5 AACSB: Analytical thinking 11) The following information is known.

Finished Goods Inventory Beginning Balance ???

Cost of Goods Cost of Goods Sold Manufactured $13,000 Ending Balance $6,000

$17,000

What is the beginning balance in finished goods inventory?

A) $2,000 B) $10,000 C) $6,000 D) $4,000 Answer: B Explanation: B) Ending Balance = Beginning Balance + Cost of Goods Manufactured - Cost of Goods Sold 6,000 = Beginning Balance + 13,000 - 17,000 6,000 - 13,000 + 17,000 = Beginning Balance 10,000 = Beginning Balance Objective: 5 AACSB: Analytical thinking

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12) Assume the following about Sherman Company for October: Cost of goods manufactured Beginning work in process inventory Beginning finished goods inventory Direct materials Direct labor Manufacturing overhead Cost of goods sold

$420,000 70,000 110,000 77,000 170,000 219,000 446,000

What is Sherman's October ending finished goods inventory?

A) $84,000 B) $44,000 C) $26,000 D) $116,000 Answer: A Explanation: A) Ending Balance = Beginning Balance + Cost of Goods Manufactured - Cost of Goods Sold Ending Balance = 110,000 + 420,000 - 446,000 Ending Balance = 84,000 Objective: 5 AACSB: Analytical thinking 13) The cost of goods manufactured schedule for the period summarizes the costs of the products that were finished and are available for sale.

Answer: TRUE Objective: 5 AACSB: Application of knowledge 14) Total current manufacturing costs is calculated as the sum of prime costs and conversion costs.

Answer: FALSE Objective: 5 AACSB: Application of knowledge

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15) The following information is known.

What is true about the cost of cost of goods manufactured?

A) The cost of goods manufactured is equal to the cost of goods available for sale less ending finished goods inventory.

B) The cost of goods manufactured is less than the cost of goods sold.

C) The cost of goods manufactured is greater than the cost of goods sold.

D) Since information on prime and conversion costs is missing, the cost of goods manufactured cannot be calculated.

Answer: C Explanation: C) Ending Balance = Beginning Balance + Cost of Goods Manufactured - Cost of Goods Sold 10,000 = 5,000 + Cost of Goods Manufactured - 18,300 10,000 - 5,000 + 18,300 = Cost of Goods Manufactured 23,300 = Cost of Goods Manufactured Alternatively this problem can be answered without doing math by comparing the beginning and ending balances. As the ending balance is greater than the beginning balance, the company must have sold less than they manufactured in the period.

Objective: 5 AACSB: Reflective thinking

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16) You are given the following information for this month: Beginning work in process inventory Ending work in process inventory Direct materials issued to production Direct labor Overhead

$850 $980 $440 $220 $350

What is the monthly cost of goods manufactured?

A) $1,010 B) $880 C) $2,840 D) $237 Answer: B Explanation: B) Ending Balance = Beginning Balance + Direct Materials + Direct Labor + Overhead - Cost of Goods Manufactured 980 = 850 + 440 + 220 + 350 - Cost of Goods Manufactured 980 = 1,860 - Cost of Goods Manufactured Cost of Goods Manufactured = 880 Objective: 5 AACSB: Analytical thinking

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17) Assume the following information for November: Cost of goods manufactured Operating income Sales COGS

$76,000 $19,000 $200,000 $120,000

What is the amount of the selling, general and administrative expenses for November?

A) $101,000 B) $105,000 C) $61,000 D) $57,000 Answer: C Explanation: C) Sales 200,000 Cost of Goods Sold 120,000 Gross Profit 80,000 SG&A ???

Operating Income 19,000 SG&A = Gross Profit - Operating Income SG&A = 80,000 - 19,000 SG&A = 61,000 Objective: 5 AACSB: Analytical thinking

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18) The following is known about Falcon for September: Finished goods balance, September 1: Finished goods balance, September 30: Cost of goods manufactured:

$10,500 $1,500 $12,500

What is Falcon's September cost of goods available for sale?

A) $12,000 B) $21,500 C) $24,500 D) $23,000 Answer: D Explanation: D) Cost of Goods Available for Sale = Beginning Balance + Cost of Goods Manufactured Cost of Goods Available for Sale = 10,500 + 12,500 Cost of Goods Available for Sale = 23,000 Objective: 5 AACSB: Analytical thinking 19) Gross profit plus cost of goods sold equals net sales revenue.

Answer: TRUE Objective: 5 AACSB: Application of knowledge 20) Cost of goods sold represents the total cost of products manufactured during the period.

Answer: FALSE Objective: 5 AACSB: Application of knowledge

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21) Assume the following information for OPA: Gross profit Sales Operating income Finished goods inventory, beginning balance Finished goods, ending balance

25% $600,000 $100,000 $5,000 $8,000

What is the amount of the cost of goods available for sale during the period?

A) $458,000 B) $453,000 C) $608,000 D) $603,000 Answer: A Explanation: A) Cost of Goods Available for Sale = Beginning Balance + Cost of Goods Manufactured First, solve for the cost of goods sold.

Sales - COGS = Gross Profit 600,000 - COGS = 25% Sales COGS = 600,000 x (1 - 25%) COGS = 450,000 Then, solve for cost of goods manufactured.

Ending Balance = Beginning Balance + Cost of Goods Manufactured - Cost of Goods Sold 8,000 = 5,000 + Cost of Goods Manufactured - 450,000 8,000 - 5,000 + 450,000 = Cost of Goods Manufactured 453,000 = Cost of Goods Manufactured Finally, solve for cost of goods available for sale.

Cost of Goods Available for Sale = Beginning Balance + Cost of Goods Manufactured Cost of Goods Available for Sale = 5,000 + 453,000 Cost of Goods Available for Sale = 458,000 Objective: 5 AACSB: Analytical thinking

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22) Neel has the following information for August: Work in process inventory, August 1 Work in process inventory, August 31 Finished goods inventory, August 1 Finished goods inventory, August 31 Cost of goods manufactured

$560 $390 $1,900 $2,000 $6,400

What is Neel's cost of goods sold for August?

A) $10,300 B) $6,300 C) $6,570 D) $7,350 Answer: B Explanation: B) Ending Balance = Beginning Balance + Cost of Goods Manufactured - Cost of Goods Sold 2,000 = 1,900 + 6,400 - Cost of Goods Sold Cost of Goods Sold = 1,900 + 6,400 - 2,000 Cost of Goods Sold = 6,300 Objective: 5 AACSB: Analytical thinking

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23) Flower Company provided the following information for November: Sales Revenue Cost of Goods Manufactured Beginning Finished Goods Inventory Ending Finished Goods Inventory Selling Expenses Administrative Expenses

$75,000 21,000 2,200 4,700 10,000 7,700

What is Flower's November gross profit?

A) $56,500 B) $38,800 C) $54,000 D) $51,500 Answer: A Explanation: A) Sales - Cost of Goods Sold = Gross Profit First, solve for cost of goods sold using the changes in finished goods inventory.

Ending Balance = Beginning Balance + Cost of Goods Manufactured - Cost of Goods Sold 4,700 = 2,200 + 21,000 - Cost of Goods Sold Cost of Goods Sold = 2,200 + 21,000- 4,700 Cost of Goods Sold = 18,500 Then, solve for gross profit.

Gross Profit = Sales - Cost of Goods Sold Gross Profit = 75,000 - 18,500 Gross Profit = 56,500 Objective: 5 AACSB: Analytical thinking Learning Objective 2.6 1) The Internet of Things (IoT) provides additional inputs into data analytic models including predictive analytics.

Answer: TRUE Objective: 6 AACSB: Application of knowledge 2) Machine learning is used by some manufacturers to recognize patterns in the data and to identify faulty products early in the production cycle.

Answer: TRUE Objective: 6 AACSB: Application of knowledge

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3) A retailer moved from selling its products in brick and mortar stores to selling products via an ecommerce website. All distribution channels fill products from a centralized warehouse. The overall inventory balance is expected to increase with the move to an omnichannel model.

Answer: FALSE Objective: 6 AACSB: Reflective thinking 4) Which of the following is NOT a reason why data analytics is used by manufacturers?

A) To identify problems that could influence production.

B) To improve processes.

C) To become more efficient.

D) To record journal entries consistent with generally accepted accounting principles (GAAP).

Answer: D Objective: 6 AACSB: Reflective thinking 5) Each of the answers provides a question and data to answer the question. Which of the following identifies the correct data to answer the question?

A) What sources of financing are available if we need to increase production?

Collect external data from financial service organizations on available loans or common stock issuances.

B) How do competitor prices compare to ours?

Collect external data from competitors' websites or apps for similar products and/or services.

C) How do sales and costs compare to last year's data?

Collect internal data from the accounting department for next year's projected sales.

D) Is there a strong relationship between promotion offering and volume of sales?

Collect internal data on promotions from the marketing department and on unit sales from the sales department.

Answer: C Objective: 6 AACSB: Reflective thinking Learning Objective Appendix 1) When a product has completed the manufacturing process, work in process inventory is increased and raw material inventory is decreased.

Answer: FALSE Objective: Appx.

AACSB: Application of knowledge

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2) What accounts are increased and decreased when indirect materials are issued to production?

A) Increased: Raw materials inventory Decreased: Overhead B) Increased: Overhead Decreased: Raw materials inventory C) Increased: Raw materials inventory Decreased: Work in process inventory D) Increased: Finished goods inventory Decreased: Work in process inventory Answer: B Objective: Appx.

AACSB: Application of knowledge 3) What is the journal entry when products are completed and are awaiting sale?

A) Debit: Work in process inventory Credit: Raw materials inventory B) Debit: Finished goods inventory Credit: Raw materials inventory C) Debit: Finished goods inventory Credit: Work in process inventory D) Debit: Cost of goods sold Credit: Finished goods inventory Answer: C Objective: Appx.

AACSB: Application of knowledge 4) Identify the statement that correctly identifies how raw materials, work in process, and finished goods are increased.

A) Raw materials and finished goods increase with a debit and work in process increases with a credit.

B) Raw materials, work in process, and finished goods all increase with a credit.

C) Raw materials, work in process, and finished goods all increase with a debit.

D) Work in process increases with a debit and raw materials and finished goods increase with a credit.

Answer: C Objective: Appx.

AACSB: Application of knowledge

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Managerial Accounting, 1e (Cainas, Pope, Joszi) Chapter 3 Job Costing Learning Objective 3.1 1) A job costing system will produce higher income compared to a process costing system.

Answer: FALSE Objective: 1 AACSB: Reflective thinking 2) A goal of a costing system is to calculate the cost of producing a product or providing a service.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 3) A process costing system is beneficial when it is impractical to trace the costs to individual products.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 4) The main factor when deciding between a process costing and job costing system is the production process and services provided.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 5) Identify the statement that best describes when a company should use a job costing or a process costing system.

A) A manufacturer should use a job order costing system.

B) A service company should use a process costing system.

C) The company should choose the appropriate costing system based on the production process or services.

D) The costing system does not matter as the product cost remains consistent across costing systems.

Answer: C Objective: 1 AACSB: Application of knowledge

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6) Which of the following are characteristics of a job costing system?

A) Costs are accumulated by procedure in the manufacturing process.

B) Used by companies that produce large quantities of identical products or services.

C) Cost per unit, product, or service is the same.

D) Used by companies when the cost can be easily identified with a specific product, service, or project.

Answer: D Objective: 1 AACSB: Application of knowledge 7) If a car manufacturer tracks the costs for the assembly department, the company is using: A) activity based costing.

B) process costing.

C) actual costing.

D) job costing.

Answer: B Objective: 1 AACSB: Application of knowledge 8) If a construction company separately tracks the costs for each home built, the company uses: A) process costing.

B) activity based costing.

C) actual costing.

D) job costing.

Answer: D Objective: 1 AACSB: Application of knowledge 9) La Croix, a company that produces flavored sparkling water, will most likely use process costing.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 10) EY, an international accounting firm, will most likely use process costing.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 11) Which of the following companies will most likely use job costing?

A) A flavored water manufacturer.

B) A candy manufacturer.

C) A law firm.

D) A bakery.

Answer: C Objective: 1 AACSB: Application of knowledge 2 Copyright © 2023 Pearson Education, Inc.

12) Which of the following companies will most likely use process costing?

A) An electronic manufacturer of cell phones, laptops, and tablets.

B) A company that makes unique ships.

C) A Construction company that builds specific bridges and highways.

D) A consulting firm.

Answer: A Objective: 1 AACSB: Application of knowledge Learning Objective 3.2 1) The last step a service company takes during the job costing process is to estimate the indirect overhead costs.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 2) Service companies may use a job costing system to track costs related to unique services provided in order to price products appropriately.

Answer: TRUE Objective: 2 AACSB: Reflective thinking 3) Identify the correct order of steps a service company performs when using a job costing system.

A) Identify the direct and indirect costs, estimate the indirect overhead costs, calculate the predetermined overhead rate, allocate the indirect costs to each job B) Identify the direct and indirect costs, calculate the predetermined overhead rate, allocate the indirect costs to each job, estimate the indirect overhead costs C) Identify the direct and indirect costs, calculate the predetermined overhead rate, estimate the indirect overhead costs, allocate the indirect costs to each job D) Identify the direct and indirect costs, estimate the indirect overhead costs, allocate the indirect costs to each job, calculate the predetermined overhead rate Answer: A Objective: 2 AACSB: Application of knowledge 4) Which is NOT a reason why a service company may use job costing to track costs?

A) To reach a desired profit margin.

B) To control costs.

C) To price the products appropriately.

D) To compare selling and production costs.

Answer: D Objective: 2 AACSB: Application of knowledge 3 Copyright © 2023 Pearson Education, Inc.

5) The monthly tax preparation software fee paid by a CPA firm to prepare tax returns for its clients would be classified as a direct and prime cost.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 6) Which of the following is an example of an indirect cost for a CPA firm that provides tax services?

A) Number of pages in the tax return.

B) Time spent by the CPA with each client.

C) Receptionist's salary.

D) Time spent consulting with a lawyer on a specific tax matter.

Answer: C Objective: 2 AACSB: Application of knowledge 7) The predetermined overhead rate is calculated based on an allocation base of hours. This allocation base reflects the maximum hours that could be worked.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 8) Creative Accountants, a CPA firm, allocates indirect (overhead) costs based on direct labor hours. Also known: - Estimated direct labor hours worked: 4,000 - Estimated overhead: $18,000 - Actual direct labor hours worked: 4,441 - Actual overhead: $16,000 What is the CPA firm's predetermined overhead rate? (Round your answer to the nearest cent.)

A) $4.00 per direct labor hour.

B) $4.50 per direct labor hour.

C) $3.60 per direct labor hour.

D) $4.05 per direct labor hour.

Answer: B Explanation: B) Predetermined Overhead Rate = Estimated Overhead / Estimated direct labor hours Predetermined Overhead Rate = $18,000 / 4,000 direct labor hours Predetermined Overhead Rate = $4.50 per direct labor hour Objective: 2 AACSB: Analytical thinking

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9) Identify the correct formula to calculate the predetermined overhead rate if direct labor hours is identified as the allocation base.

A) Predetermined overhead rate = Total estimated indirect costs for this year / total estimated direct labor hours for the year B) Predetermined overhead rate = Total estimated direct costs for this year / total estimated direct labor hours for the year C) Predetermined overhead rate = Total estimated indirect costs for this year / total actual direct labor hours for the year D) Predetermined overhead rate = Total estimated direct costs for last year / total acutal direct labor hours for the year Answer: A Objective: 2 AACSB: Application of knowledge 10) The total cost of a service includes only indirect costs and selling, general, and administrative expenses.

Answer: FALSE Objective: 2 AACSB: Application of knowledge

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11) An engineering firm allocates its indirect (overhead) costs based on direct labor hours.

Additional information: - Estimated direct labor hours worked: 1,150 - Estimated overhead: $5,400 - Actual direct labor hours worked: 1,850 - Actual overhead: $4,800 During the year, engineers incurred 900 direct labor hours and $3,300 of direct costs for its largest client. What is the total cost of the firm's largest client? (Round any intermediate calculations to the nearest cent, and round final answer to the nearest dollar.)

A) $11,995 B) $4,230 C) $5,631 D) $7,530 Answer: D Explanation: D) First, solve for the firm's predetermined overhead rate.

Predetermined Overhead Rate = Estimated Overhead / Estimated direct labor hours Predetermined Overhead Rate = $5,400 / 1,150 direct labor hours Predetermined Overhead Rate = $4.70 per direct labor hour Then, allocate overhead to client based on actual direct labor hours incurred.

Allocated overhead = $4.70 per direct labor hour x 900 direct labor hours Allocated overhead = $4,230 Finally, calculate the total cost of the client by adding the direct and indirect (overhead costs).

Total Cost = 3,300 + 4,230 Total Cost = $7,530 Objective: 2 AACSB: Analytical thinking

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12) Prestigous Accountants, a CPA firm, allocates its indirect (overhead) costs based on direct labor hours. For a client, the total costs are: - Prime costs: $4,000 - Allocated overhead: $2,100 - Actual overhead: $2,600 The firm uses a normal costing system to track costs and desires a 20% profit. How much should the firm charge?

A) $7,920 B) $7,625 C) $6,100 D) $6,600 Answer: B Explanation: B) First, calculate the total cost of the job using a normal costing system. The cost of the job is based on the allocated and NOT actual overhead under a normal costing system.

Total Cost = Prime Costs = Allocated Overhead Total Cost = 4,000 + 2,100 Total Cost = 6,100 Then, calculate the selling price based on the cost of goods sold.

Sales - COGS = Gross Profit Sales - 6,100 = 20% of Sales Sales = 6,100 / (1 - 20.%) Sales = 7,625 Objective: 2 AACSB: Analytical thinking 13) A service company calculates the total cost of a service by: A) adding indirect and direct costs.

B) adding direct materials, direct labor, and work in process.

C) adding indirect and overhead costs.

D) adding cost of goods sold and selling, general and administrative costs.

Answer: A Objective: 2 AACSB: Application of knowledge

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14) What recommendation might you give to a client that is looking to earn a 25% profit on each custom service provided?

A) Calculate the total cost for each job and bill the client at 125% above total cost.

B) Calculate the cost of goods manufactured for each job and bill the client at a mark up of 25% above cost of goods manufactured.

C) Calculate the amount of direct and indirect labor and bill the client at a markup of 25% above total labor costs.

D) Calculate the amount of allocated indirect costs and bill the client at a markup of 25% above allocated indirect costs.

Answer: A Objective: 2 AACSB: Reflective thinking Learning Objective 3.3 1) The flow of inventory costs for a manufacturer moves from Raw Materials to Finished Goods and finally to Cost of Goods Manufactured.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 2) Manufacturing overhead is a direct cost that cannot be traced to a specific job.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 3) Manufacturing overhead is added at which stage of the inventory costing process?

A) Finished goods.

B) Raw materials.

C) Work in process.

D) Cost of goods sold.

Answer: C Objective: 3 AACSB: Application of knowledge 4) Identify the correct flow of inventory costs for a manufacturer.

A) Raw materials, work in process, finished goods, cost of goods manufactured.

B) Raw materials, work in process, finished goods, cost of goods sold.

C) Raw materials, work in process, cost of goods sold, finished goods.

D) Raw materials, work in process, cost of goods manufactured, finished goods.

Answer: B Objective: 3 AACSB: Application of knowledge

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5) A job that was completed but not sold during the period is to Finished Goods as a job that is started but not completed is to: A) cost of goods sold.

B) cost of goods manufactured.

C) work in process.

D) raw materials.

Answer: C Objective: 3 AACSB: Reflective thinking 6) During the period, Job A was started and completed, Job B was started but not completed, and Job C was completed and sold. Identify the correct account for each job at the end of the period.

A) Job A is in Finished Goods, Job B is in Work in Process and Job C is in Cost of Goods Sold.

B) Job A is in Work in Process, Job B is in Finished Goods and Job C is in Cost of Goods Sold.

C) Job A is in Work in Process, Job B is in Cost of Goods Sold and Job C is in Finished Goods.

D) Job A is in Finished Goods, Job B is in Cost of Goods Sold and Job C is in Work in Process.

Answer: A Objective: 3 AACSB: Reflective thinking 7) Expected amounts in the budget: Cash Accounts Payable Factory Utilities, Rent, and Insurance Salaries for sales personnel Direct Materials Inventory

$13 $24 $10 $1 $8

What is the amount of budgeted overhead to determine the overhead rate?

A) $11 B) $10 C) $43 D) $56 Answer: B Objective: 3 AACSB: Application of knowledge

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8) Identify the T-Accounts that best represent a company with several jobs using a normal costing system with a single plantwide rate.

A)

B)

C)

D)

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Answer: A Objective: 3 AACSB: Application of knowledge 9) A receiving report identifies the total raw materials received. A time ticket indicates how many labor hours were worked. A job cost sheet tracks the total cost for a specific job.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 10) Receiving report is to raw materials as job cost sheet is to: A) raw materials.

B) cost of goods sold.

C) overhead.

D) work in process.

Answer: D Objective: 3 AACSB: Reflective thinking 11) Which of the following is NOT a source document in a job costing system?

A) Job cost sheet.

B) Materials requisition form.

C) Balance sheet.

D) Time ticket.

Answer: C Objective: 3 AACSB: Application of knowledge 12) An actual costing system allows a company to allocate costs throughout the year instead of waiting until the end of the year to know the true costs.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 13) The main difference between an actual costing system and a normal costing system is with how overhead is tracked.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 14) Under an actual costing system, overhead is typically recorded in the work in process account at the beginning of the year for the amount estimated and then allocated to specific jobs as each job is completed.

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15) Identify the correct difference between an actual costing system and a normal costing system.

A) Direct materials and direct labor are recorded at actual cost under both costing systems.

Overhead is recorded at actual cost under an actual costing system and based on estimated cost under a normal costing system.

B) Direct materials and direct labor are recorded at estimated cost under both costing systems.

Overhead is recorded at actual cost under an actual costing system and based on estimated cost under a normal costing system.

C) Direct materials and direct labor are recorded at actual cost under both costing systems.

Overhead is recorded at estimated cost under an actual costing system and actual cost under a normal costing system.

D) There is no difference between an actual costing system and a normal costing system.

Answer: A Objective: 3 AACSB: Reflective thinking Learning Objective 3.4 1) If a business has seasonal fluctuations, overhead would be differently allocated between an actual and a normal costing system.

Answer: TRUE Objective: 4 AACSB: Reflective thinking 2) If a company is highly automated, direct labor hours would be an appropriate cost driver.

Answer: FALSE Objective: 4 AACSB: Application of knowledge 3) The predetermined overhead rate will always equal the actual overhead rate.

Answer: FALSE Objective: 4 AACSB: Reflective thinking 4) A benefit of using a predetermined overhead rate is that the company does not have to wait until actual overhead costs are known before assigning the costs to each job.

Answer: TRUE Objective: 4 AACSB: Application of knowledge

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5) Which of the following costs are not recorded?

A) Direct materials cost.

B) Actual overhead costs.

C) Applied (allocated) overhead costs.

D) Estimated (budgeted) overhead costs.

Answer: D Objective: 4 AACSB: Application of knowledge 6) The Beginning of the year is to develop an overhead rate as the end of the year is to: A) record the actual costs separately as you incur costs.

B) compare the total actual overhead to the total allocated overhead.

C) use the predetermined overhead rate to allocate costs to jobs.

D) estimate the total overhead for the year and estimate the total activity that is related to the overhead increasing.

Answer: B Objective: 4 AACSB: Reflective thinking 7) Which of the following decisions would not be affected if an inappropriate allocation base is chosen?

A) The use of lower quality materials in the manufacturing process to reduce the product's costs.

B) The price of a product or service when the sales price is based on the associated cost.

C) The quarterly bonus of the company's CEO. D) Expansion of a product due to the low cost and high margin compared to other products.

Answer: C Objective: 4 AACSB: Reflective thinking 8) Kralik's Ice Cream Shop allocates overhead based on machine hours. At the beginning of the year, Kralik estimated $18,000 of overhead costs and 5,500 machine hours would be used.

During the year, $16,050 of overhead was incurred and 7,000 machine hours were used.

What was the predetermined overhead rate? (Round answer to the nearest cent.)

A) $2.57 per direct labor hour.

B) $2.29 per direct labor hour.

C) $2.92 per direct labor hour.

D) $3.27 per direct labor hour.

Answer: D Explanation: D) Predetermined Overhead Rate = Estimated Overhead / Estimated machine hours Predetermined Overhead Rate = $18,000 / 5,500 machine hours Predetermined Overhead Rate = $3.27 per machine hour Objective: 4 AACSB: Analytical thinking

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9) The annual budget forecasts $10,000 in overhead costs and 4,000 direct labor hours. The actual hours worked were 5,000. What is the effect on the predetermined overhead rate if instead the estimated direct labor hours were 2,000 instead of 4,000?

A) The predetermined overhead rate will double.

B) The predetermined overhead rate will be halved.

C) The predetermined overhead rate will remain the same.

D) There is no impact on the predetermined overhead rate because the rate is calculated based on actual direct labor hours.

Answer: A Explanation: A) If you do not have a strong understanding of how changes in the numerator and denominator affect the outcome, the easiest way to answer this question is to calculate the predetermined overhead rate before and after the change and compare the rates.

Predetermined Overhead Rate = Estimated Overhead / Estimated direct labor hours 1. Rate = $10,000 / 4,000 direct labor hours = $2.50 per direct labor hour 2. Rate = $10,000 / 2,000 direct labor hours = $5 per direct labor hour Comparison, the rate doubles when decreasing the estimated direct labor hours used from 4,000 to 2,000.

Objective: 4 AACSB: Reflective thinking 10) For companies with many different production departments that have many different costs and many different cost drivers associated with those costs, departmental overhead rates provide a better overhead cost allocation compared to a single plantwide rate.

Answer: TRUE Objective: 4 AACSB: Reflective thinking 11) Overhead should be allocated equally across departments if departmental overhead costs vary and product usage within departments varies.

Answer: FALSE Objective: 4 AACSB: Reflective thinking

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12) Selena Interiors, a professional decorating firm with primary departments of design, purchasing, and installation, allocates overhead based on departmental rates. Relevant information includes: Departments Total costs Design $85,000 Purchasing $130,000 Installation $128,000

Total cost driver 1,600 client hours 3,000 purchase orders 5,300 direct labor hours

What is the overhead rate for Installation? (Round answer to the nearest cent.)

A) $34.65 per cost driver.

B) $53.13 per client hour.

C) $43.33 per purchase order.

D) $24.15 per direct labor hour.

Answer: D Explanation: D) Predetermined Overhead Rate = Estimated Overhead / Estimated Driver Installation Overhead Rate = $128,000 / 5,300 direct labor hours Installation Overhead Rate = $24.15 per direct labor hour Objective: 4 AACSB: Analytical thinking

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13) Selena Interiors, a professional decorating firm with primary departments of design, purchasing, and installation, allocates overhead based on departmental rates. Relevant information includes: Departments Total costs Design $80,000 Purchasing $120,000 Installation $125,000

Total cost driver 1,000 client hours 3,000 purchase orders 5,000 direct labor hours

Which of the following statements is true?

A) The department with the lowest cost driver is Design.

B) Since all the activities are similar, the company should use a single overhead rate.

C) The department with the highest cost driver is Design.

D) All departments incur overhead cost equally.

Answer: C Explanation: C) Predetermined Overhead Rate = Estimated Overhead / Estimated Driver Design Overhead Rate = $80,000 / 1,000 client hours Design Overhead Rate = $80 per client hour Purchasing Overhead Rate = $120,000 / 3,000 purchase orders Purchasing Overhead Rate = $40 per purchase order Installation Overhead Rate = $125,000 / 5,000 direct labor hours Installation Overhead Rate = $25 per direct labor hour The design department has the greatest cost drive (overhead rate).

Objective: 4 AACSB: Analytical thinking 14) Mignon Company estimates overhead using a single $4 plantwide rate based on direct labor hours for its two jobs. If Mignon used departmental overhead rates, Job A's rate is $6.25 and Job B's rate is $2.50.

Which is NOT a reason why Mignon should change to departmental overhead rates?

A) Departmental rates are more precise tracking and can result in better descriptive analytics.

B) Under a single overhead rate, the cost per unit would be the same for both jobs.

C) If Job A uses more hours and should be allocated more costs compared to Job B. D) Under a single overhead rate Job A would be undercosted and Job B would be overcosted.

Answer: B Objective: 4 AACSB: Reflective thinking

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15) What is the main difference between using a single plantwide overhead rate and using departmental overhead rates?

A) If departmental overhead rates are used, separate overhead rates are calculated for each department.

B) If a plantwide overhead rate is used, separate overhead rates are calculated for each department.

C) Cost drivers such as machine hours and direct labor hours are not applicable to departmental overhead rates.

D) The departmental overhead rate calculations are less complex and less precise than calculating overhead using a single plantwide rate.

Answer: A Objective: 4 AACSB: Reflective thinking 16) Cainas Cookies allocates overhead based on direct labor hours. At the beginning of the year, Cainas estimated $10,200 of overhead costs and 4,600 direct labor hours. During the year, $9,200 of overhead was incurred and 5,500 direct labor hours were worked.

How much overhead was allocated during the year? (Round any intermediate calculations to the nearest cent.)

A) $7,682 B) $8,510 C) $12,210 D) $11,000 Answer: C Explanation: C) First, solve for the predetermined overhead rate.

Predetermined Overhead Rate = Estimated Overhead / Estimated direct labor hours Predetermined Overhead Rate = $10,200 / 4,600 direct labor hours Predetermined Overhead Rate = $2.22 per direct labor hour Then, allocate overhead to client based on actual direct labor hours incurred.

Allocated overhead = $2.22 per direct labor hour x 5,500 direct labor hours Allocated overhead = $12,210 Objective: 4 AACSB: Reflective thinking

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17) JMK Corporation estimated $40,000 overhead costs and 30,000 direct labor hours. Using direct labor hours as the allocation base, how much overhead would be assigned to each of the jobs listed below? (Round any intermediate calculations to the nearest cent.)

Job 101 102

Direct Labor Hours 1,600 4,500

Machine Hours 1,100 4,500

A) Job 101: $2,128 Job 102: $5,985 B) Job 101: $5,985 Job 102: $2,128 C) Job 101: $1,463 Job 102: $5,985 D) Job 101: $5,985 Job 102: $1,463 Answer: A Explanation: A) First, solve for the predetermined overhead rate.

Predetermined Overhead Rate = Estimated Overhead / Estimated direct labor hours Predetermined Overhead Rate = $40,000 / 30,000 direct labor hours Predetermined Overhead Rate = $1.33 per direct labor hour Then, allocate overhead based on actual direct labor hours incurred to each job.

Job 101 - Allocated overhead = $1.33 per direct labor hour x 1,600 direct labor hours Allocated overhead = $2,128 Job 102 - Allocated overhead = $1.33 per direct labor hour x 4,500 direct labor hours Allocated overhead = $5,985 Objective: 4 AACSB: Analytical thinking

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18) Dawn Enterprises uses a normal job order costing system using machine hours as the overhead allocation base. Dawn estimated $600,000 overhead costs and 60,000 machine hours.

Direct materials cost Direct labor costs Direct labor hours Machine hours

Job 400 Job 500 $30,000 $40,000 $48,000 $61,000 5,300 6,500 3,800 4,800

How much overhead is applied to Job 500? (Round any intermediate calculations to the nearest cent.)

A) $38,000 B) $53,000 C) $65,000 D) $48,000 Answer: D Explanation: D) First, solve for the predetermined overhead rate.

Predetermined Overhead Rate = Estimated Overhead / Estimated machine hours Predetermined Overhead Rate = $600,000 / 60,000 machine hours Predetermined Overhead Rate = $10.00 per machine hour Then, allocate overhead to Job 500.

Job 500 - Allocated overhead = $10.00 per machine hour x 4,800 machine hours Allocated overhead = $48,000 Objective: 4 AACSB: Analytical thinking

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19) Joe's Coffee Beans applies overhead on the basis of units produced.

Budgeted overhead Budgeted production (units) Actual number of units sold Actual overhead Applied overhead

$200,000 23,000 22,000 $130,000 $111,000

How many units were produced in the current fiscal year? (Round any intermediate calculations to the nearest cent. Round the total number of units down to the nearest whole number.)

A) 14,301 B) 14,942 C) 12,211 D) 12,758 Answer: D Explanation: D) The number of actual units produced can be solved using the formula to apply (allocate) overhead as the overhead rate is based on number of units produced.

Applied (allocated) overhead = Predetermined overhead rate x actual number of units produced First, calculate the predetermined overhead rate.

Predetermined Overhead Rate = Estimated Overhead / Estimated number of units produced Predetermined Overhead Rate = $200,000 / 23,000 units Predetermined Overhead Rate = $8.70 per unit Then, solve for the actual number of units produced.

Applied (allocated) overhead = Predetermined overhead rate x actual number of units produced $111,000 = $8.70 per unit x actual units produced 12,758 actual units produced Objective: 4 AACSB: Analytical thinking

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20) Label the Overhead shown in the following t-account.

A) A: Actual Overhead Costs B: Applied Overhead Costs C: Under-applied Overhead D: Over-applied Overhead B) A: Actual Overhead Costs B: Applied Overhead Costs C: Over-applied Overhead D: Under-applied Overhead C) A: Applied Overhead Costs B: Actual Overhead Costs C: Under-applied Overhead D: Over-applied Overhead D) A: Applied Overhead Costs B: Actual Overhead Costs C: Over-applied Overhead D: Under-applied Overhead Answer: A Objective: 4 AACSB: Application of knowledge

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21) Hiver Manufacturing currently produces 260 tires per month with the following data per tire: Prime costs Variable manufacturing overhead Allocated fixed manufacturing overhead

$45 17 24

Hiver has practical capacity for 300 tires. If Hiver produces 280 tires, what is the total cost of the 280 tires?

A) $22,360 B) $25,800 C) $24,080 D) $19,320 Answer: C Explanation: C) First, calculate the per tire cost.

Total cost per tire = 45 + 17 + 24 Total cost per tire = 86 Then, calculate the total cost for tires.

Total cost = $86 per tire x 280 tires Total cost = $24,080 Objective: 4 AACSB: Analytical thinking

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22) Jozsi Company uses normal costing. The following data is known for Job 8 with machining and assembly departments: Beginning WIP Direct materials Direct labor cost Actual Overhead Applied Overhead

Machining $140 $390 $230 $600 $470

Assembly $120 $460 $380 $510 $580

Total $260 $850 $610 $1,110 $1,050

What should be the total cost of Job 8?

A) $2,830 B) $2,770 C) $3,880 D) $2,510 Answer: B Explanation: B) Total cost = beginning balance + direct materials + direct labor + overhead Total cost = 260 + 850 + 610 + 1,050 Total cost = 2,770 Under a normal costing system applied (allocated) overhead is used to calculate total cost NOT actual overhead.

Objective: 4 AACSB: Analytical thinking

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23) Printemps uses normal costing. At the beginning of the year, it developed estimates for departmental cost driver rates to apply overhead costs to products: Annual estimates: Machining $65 per machine hour Assembly $35 per direct labor hour Job # 8 data: Machining Direct labor-hours 4 Machine-hours 7 Direct materials $340 Direct labor cost $240 Actual Overhead $680 Applied Overhead ?

Assembly 5 1 $430 $300 $560 ?

Total 9 8 $770 $540 $1,240 ?

What is the total cost of Job 8?

A) $2,175 B) $1,940 C) $1,605 D) $2,550 Answer: B Explanation: B) First, calculate the amount of applied overhead for the two departments.

Machining Applied Overhead = $65 per machine hour x 7 machine hours Machining Applied Overhead = $455 Assembly Applied Overhead = $35 per direct labor hour x 5 direct labor hours Assembly Applied Overhead = $175 Then, calculated the total applied overhead.

Total Applied Overhead = $455 from Machining + $175 from Assembly Total Applied Overhead = $630 Finally, calculate the total cost.

Total Cost = Direct Materials + Direct Labor + Applied Overhead Total Cost = 770 + 540 + 630 Total Cost = $1,940 Objective: 4 AACSB: Analytical thinking

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24) Identify the correct balances in Work in Process, Finished Goods, and Cost of Goods Sold as of June 30th.

Job # 220 222 223

Date started May 18 June 7 June 10

Date finished Date sold June 12 June 20 July 5 July 12 June 28 July 1

Total Cost $6,000 $7,000 $5,500

A) WIP: $7,000 FG: $5,500 COGS: $6,000 B) WIP: $7,000 FG: $6,000 COGS: $5,500 C) WIP: $5,500 FG: $7,000 COGS: $6,000 D) WIP: $6,000 FG: $5,500 COGS: $7,000 Answer: A Objective: 4 AACSB: Reflective thinking

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25) Fair Company uses a normal job costing system and applies overhead using direct labor dollars ($). The work in process beginning balance was $0. Fair incurred these costs during the period: Job Number Direct labor ($8/hour) Direct materials Overhead applied

810

1015

$33,600 44,000 ?

$8,800 ?

7,920

At the end of the month, Job 1015 was not completed. Job 810 was completed and transferred to Finished Goods Inventory.

What is the amount transferred to Finished Goods?

A) $77,600 B) $67,200 C) $107,840 D) $85,520 Answer: C Explanation: C) The amount transferred to finished goods would be the total cost of Job 810 as it was the only one completed during the period.

First, solve for the overhead applied based on the information provided in Job 1015. Overhead is applied based on direct labor dollars so the overhead rate would be: = Overhead applied / direct labor dollars = $7,920 / $8,800 = $0.90 per direct labor dollar Overhead Applied 810 = $33,600 x $0.90 = $30,240 Then, solve for the total cost of Job 810.

Total Cost = Direct materials + Direct labor + applied overhead Total Cost = 44,000 + 33,600 + 30,240 Total Cost = $107,840 Objective: 4 AACSB: Reflective thinking

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26) Which visualization is most effective for answering the question, "Which part of the production process generates the greatest cost?"

A)

B)

C)

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D)

Answer: A Objective: 4 AACSB: Reflective thinking Learning Objective 3.5 1) If overhead is under-allocated, there is no need to analyze the under-allocated overhead.

Answer: FALSE Objective: 5 AACSB: Reflective thinking 2) Estimated job costs and actual job costs are always equal.

Answer: FALSE Objective: 5 AACSB: Application of knowledge

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3) Assume the following: - Actual overhead is $270,000 - Overhead rate is $11 per unit - 10,000 units were sold - 15,000 units were produced At year end, by how much is overhead under or over applied?

A) $105,000 overapplied.

B) $105,000 underapplied.

C) $160,000 underapplied.

D) $160,000 overapplied.

Answer: B Explanation: B) First, solve for the total overhead applied.

Overhead applied = Overhead rate x units produced Overhead applied = $11 per unit x 15,000 units produced Overhead applied = $165,000 Then, compare the actual overhead to the applied overhead.

Actual Overhead = $270,000 Applied Overhead = $165,000 Overhead was under applied by $105,000.

Objective: 5 AACSB: Analytical thinking 4) The Moez Company uses a normal job order cost system. Other data: • A job costing $200,000 was sold during the month • Overhead was over-applied by $5,000 • The company considers under- or over-allocated overhead immaterial.

What is the Cost of Goods Sold for the month?

A) $200,000 B) $205,000 C) $195,000 D) Not applicable. No jobs were in process at the end of the month.

Answer: C Explanation: C) If overhead adjustment is considered to be immaterial, the over-applied amount would be included in cost of goods sold.

If overhead is over-applied, then it would be subtracted from cost of goods sold because too much cost (overhead) was recognized during the period and should be removed from cost of goods sold.

Cost of Goods Sold = $200,000 - 5,000 Cost of Goods Sold = $195,000 Objective: 5 AACSB: Analytical thinking 29 Copyright © 2023 Pearson Education, Inc.

5) Why may estimated job costs and actual job costs differ?

A) Estimates are able to fully predict all future events.

B) Actuals are based on assumptions and cannot anticipate all future events.

C) Estimates are based on assumptions and cannot anticipate all future events.

D) Estimates and actuals are always the same.

Answer: C Objective: 5 AACSB: Application of knowledge 6) Luke's Windows uses machine hours to allocate overhead during the year. At the beginning of the year, Luke's estimated $100,000 of overhead costs and 25,000 machine hours. During the year, overhead allocated was $300,000 and overhead incurred was $325,000.

Do you recommend that Luke's uses the same process to allocate overhead next year?

A) No. The total amount of overhead costs estimated at the beginning of the year is significantly less than the actual amount of overhead incurred. Luke's should compare the estimated costs to actual costs incurred and perform diagnostic analytics to determine the cause of the difference.

B) Yes. It does not matter what the predetermined overhead rate is because the actual and estimated overhead amounts are reconciled at the end of the year.

C) Yes. The overhead allocated and actual overhead differ by $25,000 which is less than 10% of all overhead costs and is, therefore, a fairly accurate process.

D) No. Luke's should use direct labor hours to allocate overhead costs as it is a more accurate cost driver (allocation base).

Answer: A Objective: 5 AACSB: Reflective thinking 7) Which visualization is most effective for answering the question, "Does the company do a good job at allocating overhead and has this changed over time?"

A)

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B)

C)

D)

Answer: A Objective: 5 AACSB: Reflective thinking

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Learning Objective 3.6 1) Information related to spoilage, scrap, and rework is useful to evaluate and understand costs.

This information can be integrated with employee satisfaction surveys and customer reviews to identify process improvements and non-value-added activities.

Answer: TRUE Objective: 6 AACSB: Reflective thinking 2) What is NOT an example of a decision that can be made as a result of output from the job costing process?

A) Analyzing job profitability and changing or eliminating unprofitable jobs.

B) Eliminating non-value-added selling, general, and administrative expenses.

C) Job errors, scrap, and rework.

D) Job and product pricing to cover costs.

Answer: B Objective: 6 AACSB: Reflective thinking 3) Potential production delays can be projected using data from internal and external data sources. This is an example of a: A) diagnostic analytic.

B) predictive analytic.

C) descriptive analytic.

D) non-value-added analytic.

Answer: B Objective: 6 AACSB: Application of knowledge 4) Scrap refers to a product or service that does not meet the standards of acceptable quality and must be discarded or reworked. Spoilage refers to materials that are left over from the manufacturing of a job or product.

Answer: FALSE Objective: 6 AACSB: Application of knowledge 5) In an attempt to reduce direct material costs, a company may be tempted to use less expensive materials from a different supplier with an "introductory cost offer." The additional costs of scrap and rework may ultimately exceed the cost of purchasing higher-quality materials, such that the benefit (cheaper initial purchase cost) does not outweigh the total cost.

Answer: TRUE Objective: 6 AACSB: Reflective thinking

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6) Audit results indicate that management intentionally estimated too much spoilage when calculating the predetermined overhead rate. As a result, actual overhead costs are much less than estimated leading to bonuses.

Which of the following statements regarding the IMA's Standards of Ethical Professional Practice is true?

A) The standard of fairness is violated.

B) No standards are violated because the predetermined overhead rate is not actually recorded.

C) No standards are violated because the income statement will not differ.

D) The standard of competence is violated.

Answer: D Objective: 6 AACSB: Reflective thinking 7) All but which of the following would be considered non-value-added costs for a manufacturer?

A) Scrap.

B) Direct labor.

C) Spoilage.

D) Rework.

Answer: B Objective: 6 AACSB: Application of knowledge

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Managerial Accounting, 1e (Cainas, Pope, Joszi) Chapter 4 Activity-Based Costing and Activity-Based Management Learning Objective 4.1 1) ABC can only be used by manufacturers. Retailers, governmental organizations and service companies allocate all costs directly to products or services.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 2) ABC can only be used to analyze manufacturing overhead. Period costs are always allocated directly.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 3) Which of the following not a reason why it is important for companies to accurately understand how their costs are derived?

A) Eliminate underperforming products or services.

B) Effectively allocate costs across products or services.

C) Establish sales prices to achieve a desired margin.

D) Cost information is easy to gather and analyze.

Answer: D Objective: 1 AACSB: Reflective thinking 4) Which of the following is NOT an important consideration for management when deciding to implement an ABC system?

A) Does management already track the cost driver?

B) Is it possible to track the cost driver?

C) What kind of visualizations are available when tracking the cost driver?

D) What is the additional cost of tracking the cost driver?

Answer: C Objective: 1 AACSB: Reflective thinking 5) If a company uses a single plantwide rate based on direct labor hours to allocate overhead manufacturing costs, engineers will focus on minimizing direct labor hours with little regard for number of parts or machine time incurred.

Answer: TRUE Objective: 1 AACSB: Reflective thinking

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6) Traditional costing systems may result in under-costing standard products and over-costing specialty products.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 7) ABC and traditional systems trace direct materials and direct labor to cost objects similarly.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 8) If a process is highly automated, the best cost driver is likely: A) machine hours.

B) direct labor hours.

C) number of vendors.

D) number of inspections.

Answer: A Objective: 1 AACSB: Reflective thinking 9) Dean Company has the following information on payroll costs incurred during December: Assembly Department Packaging Department Sales Support Department

Job 123 $9,200 $10,500 $5,200

If the overhead allocation rate is 60% of direct labor costs, how much overhead will be allocated to job 123?

A) $5,520 B) $19,700 C) $11,820 D) $6,300 Answer: C Explanation: C) First, calculate the total payroll costs related to the product.

Total Payroll Costs = $9,200 (Assembly) + $10,500 (Packaging) Total Payroll Costs = $19,700 Sales Support Department is excluded because it is a period cost and not a product cost.

Then, calculate the total applied overhead.

Applied Overhead = $19,700 x 60% Applied Overhead = $11,820 Objective: 1 AACSB: Analytical thinking 2 Copyright © 2023 Pearson Education, Inc.

10) With a single overhead rate, overhead may not be properly allocated to product lines if the product lines use varying amounts of resources.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 11) An indication of management not understanding the company's costs could be if the company charges a much higher price for its products than competitors.

Answer: TRUE Objective: 1 AACSB: Reflective thinking 12) Because direct costs cannot be easily tracked, they generally cause cost distortions in traditional costing systems.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 13) JMK determined the following after performing an ABC analysis of the overhead for two of its service lines: Costing Approach Traditional ABC

Service A $20 $15

Service B $20 $25

Based on the ABC analysis, which service was overcosted under the traditional approach?

A) Service A B) Service B C) Neither Service D) Both Services Answer: A Objective: 1 AACSB: Application of knowledge 14) Cost distortion most likely can occur when: A) a company only offers one product line or service line.

B) a company uses ABC costing rather than a single predetermined overhead rate to allocate overhead.

C) all product lines require the same amount of machine hours to manufacture the products.

D) different departments incur different amounts and types of overhead.

Answer: D Objective: 1 AACSB: Application of knowledge

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15) Management may find that customers considered to be "low cost and profitable" are actually "high cost and unprofitable" after analyzing costs with an ABC approach.

Identify the scenario where this is likely NOT to be the case.

A) Profit margins continue to decline despite process improvements.

B) The company has many jobs that use the same amount of resources.

C) The accounting department is receiving many requests for special analyses regarding costs.

D) The company loses bids with each product addition.

Answer: B Objective: 1 AACSB: Reflective thinking 16) The goal of a properly constructed ABC system is to have the most precise costs (per-unit costs should be carried out to three digits).

Answer: FALSE Objective: 1 AACSB: Application of knowledge 17) Most ABC systems should be initiated, planned, and controlled by top managers since they are in the best position to understand the most efficient ways to perform all activities.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 18) Unlike traditional costing methods, ABC allocations are based on the identified activities and the resources used.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 19) What is the initial step in implementing an activity-based costing system?

A) calculate total product cost.

B) assign costs to activities.

C) identify activities and costs.

D) assign activity costs to cost objects Answer: C Objective: 1 AACSB: Application of knowledge

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20) When allocating manufacturing overhead costs, all of the following steps are performed before the company's year begins except: A) identify resource drivers for each activity cost pool.

B) calculate activity cost allocation rate by dividing the total estimated cost of each activity cost pool by the estimated reasonable total activity for that activity pool.

C) use activity cost allocation rate to assign activity costs to cost objects.

D) identify major activities performed and group together similar activities into activity cost pools.

Answer: C Objective: 1 AACSB: Application of knowledge 21) Identify the T-Accounts that best represent a job order normal costing system using activity cost allocation rates.

A)

B)

C)

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D)

Answer: A Objective: 1 AACSB: Application of knowledge Learning Objective 4.2 1) Storyboarding is a pre-visualization tool to map out the processes being analyzed.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 2) The best driver to assign the electricity used in manufacturing products or jobs is direct labor hours because payroll is readily available from financial records.

Answer: FALSE Objective: 2 AACSB: Reflective thinking 3) A cross-functional team should determine the resources being consumed in an activity-based costing analysis rather than a team of only accountants.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 4) An activity cost driver is: A) a factor that causes a change in the total cost of an activity.

B) another term for indirect costs.

C) the largest category of cost in a company.

D) a variable cost.

Answer: A Objective: 2 AACSB: Application of knowledge

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5) Interviewing, direct observation, and storyboarding are examples of input gathering methods for an activity-based costing analysis.

Which of the following statements is incorrect about the input gathering process?

A) Direct observation is the most expensive and time consuming.

B) Interviewing is the least accurate.

C) Activities are analyzed on an annual basis.

D) Storyboarding can be combined with interviews and observation.

Answer: C Objective: 2 AACSB: Reflective thinking 6) Which of the following tasks is not part of the input identification phase when implementing an ABC system?

A) Interview or observe activities being performed.

B) Develop an activity data dictionary.

C) Calculate of the activity cost allocation rates.

D) Summarize activities and identify the impact on costs.

Answer: C Objective: 2 AACSB: Reflective thinking 7) A hospital determines that the indirect cost per patient per day is $125 room charge and nursing care of $200.

When implementing an ABC cost system, which question is not relevant when gathering information on the hospital's activities?

A) How many days is each patient in the hospital?

B) How many procedures are performed per patient?

C) How much medicine is used for each patient?

D) What is the bonus paid to upper-level management?

Answer: D Objective: 2 AACSB: Reflective thinking 8) Making engineering changes and analyzing customer surveys are examples of product and customer sustaining activities.

Answer: TRUE Objective: 2 AACSB: Application of knowledge

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9) Identify the cost hierarchy from least specific to most specific.

A) Batch, product and customer sustaining, facility sustaining, unit B) Product and customer sustaining, batch, facility sustaining, unit C) Facility sustaining, batch, product and customer sustaining, unit D) Facility sustaining, product and customer sustaining, batch, unit Answer: D Objective: 2 AACSB: Application of knowledge 10) Facility sustaining-level costs are to the entire company as batch-level costs are to: A) a small group.

B) a single customer, service, or product.

C) product or service line.

D) average costs.

Answer: A Objective: 2 AACSB: Application of knowledge 11) Which of the following is an example of a unit-level activity?

A) Discussing service features with a group of customers.

B) Manually assembling each product.

C) Completing the company's application for a loan.

D) Packaging a group of items per customer order Answer: B Objective: 2 AACSB: Application of knowledge Learning Objective 4.3 1) An activity could be defined as any process that uses resources to convert the company's inputs into outputs.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 2) If activities use similar resources, it may be appropriate to use the same cost driver.

Answer: TRUE Objective: 3 AACSB: Application of knowledge

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3) Labor or machine hours is an appropriate cost driver for: A) leasing factory space that uses different resources.

B) advertising products that use similar resources.

C) packaging products that use different resources.

D) shipping goods to customers that use similar resources.

Answer: C Objective: 3 AACSB: Reflective thinking 4) For each activity, identify the appropriate driver, assuming that the usage of resources by units or projects does not vary significantly.

A) Shipping goods is driven by the number of vendors.

B) Research and development is driven by the number of customers.

C) Product design is driven by the number of units sold.

D) Processing bi-weekly payroll is driven by the number of employees.

Answer: D Objective: 3 AACSB: Reflective thinking 5) Identify the best cost drivers for the payment of vendors if the activity uses similar versus different resources.

A) Similar resources: number of investors Different resources: number of customers B) Similar resources: number of purchase orders Different resources: number of vendors C) Similar resources: number of vendors Different resources: number of purchase orders D) Similar resources: number of vendors Different resources: number of customers Answer: C Objective: 3 AACSB: Reflective thinking

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6) To determine the most appropriate driver for a cost pool, management plotted the four activity levels against their costs using a scatterplot.

Which of the following activity drivers best approximates the activity?

A)

B)

C)

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D)

Answer: A Objective: 3 AACSB: Reflective thinking 7) For the activity cost allocation rate, the numerator should be the total estimated costs for the activity.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 8) Estimates for the activity cost allocation rate should only use data from prior periods.

Information from interviews should be ignored.

Answer: FALSE Objective: 3 AACSB: Reflective thinking 9) A manager underestimates the direct labor hours required to complete a job in order to have the lowest bid and win the job. Which of the IMA's Standards of Ethical Professional Practice is not violated?

A) Integrity.

B) Competence.

C) Fairness.

D) Credibility.

Answer: C Objective: 3 AACSB: Ethical understanding and reasoning 10) What is the correct formula to calculate the activity cost allocation rate?

A) = total estimated cost of activity cost pool / total estimated activity.

B) = direct materials + direct labor + allocated overhead.

C) = activity cost allocation rate × actual activity.

D) = $ amount of resource / resource driver.

Answer: A Objective: 3 AACSB: Application of knowledge 11 Copyright © 2023 Pearson Education, Inc.

11) Which of the following does NOT represent a rate to allocate manufacturing overhead costs?

A) activity-based rate.

B) single plantwide rate.

C) departmental rate.

D) kaizen rate.

Answer: D Objective: 3 AACSB: Reflective thinking 12) Direct materials and direct labor costs are allocated to products because both are not easily traced to specific products or jobs.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 13) With ABC, each ________ is ________ the activity incurred in order to calculate manufacturing overhead.

A) activity cost allocation rate; added to B) activity cost allocation rate; multiplied by C) departmental overhead rate; multiplied by D) departmental overhead rate; added to Answer: B Objective: 3 AACSB: Application of knowledge 14) Overhead costs are to driver tracing as direct materials are to: A) allocation.

B) direct costs.

C) direct tracing.

D) cost assignment.

Answer: C Objective: 3 AACSB: Application of knowledge

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Learning Objective 4.4 1) Thompson has the following annual projections for its manufacturing plant:

Setups Inspections Power

Projected Costs $55,200 $34,200 $19,380

Projected Activity 240 production runs 60 inspections 102,000 machine hours

Identify the equation that best calculates the total overhead costs.

A) = ($0.19 per production run × number of production runs) + ($230 per inspection × number of inspections) + ($570 per machine hour × number of machine hours) B) = ($570 per production run × number of production runs) + ($230 per inspection × number of inspections) + ($0.19 per machine hour × number of machine hours) C) = ($230 per production run × number of production runs) + ($570 per inspection × number of inspections) + ($0.19 per machine hour × number of machine hours) D) = ($570 per production run × number of production runs) + ($0.19 per inspection × number of inspections) + ($230 per machine hour × number of machine hours) Answer: C Objective: 4 AACSB: Analytical thinking 2) Weber Company has the following projections for the upcoming year are: Costs Maintenance $80,000 Inspection $8,400

Activity 40,000 machine hours 1,400 inspections

What is the overhead allocation rate for Maintenance?

A) $2 per machine hour.

B) $2 per inspection.

C) $6 per machine hour.

D) $6 per inspection.

Answer: A Explanation: A) Predetermined overhead allocation rate = Estimated Costs / Estimated Total Driver Maintenance Overhead Rate = $80,000 / 40,000 machine hours Maintenance Overhead Rate = $2 per machine hour Objective: 4 AACSB: Analytical thinking

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3) The following information is known for a grocery store: Activity (cost driver) Order processing (# POs) Receiving (# deliveries) Shelf-stocking (# delivery hours) Customer support (# units sold)

Rate Usage $90 A $190 14

Total Allocation $810 B

C

4

$31

$0.26

D

$8,580

Which of the following statements is incorrect?

A) A is 9 purchase orders.

B) B is $2,660 indirect receiving costs.

C) C is $124 per delivery hour.

D) D is 33,000 units.

Answer: C Explanation: C) Item C is incorrect.

Predetermined overhead allocation rate = Estimated Costs / Estimated Total Driver Shelf Stocking Rate = $31 / 4 delivery hours Shelf Stocking Rate = $8 per delivery hour Objective: 4 AACSB: Reflective thinking

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4) The following bar chart visually depicts the total costs allocated to each product by activity.

Which of the following activities would you want to research and know more about?

A) Inspecting.

B) Machining.

C) Customer Support.

D) Setup.

Answer: B Objective: 4 AACSB: Reflective thinking

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5) Sunshine Sky Company has the following overhead allocation rates for the upcoming year: - Materials handling: $10 per material move - Setups: $50 per setup Two jobs were completed during August using the following activities: Job A Job B Materials handling 49 moves 15 moves Setups 10 setups 32 setups Which Job is assigned more overhead costs and by what amount?

A) Job A; $1,750.

B) Job B; $760.

C) Job A; $1,480.

D) Job B; $1,480.

Answer: B Explanation: B) Job A: Materials Overhead = $10 per material moves x 49 moves Materials Overhead = $490 Setups Overhead = $50 per setup x 10 setups Setups Overhead = $500 Total Overhead = $490 + $500 = $990 Job B: Materials Overhead = $10 per material moves x 15 moves Materials Overhead = $150 Setups Overhead = $50 per setup x 32 setups Setups Overhead = $1,600 Total Overhead = $150 + $1,600 = $1,750 Job B is assigned $760 more overhead costs.

Objective: 4 AACSB: Analytical thinking

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6) Blue Palm Company has the following information for a proposed job: Direct materials Direct labor Direct labor hours Machine hours Number of inspections

$3,400 $11,000 1,290 830 18

Blue Palm has identified the following two activities and allocation rates using ABC: - Maintenance: $6 per machine hour - Inspections: $20 per inspection What is the estimated cost of the job using ABC? A) $32,398 B) $19,740 C) $16,538 D) $14,400 Answer: B Explanation: B) First, calculate the total applied overhead for the maintenance and inspection activities.

Maintenance Applied Overhead = $6 per machine hour x 830 machine hours Maintenance Applied Overhead = $4,980 Inspections Applied Overhead = $20 per inspection x 18 inspections Inspections Applied Overhead = $360 Total Overhead Applied = $4,980 + $360 = $5,340 Then, calculate the total cost of the job.

Total Cost = Direct materials + Direct Labor + Total Overhead Applied Total Cost = $3,400 + $11,000 + $5,340 Total Cost = $19,740 Objective: 4 AACSB: Analytical thinking

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7) Wind Chimes Inc. has the following information for Job 101: Direct materials Direct labor Direct labor hours Machine hours Number of inspections

$1,700 $9,000 2,100 1,640 53

Wind Chimes allocates overhead using a single plantwide rate of $15 per direct labor hour. What is the projected total cost of Job 101 using a single plantwide rate?

A) $67,595 B) $12,800 C) $35,300 D) $42,200 Answer: D Explanation: D) First, calculate the total overhead applied using a single plantwide rate using direct labor hours as the base.

Applied Overhead = $15 per direct labor hour x 2,100 direct labor hours Applied Overhead = $31,500 Then, calculate the total cost of Job 101.

Job 101 Cost = direct materials + direct labor + applied overhead Job 101 Cost = $1,700 + $9,000 + $31,500 Job 101 Cost = $42,200 Objective: 4 AACSB: Analytical thinking

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8) Chocolate Candy Co. has the following ABC overhead allocation rate information for the upcoming year: - Materials processing: $12 per machine hour (MH) - Setups: $55 per setup Chocolate completed two jobs in June. Additional information includes: Job A Job B Total Direct materials $2,200 $1,200 $3,400 Direct labor $3,200 $4,800 $8,000 Materials processing 70 MH 110 MH 180 MH Setups 4 setups 25 setups 29 setups What is the cost of Job A? A) $15,155 B) $8,695 C) $6,460 D) $11,609 Answer: C Explanation: C) First, calculate the total applied overhead for the materials processing and setup activities for Job A. Materials Processing Applied Overhead = $12 per machine hour x 70 machine hours Maintenance Applied Overhead = $840 Setup Applied Overhead = $55 per setup x 4 setups Setup Applied Overhead = $220 Total Overhead Applied = $840 + $220 = $1,060 Then, calculate the total cost of Job A. Total Cost = Direct materials + Direct Labor + Total Overhead Applied Total Cost = $2,200 + $3,200 + $1,060 Total Cost = $6,460 Objective: 4 AACSB: Analytical thinking

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9) Basket Weaving Company developed the following activity cost allocation rates for the upcoming year: - Setups: $1 per setup - Machining: $20 per machine hour - Packaging: $4 per unit - Testing: $8 per testing hour Basket Weaving manufactures two different products. Which of the following statements is true about potential cost distortions if Basket Weaving allocates costs using a single cost allocation rate?

A) If both products use equal amount of activities, there is no difference in cost allocation between a single rate and activity cost allocation rates.

B) If there are differences in volume, it is likely that the high volume product is undercosted using a single cost allocation rate.

C) If one product uses more machine hours and the other product uses more setups, the product using more setups is likely overcosted using a single cost allocation rate.

D) If interviews and observations result in significant amounts of data, activity cost allocation rates will always yield more accurate results.

Answer: A Objective: 4 AACSB: Analytical thinking 10) Ibbotson Company identified the following overhead costs for Job XYZ using different costing approaches.

Overhead Costs Based on Single Rate of Direct Labor Hours Based on Single Rate of Machine Hours Based on ABC with 4 Activities

$2,275 284 227

Which of the following statements is incorrect based on the information provided above?

A) Direct labor hours seems to be a poor cost driver.

B) Machine hours could be a good cost driver.

C) ABC could be the best cost driver.

D) The company is a retailer.

Answer: D Objective: 4 AACSB: Reflective thinking

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11) Allocating indirect costs using ABC helps companies to better understand its costs.

Companies can then use activity-based management to eliminate inefficient activities.

Answer: TRUE Objective: 4 AACSB: Application of knowledge 12) One of Webb's products is losing money because it uses significant resources of setups, customer handling, and material handling.

Which of the following responses to this information could violate the IMA's Standards of Ethical Professional Practice?

A) Ignore the results of the analysis.

B) Identify and reduce non-value-added activities.

C) Make operational changes to improve efficiency.

D) Create a team to perform a root cause analysis.

Answer: A Objective: 4 AACSB: Ethical understanding and reasoning 13) A1 CPAs has three service lines: tax accounting, consulting, and financial statement reviews.

The following information reflects the cost allocation results for the traditional approach based on sales dollar and the ABC approach.

Traditional ABC

Tax Consulting $60,000 $22,000 $40,000 $18,000

Review $40,000 $32,000

Which of the following statements is incorrect?

A) Review is undercosted using the traditional costing system.

B) Tax is the highest cost service line.

C) Consulting is the lowest cost service line.

D) More detailed information is provided with the traditional costing system.

Answer: D Objective: 4 AACSB: Reflective thinking

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14) Manny company has the following information related to indirect cost allocation for its Simple product: - Single Rate Allocation: $1,800,000 total indirect costs based on 20,000 machine hours - Activity Rate Allocation: $1,750,000 total indirect costs based on 3,000 orders 250 setups 15,000 machine hours 1,000 inspections Manny manufactures 40,000 Simple products, incurring $550,000 of direct materials costs and $200,000 of direct labor costs. Which of the following statements is correct?

A) The total cost per unit is $18.75.

B) The total indirect cost per unit is $90.00 using the activity cost allocation rates.

C) The total indirect cost is $43.75 using a single allocation rate.

D) The Simple product is overcosted if a single cost allocation rate is used.

Answer: D Objective: 4 AACSB: Analytical thinking Learning Objective 4.5 1) ABC and ABM are applicable only to the production of products; the techniques cannot be used for service industries.

Answer: FALSE Objective: 5 AACSB: Reflective thinking 2) Activity-based management (ABM) techniques suggest making across-the-board cuts to costs when products, services, or jobs are unprofitable.

Answer: FALSE Objective: 5 AACSB: Application of knowledge

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3) The following fishbone diagram visually depicts the result of an ABM analysis to identify the root causes of an identified defect at a lawn care company when not all lawns were being cut.

What is one factor that cannot be eliminated or reduced?

A) Poor training.

B) Thunderstorms.

C) Inefficient travel time.

D) Mechanical breakdown.

Answer: B Objective: 5 AACSB: Application of knowledge 4) Which of the following is NOT an objective of activity-based management?

A) To increase profitability.

B) To improve decision making with better cost information.

C) To achieve cost reduction through continuous improvement.

D) To increase the number of activities to perform processes.

Answer: D Objective: 5 AACSB: Application of knowledge 5) Which of the following is NOT a focus of activity-based management?

A) Activities performed.

B) Individual departments or costs incurred.

C) How and why the costs are derived.

D) How things can be done differently.

Answer: B Objective: 5 AACSB: Application of knowledge

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6) Value-added activities are unnecessary actions that customers are unwilling to pay for or are actions performed inefficiently.

Answer: FALSE Objective: 5 AACSB: Application of knowledge 7) Retain the activity is to efficient value-added activities as potentially eliminate the activity is to: A) inefficient non-value-added activities.

B) inefficient value-added activities.

C) efficient activity-based costing activities.

D) efficient non-value-added activities.

Answer: D Objective: 5 AACSB: Reflective thinking 8) Which is NOT one of the 4Ms to consider when analyzing value-added and inefficiently performed activities?

A) management.

B) materials.

C) methods.

D) machines.

Answer: A Objective: 5 AACSB: Reflective thinking 9) Non-value-added costs are easier to identify when costs are organized by general ledger accounts than by activities because total costs are more readily available.

Answer: FALSE Objective: 5 AACSB: Application of knowledge 10) Common sources of non–value-added costs include poor training, poor documentation, lack of understanding of customer needs, and improper use of technology.

Answer: TRUE Objective: 5 AACSB: Application of knowledge 11) Inspecting defective products is a non-value-added activity that could be eliminated by purchasing higher quality materials from vendors.

Answer: TRUE Objective: 5 AACSB: Reflective thinking

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12) Identify the best example of a value-added cost for a day care center.

A) Having parents electronically fill out an application.

B) Having parents manually fill out applications.

C) Manual input of information into a tracking system.

D) Employees sit idle because the employee to child ratio is too high.

Answer: A Objective: 5 AACSB: Reflective thinking 13) In a doctor's office, each patient manually fills out forms and typically waits 20 minutes before seeing the doctor. The assistant types the patient information into the computer. One patient per day often forgets to come for the appointment.

Which is NOT an example of a non-value-added activity?

A) Appointment no-shows.

B) Manually filling out forms.

C) Waiting to see a doctor.

D) Seeing the doctor and completing the appointment.

Answer: D Objective: 5 AACSB: Reflective thinking 14) Weir's management classifies costs into four groups: Group 1: Training, Quality planning Group 2: Inspections, Process reviews Group 3: Expedite late orders, Rework Group 4: Warranty charges, Lawsuits, Handle complaints Which of the four groups are more likely to be value-added activities?

A) Groups 1 and 2.

B) Groups 3 and 4.

C) Groups 1 and 3.

D) Groups 2 and 3.

Answer: A Objective: 5 AACSB: Reflective thinking 15) Automatic quiz grading is to a university as electronic inventory tagging (RFID) is to a(n): A) hospital.

B) movie theater.

C) clothing retailer.

D) bowling alley.

Answer: C Objective: 5 AACSB: Reflective thinking 25 Copyright © 2023 Pearson Education, Inc.

16) A company keeps 5 days of materials inventory on hand to avoid delays due to materials shortages at a cost of $1,000 per day. The total value-added cost is $5,000.

Answer: FALSE Objective: 5 AACSB: Analytical thinking 17) The purchasing department learned that materials are not being delivered on time from vendors. In January, the cost of the problems was $50,000, or 5% of ending inventory.

What is NOT an example of how the non-value-added activity can be reduced or eliminated?

A) Automating the purchasing and distribution processes.

B) Adopt a chatbot on the website to respond to customer questions.

C) Improve employee training.

D) Tag each product with barcodes or RFID technology.

Answer: B Objective: 5 AACSB: Analytical thinking 18) Expediting is often considered a non–value-added cost because customers do not want to pay for having to speed up their orders due to errors or delays when the company processes their orders.

Which is NOT an example of a problem that would require expediting?

A) The marketing department underestimates customer demand.

B) The website does not accurately reflect the number of units on hand.

C) A competitor is shipping products 30 days after the order is placed.

D) A vendor fails to provide materials on the requested date.

Answer: C Objective: 5 AACSB: Analytical thinking

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19) A service currently takes 60 minutes to perform. An ABM analysis indicates that it should take 44 minutes. The cost of the service is $11 per hour.

What are the monthly non–value-added costs if there are 1,900 services provided in July?

(Round intermediate calculations to the nearest cent.)

A) $15,327 B) $5,567 C) $20,900 D) $30,400 Answer: B Explanation: B) The value added costs are what it should take to complete a service.

Value Added Cost per Service = $11 per hour / 60 minutes x 44 minutes Value Added Cost per Service = $8.07 per service Non Value Added Cost per Service = Current Actual Cost per Service - Value Added Cost per Service Non Value Added Cost per Service = $11 per service - $8.07 per service Non Value Added Cost per Service = $2.93 per service Total Non Value Added Costs = $2.93 per service x 1,900 services Total Non Value Added Costs = $5,567 Objective: 5 AACSB: Analytical thinking 20) Due to scrap and rework, production required 16 pounds of materials per unit instead of the standard 13 pounds per unit. If materials cost $5 per pound, what is the non-value-added cost per unit?

A) $5 B) $80 C) $65 D) $15 Answer: D Explanation: D) Non value added costs are the number of excess pounds used to produce each unit times the cost per unit.

Non value added cost = (16 pounds used - 13 pounds should be used) x $5 per pound Non value added cost = $15 Objective: 5 AACSB: Analytical thinking

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Learning Objective 4.6 1) The costs of adopting and implementing an ABC system is the same for all companies within a given industry.

Answer: FALSE Objective: 6 AACSB: Reflective thinking 2) A key benefit of an ABC system is that it is costly and time-consuming to research, plan, implement, and control. Management should instead try to obtain better information with an actual costing system.

Answer: FALSE Objective: 6 AACSB: Application of knowledge 3) Identify a benefit of implementing an activity-based costing system.

A) Management is focused on controlling the sources of costs rather than the costs themselves.

B) Management is focused on computing costs rather than using the information to manage activities.

C) ABC is expensive and time consuming to implement.

D) There is the potential for inefficiencies if upper-level management do not support the effort.

Answer: A Objective: 6 AACSB: Application of knowledge Learning Objective 4.7 1) Management can use data analytics to determine how and why costs are derived.

Answer: TRUE Objective: 7 AACSB: Application of knowledge 2) What is NOT an example of data that can be captured using technology and used in data analytics to improve decisions on eliminating or improving non-value-added activities?

A) An app that tracks employee hours based on location.

B) Electronic tagging of accounts (XBRL) found in external financial statements.

C) Barcodes or RFID tags on inventory to track movements.

D) Scanners that weigh boxes and compare actual weight to expected weight before shipping to customers in order to identify errors.

Answer: B Objective: 7 AACSB: Reflective thinking

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3) The following bar chart breaks down a Company's activities by the 4Ms (i.e., methods, machines, manpower, and materials by quarter).

Identify the internal or external information that would NOT be helpful evaluating the root cause of the costs associated with one of the 4Ms. A) Available technology improvements B) Customer suggestions and complaints C) Number of defective products by quarter D) Total selling, general, and administrative expenses by quarter Answer: D Objective: 7 AACSB: Reflective thinking 4) Total Quality Management (TQM) proponents believe that financial performance improves by eliminating all activities that do not provide a quality output.

Answer: TRUE Objective: 7 AACSB: Application of knowledge 5) Lean manufacturing strives to eliminate all non-value-added activities.

Answer: TRUE Objective: 7 AACSB: Application of knowledge 6) What is NOT one of the "deadly" wastes lean manufacturing tries to eliminate?

A) Multiple activities.

B) Overproduction.

C) Waiting.

D) Excess Inventory.

Answer: A Objective: 7 AACSB: Reflective thinking

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7) A just-in-time system involves having large amounts of inventory on hand in case that there are production problems.

Answer: FALSE Objective: 7 AACSB: Application of knowledge 8) Storing and moving extra inventory in a warehouse is an example of a non-value-added cost that could be eliminated by implementing a Just In Time system.

Answer: TRUE Objective: 7 AACSB: Reflective thinking 9) What is NOT a characteristic of a just-in-time inventory system?

A) The reference to it as a "pull" inventory system.

B) Maintaining high levels of inventory.

C) Manufacturing what is needed when it is needed.

D) Reducing waste.

Answer: B Objective: 7 AACSB: Application of knowledge 10) Which of the following is NOT a modern costing technique?

A) Lean manufacturing.

B) Just-in-time inventory.

C) Process costing.

D) Total quality management.

Answer: C Objective: 7 AACSB: Application of knowledge 11) ABC is compatible with both total quality management and lean accounting.

Answer: TRUE Objective: 7 AACSB: Reflective thinking

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Managerial Accounting, 1e (Cainas, Pope, Joszi) Chapter 5 Process Costing Learning Objective 5.1 1) Companies use process costing systems instead of job costing systems in order to report a lower cost of goods sold.

Answer: FALSE Objective: 1 AACSB: Reflective thinking 2) Service companies cannot use a process costing system because services cannot be accumulated by process or department.

Answer: FALSE Objective: 1 AACSB: Reflective thinking 3) Companies with a large number of homogenous products should use a process costing system.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 4) Job costing is to a custom yacht manufacturer as process costing is to: A) a mortgage loan firm.

B) an architectural firm.

C) a flour mill.

D) a one-of-a-kind furniture maker.

Answer: C Objective: 1 AACSB: Reflective thinking 5) Which of the following companies is unlikely to use process costing?

A) A paint manufacturer.

B) An art gallery.

C) A brewery.

D) A tire manufacturer.

Answer: B Objective: 1 AACSB: Application of knowledge

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Learning Objective 5.2 1) Process costing is only used to track product costs. It cannot be used to make decisions on how to price products or what products should be discontinued.

Answer: FALSE Objective: 2 AACSB: Reflective thinking 2) Process costing is compatible with both a just-in-time (JIT) inventory system and lean accounting.

Answer: TRUE Objective: 2 AACSB: Reflective thinking 3) Under process costing, costs are accumulated in a separate work-in-process account for each distinguishable stage of production.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 4) For a company that uses process costing, which account does not appear on the balance sheet?

A) Cash.

B) Cost of goods sold.

C) Accounts payable.

D) Work in Process Inventory.

Answer: B Objective: 2 AACSB: Application of knowledge 5) Which of the following is unique to a process costing system?

A) Once the manufacturing process is complete, costs are transferred out of work in process to finished goods.

B) There are multiple finished goods inventory accounts.

C) Manufacturing overhead costs are allocated using a single rate or multiple activity rates.

D) Costs are transferred between work in process accounts.

Answer: D Objective: 2 AACSB: Reflective thinking

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6) Which of the following is NOT a characteristic of how products are manufactured for companies that typically adopt a process costing system?

A) Work is performed uniformly on all units passing through each process.

B) A different type of activity is performed at each process.

C) Costs significantly differ from one product to the next.

D) Products flow through one process to the next in sequential order.

Answer: C Objective: 2 AACSB: Reflective thinking 7) Product costs include direct materials, direct labor, and overhead for both job and process costing systems.

Answer: TRUE Objective: 2 AACSB: Reflective thinking 8) Transferred-in units are 100% complete for costs added in the previous department.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 9) Conversion costs include: A) direct materials and direct labor.

B) direct labor and manufacturing overhead.

C) direct materials and manufacturing overhead.

D) manufacturing overhead and transferred in costs.

Answer: B Objective: 2 AACSB: Application of knowledge 10) Which is NOT a reason why it is important for a company to accumulate costs by process?

A) To manage product costs.

B) To understand how costs are derived.

C) To allocate period costs between products.

D) To establish competitive prices on its products.

Answer: C Objective: 2 AACSB: Reflective thinking 11) In a process costing system, the costs flow is from Raw Materials Inventory to Work in Process Inventory to Finished Goods Inventory.

Answer: TRUE Objective: 2 AACSB: Application of knowledge

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12) Identify the T-Accounts that best represent a process costing system.

A)

B)

C)

D)

Answer: A Objective: 2 AACSB: Application of knowledge

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13) Which is NOT a reason why it is important for a company to understand the physical flow of goods?

A) To identify non-value-added activities.

B) To understand how costs are derived.

C) To obtain details on the manufacturing process.

D) To prepare payroll tax forms.

Answer: D Objective: 2 AACSB: Reflective thinking 14) A cell phone reconditioning company uses separate sequential processes of assembly, testing, and finishing. When a cell phone is completely reconditioned, out of which account should the cost be transferred?

A) Finished Goods.

B) Work in Process - Assembly.

C) Work in Process - Testing.

D) Work In Process - Finishing.

Answer: D Objective: 2 AACSB: Application of knowledge 15) Which of the following is false regarding transferred in costs?

A) The cost per equivalent unit for transferred in costs is: total cost transferred in divided by the total units transferred in.

B) Transferred in costs occur when a product moves between processes.

C) Both job costing and process costing systems track Transferred-in costs.

D) Transferred in costs occur in companies that produce similar units through a series of processes.

Answer: C Objective: 2 AACSB: Reflective thinking

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16) Practical Products uses a process costing system. The following is known about the assembly department for the month of July: 51,000 units were started 57,000 units were completed 6,000 units were in work in process at July 1 How many units were in work in process at July 31st?

A) 0 B) 12,000 C) 6,000 D) 3,000 Answer: A Explanation: A) Ending Balance = Beginning Balance + Units Started - Units Completed Ending Balance = 6,000 + 51,000 - 57,000 Ending Balance = 0 Objective: 2 AACSB: Analytical thinking 17) Reusable Plastics uses a process costing system. The following is known about the assembly department for the month of September: The company transferred out 68,000 units.

The beginning work in process was 11,500 units.

The ending work in process was 7,500 units.

How many units were started during the period?

A) 60,500 B) 72,000 C) 68,000 D) 64,000 Answer: D Explanation: D) Ending Balance = Beginning Balance + Units Started - Units Completed 7,500 = 11,500 + Units Started - 68,000 7,500 - 11,500 + 68,000 = Units Started 64,000 = Units Started Objective: 2 AACSB: Analytical thinking 18) The two process costing methods are FIFO and LIFO. LIFO is more widely used because it is more accurate.

Answer: FALSE Objective: 2 AACSB: Application of knowledge

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19) The First In First Out Method (FIFO) assumes that the beginning inventory units will be the first to be completed before any other units are started and completed.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 20) If the difference between weighted average and FIFO are immaterial, companies are likely to use weighted average for simplicity.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 21) Identify the two methods used to allocate costs using a process costing system.

A) weighted average and FIFO. B) weighted average and LIFO. C) FIFO and LIFO. D) FIFO and specific identification.

Answer: A Objective: 2 AACSB: Reflective thinking 22) In process costing, equivalent units reflect the work for the period related to fully completed units of output.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 23) Direct materials are added at the beginning of a process. If the units are 50% complete, the percentage of completion for direct materials is 100%.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 24) The difference between the first and second production departments of a process costing system is: A) calculation of equivalent units B) summarization of the physical flow of units C) inclusion of transferred in costs D) tracking of direct materials and conversion costs.

Answer: C Objective: 2 AACSB: Application of knowledge

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25) The cost per equivalent unit using weighted average process costing is: A) costs added during the period / equivalent units.

B) total costs to account for / equivalent units.

C) costs to account for / number of partially completed units.

D) costs added during the period / number of partially completed units.

Answer: B Objective: 2 AACSB: Application of knowledge 26) Conversion activities and materials are added at differing points in a process.

Which of the following statements is true?

A) A job costing system must be used.

B) The unit cost of conversion and materials must be calculated separately.

C) Materials are most likely added equally throughout the process.

D) Conversion activities are most likely performed at the beginning of the process.

Answer: B Objective: 2 AACSB: Reflective thinking 27) When units pass through more than one process, the units transferred from the first department equal the units: A) in ending inventory.

B) completed in the second department.

C) started and completed in the second department.

D) started in the second department.

Answer: D Objective: 2 AACSB: Application of knowledge 28) Assume there is no beginning work in process inventory and there are unfinished units left in ending work in process inventory. Conversion costs are added equally throughout the period.

When comparing the physical flow of inventory to the equivalent units, equivalent units for conversion costs are: A) less than the units completed.

B) less than the units started.

C) equal to the units completed.

D) equal to the units started.

Answer: B Objective: 2 AACSB: Reflective thinking

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29) Identify the correct order of the steps to allocate costs between work in process and finished goods inventory in a process costing system: 1 - Calculate the equivalent units 2 - Summarize the physical flow of units 3 - Allocate total costs between the work in process and finished goods inventory accounts 4 - Calculate the cost per equivalent unit for direct materials and conversion costs A) 2, 1, 4, 3 B) 1, 2, 3, 4 C) 4, 2, 1, 3 D) 2, 4, 1, 3 Answer: A Objective: 2 AACSB: Reflective thinking 30) The following line chart shows the total materials cost for a department over the past year.

What is NOT a potential cause of the spike in materials costs, an outlier, in September?

A) New equipment was installed in the manufacturing plant resulting in a large cash payment and higher depreciation costs.

B) Materials are unavailable from the normal vendor so we have to pay more to get materials ontime from a different vendor.

C) Customers will pay for a higher quality product so we purchased higher quality materials.

D) Material purchases were higher due to a disruption in the shipping channel.

Answer: A Objective: 2 AACSB: Reflective thinking

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31) Which of the following statements is true for process costing?

A) Physical units are always equal to equivalent units.

B) Weighted average, FIFO, and LIFO are the methods.

C) Costs per equivalent unit must be calculated.

D) Manufacturers use it when units produced are unique or custom-ordered.

Answer: C Objective: 2 AACSB: Reflective thinking Learning Objective 5.3 1) The manager of a process costing production department overstated the ending inventory completion percentage from 40% to 60% to lower the unit costs. The action would not violate IMA's Standards of Ethical Professional Practice.

Answer: FALSE Objective: 3 AACSB: Ethical understanding and reasoning 2) Magnanimous Brewing (MB) uses weighted average process costing. MB had 2,000 physical units in production which were 50% complete for direct materials and 40% complete for conversion. The beginning inventory was 100 units.

What are the company's equivalent units for direct materials and conversion?

A) Direct Materials: 1,000 Conversion: 800 B) Direct Materials: 2,000 Conversion: 2,000 C) Direct Materials: 800 Conversion: 1,000 D) Direct Materials: 500 Conversion: 500 Answer: A Explanation: A) Equivalent Units = Number of Units in Production x Percent Complete Direct Materials = 2,000 x 50% = 1,000 equivalent units Conversion = 2,000 x 40% = 800 equivalent units Objective: 3 AACSB: Analytical thinking

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3) Tires R Us uses a weighted average process costing system. The following applies to conversion costs for December: Conversion costs are added uniformly through the process.

70,000 units were started and are 70% complete 7,000 units in Work in Process on December 1 11,000 units in Work in Process on December 31 at 60% complete What are equivalent units for conversion costs?

A) 23,600 B) 66,000 C) 80,600 D) 72,600 Answer: D Explanation: D) First, solve for the completed units.

Ending Balance = Beginning Balance + Units Started - Units Completed 11,000 = 7,000 + 70,000 - Units Completed Units Completed = 7,000 + 70,000 - 11,000 Units Completed = 66,000 Then, calculate the equivalent units for the units left in ending inventory.

Equivalent units = 11,000 x 60% = 6,600 Finally, add the units completed and the equivalent units from ending inventory to calculate the total equivalent units for conversion costs.

Total equivalent units = 66,000 +6,600 = 72,600 Objective: 3 AACSB: Analytical thinking

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4) Carrillo Company uses weighted average process costing. Carrillo had the following conversion cost information for June: Equivalent units: 28,600 Work in Process Inventory, June 1: 3,450 units, 50% complete Units started in June: 30,550 Units completed and transferred out: 25,000 Work in Process on June 30th was: A) 40% complete with respect to conversion costs.

B) 50% complete with respect to conversion costs.

C) 4,500 units.

D) 13,500 units.

Answer: A Explanation: A) Total equivalent Units = Units Transferred Out + Units in Ending Inventory* x Percent Complete 28,600 = 25,000 + 9,000 x Percent Complete 3,600 = 9,000 x Percent Complete 40% = Percent Complete *Ending Inventory = Beginning Inventory + Units Started - Units Transferred Out Ending Inventory = 3,450 + 30,550 - 25,000 Ending Inventory = 9,000 Objective: 3 AACSB: Analytical thinking 5) Flour Mills uses weighted average process costing. Materials are added at the beginning of the first process at a cost of $7 per equivalent unit. The following information is known for November: Work in Process, November 1: 16,000 units.

Units started in November: 85,000.

Work in Process, November 30: 15,000 units.

What is the total cost of direct materials?

A) $602,000 B) $707,000 C) $700,000 D) $588,000 Answer: B Explanation: B) Direct Materials are added at the beginning of the process so the cost would be added to any of the units in beginning inventory and started during the period.

Total Cost of Direct Materials = (16,000 + 85,000) x $7 Total Cost of Direct Materials = $707,000 Objective: 3 AACSB: Analytical thinking

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6) Nuts and Bolts use a weighted average process costing system. The following applies to conversion costs for October: Units Costs 8,000 Beginning Work in Process (50% complete) $100,000 Added during process $370,000 Completed and transferred out 16,000 2,500 Ending Work in Process (30% complete) What is the cost per equivalent unit for conversion costs? (Rounded to the nearest cent.)

A) $35.47 B) $44.76 C) $28.06 D) $36.86 Answer: C Explanation: C) Total conversion costs = $100,000 + $370,000 = $470,000 Total equivalent units = 16,000 + (2,500 x 30%) = 16,750 Cost per equivalent unit = $470,000 / 16,750 = $28.06 Objective: 3 AACSB: Analytical thinking

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7) Pine Company uses weighted average process costing and has the following information for July: Units Direct materials cost Conversion Percent complete for conversion costs

July 1 5,000 $11,000 $15,000

During July 16,000 added $39,000 $54,000

July 31 1,000

40%

60%

Materials are added at the beginning of the process. Conversion costs are added evenly throughout the process. (Round cost per equivalent unit to the nearest cent.)

Which of the following statements is false?

A) Number of units transferred out is 20,000.

B) Materials cost per equivalent unit is $2.38.

C) Conversion cost per equivalent unit is $3.35.

D) Cost of goods transferred out is $119,000.

Answer: D Explanation: D) The cost of goods transferred out would be less than the total costs of direct materials and conversion costs because some of the conversion costs are left in ending inventory at the end of the period.

Objective: 3 AACSB: Analytical thinking 8) Information for the Bottling Department's production in March is:

Transferred Out Work in process, March 31 Cost per equivalent unit

Direct Materials 41,000 10,000 $4

Conversion 41,000 1,000 $9

Direct materials are added at the end of the process. Conversion costs are incurred evenly throughout the month.

What is the cost of units completed and transferred out?

A) $533,000 B) $582,000 C) $676,000 D) $663,000 Answer: A Explanation: A) Total cost transferred out = 41,000 × ($4 + $9) = $533,000 Objective: 3 AACSB: Analytical thinking

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9) The following charts graph the same direct materials costs and conversion costs by department.

Which graph best answers the question, "Should costs be tracked by department?"

A)

B)

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C)

D)

Answer: A Objective: 3 AACSB: Reflective thinking

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10) Paper Bags uses a process costing system and had 45,000 units to account for in February and 14,000 units left in ending inventory. The remaining units were 50% complete at the end of the month. Information is as follows: Conversion Material A Material B Costs beginning of evenly Added at process end of process throughout Cost per equivalent unit $2.50 $1.50 $1.30 What is the amount transferred to finished goods during February?

A) $124,000 B) $238,500 C) $164,300 D) $171,000 Answer: C Explanation: C) First, calculate the number of units transferred out.

Ending Inventory = Units to Account For - Transferred Out Transferred Out = 45,000 - 14,000 Transferred Out = 31,000 Then, calculate the total cost by adding together the materials and conversion costs and multiply by the number of units transferred out.

Total Cost Transferred out = ($2.50 + $1.50 + $1.30) x 31,000 Total Cost Transferred Out = $164,300 Objective: 3 AACSB: Analytical thinking

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11) Cloth Bags uses a process costing system and had 98,000 units to account for in September and 61,000 units completed. The remaining units were 20% complete at the end of the month.

Information is as follows: Conversion Material A Material B Costs beginning of evenly Added at process end of process throughout Cost per equivalent unit $2.70 $2.00 $1.80 What is the amount left in Work in Process at the end of September?

A) $79,300 B) $396,500 C) $240,500 D) $113,220 Answer: D Explanation: D) First, calculate the number of units left in ending inventory.

Ending Inventory = Units to Account For - Transferred Out Ending Inventory = 98,000 - 61,000 Ending Inventory = 37,000 Then, calculate the total cost of ending work in process inventory which would contain all of the cost of Materials A as it is added at the beginning of the process, none of Materials B as it is added at the end of the process, and 25% of conversion cost as that is how much they are completed and costs are added evenly throughout.

Cost of Ending Inventory = $2.70 x 37,000 + $1.80 x 37,000 x 20% Cost of Ending Inventory = $113,220 Objective: 3 AACSB: Analytical thinking

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12) Champagne Corporation uses weighted average process costing. In April, it produced 48,000 units with no units in beginning work in process the following information:

Materials Conversion costs

Equivalent Units 48,000 44,500

Cost per Equivalent Unit $1.10 $0.65

Which of the following statements is false?

A) Total costs to be accounted for are $81,725.

B) Work in process ending inventory is $2,275.

C) Direct materials are not added at the end of the period.

D) Conversion costs are not added at the beginning of the period.

Answer: B Explanation: B) There are still units left in ending inventory based on the difference between the materials and conversion equivalent units. Materials are added at the beginning of the process based on the fact that the equivalent units equal the number of units products. Conversion costs, on the other hand, are added throughout the process as the number of equivalent units is less than the number of units produced.

The number of units left in ending inventory would be more than 3,500 and would include the $1.10 for materials costs plus a portion of conversion costs. Therefore, the amount left in work in process inventory would be more than $2,275.

The easier way to solve this problem is through process of elimination as the total cost to account for is the sum of the materials and conversion costs.

Objective: 3 AACSB: Analytical thinking

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13) The following information is known for JKL Company for November: Cost per Equivalent Unit Nov 30 Direct materials Conversion

$6 $3

Work In Process 3,000 units 100% complete 50% complete

JKL had $139,500 in total costs. If 13,000 units were transferred to finished goods, which of the following is true about finished goods and work in process?

A) Finished Goods: $117,000 Work in Process: $22,500 B) Finished Goods: $22,500 Work in Process: $117,000 C) Finished Goods: $97,500 Work in Process: $42,000 D) Finished Goods: $42,000 Work in Process: $97,500 Answer: A Explanation: A) Cost of Transferred Out = (Direct Materials + Conversion) x Number of Units Completed Cost of Transferred Out = ($6 + $3) x 13,000 Cost of Transferred Out = $117,000 Cost of Ending Inventory = Total Cost - Cost Transferred Out Cost of Ending Inventory = $139,500 - $117,000 Cost of Ending Inventory = $22,500 Objective: 3 AACSB: Analytical thinking

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14) The following presents the work in process for the last production department. Materials are added at the beginning of the process.

Work in Process - Last Process Beginning Balance $25,000 450 units, 20% complete for conversion Direct materials $140,500 $56,000 1,000 units, 100% complete Direct labor $35,000 Factory overhead $60,000 Ending Balance $35,500 550 units, 40% complete for conversion Which of the following is NOT a correct interpretation of the information?

A) Conversion costs total $91,000.

B) 1,100 units were started during the period.

C) Total costs to be accounted for are $176,000.

D) The ending units were more complete than the beginning units.

Answer: A Objective: 3 AACSB: Reflective thinking Learning Objective 5.4 1) There is no difference in calculating the unit cost when there are two departments compared to when there is only one department.

Answer: FALSE Objective: 4 AACSB: Reflective thinking

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2) Alert Company uses a weighted average costing system with two departments. The following information about Alert is known for the month of August: Cutting: completed and transferred out Packaging: beginning work in process: materials Packaging: beginning work in process: conversion costs Packaging: beginning work in process: transferred in costs Packaging: units completed and transferred out Packaging: units in beginning work in process Current costs added during August: Material costs Conversion costs

13,000 units

$104,000 $8,000 $13,000 $20,000

7,000 units 3,000 units $10,000 $25,000

Direct materials are added at the end of the process and conversion costs were 75% complete at the end of the month.

What are the equivalent units for transferred in costs in the Packaging department?

A) 16,000 B) 7,000 C) 13,750 D) 9,000 Answer: A Explanation: A) Step 1: Beginning units 3,000 Plus: units transferred in 13,000 Total units to account for 16,000 Less: work in process units 9,000 Finished units 7,000

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Step 2: Direct materials Conversion costs Transferred in costs

100% complete 7,000 + 9,000 = 16,000 Finished + Work in Process = Equivalent units 7,000 + 7,000 7,000 + 6,750(9,000 × 75%) = 13,750 7,000 +

9,000 =

16,000

Objective: 4 AACSB: Analytical thinking 3) Alert Company uses a weighted average costing system with two departments. The following information about Alert is known for the month of August: Cutting: completed and transferred out Packaging: beginning work in process: materials Packaging: beginning work in process: conversion costs Packaging: beginning work in process: transferred in costs Packaging: units completed and transferred out Packaging: units in beginning work in process Current costs added during August: Material costs Conversion costs

16,000 units

$112,000 $6,000 $15,000 $20,000

9,000 units 5,000 units $16,000 $27,000

Direct materials are added at the end of the process and conversion costs were 75% complete at the end of the month.

What is the cost per equivalent unit for transferred in costs in the Packaging department? (Round to the nearest cent.)

A) $14.67 B) $21.78 C) $11.06 D) $6.29 Answer: D

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Explanation: D) Step 1: Beginning units Plus: units transferred in Total units to account for Less: work in process units Finished units

5,000 16,000 21,000 12,000 9,000

Step 2: Transferred in costs

Equivalent Finished Work in Progress Units 9,000 + 12,000 = 21,000

Step 3: Beg. WIP Tot. CostsEq. Units + Current Costs = /= Transferred in costs

$20,000 +

Cost per EU

$112,000 = $132,000/ 21,000 =

$6.29

Objective: 4 AACSB: Analytical thinking 4) Alert Company uses a weighted average costing system with two departments. The following information about Alert is known for the month of August: Cutting: completed and transferred out Packaging: beginning work in process: materials Packaging: beginning work in process: conversion costs Packaging: beginning work in process: transferred in costs Packaging: units completed and transferred out Packaging: units in beginning work in process Current costs added during August: Material costs Conversion costs

13,000 units

$78,000 $6,000 $13,000 $16,000

8,000 units 3,000 units $19,000 $21,000

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Direct materials are added at the end of the process and conversion costs were 75% complete at the end of the month.

The total transferred in costs used in the calculation for the total cost per equivalent unit is: A) $94,000.

B) $153,000.

C) $78,000.

D) $16,000.

Answer: A Explanation: A) Current Costs Total Beg. WIP + = Costs Transferred in costs $16,000 + $78,000= $94,000 Objective: 4 AACSB: Analytical thinking 5) Alert Company uses a weighted average costing system with two departments. The following information about Alert is known for the month of August: Cutting: completed and transferred out Packaging: beginning work in process: materials Packaging: beginning work in process: conversion costs Packaging: beginning work in process: transferred in costs Packaging: units completed and transferred out Packaging: units in beginning work in process Current costs added during August: Material costs Conversion costs

10,000 units

$30,000 $9,000 $15,000 $18,000

9,000 units 2,000 units $11,000 $25,000

Direct materials are added at the end of the process and conversion costs were 75% complete at the end of the month.

What are the equivalent units for conversion costs in the Packaging department?

A) 11,250 B) 9,000 C) 12,000 D) 2,250 Answer: A

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Explanation: A) Step 1: Beginning units Plus: units transferred in Total units to account for Less: work in process units Finished units Step 2:

Conversion costs

2,000 10,000 12,000 3,000 9,000

100% complete 9,000 +

3,000 =

12,000

Finished + Work in process = Equivalent units 9,000 + 2,250(3,000 × 75%) = 11,250

Objective: 4 AACSB: Analytical thinking 6) Alert Company uses a weighted average costing system with two departments. The following information about Alert is known for the month of August: Cutting: completed and transferred out Packaging: beginning work in process: materials Packaging: beginning work in process: conversion costs Packaging: beginning work in process: transferred in costs Packaging: units completed and transferred out Packaging: units in beginning work in process Current costs added during August: Material costs Conversion costs

12,000 units

$72,000 $7,000 $14,000 $18,000

7,000 units 2,000 units $17,000 $27,000

Direct materials are added at the end of the process and conversion costs were 75% complete at the end of the month.

What is the cost per equivalent unit for conversion costs in the Packaging department? (Round to the nearest cent.)

A) $5.86 B) $2.20 C) $1.14 D) $3.35 Answer: D

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Explanation: D) Step 1: Beginning units Plus: units transferred in Total units to account for Less: work in process units Finished units

Step 2:

Conversion costs

100% complete 7,000 +

2,000 12,000 14,000 7,000 7,000

7,000 =

Work in Finished + Process = 5,250(7,000 × 7,000 + 75%) =

14,000 Eq. units 12,250

Step 3: Beg. WIP + Transferred in costs

Current Costs Eq. = Tot. Costs /Units =

$14,000 +

$27,000 =

$41,000/ 12,250 =

Objective: 4 AACSB: Analytical thinking

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Cost per EU $3.35

7) Alert Company uses a weighted average costing system with two departments. The following information about Alert is known for the month of August: Cutting: completed and transferred out Packaging: beginning work in process: materials Packaging: beginning work in process: conversion costs Packaging: beginning work in process: transferred in costs Packaging: units completed and transferred out Packaging: units in beginning work in process Current costs added during August: Material costs Conversion costs

20,000 units

$80,000 $6,000 $11,000 $19,000

8,000 units 5,000 units $11,000 $25,000

Direct materials are added at the end of the process and conversion costs were 75% complete at the end of the month.

What is the work in process units for August?

A) 25,000 B) 20,000 C) 17,000 D) 13,000 Answer: C Explanation: C) Step 1: Beginning units 5,000 Plus: units transferred in 20,000 Total units to account for 25,000 Less: work in process units 17,000 Finished units 8,000 Objective: 4 AACSB: Analytical thinking

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Learning Objective 5.5 1) Spoilage is unique to process costing.

Answer: FALSE Objective: 5 AACSB: Reflective thinking 2) Identify the inappropriate response to spoilage (defects and damage): A) Eliminate spoilage.

B) Determine the cause of the spoilage.

C) Reduce spoilage D) Ignore and focus on reducing period costs.

Answer: D Objective: 5 AACSB: Reflective thinking 3) Abnormal spoilage is considered avoidable, controllable, and is a non-value-added cost.

Answer: TRUE Objective: 5 AACSB: Application of knowledge 4) Abnormal spoilage is to outdated equipment as normal spoilage is to: A) poor training.

B) past due maintenance on machines.

C) inherent in operations.

D) fatigue.

Answer: C Objective: 5 AACSB: Reflective thinking 5) Normal spoilage is to product cost as abnormal spoilage is to: A) conversion cost.

B) product cost.

C) prime cost.

D) period cost.

Answer: D Objective: 5 AACSB: Reflective thinking

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6) A report indicates that about 50% of the spoilage costs that require rework are attributable to equipment malfunctioning and poor quality of materials from suppliers. There is significant pressure to not report losses.

Which of the following reactions to the report could be a violation of the IMA's Standards of Ethical Professional Practice?

A) All spoilage costs are classified as normal.

B) Spoilage costs are classified as 50% normal and 50% abnormal.

C) Maintenance is performed on the poor performing machines.

D) All suppliers are evaluated.

Answer: A Objective: 5 AACSB: Ethical understanding and reasoning Learning Objective Appendix 1) If a company does not have beginning inventory in work in process, unit costs will be the same under weighted average and FIFO process costing.

Answer: TRUE Objective: Appx.

AACSB: Application of knowledge 2) If a business operates in an industry that experiences significant cost changes, it would be beneficial to use the first-in, first-out (FIFO) method.

Answer: TRUE Objective: Appx.

AACSB: Application of knowledge 3) Identify the difference between using the weighted average and FIFO costing methods assuming there is a beginning balance in work in process inventory.

A) Physical flow of units B) Calculation of equivalent units C) Cost accumulation D) Actual physical units in inventory Answer: B Objective: Appx.

AACSB: Reflective thinking

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4) Gamma Company has the following information: 18,000 units in the beginning work in process 6,000 units in the ending work in process 44,000 units started How many units were started and completed during the period assuming FIFO costing method?

A) 56,000 B) 62,000 C) 50,000 D) 38,000 Answer: D Explanation: D) Under FIFO, the number of units started and completed would be the number of units started less the number left in ending inventory.

Started and Completed = 44,000 - 6,000 Started and Completed = 38,000 Objective: Appx.

AACSB: Analytical thinking 5) Computers Inc uses FIFO process costing. The following information is provided for August: Work in process, August 1 (20% complete) 5,000 units Started in June 37,000 units Work in process, August 30 (30% complete) 11,000 units Materials are added at the beginning of the process. Equivalent units of production for conversion costs A) 13,380.

B) 42,000.

C) 33,300.

D) 30,000.

Answer: C Explanation: C) Equivalent Units = Units in Beginning Inventory x Percent to Complete + Units Started and Completed + Units in Ending Inventory x Percent Complete Equivalent Units = 5,000 x (1 - 20%) + (37,000 - 11,000) + 11,000 x 30% Equivalent Units = 33,300 Objective: Appx.

AACSB: Analytical thinking

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Managerial Accounting, 1e (Cainas, Pope, Joszi) Chapter 6 Cost Behavior Learning Objective 6.1 1) Why is cost behavior important?

A) Companies need to know how costs behave to effectively analyze the results of operations.

B) Companies need to use historical cost behavior to make predictions about future revenues and costs.

C) Cost behavior is important because companies cannot fully predict future operating costs.

D) All of the above Answer: D Objective: 1 AACSB: Application of knowledge 2) It is critical for business owners to understand how costs behave to effectively analyze their results, make predictions about future revenues and costs, and make informed decisions.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 3) Cost behavior analysis focuses on analyzing: A) how costs change as the activity level changes.

B) how costs respond to changes in profit.

C) how costs change over time.

D) how costs can be controlled.

Answer: A Objective: 1 AACSB: Application of knowledge 4) A cell phone plan where you pay $30 per month for unlimited talk, text and minutes is considered to be a sunk cost.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 5) Direct labor can be considered a fixed cost when a company pays its production employees an annual salary.

Answer: TRUE Objective: 1 AACSB: Analytical thinking 6) Direct materials and direct labor will always be completely variable.

Answer: FALSE Objective: 1 AACSB: Reflective thinking 1 Copyright © 2023 Pearson Education, Inc.

7) Which of the following is a characteristic of a variable cost?

A) Total variable costs remain the same with changes in activity.

B) Total variable costs fluctuate with changes in activity.

C) Variable costs per unit fluctuates with changes in activity.

D) Variable costs per unit depend on changes in fixed costs.

Answer: B Objective: 1 AACSB: Application of knowledge 8) Which of the following is a variable cost?

A) Monthly advertising fee to be featured on a vendor's website.

B) Straight-line depreciation expense.

C) Salary of sales manager.

D) Sales commission expense.

Answer: D Objective: 1 AACSB: Application of knowledge 9) Which of the following is a fixed cost?

A) advertising fee based on number of website clicks.

B) direct materials cost.

C) salary of sales manager.

D) sales commission expense.

Answer: C Objective: 1 AACSB: Application of knowledge 10) Suppose Google Fi offers you a cell phone plan that costs you a $20.00 per month for unlimited talk and text plus $1.00 per GB of data used. This is an example of a: A) sunk cost.

B) step cost.

C) variable cost.

D) mixed cost.

Answer: D Objective: 1 AACSB: Application of knowledge 11) Salary of a sales manager is to fixed costs as hourly wages to production employees is to: A) fixed costs.

B) variable costs.

C) mixed costs.

D) sunk costs.

Answer: B Objective: 1 AACSB: Analytical thinking

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12) As activity decreases, fixed costs per unit will decrease and fixed costs in total will stay the same over the relevant range.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 13) Total fixed costs remain the same over a relevant range, while total variable costs increase as the number of units produced increases.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 14) Grangers Inc. incurred $15,000 in fixed costs and $7,000 in variable costs during the year. If the number of units produced is doubled next year, the company will incur $30,000 as fixed costs and $14,000 as variable costs. Assume the company is operating within the relevant range.

Answer: FALSE Objective: 1 AACSB: Analytical thinking 15) O&O Bridal reported the following payroll costs for the first two months where 2,000 hours are worked in January and 2,500 hours in February: Bridal Stylists Managers' CEO/Owner Total Payroll

January February $24,000 $30,000 $75,000 $80,000 $120,000 $120,000 $219,000 $230,000

The managers' payroll costs are considered a ________ cost.

A) variable B) fixed C) mixed D) sunk Answer: C Objective: 1 AACSB: Analytical thinking

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16) O&O Bridal reported the following payroll costs for the first two months where 2,000 hours are worked in January and 2,500 hours in February: Bridal Stylists Managers' CEO/Owner Total Payroll

January February $24,000 $30,000 $75,000 $80,000 $120,000 $120,000 $219,000 $230,000

The bridal stylists payroll costs are considered a ________ cost.

A) sunk B) fixed C) mixed D) variable Answer: D Objective: 1 AACSB: Analytical thinking 17) Which of the following statements is true?

A) Total variable costs increase when volume increases.

B) Variable costs per unit increase when volume increases.

C) Variable costs per unit decreases when volume increases.

D) Total variable costs decrease when volume increases.

Answer: A Objective: 1 AACSB: Application of knowledge 18) ABC Company incurs $25,000 in fixed cost per month. In November, 25,000 units were produced compared to 30,000 units in December. Which of the following statements is true?

Assume the company is operating within the relevant range.

A) Fixed cost per unit will decrease.

B) Total fixed costs will decrease.

C) Fixed cost per unit will increase.

D) Total fixed costs will increase.

Answer: A Objective: 1 AACSB: Analytical thinking 19) A 20% increase in total variable costs could be a result of a: A) 20% increase in fixed costs.

B) 20% decrease in the variable cost per unit.

C) 20% increase in volume.

D) 20% increase in selling, general, and administrative costs.

Answer: C Objective: 1 AACSB: Reflective thinking 4 Copyright © 2023 Pearson Education, Inc.

20) Malta Company's production costs are mixed. If volume goes up by 10%, then the total costs would ________. Assume the company is operating within the relevant range.

A) remain the same B) increase by an amount less than 10% C) increase by 10% D) decrease by 10% Answer: B Objective: 1 AACSB: Reflective thinking 21) Identify the cost behavior in the graph.

A) C represents the total variable costs, B the variable costs per unit and A the total activity.

B) C represents the average costs, B the fixed costs per unit and A the variable costs per unit.

C) C represents the total costs, B the total fixed costs and A the total variable costs.

D) There is not enough information to read this graph.

Answer: C Objective: 1 AACSB: Application of knowledge 22) Identify the statement that most accurately describes the costs graphed below.

A) Salaries of sales representatives: Each receives a $1,400 fee per month plus a 10% commission on sales.

B) Lease of equipment: Fixed $1,800 for first 100 machine hours; $2 per hour for next 500 hours; $1.20 per hour above 600 hours.

C) Straight-line depreciation for the period.

D) Cost for water. The fee is $40 up to 60 acre feet per month; a rate of $2 per acre foot is used thereafter.

Answer: A Objective: 1 AACSB: Reflective thinking 5 Copyright © 2023 Pearson Education, Inc.

23) "Committed costs" is a term used to refer to fixed costs, whereas "discretionary costs" refers to variable costs.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 24) A company can reduce advertising expenditures to decrease fixed costs without impacting variable costs.

Answer: TRUE Objective: 1 AACSB: Reflective thinking 25) Which of the following would be considered a committed fixed cost?

A) Advertising.

B) Corporate travel.

C) Employee Meals.

D) Straight-line Depreciation.

Answer: D Objective: 1 AACSB: Application of knowledge 26) Which of the following would be considered a discretionary fixed cost?

A) Utilities.

B) Insurance.

C) Depreciation.

D) Advertising.

Answer: D Objective: 1 AACSB: Application of knowledge 27) Within the range of 1–15 employees, fixed salary cost will remain constant at $50,000; if the restaurant grows in staff past 15 employees an additional manager will be hired for an additional $50,000 per year. This is an example of a ________ fixed cost.

A) sunk B) step C) committed D) mixed Answer: B Objective: 1 AACSB: Application of knowledge

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28) The relevant production range is between 10,000 units and 17,000 units per month. If the company produces beyond 17,000 units per month, the total fixed costs and the variable cost per unit will remain the same.

Answer: FALSE Objective: 1 AACSB: Reflective thinking Learning Objective 6.2 1) In the equation y = $1.35x + $4,125, $1.35 represents the fixed costs per unit.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 2) It is important for managers to distinguish between variable and fixed costs in order to make predictions about how costs will react given changes in volume.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 3) $4,125 in the equation y = $1.35x + $4,125 represents the: A) per unit variable costs.

B) total costs.

C) total variable costs.

D) total fixed costs.

Answer: D Objective: 2 AACSB: Application of knowledge 4) Which of the following is the correct formula for calculating total mixed cost?

A) Total Mixed Cost = (Variable Cost per Unit × Number of Units) + Fixed Cost.

B) Total Mixed Cost = (Variable Cost per Unit / Number of Units) + Fixed Cost.

C) Total Mixed Cost = (Variable Cost per Unit × Number of Units) - Fixed Cost.

D) Total Mixed Cost = (Variable Cost per Unit / Number of Units) - Fixed Cost.

Answer: A Objective: 2 AACSB: Application of knowledge

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5) Joe's Coffee Shop analyzes its fixed and variable costs to estimate its cost equation as y = 9x + $1,700. What are the total variable costs if 900 bags of coffee are produced?

A) $6,400 B) $1,700 C) $8,100 D) $89 Answer: C Explanation: C) Variable cost per unit ($9) x Units (900) = $8,100 Total variable costs Objective: 2 AACSB: Analytical thinking 6) Joe's Coffee Shop analyzes its fixed and variable costs to estimate its cost equation as y = 9x + $1,800. What are the total fixed costs if 700 bags of coffee are produced?

A) $4,500 B) $6,300 C) $1,800 D) $122 Answer: C Objective: 2 AACSB: Analytical thinking 7) Julia's Jokes incurs operating costs at $2.25 per product and annual fixed costs of $5,000. If total costs for the year are $68,000, how many products did Julia produce?

A) 32,444 B) 28,000 C) 141,750 D) 164,250 Answer: B Explanation: B) Total costs ($68,000) = Fixed costs ($5,000) + Variable cost per unit ($2.25) x Units(x) 28,000 = x Objective: 2 AACSB: Analytical thinking 8) Julia's Jokes incurs operating costs at $2.25 per product and annual fixed costs of $5,000. If the variable operating costs increase to $3.00 per product, how are the costs affected?

A) Total costs increase, Total variable costs increase, fixed costs remain the same.

B) Total costs increase, Total variable costs increase, fixed costs increase.

C) Total costs remain the same, Total variable costs increase, fixed costs remain the same.

D) Total costs remain the same, Total variable costs remain the same, fixed costs increase.

Answer: A Objective: 2 AACSB: Reflective thinking

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9) Total costs for Julia's Jokes is $58,000 when 24,000 units are produced and fixed costs are $10,000. If Julia's Jokes were to produce 44,000 units the total costs would be: A) $116,333.

B) $106,333.

C) $98,000.

D) $88,000.

Answer: C Explanation: C) Total costs ($58,000) = Fixed costs ($10,000) + Variable cost per unit (b ) x Units (24,000) $2 = b Fixed costs ($10,000) + Variable cost per unit ($2.00 x Units (44,000) = $98,000 Total fixed costs Objective: 2 AACSB: Analytical thinking 10) Total costs for Julia's Jokes is $50,000 when 20,000 units are produced and fixed costs are $5,000. If Julia's Jokes were to produce 60,000 units, why might the actual total costs differ from the predicted costs?

A) Total cost would not differ from prediction.

B) 60,000 units is outside the relevant range.

C) There is a linear relationship between units produced and total costs.

D) None of the above.

Answer: B Objective: 2 AACSB: Reflective thinking Learning Objective 6.3 1) Managers collect data regarding the activities that drive the costs and check the accuracy of the data before analyzing the data to determine the fixed and variable components.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 2) Once the cost data has been collected, managers primarily rely on qualitative methods to analyze the data and determine both the fixed and variable cost components.

Answer: FALSE Objective: 3 AACSB: Application of knowledge

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3) What is the purpose of analyzing cost data using quantitative methods like the high low method or regression analysis?

A) To control cost behavior and provide feedback to operators.

B) To separate total costs into fixed and variable components for analysis and decision making.

C) To provide information to external stakeholders for decision making.

D) To provide information to the IRS and the SEC to support financial decisions.

Answer: B Objective: 3 AACSB: Application of knowledge 4) Which methods can be used to separate total costs into fixed and variable components?

A) Account analysis, financial ratio analysis, regression analysis.

B) Account analysis, high-low method and cost equation, job order costing.

C) Activity based costing, high-low method and cost equation, regression analysis.

D) Account analysis, high-low method and cost equation, regression analysis.

Answer: D Objective: 3 AACSB: Application of knowledge 5) Although the account analysis approach might be thorough, it is extremely time consuming.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 6) The high-low method is theoretically better than regression analysis because the high-low method uses less data points than regression analysis.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 7) The regression analysis leads to an analysis of higher fixed costs and over overall income compared to the high-low method.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 8) Advantages of the regression analysis over the high-low method include all the following EXCEPT A) only two points are used to separate fixed and variable costs.

B) a statistical method is used to separate fixed and variable costs.

C) the usefulness of the cost equation for prediction is included within the analysis.

D) all of the observations are used to separate the fixed and variable costs.

Answer: A Objective: 3 AACSB: Application of knowledge

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9) Which of the following is a strength of the high-low method over the other quantitative methods?

A) The high and low activity levels may not be representative of the full sample.

B) Two observations are used to separate fixed and variable costs.

C) The method is easy to apply.

D) The method assumes a linear relationship between the high and low activity levels.

Answer: C Objective: 3 AACSB: Application of knowledge 10) When using the high-low method, the "high" point should be chosen as the data point with the highest cost, not the highest volume.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 11) In a printing business, the primary operating costs are incurred by printers. If a printer prints 36,000 copies during a year its average operating cost is $5,100. Alternatively, if a printer prints 8,000 copies during the year, its average operating cost is $2,300.

Which of the following equations can be used to predict the total operating cost if the expectation is to print 25,000 copies next year?

A) Total Printing Costs = $1,500 + $0.10 × number of copies B) Total Printing Costs = $1,860 + $0.09 × number of copies C) Total Printing Costs = $5,754 + $0.14 × number of copies D) Total Printing Costs = $9,060 + $0.11 × number of copies Answer: A Explanation: A) Cost highest # of copies ($5,100) - Cost lowest # of copies ($2,300) = $0.10 variable cost/copy Highest # of copies (36,000) - Lowest # of copies (8,000) Total cost ($5,100) = Fixed cost + Variable cost per copy ($0.10) x Number of copies (36,000) Fixed costs = $1,500 Equation = Total printing costs = $1,500 + $0.10 X Objective: 3 AACSB: Analytical thinking

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12) In a printing business, the primary operating costs are incurred by printers. If a printer prints 57,250 copies during a year, its average operating cost is $5,300. Alternatively, if a printer prints 6,000 copies during the year, its average operating cost is $1,200.

What is the cost per copy that can be used for prediction?

A) 12 cents per copy B) 15 cents per copy C) 8 cents per copy D) 13 cents per copy Answer: C Explanation: C) Cost of highest copies ($5,300) - Cost of lowest copies ($1,200) = $0.08 Variable cost/copy Highest # of copies (57,250) - Lowest # of copies (6,000) Objective: 3 AACSB: Analytical thinking 13) In a printing business, the primary operating costs are incurred by printers. If a printer prints 170,000 copies during a year, its average operating cost is $10,100. Alternatively, if a printer prints 8,000 copies during the year, its average operating cost is $2,000.

What are the total fixed costs for the printing business?

A) $16,209 B) $20,300 C) $3,300 D) $1,600 Answer: D Explanation: D) Cost of highest # of copies ($10,100) - Cost of lowest # of copies ($2,000) = $0.05 Variable cost/copy Hiighest # of copies (170,000) - Lowest # of copies (8,000) Total cost ($10,100) = Fixed cost + Variable cost per copy ($0.05) x Number of copies (170,000) Fixed costs = $1,600.00 Objective: 3 AACSB: Analytical thinking 14) Calculating the change in variable cost is to the high-low method as predicting total costs is to the: A) account analysis.

B) cost equation.

C) scatterplot.

D) cost behavior.

Answer: B Objective: 3 AACSB: Reflective thinking

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15) The purpose of the high-low method is to predict the total variable cost using a different level of activity Answer: FALSE Objective: 3 AACSB: Application of knowledge 16) Which of the following is the correct formula for calculating the variable cost per unit?

A) (cost of highest activity point - cost of lowest activity point) / (high activity - low activity).

B) (highest cost - lowest cost) / (activity related to the highest cost - activity related to the lowest cost).

C) (high activity - low activity) / (cost of highest activity point - cost of lowest activity point).

D) (activity related to the highest cost - activity related to the lowest cost) / (highest cost - lowest cost).

Answer: A Objective: 3 AACSB: Application of knowledge 17) Jake, the CEO of Jake's Jumpropes, is performing a cost behavior analysis for the first time.

He has learned about the cost equation and wonders how the high-low method can be used with the cost equation. You state: A) the high-low method and the cost equation are not related and should always be used separately.

B) the high-low method calculates the total variable cost and is an input to the cost equation.

C) the cost equation determines the total variable costs which can be used as an input to the highlow method.

D) the high-low method calculates the variable cost per activity and is an input to the cost equation.

Answer: D Objective: 3 AACSB: Application of knowledge 18) The data points on a scatterplot will appear almost as a straight line if there is little or no relationship between the cost and the volume.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 19) If a scatterplot reveals a fairly weak relationship between cost and volume, the cost equation based on that data would not be very useful for predicting future costs.

Answer: TRUE Objective: 3 AACSB: Application of knowledge

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20) Which is true about a scatterplot?

A) A pattern that falls into a straight line indicates there is a strong linear relationship between costs and volume.

B) A scattered pattern indicates there is a strong linear relationship between costs and volume.

C) Cost and volume have no effect on the pattern of the points on a scatterplot.

D) If there is one point that falls outside of the straight line or scattered pattern then the data is useless for prediction.

Answer: A Objective: 3 AACSB: Application of knowledge 21) Identify the scatterplot that best indicates that the data is useful for prediction.

A)

B)

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C)

D)

Answer: A Objective: 3 AACSB: Reflective thinking 22) Which might be a reason for outliers in the data?

A) Errors in the data.

B) Unusual activity.

C) Misclassification of costs.

D) All of the above.

Answer: D Objective: 3 AACSB: Reflective thinking 23) An outlier is a statistical technique that includes all data points to determine the relationships between dependent and independent variables.

Answer: FALSE Objective: 3 AACSB: Application of knowledge

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24) A regression analysis was used to evaluate how machine hours and labor hours influence costs resulting in an R-squared of 0.40 for machine hours and 0.80 for direct labor hours. Both machine hours and direct labor hours are equally useful for prediction.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 25) An R-square value over .80 generally indicates that the cost equation is not very reliable for predicting costs at other volumes within the relevant range.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 26) A regression analysis was performed to come up with a cost equation to predict costs at other operating levels. The output of regression analysis showed the following information: Intercept Coefficient = 15,535 X Variable 1 Coefficient = 6.182 R-square = 0.001 What are the total costs assuming the production was 11,000 units?

A) $85,037 B) $52,467 C) $83,537 D) $68,002 Answer: C Explanation: C) y = a + b(x) Variable cost per unit = X Variable 1 Coefficient = 6.182 Fixed costs = Intercept Coefficient = 15,535 y = $15,535 + $6.182 (11,000) y = $83,537 Objective: 3 AACSB: Application of knowledge

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27) A regression analysis was performed to come up with a cost equation to predict costs at other operating levels. The output of regression analysis showed the following information: Intercept Coefficient = 15,321 X Variable 1 Coefficient = 6.123 R-square = 0.001 What is one conclusion you can make from the regression information?

A) The average fixed costs per unit are $6.123.

B) The average total costs are $15,321.

C) The average variable cost per unit is $15,321.

D) The cost and volume data may not be useful for prediction.

Answer: D Objective: 3 AACSB: Reflective thinking 28) A regression analysis was performed to come up with a cost equation to predict costs at other operating levels. The output of regression analysis showed the following information: Intercept Coefficient = 15,321 X Variable 1 Coefficient = 6.123 R-square = 0.001 Is the underlying cost and volume data useful for prediction?

A) Yes, because R-square is too low.

B) No, because R-square is too low.

C) Yes, because regression analyses are always useful for prediction.

D) There is not enough information to determine if the data is useful for prediction.

Answer: B Objective: 3 AACSB: Application of knowledge 29) A regression analysis was performed to come up with a cost equation to predict costs at other operating levels. The output of regression analysis showed the following information: Intercept Coefficient = 15,321 X Variable 1 Coefficient = 6.123 R-square = 0.001 What is the cost formula that can be used to predict total costs at different volumes?

A) Total Costs = $6.123 × units + $15,321.

B) Total Costs = $15,321 × units + $6.123.

C) Total Costs = $0.269 × units + $15,321.

D) Total Costs = $15,321 × units + $0.269.

Answer: A Objective: 3 AACSB: Application of knowledge 17 Copyright © 2023 Pearson Education, Inc.

Learning Objective 6.4 1) The contribution margin income statement is used primarily for external reporting purposes.

Answer: FALSE Objective: 4 AACSB: Application of knowledge 2) Contribution margin is calculated by adding fixed costs to operating income (loss).

Answer: TRUE Objective: 4 AACSB: Application of knowledge 3) The contribution margin income statement classifies costs by behavior compared to the traditional income statement that classifies costs by function.

Answer: TRUE Objective: 4 AACSB: Application of knowledge 4) To maximize operating income, a company should minimize fixed costs and minimize contribution margin.

Answer: FALSE Objective: 4 AACSB: Application of knowledge

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5) Hayes Corporation buys and refurbishes computers. On average, the selling price is $800 and the cost to purchase and refurbish each computer is $320. Other costs include a fee of 2% of the selling price to list on the website, $50 monthly website hosting fee, and $1,100 to salaried employees to refurbish the computers. In January, Hayes Corporation sold 550 refurbished computers.

What is the contribution margin for January?

A) $255,200 B) $262,900 C) $236,500 D) $264,000 Answer: D Explanation: D) Contribution Margin Income Statement Selling price ($800 x 550) $440,000 Variable costs: Purchase and refurbish cost ($320 x 550) 176,000 Contribution margin $264,000 Objective: 4 AACSB: Analytical thinking

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6) Hayes Corporation buys and refurbishes computers. On average, the selling price is $600 and the cost to purchase and refurbish each computer is $240. Other costs include a fee of 3% of the selling price to list on the website, $30 monthly website hosting fee, and $1,100 to salaried employees to refurbish the computers. In January, Hayes Corporation sold 200 refurbished computers.

What is the gross margin for January?

A) $70,900 B) $72,000 C) $66,000 D) $68,400 Answer: A Explanation: B) Traditional Income Statement Selling price ($600 x 200) $120,000 Cost of goods sold: Purchase and refurbish cost ($240 x 200) 48,000 Direct labor 1,100 Gross margin $70,900 Objective: 4 AACSB: Analytical thinking

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7) Hayes Corporation buys and refurbishes computers. On average, the selling price is $1,000 and the cost to purchase and refurbish each computer is $400. Other costs include a fee of 3% of the selling price to list on the website, $30 monthly website hosting fee, and $1,800 to salaried employees to refurbish the computers. In January, Hayes Corporation sold 350 refurbished computers.

What is the operating income for January?

A) $208,190 B) $208,170 C) $197,690 D) $197,670 Answer: D Explanation: D) Contribution Margin Income Statement Selling price ($1,000 x 350) $350,000 Variable costs: Purchase and refurbish cost ($400 x 350) 140,000 Contribution margin $210,000 Fixed costs: Labor 1,800 Website ($350,000 x 3%) + 30 10,530 Operating income $197,670 Traditional Income Statement Selling price ($1,000 x 350) $350,000 Cost of goods sold: Purchase and refurbish cost ($400 x 350) 140,000 Direct labor 1,800 Contribution margin $208,200 Selling and admin costs Website ($350,000 x 3%) + 30 10,530 Operating income $197,670 Objective: 4 AACSB: Analytical thinking

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8) Hayes Corporation buys and refurbishes computers. On average, the selling price is $850 and the cost to purchase and refurbish each computer is $340. Other costs include a fee of 2% of the selling price to list on the website, $60 monthly website hosting fee, and $1,000 to salaried employees to refurbish the computers. In January, Hayes Corporation sold 550 refurbished computers.

If Hayes Corp. hires a new employee for $500 a month and decreases the cost to refurbish the computers by $85, what is the new operating income?

A) $269,590 B) $222,840 C) $316,340 D) $270,090 Answer: C Explanation: C) Contribution Margin Income Statement Selling price ($850 x 550) $467,500 Variable costs: Purchase and refurbish cost (($340 - $85) x 550) 140,250 Contribution margin $327,250 Fixed costs: Labor 1,500 Website ($467,500 x 2%) + 60 9,410 Operating income $316,340 Traditional Income Statement Selling price ($850 x 550) Cost of goods sold: Purchase and refurbish cost (($340 - $85) x 550) Direct labor Contribution margin Selling and admin costs Website ($467,500 x 2%) + 60 Operating income

$467,500 140,250 1,500 $325,750 9,410 $316,340

Objective: 4 AACSB: Analytical thinking

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9) Hayes Corporation buys and refurbishes computers. On average, the selling price is $950 and the cost to purchase and refurbish each computer is $380. Other costs include a fee of 3% of the selling price to list on the website, $60 monthly website hosting fee, and $1,500 to salaried employees to refurbish the computers. In January, Hayes Corporation sold 400 refurbished computers.

If Hayes Corp. anticipates doubling the number of computers sold in February, what is the projected February operating income?

A) $431,640 B) $452,880 C) $458,856 D) $533,100 Answer: A Explanation: A) Contribution Margin Income Statement Selling price ($950 x 800) $760,000 Variable costs: Purchase and refurbish cost ($380 x 800) 304,000 Contribution margin $456,000 Fixed costs: Labor 1,500 Website ($760,000 x 3%) + 60 22,860 Operating income $431,640 Traditional Income Statement Selling price ($950 x 800) $760,000 Cost of goods sold: Purchase and refurbish cost ($380 x 800) 304,000 Direct labor 1,500 Contribution margin $454,500 Selling and admin costs Website ($760,000 x 3%) + 60 22,860 Operating income $431,640 Objective: 4 AACSB: Analytical thinking

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10) A retailer decided to automate its current distribution center. The new equipment has increased current fixed costs and decreased direct labor costs. What is the effect on contribution margin?

A) It depends on the ratio of variable costs to fixed costs.

B) Contribution margin will increase.

C) Contribution margin will decrease.

D) Contribution margin will remain the same.

Answer: B Objective: 4 AACSB: Reflective thinking 11) Fixed costs are to the contribution margin income statement as ________ are to the traditional income statement.

A) selling and administrative expenses B) gross profit C) cost of goods sold D) selling, general and administrative expenses Answer: D Objective: 4 AACSB: Application of knowledge 12) How are costs classified on the traditional income statement?

A) Costs are classified by function. Specifically, costs are classified as product costs or period costs.

B) Costs are classified by behavior. Specifically, costs are classified as product costs or period costs.

C) Costs are classified by function. Specifically, costs are classified as variable costs or fixed costs.

D) Costs are classified by behavior. Specifically, costs are classified as variable costs or fixed costs.

Answer: A Objective: 4 AACSB: Application of knowledge 13) Identify the product cost that would be included in both the contribution margin and the gross margin calculations.

A) Factory manager's salary B) Depreciation expense C) Direct material cost D) Insurance Answer: C Objective: 4 AACSB: Reflective thinking

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14) How is the contribution margin calculated?

A) Contribution margin = Sales - Variable Costs B) Contribution margin = Sales / Variable Costs C) Contribution margin = Sales - Cost of goods sold D) Contribution margin = Sales / Cost of goods sold Answer: A Objective: 4 AACSB: Application of knowledge 15) Operating income can differ between a contribution margin income statement and a traditional income statement.

Answer: TRUE Objective: 4 AACSB: Application of knowledge 16) When preparing the contribution margin income statement, fixed manufacturing overhead is treated as a product cost and included in the contribution margin calculation.

Answer: FALSE Objective: 4 AACSB: Application of knowledge 17) Joy Jam's makes and sells fresh jams at local farmer's markets. This year, Joy made 540 jars of jam and sold 610 jars of jam. Costs incurred during the jam manufacturing and selling process include total variable costs of $9, of which $2 is related to selling. Total fixed manufacturing costs are $540 per year. Will the contribution margin or traditional income statement report higher operating income and by what amount?

A) The contribution margin income statement will report higher operating income by $70.

B) The traditional income statement will report higher operating income by $70.

C) The contribution margin income statement will report higher operating income by $630.

D) The traditional income statement will report higher operating income by $630.

Answer: A Explanation: A) Contribution Margin Income Statement Variable costs: Variable costs manufacturing ($7 x 610) 4,270 Variable costs selling ($2 x 610) 1,220 Total variable costs $5,490 Fixed costs: Manufacturing costs 540 Total costs $6,030

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Traditional Income Statement Cost of goods sold: Variable costs manufacturing ($7 x 610) Manufacturing costs (($540 / 540 jars) × 610) Total cost of goods sold Selling and admin costs Variable costs selling ($2 x 610) Total costs

4,270 610 $4,880 1,220 $6,100

The contribution margin income statement will report $70 ($6,030 - $6,100) more in operating income.

Objective: 4 AACSB: Analytical thinking 18) Joy Jam's makes and sells fresh jams at local farmer's markets. This year, Joy made 550 jars of jam and sold 400 jars of jam. Costs incurred during the jam manufacturing and selling process include total variable costs of $9, of which $2 is related to selling. Total fixed manufacturing costs are $550 per year. Will the contribution margin or traditional income statement report higher operating income and by what amount?

A) The contribution margin income statement will report higher operating income by $1,350.

B) The contribution margin income statement will report higher operating income by $150.

C) The traditional income statement will report higher operating income by $1,350.

D) The traditional income statement will report higher operating income by $150.

Answer: D Explanation: D) Contribution Margin Income Statement Variable costs: Variable costs manufacturing ($7 x 400) 2,800 Variable costs selling ($2 x 400) 800 Total variable costs $3,600 Fixed costs: Manufacturing costs 550 Total costs $4,150

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Traditional Income Statement Cost of goods sold: Variable costs manufacturing ($7 x 400) Manufacturing costs (($550 / 550 jars) × 400) Total cost of goods sold Selling and admin costs Variable costs selling ($2 x 400) Total costs

2,800 400 $3,200 800 $4,000

The traditional income statement will report $150 ($4,150 - $4,000) more in operating income.

Objective: 4 AACSB: Analytical thinking 19) Both a contribution margin income statement and a traditional income statement are prepared. Do both income statements report the same amount of operating income?

A) It depends. Operating income will be equal between the two statements when sales equal production.

B) It depends. Operating income will be higher under the contribution margin income statement when sales exceed production.

C) No, there is always a difference in operating income between the two statements.

D) Yes, there is never a difference in operating income between the two statements.

Answer: A Objective: 4 AACSB: Application of knowledge 20) When preparing the contribution margin income statement, fixed manufacturing overhead is expensed when: A) the product is sold.

B) the cost is incurred.

C) the product is completed and moved into finished goods inventory.

D) the product begins the manufacturing process.

Answer: B Objective: 4 AACSB: Application of knowledge Learning Objective 6.5 1) When deciding to open a restaurant, the expected occupancy rates for the hotel, tourism statistics for the city, the cost of labor in Florida, and expected overhead such as rent for the restaurant space can all be incorporated into the cost equation model and used for prediction.

Answer: TRUE Objective: 5 AACSB: Application of knowledge

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2) Which is NOT an example of a big data source that can be added to make better predictions?

A) Google or Yelp reviews.

B) Social media shares.

C) Hashtags.

D) Cost of direct materials.

Answer: A Objective: 5 AACSB: Application of knowledge 3) Although historical information can be analyzed to help predict revenues and cost behavior, data analytics tools today make it much easier to analyze vast amounts of data from a variety of sources. These tools typically lead management to make worse decisions due to the vast amount of data available.

Answer: FALSE Objective: 5 AACSB: Application of knowledge

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Managerial Accounting, 1e (Cainas, Pope, Joszi) Chapter 7 Cost-Volume-Profit (CVP) Analysis Learning Objective 7.1 1) A traditional income statement explains the amounts of a company's revenues and expenses.

Answer: TRUE Objective: 1 AACSB: Reflective thinking 2) The following presents a contribution margin and an absorption income statement for a company.

Which analysis could not be performed just using the absorption income statement?

A) Cost-volume-profit analysis.

B) Sensitivity analysis for changes in variable costs.

C) Comparison of product and period costs.

D) Sensitivity analysis for changes in fixed costs.

Answer: C Objective: 1 AACSB: Reflective thinking 3) Which is NOT a reason why it is important for managers to understand the amounts of revenues and expenses?

A) To determine if a product or service line is profitable.

B) To manage business, financial, and service line risks.

C) To predict how changes in the operations will impact profitability.

D) To prepare the statement of cash flows for external stakeholders.

Answer: D Objective: 1 AACSB: Reflective thinking

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4) Which is NOT a question that can be answered using a cost-volume-profit (CVP) analysis?

A) Should we finance the purchase of new equipment using debt or equity?

B) How many units do we need to sell to cover our costs?

C) Should we decrease prices in an effort to generate more business?

D) Should we increase our advertising budget to get more business?

Answer: A Objective: 1 AACSB: Reflective thinking 5) It is not appropriate to perform a cost-volume-profit analysis for service companies.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 6) Separating mixed costs into fixed and variable components is an important input into a costvolume-profit (CVP) analysis.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 7) A cost-volume-profit (CVP) analysis examines the relationship between fixed costs, variable costs, and mixed costs for prediction purposes.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 8) Sales price per unit, variable costs per unit, and total fixed costs are expected to remain the same within the relevant range.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 9) Which of the following is required to be reported?

A) Breakeven point in sales.

B) Contribution margin.

C) Operating leverage.

D) Cost of goods sold Answer: D Objective: 1 AACSB: Reflective thinking

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10) Which of the following is NOT one of the key variables used in CVP analysis?

A) Variable cost per unit.

B) Fixed costs.

C) Costs of goods manufactured.

D) Sales mix of products.

Answer: C Objective: 1 AACSB: Application of knowledge 11) Apply the IPO model to a cost-volume-profit (CVP) analysis, process is to a breakeven analysis as inputs are to: A) a sensitivity analysis.

B) the margin of safety.

C) the operating leverage.

D) variable and fixed costs.

Answer: D Objective: 1 AACSB: Reflective thinking 12) Which of the following is NOT an assumption underlying a cost-volume-profit (CVP) analysis?

A) Costs are classified as mixed costs.

B) Changes in revenues or costs are affected only by changes in volume or activity level.

C) The sales mix of products remains constant.

D) The number of products produced is equal to the number of units sold.

Answer: A Objective: 1 AACSB: Application of knowledge 13) Cost-volume-profit analysis is NOT useful in: A) setting selling prices.

B) calculating operating expenses.

C) determining the appropriate sales mix.

D) determining the degree of operating leverage.

Answer: B Objective: 1 AACSB: Reflective thinking

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14) Which of the following does NOT represent useful information provided by a cost-volumeprofit (CVP) analysis?

A) Margin of safety.

B) Breakeven point.

C) Cost of goods sold.

D) Sensitivity analysis.

Answer: C Objective: 1 AACSB: Application of knowledge Learning Objective 7.2 1) The contribution margin ratio equals the contribution margin per unit divided by the variable cost per unit.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 2) Contribution margin equals fixed costs plus operating income.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 3) After the fixed costs are covered, additional sales increase profits by the additional units times the contribution margin per unit.

Answer: TRUE Objective: 2 AACSB: Application of knowledge

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4) Which of the following is false for the Contribution Margin Income Statement provided?

Contribution Margin Income Statement January 31, 20XX Volume $ per meal 0 meals 1 meal 3200 meals 3201 meals Sales $17.50 $$17.50 $56,000.00 $56,017.50 Less: Variable costs $3.50 $$3.50 $11,200.00 $11,203.50 Contribution Margin $14.00 $$14.00 $44,800 44,814 Less: Fixed costs $ - $44,800 $44,800 $44,800 $44,800 Operating income $(44,800) $(44,786) $$14.00 A) The contribution margin per unit is $14.00.

B) The contribution margin ratio is 20.00%.

C) The breakeven point in units is 3200 meals.

D) To earn $14.00 of profit, $56,017.50 of sales must be generated.

Answer: B Explanation: B) Contribution margin / Sales = Contribution margin ratio $14.00 / $17.50 = 80% Objective: 2 AACSB: Analytical thinking

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5) Assume that the variable cost per unit of $24 is 40% of sales.

What is the contribution margin per unit?

A) $14.40 B) $60.00 C) $36.00 D) $24.00 Answer: C Explanation: C) First, identify the known data.

Sales 100% Variable Cost ($24) 40% Contribution Margin 60% Then, solve for sales. Variables costs are $24 and represent 40% of sales.

Sales = $24 / 40% Sales = $60.00 Finally, solve for contribution margin.

Sales $60.00 Variable Cost ($24) 24 Contribution Margin 36.00 Objective: 2 AACSB: Analytical thinking

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6) The following information is known for Riverwalk Boating Company for July: Boat rentals: 200 Fixed costs: $2000 Variable costs: $2000 Sales: $8400 What is the contribution margin per rental?

A) $10 B) $42 C) $6400 D) $32 Answer: D Explanation: D) Sales 8400 Variable Costs 2000 Contribution Margin 6400 / Total Rentals 200 Contribution Margin per Rental 32 Objective: 2 AACSB: Analytical thinking 7) This illustrates the cost-volume-profit (CVP) relationships.

What does Point D represent?

A) The breakeven point.

B) Total costs.

C) Total revenues.

D) Profitability.

Answer: A Objective: 2 AACSB: Application of knowledge

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Learning Objective 7.3 1) At the breakeven point, contribution margin equals selling and administrative costs for a manufacturer.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 2) The breakeven point is the quantity at which total revenues equal the total costs of the units sold.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 3) For the breakeven point in sales dollars formula, which input is set to zero?

A) Operating income.

B) Fixed costs.

C) Breakeven point in units.

D) Contribution margin ratio.

Answer: A Objective: 3 AACSB: Reflective thinking 4) Assume the sales price per ticket is $85 and the variable cost per ticket is $40. Fixed costs are $4500. How many tickets must be sold to breakeven?

A) 4000 B) 113 C) 8500 D) 100 Answer: D Explanation: D) Breakeven Point (units) = Fixed Costs + Desired Operating Income / Contribution Margin per Unit BEP (units) = ($4500 + 0) / ($85 - $40) BEP (units) = 100 units Objective: 3 AACSB: Analytical thinking

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5) High Volume Company reported the following results for last year: Unit sales Sales: Variable costs: Fixed costs: Operating loss:

100,000 $400,000 $160,000 $295,000 $132,000

To determine the breakeven point, how many additional units would High Volume have to sell?

A) 122,917 B) 55,000 C) 33,000 D) 73,750 Answer: B Explanation: B) To reach the breakeven point, the company has to recover the full amount of the operating loss.

Breakeven Point (units) = Operating Loss / Contribution Margin per Unit BEP (units) = $132,000 / ($400,000 - $160,000) / 100,000 BEP (units) = 55,000 units Objective: 3 AACSB: Analytical thinking 6) Riskin has the following information for October: Fixed costs: Variable cost per unit: Breakeven units:

$7650 $7 510

What is operating income if Riskin sells 511 units?

A) $15 B) $22 C) $7665 D) The selling price per unit is needed to answer this question.

Answer: A Explanation: A) Operating income for one unit above breakeven is equal to the contribution margin per unit.

Breakeven Point (units) = Fixed Costs + Desired Operating Income / Contribution Margin per Unit 510 = $7650 / Contribution Margin per Unit Contribution Margin per Unit = $7650 / 510 Contribution Margin per Unit = $15 Objective: 3 AACSB: Analytical thinking 9 Copyright © 2023 Pearson Education, Inc.

7) The breakeven point can be calculated in number of units or in sales dollars.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 8) Johnson estimates that fixed costs will be $10,000 per year and variable costs will be 70% of sales. The selling price is $50 per hour.

What is Johnson's breakeven point in sales dollars? (Rounded to the nearest dollar.)

A) $667 B) $286 C) $33,333 D) $14,286 Answer: C Explanation: C) Breakeven Point (sales) = Fixed Costs + Desired Operating Income / Contribution Margin Ratio BEP (sales) = ($10,000 + $0) / (1 - 70%) BEP (sales) = $33,333 Objective: 3 AACSB: Application of knowledge 9) Louden has a $100,000 breakeven point in sales when fixed costs are $20,000.

What is the contribution margin ratio?

A) 20% B) 80% C) 500% D) Information on the contribution margin per unit is needed to solve the problem.

Answer: A Explanation: A) Breakeven Point (sales) = Fixed Costs + Desired Operating Income / Contribution Margin Ratio $100,000 = ($20,000 + $0) / Contribution Margin Ratio Contribution Margin Ratio = $20,000 / $100,000 Contribution Margin Ratio = 20% Objective: 3 AACSB: Analytical thinking

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10) Lowe has a $290,000 breakeven point in sales. The variable cost per unit is $98. The selling price per unit is $140.

What are Lowe's total fixed costs?

A) $69,048 B) $203,000 C) $87,000 D) Information on the contribution margin per unit is needed to solve the problem.

Answer: C Explanation: C) Breakeven Point (sales) = Fixed Costs + Desired Operating Income / Contribution Margin Ratio $290,000 = (Fixed Costs + $0) / ((140 - 98)/140) $290,000 = Fixed Costs / 30% Fixed Costs = $87,000 Objective: 3 AACSB: Analytical thinking 11) Bronza has fixed costs of $2000. Variable costs are $1 per ticket. Each ticket sells for $7.

How many tickets must Bronza sell to earn income of $1000? (Round final answer up to the nearest whole unit) A) 167 B) 334 C) 286 D) 500 Answer: D Explanation: D) Breakeven Point (units) = Fixed Costs + Desired Operating Income / Contribution Margin per Unit BEP (units) = ($2000 + $1000) / ($7 - $1) BEP (units) = 3000 / 6 BEP (units) = 500 Objective: 3 AACSB: Application of knowledge

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12) Complex Company has fixed costs of $132,000 and breakeven sales of $220,000.

What is Complex's projected income at $410,000 sales?

A) $378,000 B) $114,000 C) $58,000 D) Information on the contribution margin ratio is needed to solve the problem.

Answer: B Explanation: B) First, use the BEP in sales formula to solve for the contribution margin ratio.

Breakeven Point (sales) = Fixed Costs + Desired Operating Income / Contribution Margin Ratio $220,000 = ($132,000 + $0) / Contribution Margin Ratio Contribution Margin Ratio = $132,000 / $220,000 Contribution Margin Ratio = 60% Then, use the contribution margin ratio to solve for operating income at a different sales level.

Sales x Contribution Margin Ratio Contribution Margin Less: Fixed Costs Operating Income

$410,000 60% 246,000 132,000 114,000

Objective: 3 AACSB: Analytical thinking

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13) Erin wants to earn a profit of $6500 and has the following information for May: Selling price: $16 per unit Variable cost: $2 per unit Fixed cost: $3650 If 730 units were sold in May, was Erin's goal achieved?

A) Yes. Erin exceeded the goal by 5 units.

B) No. Erin missed the goal by 5 units.

C) Yes. Profit was $1530 more than the goal.

D) No. Profit was $70 less than the goal.

Answer: A Explanation: A) First, calculate how many units were needed to achieve goal of $6500 using the breakeven formula.

Breakeven Point (units) = Fixed Costs + Desired Operating Income / Contribution Margin per Unit BEP (units) = ($3650 + $6500) / ($16 - $2) BEP (units) = $10,150 / $14 BEP (units) = 725 Then, calculate the difference between actual and goal.

Over (under) = 730 actually sold - 725 goal Over by 5 units Objective: 3 AACSB: Analytical thinking

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14) Higgins Electronics purchases special switches at $2.50 per switch from an outside supplier.

Alternatively, Higgins can manufacture the switch to use in its products at $2.50 per switch. The costs for Higgins to make the switches in-house would be: Annual fixed costs: $40,000 Variable costs per switch: $0.50 What is the minimum number of switches that Higgins must make annually for total costs inhouse to equal the outside purchase cost? (Round answer up to the next whole unit.)

A) 20,000 B) 16,000 C) 80,000 D) 13,334 Answer: A Explanation: A) If Higgins purchases the switch it will pay $2.50 per switch.

If Higgins manufactures the switch it will incur $40,000 in fixed costs plus $0.50 in variable cost per switch.

Number of switches = $40,000 / ($2.50 - $0.50) Number of switches = 20,000 Objective: 3 AACSB: Reflective thinking 15) Compliance Tax Firm Contribution Margin Income Statement Sales Revenue $95,625 Variable Costs (38,250) Contribution Margin 57,375 Fixed Costs (16,500) Operating Income 40,875 Compliance charged $225 per tax return. How many returns did Compliance prepare and file to achieve the $40,875 operating income?(Round answer up to the next whole unit.)

A) 425 B) 65 C) 255 D) Information on the variable cost per unit is needed to solve the problem.

Answer: A Explanation: A) As the contribution margin income statement provided arrives at an operating income of $40,875, the number of returns can be easily solved by taking the total sales revenue and divide by the amount per tax return. = $95,625 / $225 = 425 returns Objective: 3 AACSB: Analytical thinking 14 Copyright © 2023 Pearson Education, Inc.

16) The margin of safety is the operating income beyond breakeven sales.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 17) The purpose of calculating the margin of safety is to identify the minimum level of sales required to breakeven. This information can be used to establish bonus targets and to make better decisions.

Answer: TRUE Objective: 3 AACSB: Reflective thinking 18) Which of the following represents a what-if analysis that identifies the drop in revenues for a company to achieve the breakeven point?

A) Predictive analytics.

B) Operating leverage.

C) Margin of safety.

D) Cost-volume-profit analysis.

Answer: C Objective: 3 AACSB: Application of knowledge 19) Cainas sells 370 boxes of cookies per month at $7 per box. Contribution margin per box is $4. Fixed costs are $1000.

What is the margin of safety in number of boxes? (Round any intermediate calculations up to the next whole unit.)

A) 37 B) 120 C) 250 D) 93 Answer: B Explanation: B) Margin of Safely = Actual boxes sold - breakeven units Breakeven Point (units) = Fixed Costs + Desired Operating Income / Contribution Margin per Unit BEP (units) = ($1000 + $0) / $4 BEP (units) = 250 Margin of Safety = 370 - 250 = 120 Objective: 3 AACSB: Application of knowledge

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20) Squeaky Clean Company reported the following information on its current-year contribution margin income statement: Fixed costs Sales Contribution margin Income taxes

$200,000 $620,000 $248,000 $30,000

What was Squeaky's margin of safety? (Round to the nearest dollar.)

A) $48,000 B) $236,667 C) $18,000 D) $120,000 Answer: D Explanation: D) Margin of Safety = Actual Sales - Breakeven Sales Breakeven Point (sales) = Fixed Costs + Desired Operating Income / Contribution Margin Ratio BEP (sales) = $200,000 / (248,000 / 620,000) BEP (sales) = 500,000 Margin of Safety = $620,000 - $500,000 Objective: 3 AACSB: Application of knowledge 21) Joy Company has sales of $260,000 and a margin of safety of $70,000. The variable cost percentage is 20%.

What are Joy's fixed costs?

A) $56,000 B) $208,000 C) $152,000 D) $190,000 Answer: C Explanation: C) Margin of Safety = Actual Sales - Breakeven Sales $70,000= $260,000 - Breakeven Sales Breakeven Sales = $190,000 Breakeven Point (sales) = Fixed Costs + Desired Operating Income / Contribution Margin Ratio $190,000 = Fixed Costs / (1 - 20%) Fixed Costs = $190,000 x 80% Fixed Costs = $152,000 Objective: 3 AACSB: Application of knowledge

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Learning Objective 7.4 1) A company can use breakeven point information to analyze how changes in volume or costs will affect profits.

Answer: TRUE Objective: 4 AACSB: Application of knowledge 2) After the breakeven point is identified, there is no value in performing a sensitivity analysis because variable costs, revenues, and fixed costs cannot be changed.

Answer: FALSE Objective: 4 AACSB: Reflective thinking 3) Regarding the impact on the breakeven point, a decrease in the cost of raw materials is to a decrease in breakeven point as an increase in administrative salaries is to: A) a decrease in breakeven point.

B) an increase in breakeven point.

C) no effect on breakeven point.

D) cannot be determined.

Answer: B Objective: 4 AACSB: Reflective thinking 4) A decrease in the variable cost per unit results in a decrease in the contribution margin per unit.

Answer: FALSE Objective: 4 AACSB: Analytical thinking 5) BR's variable costs increased. Which is true?

A) BR's contribution margin increased.

B) The breakeven point decreased.

C) BR's contribution margin decreased.

D) There was no effect on the breakeven point.

Answer: C Objective: 4 AACSB: Reflective thinking

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6) A sales company compensates salespeople at 5% of the average sales achieved in the previous three months and 10% if the monthly sales exceed the average monthly sales of the previous quarter.

To achieve the 10% commission, which of the following activities would NOT violate the IMA's Standards of Ethical Professional Practice?

A) Offering a promotion to generate higher sales volume after three months of lower sales.

B) Giving customers goods with the understanding that they would formally buy the goods shortly after the end of the low sales quarter.

C) Asking customers to agree to buy goods but to have the product shipped after quarter end.

D) Encouraging customers to buy in high sales periods and telling them to return the goods early in the next low sales month.

Answer: A Objective: 4 AACSB: Ethical understanding and reasoning 7) Movie Butter Popcorn currently sells popcorn for $6 each, variable costs are $1 each, and fixed costs are $1500 per month. Due to supply chain issues, variable costs are going up to $3.

Which of the following statements is true? (Round per unit calculations up to the next whole unit.)

A) Breakeven point increases by 200 units.

B) Contribution margin per unit increases by $2.

C) The breakeven point decreases from 83% to 50% D) Operating income increases by $400.

Answer: A Explanation: A) Current Breakeven Point Breakeven Point (units) = Fixed Costs + Desired Operating Income / Contribution Margin per Unit BEP (units) = ($1500 + $0) / ($6 - $1) BEP (units) = 300 Revised Breakeven Point Breakeven Point (units) = Fixed Costs + Desired Operating Income / Contribution Margin per Unit BEP (units) = ($1500 + $0) / ($6 - $3) BEP (units) = 500 Difference: increased by 200 units Objective: 4 AACSB: Analytical thinking 8) Higher fixed costs increase the total number of units required to achieve the breakeven point.

Answer: TRUE Objective: 4 AACSB: Analytical thinking 18 Copyright © 2023 Pearson Education, Inc.

9) Which actions is a company likely to take to reduce fixed costs without impacting variable costs or the number of units sold?

A) Do not pay a discretionary bonus.

B) Eliminate company picnics.

C) Reduce certain advertising expenses.

D) Upgrade the manufacturing plant by purchasing new equipment.

Answer: D Objective: 4 AACSB: Reflective thinking 10) If fixed costs decrease and the contribution margin per unit remains the same, which of the following statements is true?

A) The number of units that must be sold to reach the breakeven point will increase.

B) The number of units that must be sold to reach the breakeven point will decrease.

C) The variable cost per unit will decrease.

D) The company's margin of safety will decrease.

Answer: B Objective: 4 AACSB: Analytical thinking

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11) Dean Enterprises budgeted the following amounts for the next fiscal year: Fixed costs Selling price per unit Variable cost per unit

$73,000 $41 $21

If Dean Enterprises can reduce fixed costs by $15,000, what will be the effect on breakeven point in units? (Round per unit calculations up to the next whole unit.)

A) Decrease by 366 units B) Decrease by 2900 units C) Decrease by 715 units D) Decrease by 750 units Answer: D Explanation: D) Current Breakeven Point Breakeven Point (units) = Fixed Costs + Desired Operating Income / Contribution Margin per Unit BEP (units) = ($73,000 + $0) / ($41 - $21) BEP (units) = 3650 Revised Breakeven Point Breakeven Point (units) = Fixed Costs + Desired Operating Income / Contribution Margin per Unit BEP (units) = (58,000 + $0) / (41 - $21) BEP (units) = 2900 Difference: decrease by 750 units Objective: 4 AACSB: Analytical thinking 12) If other factors are constant, an increase in selling price will decrease the breakeven point.

Answer: TRUE Objective: 4 AACSB: Analytical thinking 13) Lion is projecting the selling price per unit to decrease. No other changes are anticipated.

Which is true?

A) There will be no effect on the breakeven point.

B) The contribution margin will decrease.

C) The breakeven point will decrease.

D) The contribution margin will increase.

Answer: B Objective: 4 AACSB: Analytical thinking

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14) If a retailer completely automates its distribution warehouse, fixed costs would likely increase and variable costs would likely decrease.

Answer: TRUE Objective: 4 AACSB: Reflective thinking 15) Which of the following will increase the breakeven point in units?

A) A change in the income tax rate.

B) Selling more units.

C) A decrease in the selling price per unit.

D) A decrease in the fixed costs.

Answer: C Objective: 4 AACSB: Analytical thinking 16) Morales Company has the following information at year-end: Unit sales: 25,000 Contribution margin: $40,000; $0.80 per unit Total fixed costs: $25,000 Breakeven point: 15,625 units Management has proposed increasing the contribution margin per unit by 5% with an increase in selling price and reducing fixed costs by 10% with cost cutting measures.

Which is a reason why management should NOT take the suggested action?

A) Reducing the fixed costs compromises employees' morale, product quality, or customer satisfaction.

B) There is no anticipated change in customer demand.

C) The breakeven point would improve.

D) After the changes, operating income would be $50,000 more.

Answer: A Objective: 4 AACSB: Reflective thinking

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17) Loomis Corporation reports the following information for the last fiscal year: Sales price per unit: $76 Variable cost per unit: $38 Fixed costs: $50,000 Sales: 10,000 units Rent will increase by $4000 next year. Management is discussing increasing the sales price to $81 to cover the increased fixed costs. The expected effect is that the number of units sold would decrease by 3%.

Should management increase the selling price and why?

A) Yes, increasing the contribution margin is always a good idea.

B) No, it is not worth increasing the price if the number of units sold could decrease.

C) Yes, operating income will increase by $33,100.

D) No, management should look for a new place to rent instead of accepting the rent increase.

Answer: C Explanation: C) Current Operating Income Sales ($76 x 10,000) $760,000 Variable Costs ($38 x 10,000) 380,000 Contribution Margin 380,000 Fixed Costs 50,000 Operating Income $330,000 Revised Operating Income Sales ($81 x 9700) 785,700 Variable Costs ($38 x 9700) 368,600 Contribution Margin 417,100 Fixed Costs 54,000 Operating Income $363,100 * New units = 10,000 * (1 - 0.03) = 9700 Difference in Operating Income: $33,100 increase Objective: 4 AACSB: Analytical thinking

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18) Blakey Company prepared the following proposal in response to increases in materials costs.

Current Year Unit sales 42,000 Sales price per unit $25 Variable cost per unit $10 Fixed cost $50,000

Proposal 31,000 $34 $14 $46,000

Should the proposal be accepted and why?

A) No, unit sales will decrease by 11,000.

B) No, operating income will decrease by $6000.

C) Yes, increasing the contribution margin is always a good idea.

D) Yes, because management can always decrease fixed costs.

Answer: B Explanation: B) Current Operating Income Sales ($25 x 42,000) $1,050,000 Variable Costs ($10 x 42,000) 420,000 Contribution Margin 630,000 Fixed Costs 50,000 Operating Income 580,000 Revised Operating Income Sales ($34 x 31,000) 1,054,000 Variable Costs ($14 x 31,000) 434,000 Contribution Margin 620,000 Fixed Costs 46,000 Contribution Margin 574,000 Difference in Operating Income: 6000 decrease Objective: 4 AACSB: Analytical thinking

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Learning Objective 7.5 1) If a company has multiple service lines or multiple products with varying contribution margins, a CVP analysis cannot be performed.

Answer: FALSE Objective: 5 AACSB: Application of knowledge 2) The weighted average contribution margin will always be the same as the contribution margin of the highest-contribution margin product.

Answer: FALSE Objective: 5 AACSB: Application of knowledge 3) Identify the company that is least likely to have a sales mix (more than one type of product or service).

A) Hospitals with an emergency room, pediatric services, cardiac services, and rehabilitation services.

B) Grocery stores with deli, frozen foods, catering, and pharmacy departments.

C) A clothing store with varying customer demographics.

D) Computer store with equipment sales, repair services, and upgrade/installation services.

Answer: C Objective: 5 AACSB: Reflective thinking

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4) Which of the following charts best answers the question, "What is the sale mix for Products A and B?" A)

B)

C)

D)

Answer: A Objective: 5 AACSB: Reflective thinking 25 Copyright © 2023 Pearson Education, Inc.

5) Alvarez Company has the following information for November: Contribution Margin per unit Unit sales Allocated fixed costs

Product A $50 5200 $3,500

Product B $65 7800 $4,000

What is the weighted-average contribution margin per unit? (Round answer to the nearest cent.)

A) $56.00 B) $57.50 C) $59.00 D) $50.00 Answer: C Explanation: C) First, calculate the sales mix for each product.

Product A = 5200 / (5200 + 7800) = 40% Product B = 7800 / (5200+ 7800) = 60% Then, allocate the contribution margin based on sales mix.

Product A = 50 x 40% = 20.00 Product B = 65 x 60% = 39.00 Finally, sum the individual products together to get the total weighted average contribution margin.

WACM = 20.00 + 39.00 = 59.00 Objective: 5 AACSB: Analytical thinking

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6) Ashlyn Appliances manufactures ovens and microwaves. The following information is known for the upcoming year: Fixed overhead: $86,000 Fixed selling and administrative costs: $27,000 Target net income: $77,000 Sales mix: ovens 80% and microwaves 20% Breakeven point: 49,000 total units What is the weighted average contribution margin? (Round answer to the nearest cent.)

A) $3.33 B) $3.88 C) $2.12 D) Cannot be solved without the sales price and variable costs for each product.

Answer: B Explanation: B) Breakeven Point (units) = Fixed Costs + Desired Operating Income / Weighted Average Contribution Margin per Unit 49,000 = (86,000 + 27,000 + 77,000) / WACM WACM = 190,000 / 49,000 WACM = $3.88 per unit Objective: 5 AACSB: Analytical thinking

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7) Slack Company has the following sales mix: Product A B

Sales Mix Units 6600 4400

Sales Price/Unit $37 $15

Variable Cost/Unit $18 $10

Which of the following is true?

A) The weighted average contribution margin is $13.40.

B) If Slack sells less of Product A, the breakeven point will decrease.

C) The breakeven point is 11,000 units.

D) The sales mix is 50% for Product A. Answer: A Explanation: A) First, calculate the sales mix for each product.

Product A = 6600 / (6600 + 4400) = 60% Product B = 4400 / (6600 + 4400) = 40% Then, allocate the contribution margin based on sales mix.

Product A = ($37 - 18) x 60% = 11.40 Product B = ($15 - 10) x 40% = 2.00 Finally, sum the individual products together to get the total weighted average contribution margin.

WACM = 11.40 + 2.00= 13.40 Objective: 5 AACSB: Analytical thinking

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8) Teaming Corporation has the following information for its two service lines of Audit and Tax: Service Audit Tax

Sales Mix 40% 60%

Sales/hour $80 $130

CM/hour $40 $13

WACM/hour $16.00 $7.80

Total fixed costs for the year are $58,000. Which of the following statements is false? (Round any unit calculations up to the next whole unit.)

A) The total weighted average contribution margin is $23.80 per unit.

B) $38,992 of Audit sales are needed to breakeven.

C) 2437 service hours in total are needed to breakeven.

D) 1463 service hours of Tax are needed to breakeven.

Answer: B Explanation: B) First, calculate the BEP (units).

Breakeven Point (units) = Fixed Costs + Desired Operating Income / Weighted Average Contribution Margin per Unit BEP (units) = $58,000 / ($16.00 + $7.80) BEP (units) = 2437 Then, calculate the number of audit services needed to breakeven.

BEP(Audit) = 2437 x 40% = 974.8 Finally, calculate the audit sales required to breakeven.

Audit Sales = 974.8 x $80 = 77,984 Objective: 5 AACSB: Analytical thinking Learning Objective 7.6 1) The assumptions necessary for cost-volume-profit analysis are always valid because companies cannot change selling prices or eliminate variable costs in the short run.

Answer: FALSE Objective: 6 AACSB: Application of knowledge 2) Which of the following is NOT a benefit of performing a cost-volume-profit analysis?

A) The assumptions necessary for cost-volume-profit analysis do not always hold true.

B) It measures the company's breakeven point, both in units sold and dollars.

C) It provides useful revenue and cost information that is not available from a traditional income statement.

D) It models changes in costs, revenues, or activity to determine target profits resulting from the changes.

Answer: A Objective: 6 AACSB: Application of knowledge 29 Copyright © 2023 Pearson Education, Inc.

3) Which of the following questions does a cost-volume-profit analysis NOT help answer?

A) How will a change in costs affect profits?

B) Which product or service lines are least profitable?

C) What is an acceptable price for a product or service?

D) How the company should advertise its products or services?

Answer: D Objective: 6 AACSB: Reflective thinking Learning Objective 7.7 1) The results of a cost-volume-profit analysis should be evaluated in the context of the business environment and applicable risks.

Answer: TRUE Objective: 7 AACSB: Application of knowledge 2) The results of a cost-volume-profit analysis are always realistic if based on prior period information.

Answer: FALSE Objective: 7 AACSB: Application of knowledge 3) Manning Tours determined its fixed costs based on a relevant range of 0 to 1,000 tours. If Manning provides 1,250 tours in October, the cost-volume-profit analysis should provide realistic results.

Answer: FALSE Objective: 7 AACSB: Reflective thinking

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4) Variable costs are graphed for four different companies. Which company is least likely to violate the cost-volume-profit assumption where variable costs per unit are expected to remain the same within the relevant range?

A)

B)

C)

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D)

Answer: A Objective: 7 AACSB: Reflective thinking 5) Identify a reason why fixed costs may not remain the same in total.

A) The company is currently operating at a loss.

B) More units are sold than expected.

C) The sales mix is equal between the company's two products.

D) Fixed costs such as advertising and bonuses are discretionary.

Answer: D Objective: 7 AACSB: Reflective thinking 6) Identify the proposal that would not change the variable cost per unit.

A) Using higher quality materials in the manufacturing process.

B) The hiring of a new chief financial officer (CFO) with a greater salary than the previous CFO. C) Increasing inflation in the economy.

D) Using less direct labor as a result of automation in the manufacturing process.

Answer: B Objective: 7 AACSB: Reflective thinking 7) When analyzing cost-volume-profit scenarios, what other information would NOT be useful?

A) Trends in the sales mix over time.

B) Information on whether the cost-volume-profit assumptions apply.

C) The bonus compensation plan of the largest competitor.

D) Identification of relevant macroeconomic events.

Answer: C Objective: 7 AACSB: Reflective thinking

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8) The marketing department suggests that a new advertising campaign costing $15,000 could increase contribution margin by 10%.

Which question would be least helpful in evaluating the marketing department's suggestion?

A) How would the contribution margin increase be achieved?

B) What is the current percent of on-time deliveries?

C) What is the impact on consumer demand?

D) Is it possible that the advertising campaign could cost more than $15,000?

Answer: B Objective: 7 AACSB: Reflective thinking 9) Management has proposed increasing the contribution margin per unit by 10% through more efficient labor and reducing fixed costs by 20% by eliminating office space.

Which question would be least helpful in evaluating the management's proposal?

A) What is the proposal's impact on the breakeven point?

B) What is the effect of decreasing the variable cost per unit on product quality?

C) Will employee morale or customer satisfaction be impacted by the decreased fixed costs?

D) Are the assumptions used in the cost-volume-profit analysis realistic?

Answer: A Objective: 7 AACSB: Reflective thinking 10) Once risks are identified, a plan to eliminate risks is unnecessary because all risks are uncontrollable.

Answer: FALSE Objective: 7 AACSB: Reflective thinking 11) It is not appropriate to perform both a cost-volume-profit analysis and a sensitivity analysis related to the adoption of initiatives for diversity and sustainability.

Answer: FALSE Objective: 7 AACSB: Reflective thinking 12) For which of the following would a risk analysis is often prepared with a cost-volume-profit analysis and a sensitivity analysis not be appropriate?

A) Preparing a traditional income statement.

B) Upgrading computer software.

C) Opening a new restaurant location.

D) Outsourcing part of the manufacturing process.

Answer: A Objective: 7 AACSB: Application of knowledge

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13) Which of the following is an example of how to manage service line risk for Doggy Day Care Company?

A) Investment in a new point-of-sale (POS) system.

B) Be innovative with new service line offerings.

C) Restrict borrowings and keep the debt to equity ratio low.

D) Diversify offerings in case of an economic downturn.

Answer: B Objective: 7 AACSB: Application of knowledge 14) A global issue is to corporate social responsibility as a fixed cost risk is to: A) political volatility.

B) increased regulations.

C) entrance of competitors.

D) a technology investment in artificial intelligence.

Answer: D Objective: 7 AACSB: Application of knowledge 15) A company invests in software to protect against future cybersecurity breaches. What is NOT a question that should be asked when evaluating the cybersecurity software?

A) Will there be additional monthly service fees for the new software?

B) How many units sold or services provided will be required to cover the cost of the software?

C) Are sales expected to increase next year?

D) Can any costs be eliminated by reducing the cybersecurity risk?

Answer: C Objective: 7 AACSB: Reflective thinking 16) One & Only Bridal provides bridal stylists with a 1.5% commission on sales. Below is data for two of its product lines.

Selling Price per unit Variable cost per unit Contribution Margin per unit

Bridal Gowns Accessories $2,000 $200 1,200 60 800 140

Which of the product lines will be more aggressively promoted by bridal stylists and why?

A) Bridal Gowns because the selling price per unit is greater than Accessories.

B) Bridal Gowns because the contribution margin per unit is greater than Accessories.

C) Accessories because the contribution margin ratio is greater than Bridal Gowns.

D) Information on the sales mix is needed to solve the problem.

Answer: A Objective: 7 AACSB: Reflective thinking

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17) Companies with high operating leverage generally have lower fixed costs than variable costs.

Answer: FALSE Objective: 7 AACSB: Application of knowledge 18) Companies with the highest degree of operating leverage include those in service industries, such as insurance, realtors, and law firms.

Answer: FALSE Objective: 7 AACSB: Reflective thinking 19) High operating leverage is to theme parks as low operating leverage is to: A) utilities.

B) airlines.

C) pharmaceutical companies.

D) realtors.

Answer: D Objective: 7 AACSB: Application of knowledge 20) Below is information for two companies in the airline industry.

Sales Variable costs Contribution margin Fixed costs Operating profit

Company A Amount % of Sales $100,000 100% 50,000 50% 50,000 50% 15,000 15% $35,000 35%

Company B Amount % of Sales $100,000 100% 30,000 30% 70,000 70% 40,000 40% $30,000 30%

If sales increase by 10% or 10,000 units, which company will have a greater percentage increase in profit and why?

A) Company B because operating leverage is higher.

B) Company B because operating leverage is lower.

C) Company A because operating leverage is lower.

D) Company A because operating leverage is higher.

Answer: A Objective: 7 AACSB: Analytical thinking

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Managerial Accounting, 1e (Cainas, Pope, Joszi) Chapter 8 Relevant Costing for Short-Term Decisions Learning Objective 8.1 1) Short-term decisions primarily analyze anticipated net investing cash flows.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 2) Short-term decisions analyze only incremental changes in fixed costs because most fixed costs are sunk costs.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 3) Which is NOT a characteristic of an operational decision?

A) Uses assets already acquired.

B) Requires a large amount of planning and resources.

C) Takes place in the short-run.

D) Can be changed quickly.

Answer: B Objective: 1 AACSB: Application of knowledge 4) What is an example of a short-term decision for Island Joe's Coffee?

A) Entering into a 10-year lease for a distribution warehouse.

B) Purchasing trucks for grocery store deliveries.

C) Adding a seasonal product line.

D) Purchasing new coffee roasting equipment.

Answer: C Objective: 1 AACSB: Reflective thinking 5) A decision tree is a graph or model of decisions with possible outcomes that provides a visual aid to choose between several different alternatives.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 6) The best decision is one that takes the least amount of time when analyzing possible alternatives.

Answer: FALSE Objective: 1 AACSB: Application of knowledge

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7) Managers' decisions should be based solely on quantitative, financial factors.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 8) The final step of the decision making process is to make the decision.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 9) To make appropriate relevant costing decisions, it is more important to collect all possible information rather than collecting the relevant information in a timely manner.

Answer: FALSE Objective: 1 AACSB: Reflective thinking 10) Which of the following is NOT one of the steps in the managerial decision-making process?

A) Create the consolidated income statement for the period.

B) Review and evaluate the implemented decision, and determine if further action is necessary.

C) Develop and analyze possible alternatives.

D) Identify or define a problem, need, or opportunity.

Answer: A Objective: 1 AACSB: Application of knowledge 11) Island Joe's Coffee identified that one of its product lines, Beemer's Breakfast Blend, is experiencing increasing product costs. What is NOT a potential cause of the increasing product costs?

A) Poorly trained employees.

B) Inflation of the cost for coffee bean.

C) Inefficient or outdated equipment.

D) Performance based bonuses paid to sales personnel.

Answer: D Objective: 1 AACSB: Reflective thinking Learning Objective 8.2 1) Relevant information must be the same in the future as in the past, be similar between alternatives, and be precise.

Answer: FALSE Objective: 2 AACSB: Application of knowledge

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2) Variable costs are always relevant costs. Fixed costs are irrelevant costs because they are always sunk costs.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 3) Which of the following is irrelevant information when deciding to replace existing equipment?

A) Cost of new equipment.

B) Future maintenance costs if the company keeps the existing equipment.

C) Selling price of the existing equipment.

D) Cost of the existing equipment.

Answer: D Objective: 2 AACSB: Application of knowledge 4) Avoidable costs can be eliminated by choosing a different solution to a problem. Such costs are relevant costs because they can change the alternatives.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 5) Sunk costs are avoidable and irrelevant because they are past information.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 6) Identify an avoidable cost for Island Joe's Coffee.

A) Factory insurance and taxes.

B) Wages of employees bagging the coffee beans.

C) Annual company picnic to reward excellent performance.

D) The 3-year lease on a machine that labels each bag of coffee.

Answer: C Objective: 2 AACSB: Application of knowledge 7) Qualitative factors should be ignored when making a decision because they are difficult to measure in financial terms.

Answer: FALSE Objective: 2 AACSB: Application of knowledge

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8) Identify the quantitative or qualitative aspect that does NOT help a restaurant answer the question, "Should we offer off-site catering services?".

A) Additional insurance is required for the off-site services.

B) Current customer satisfaction at the on-site restaurant.

C) Quality of delivered meals.

D) Increased cost for delivery vans.

Answer: B Objective: 2 AACSB: Reflective thinking 9) The contribution margin approach helps managers more effectively evaluate relevant information to maximize a company's short-run profits.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 10) Which of the following is NOT a short-term decision?

A) Special orders.

B) Making or outsourcing a seasonal product.

C) Dropping or adding a product line.

D) Purchasing or leasing new equipment.

Answer: D Objective: 2 AACSB: Application of knowledge Learning Objective 8.3 1) A special order is an order placed by a customer that is not part of a company's current business and typically has a lower sales price.

Answer: TRUE Objective: 3 AACSB: Application of knowledge

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2) Scribe Corporation manufactures and sells pens. The normal selling price is $5 each. Quill Company has offered Scribe $3 per pen for a one-time order of 1,000 pens. Information related to the manufacturing of pens are as follows: Variable manufacturing costs: $0.25 per pen Fixed manufacturing costs: $0.75 per pen Variable administrative costs: $0.60 per pen Total capacity of competitors: 10,000 pens Excess capacity: 1,500 pens What information is relevant to Scribe related to the special order?

A) Variable administrative costs.

B) Capacity of competitors.

C) Fixed manufacturing costs.

D) Normal selling price.

Answer: A Objective: 3 AACSB: Application of knowledge 3) A theme park is considering an annual fixed fee pass at a discounted price for state residents.

What information is not relevant to offering the discounted price?

A) Demand for passes from state residents.

B) Discounted annual fee.

C) Roller coaster construction costs.

D) Cost of purchasing the cards provided to the annual pass holders.

Answer: C Objective: 3 AACSB: Reflective thinking 4) In a special order decision, the special order price must result in a positive contribution margin. It is not sufficient for the special order to have a positive gross margin.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 5) A salesperson gives $200 to incentivize the production manager to prioritize a special order over other orders already scheduled for production. This is a violation of the IMA Standards of Ethical Conduct.

Answer: TRUE Objective: 3 AACSB: Ethical understanding and reasoning

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6) A customer of Paris Corporation has requested an order at a reduced sales price. Which question is irrelevant to accepting the special order?

A) Will the special order affect normal sales?

B) Will the special order result in a positive contribution margin?

C) Does the company have excess capacity to fill the order?

D) What is the contribution margin per constraining resource?

Answer: D Objective: 3 AACSB: Application of knowledge 7) Mercury Industries is considering a special order of 800 units from Venus Corporation. The following information is known.

Variable production costs: $11.00 per unit Commissions: 3% of selling price but not applicable to special orders Freight costs: $2 per unit to be paid by Venus Administrative costs: $200 per special order What is the minimum price that Mercury should accept for the special order? (Round to the nearest cent.)

A) $13.25 B) $11.00 C) $11.25 D) $11.59 Answer: C Explanation: C) The relevant costs include the variable production costs and the administration costs. Commissions are not applicable and the freight costs are not paid by Mercury. The minimum price equal the total relevant costs per unit.

Minimum price = $200/800 units + 11.00 per unit Minimum Price = $11.25 Objective: 3 AACSB: Analytical thinking

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8) Craftsman Products sells cabinets for $1,100 each with variable costs of $900 and fixed costs of $120 per cabinet. Craftsman receives a customer order to purchase 55 cabinets for $890 and rejects the order even though there is idle capacity.

What is an appropriate reason to reject the special order?

A) The contribution margin for the special order would be a negative $10 per unit.

B) The gross margin is negative $130 per unit.

C) There is idle capacity.

D) The order is not likely to affect the regular sales.

Answer: A Explanation: A) The contribution margin per unit on the special order is the special order sales price less the variable costs This results in a negative $10 contribution margin per cabinet which would result in rejecting the special order.

Objective: 3 AACSB: Analytical thinking 9) Chan Industries is considering a special order of 200 units at $220 per unit. Chan has excess idle productive capacity. A special additional freight charge of $2 per unit would be incurred with the special order.

Other information: Current sales: 1,000 units at $270 per unit Per-unit costs: $70 cost of goods sold; $21 selling cost; $11 fixed factory overhead; $5 fixed selling costs Should Chan accept or reject the special order?

A) Reject because normal sales result in a $52 per unit greater contribution margin.

B) Reject because there would be an additional $400 in freight charges.

C) Accept because there is excess capacity.

D) Accept because the contribution margin on the special order is $127 per unit.

Answer: D Explanation: D) Special Order Sales $220 Less: Relevant Variable Costs COGS 70 Selling Cost 21 Freight 2 Contribution Margin Order $127 Objective: 3 AACSB: Analytical thinking

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10) Williams Company is considering a special order of 350 units at $170 per unit with the following information.

Capacity: 1,000 units; currently producing 700 units Per-unit sales: $245 per unit Per-unit costs: $55 cost of goods sold; $11 Selling cost; $23 Fixed factory overhead; $9 Fixed selling costs Should Williams accept or reject the special order?

A) Reject because the special order sales price is $75 (31%) less than the normal sales price.

B) Reject because there is not enough idle capacity.

C) Accept because the total profit is $72 per unit.

D) Accept because the contribution margin on the special order is $104.

Answer: B Explanation: B) Total Capacity 1,000 Used Capacity 700 Available Capacity 300 Special Order units are 350 and more than the available capacity so Williams should reject the special order.

Objective: 3 AACSB: Analytical thinking 11) Flowers Incorporated accepted a special order. Which of the following qualitative aspects would result in Flowers changing its decision?

A) Current customers may find out about the discounted price and request a discount on their orders.

B) The special order will not require additional labor to fulfill the order.

C) Future orders will not be subject to the same discounted rate.

D) Current customers will not be negatively impacted by the special order.

Answer: A Objective: 3 AACSB: Reflective thinking Learning Objective 8.4 1) Management's review of the company's product lines and overall profitability could result in adding, keeping, or dropping a product line.

Answer: TRUE Objective: 4 AACSB: Application of knowledge

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2) If a department is eliminated, the company will always avoid all fixed costs allocated to that department.

Answer: FALSE Objective: 4 AACSB: Application of knowledge 3) The Pleva Corporation is considering eliminating European sales due to continuing losses.

Information on the European segment is: Contribution margin: 60,000 Fixed expenses: 80,000 Net operating loss: $(20,000) If the European segment is discontinued, Pleva could avoid $10,000 in fixed costs. There is no potential impact on existing North America or Latin America sales.

What information is irrelevant to this decision?

A) Avoidable fixed costs.

B) Net operating loss.

C) Contribution margin.

D) Impact on other geographic regions.

Answer: B Objective: 4 AACSB: Reflective thinking 4) If a product line has a negative contribution margin, what is a reason the product line should be kept?

A) Fixed costs are unavoidable.

B) The product line is a complementary product benefiting the sales of other product lines.

C) The product line is a management favorite.

D) There is excess capacity.

Answer: B Objective: 4 AACSB: Application of knowledge

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5) Patel Inc. is considering adding a product with the following projections: Variable costs: $60,000 Sales: $89,000 Allocated fixed costs: $39,000 Patel has extra capacity. Should Patel add the new product?

A) Information on the other products is needed to complete the problem.

B) Add the product since it is always better to expand the number of products.

C) Add the product because the positive contribution margin of $29,000 will contribute to existing fixed costs.

D) Do not add the product since there is a negative operating income of $10,000.

Answer: C Explanation: C) If Patel has extra capacity, then it should add the product if there is a positive contribution margin.

Sales Variable costs Contribution Margin

$89,000 $60,000 $29,000

There is a positive contribution margin so Patel should add the product.

Objective: 4 AACSB: Analytical thinking 6) Scott Paper Company plans to close a branch with a contribution margin of $100,000 and fixed costs of $128,000. Of the fixed costs, $67,000 cannot be eliminated.

The effect of closing the branch on operating income would be a(n): A) decrease of $95,000.

B) increase of $61,000.

C) increase of $28,000.

D) decrease of $39,000.

Answer: D Explanation: D) Closing the branch would result in: $100,000 contribution Elimination margin Saving 61,000 fixed costs Effect $39,000 decrease Objective: 4 AACSB: Analytical thinking

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7) Lutz Company sells pottery. The following information is known for the past year.

Selling price ($290 each): $1,421,000 Variable costs (5% selling): $71,050 Fixed costs (20% selling): $284,200 Lutz is contemplating a $5,000 increase in fixed advertising and expects a 10% increase in the sales of pottery pieces.

Should Lutz increase advertising?

A) Yes, because operating income would increase by $129,995.

B) Yes, because the increase in advertising is only 2% of fixed costs.

C) No, because the company currently has an operating income of $1,065,750.

D) No, because no fixed costs will be eliminated, there will be no savings.

Answer: A Explanation: A) Current Operating Income Sales $1,421,000 Variable Costs 71,050 Contribution Margin 1,349,950 Fixed Costs $284,200 Operating Income $1,065,750 Current number of units = $1,421,000 / $290 = 4,900 Revised number of units = 4,900 x 1.10 = 5,390 Revised Operating Income Sales (290 x 5,390) Variable Costs (71,050 / 4,900 × 5,390) Contribution Margin Fixed Costs (284,200 + 5,000) Operating Income

$1,563,100 78,155 1,484,945 289,200 $1,195,745

Revised operating income is greater than the original operating income by 129,995.

Objective: 4 AACSB: Analytical thinking

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8) Kells Inc. is considering dropping a product line with the following data: Existing contribution margin: $11,000 Avoidable fixed costs: $21,000 Total fixed costs: $66,000 Effect on other product lines: loss of $41,000 contribution margin What is the total effect of dropping the product line?

A) -$31,000 B) $1000 C) -$20,000 D) $36,000 Answer: A Explanation: A) Less: 11,000 existing contribution margin Plus: 21,000 avoidable fixed costs Less: 41,000 contribution margin of other products 31,000 decrease in operating income Unavoidable fixed costs are irrelevant as they continue whether Kells keeps or drops the product line.

Objective: 4 AACSB: Analytical thinking 9) If a company closes one of its manufacturing plants, which costs are irrelevant?

A) Concern that suppliers will raise purchase prices in the future.

B) Inability to redeploy workers for other jobs.

C) The original cost of the plant.

D) Termination of contracts.

Answer: C Objective: 4 AACSB: Reflective thinking 10) Vana Company decided to drop an existing product line. What scenario could prompt Vana to keep the product line?

A) Competitors will not gain additional market share.

B) The product line is a complementary good.

C) The product line has a negative contribution margin.

D) There will be no impact on customer loyalty.

Answer: B Objective: 4 AACSB: Reflective thinking

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Learning Objective 8.5 1) A constraint limits the production or sale of a product or service. Constraints can vary from company to company.

Answer: TRUE Objective: 5 AACSB: Application of knowledge 2) Manufacturers, merchandisers, and retailers can all be subject to constraints in terms of maximizing profits.

Answer: TRUE Objective: 5 AACSB: Application of knowledge 3) Which should NOT be considered when prioritizing product lines and determining the quantity to manufacture?

A) Would emphasizing one product over another affect fixed costs?

B) Which product maximizes profit?

C) What constraint(s) limit production or sales?

D) What is the special order price?

Answer: D Objective: 5 AACSB: Application of knowledge 4) Tecumseh Corporation manufactures two styles of lamps in a highly automated factory. The following per unit data is available: Sales price Variable costs Direct labor hours per lamp Machine hours per lamp

Simple $25 $17 1 1.5

Complex $35 $23 0.5 3

Total fixed costs are $10,000. Tecumseh can sell 1,000 of the Simple lamps and 500 units of the Complex lamps. Machine hour capacity is 10,000 hours per year.

What information is irrelevant to the product mix decision?

A) Contribution margin per lamp.

B) Contribution margin per direct labor hour.

C) Machine hour capacity.

D) Sales price per lamp.

Answer: B Objective: 5 AACSB: Application of knowledge

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5) Which of the following should be considered when deciding the optimal product mix?

A) Contribution margin per product.

B) Sales revenue per quantity of the constraint.

C) Contribution margin per quantity of the constraint.

D) Sales demand per product.

Answer: C Objective: 5 AACSB: Application of knowledge 6) Island Joe's Coffee created a bar chart showing the contribution margin per cup of coffee for its three products.

The marketing department informed Joe that customers will only buy a certain quantity of each product (limited demand).

How should Island Joe's prioritize the production of its three product lines?

A) Brewed Coffee, Cold Brew, Espresso.

B) Brewed Coffee Only.

C) Espresso, Cold Brew, Brewed Coffee.

D) Espresso Only.

Answer: A Objective: 5 AACSB: Analytical thinking 7) Managers can increase manufacturing capacity in order to decrease the effect of constraints on the production process.

Answer: TRUE Objective: 5 AACSB: Reflective thinking

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8) Nuit has the following information regarding its four products: Machine hours per unit Contribution margin per unit

A 2 $10

B 1 $6

C 0.5 $5

D 0.75 $3

There is limited demand for each product. What is the order of the products that the Company should emphasize to maximize contribution margin per machine hour?

A) A, C, B, D B) A, B, C, D C) C, B, A, D D) A, D, B, C Answer: C Explanation: C) A B C D Contribution margin per unit $10 $6 $5 $3 / Machine hours per unit 2 1 0.5 0.75 CM per MH per unit $5 $6 $10 $4 Maximize in order from greatest to least.

Objective: 5 AACSB: Analytical thinking

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9) Wrought Iron Corporation manufactures railings and candle holders. Currently, there is a shortage of available labor hours due to a lack of skilled iron workers. The following information is known for its two products.

Railing $85 $65 10

Selling price Variable cost Labor hours required

Candle Holders $55 $39 4

Assume that there are only 1,250 labor hours available next month and can only sell 100 units of each product in a given month.

What is the maximum contribution margin that Wrought Iron can generate next month given this labor hour shortage?

A) $4464 B) $5000 C) $2500 D) $3300 Answer: D Explanation: D) First, calculate the contribution margin per constraint for the two products to determine which one to maximize first.

Selling price Variable cost Contribution margin / Labor hours required CM per constraint

Candle Railing Holders $ 85 $ 55 $ 65 $ 39 $ 20 $ 16 10 2

4 4

Maximize candle holders first.

Then, calculate the total labor hours needed to produce candle holders up to the maximum demand.

Labor hours = 100 units x 4 hours/unit = 400 hours Next, calculate how many railings can be produced with the remaining labor hours.

Hours available Hours used Hours remaining Hours per railing Number of railings

1,250 400 850 10 85 16 Copyright © 2023 Pearson Education, Inc.

Finally, calculate the total contribution margin.

100 candle holders x $16 85 railings x $20 Total contribution margin

$1600 1700 $3300

Objective: 5 AACSB: Analytical thinking 10) Swarovski Company manufactures two products. The following monthly data are available: Contribution margin per unit Machine hours per unit

Earrings $420 2

Vases $450 4.5

Swarovski production capacity is 1900 machine hours per month. It can sell as many units as it makes of either product.

How many of each product should the company produce in a month to maximize profits? (Round your answer down to the nearest whole unit.)

A) 422 vases.

B) 570 earrings and 1330 vases.

C) 1330 earrings and 475 vases.

D) 950 earrings.

Answer: D Explanation: D) First, calculate the contribution margin per constraint to identify which product to maximize.

Contribution margin per unit / Machine hours per unit Contribution margin per constraint

Earrings $420 2

Vases $450 4.5

210

100

Earrings have the highest contribution margin per constraint. Since there is unlimited demand, Swarovski should manufacture as many earrings as possible using the available machine hours.

Finally, calculate the number of earrings.

Machine Hours Available Machine Hours per Earring Total Earrings

1900 2 950

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11) In the long term, product mix decisions can change if production processes become more efficient or more units are produced.

Answer: TRUE Objective: 5 AACSB: Reflective thinking Learning Objective 8.6 1) A production decision for a manufacturer may include comparing if it is more cost-effective to manufacture the product in-house or outsource production.

Answer: TRUE Objective: 6 AACSB: Application of knowledge 2) For a make or buy decision, only relevant future variable manufacturing costs should be considered.

Answer: FALSE Objective: 6 AACSB: Application of knowledge 3) Which of the following should not be considered in an outsourcing decision?

A) What family members might lose their jobs if the company outsources?

B) Are any fixed costs avoidable?

C) What could we do with the freed capacity?

D) How do our relevant costs compare to the outsourcing cost?

Answer: A Objective: 6 AACSB: Application of knowledge 4) What is a reason why a company would not outsource a product?

A) To minimize labor and overhead costs.

B) To focus on their core competencies.

C) To have control over product quality.

D) The product requires very skilled labor to manufacture that the company does not have.

Answer: C Objective: 6 AACSB: Reflective thinking

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5) CLJ has the following costs for the 10,000 units of its product, Fancy Promotional Materials: Variable production costs: $11,000.

Fixed Manufacturing overhead: $16,000 of which $3600 could be eliminated if Fancy buys the product from an outside vendor.

Which of the following is false?

A) If the vendor charges less than $1.46, CLJ should buy from the vendor.

B) If the vendor charges more than $2.70, CLJ should continue to make the product.

C) The sales price of the product is irrelevant.

D) If the vendor charges more than $1.46, CLJ should make the product.

Answer: B Explanation: B) The relevant costs include the variable production costs and the avoidable fixed overhead costs. Therefore, the cost to be decided between is less than the total costs of $27,000 or $2.70 per unit.

Objective: 6 AACSB: Reflective thinking 6) All the Cupcakes Bakery makes the cupcakes base in-house but is contemplating buying from another bakery to focus on frosting and decorating. Costs related to the manufacturing of cupcakes include: Direct materials: $0.30 per cupcake Direct labor: $0.95 per cupcake Variable overhead: $0.15 per cupcake Fixed overhead: $1600 per period If the company buys from another bakery at $1.55 per cupcake, the company will be able to lease out the bakery in the mornings and earn $1300 in lease revenue for the period.

Current and projected production calls for 5,000 cupcakes per period.

Should All the Cupcakes make the cupcake bases in-house or buy from another bakery and why?

A) Buy, because it is the most cost-effective option by $550.

B) Buy, because the quality from the vendor is lower and customers often leave reviews about the high quality of the cupcakes.

C) Continue to make because the $1300 of lease revenues is less than the 1600 fixed overhead.

D) Continue to make because the variable costs to make of $1.40 are less than the cost to buy the cupcake of $1.55.

Answer: A

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Explanation: A) Costs to Make Direct materials Direct labor Variable overhead Total per unit Cupcakes Total cost

$0.30 0.95 0.15 1.40 5,000 $7000

Costs to Buy Purchase cost Cupcakes Total cost Less: lease Total cost

$1.55 5,000 7750 1300 $6450

Difference is $550 cheaper to buy. Fixed overhead is irrelevant because it will be incurred whether make or buy.

Objective: 6 AACSB: Analytical thinking 7) Brookside Computers manufactures 10,000 keyboards per year and sells them for $9.25 each.

The costs per keyboard are as follows: Direct materials Direct labor Variable overhead Fixed overhead allocated Total cost

$1.70 $0.50 $0.35 $2.00 $4.55

Nothing but Keys has offered to sell Brookside keyboards at $5.00 per unit.

Which of the following scenarios would result in Brookside continuing to manufacture the keyboards in-house?

A) Brookside could expand production of an existing product line to produce an additional contribution margin of $20,000 and eliminate all but $5,000 in allocated fixed costs.

B) Brookside could rent out the manufacturing facilities used to make the keyboard for a fixed fee of $17,000 but half of the fixed overhead would remain.

C) Brookside could produce a new product line with a contribution margin of $1.75 per unit with the available capacity but half of the fixed overhead would remain.

D) All of the allocated fixed overhead could be eliminated if keyboards are purchased from Nothing But Keys.

Answer: D

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Explanation: D) The only scenario where Brookside continues to make the keyboards in house is if all fixed overhead is eliminated. This would result in the cost to make at $45,500 and cost to buy $50,000.

Objective: 6 AACSB: Analytical thinking 8) Which of the following is an irrelevant qualitative aspect when evaluating a make or buy decision?

A) Ability to focus on core competencies.

B) Customers' perceptions about the reasonableness of the selling price.

C) Reliability of suppliers.

D) Control over the quality of materials.

Answer: B Objective: 6 AACSB: Application of knowledge 9) The following fishbone diagram visualizes the results of an analysis to determine the cause of weak product sales.

Which of the following suggestions would NOT eliminate or minimize weak product sales?

A) Increase training on how to communicate with suppliers.

B) Invest in a redesign of the product.

C) Reduce the price of the product.

D) Process the product further to include customizations.

Answer: D Objective: 6 AACSB: Reflective thinking

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10) Willow Corp. hired an independent consulting firm to perform a vendor analysis. The consulting firm surveyed the production and receiving departments regarding the supplier's reliability and quality of the materials provided.

Based on the results of the survey, what do you recommend?

A) Consider dropping Supplier C because it was rated below average on reliability and quality.

B) Consider dropping Supplier A because reliability and quality are decreasing.

C) Drop all suppliers because all have less than perfect ratings.

D) Keep only Supplier B because it is the only supplier that has the same reliability and quality ratings.

Answer: A Objective: 6 AACSB: Reflective thinking Learning Objective 8.7 1) Which is NOT a managerial consideration related to joint costs?

A) How are joint costs allocated among products for external reporting?

B) How many products are produced from a single manufacturing process?

C) Should specific products be processed further?

D) What is the net realizable value of products processed further?

Answer: A Objective: 7 AACSB: Application of knowledge 2) Joint costs are irrelevant to a sell at split-off or process further decision since they represent costs that have already been incurred.

Answer: TRUE Objective: 7 AACSB: Application of knowledge

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3) T-Shirt Company is considering selling customized tees. The manufacturing cost of the plain tee is $2.50. It sells plain tees for $5 per shirt and is considering selling customized shirts for $7.50. The additional cost for the printing machine and lettering of the customized shirts would be $3 per shirt.

Which of the following is an irrelevant cost to the product mix decision?

A) The $7.50 sales price of the customized tees.

B) The $5 sales price of the plain tees.

C) The $2.50 manufacturing cost of the plain tees.

D) The $3 cost of the printing machine and lettering.

Answer: C Objective: 7 AACSB: Application of knowledge 4) Which of the following is irrelevant to the decision whether to process a product further or sell as is?

A) What is the revenue if the product is sold as is?

B) What will the revenue be after processing further?

C) How much will it cost to process the product further?

D) What is the cost of the original product from a vendor?

Answer: D Objective: 7 AACSB: Reflective thinking

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5) The Dairy Farm Company has two products with the following data: Sales, if process further Costs, after split-off Sales at split-off Allocated Joint Costs

Milk

Ice Cream

$2.50 $0.55 $2.00 $1,000

$7.00 $1.00 $5.50 $4,000

What should the Dairy Farm Company do for each product?

A) Sell Ice Cream at split-off and process Milk further.

B) Sell Milk at split-off and process Ice Cream further.

C) Sell Milk and Ice Cream at split-off.

D) Process Milk and Ice Cream further.

Answer: B Explanation: B) First, calculate the net realizable value of each product after split-off.

Sales at split-off

Milk $2.00

Ice Cream $5.50

Sales if process further Costs , after split-off Net realizable value

$2.50 $0.55 $1.95

$7.00 $1.00 $6.00

Then, compare the sales at split-off to the net realizable value after split-off and select the larger option.

Sell milk at split-off and process ice cream further.

Objective: 7 AACSB: Analytical thinking

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6) Joint Company reports the following information for two of its products.

Allocated joint processing costs Sales value at split-off point Costs of further processing Sales value after further processing

Small $35,000 $52,000 $27,000

Large $20,000 $52,000 $13,500

Total $55,000 $104,000 $40,500

$67,000

$67,000

$134,000

What is the maximum profit that Joint Company can earn?

A) $105,500 B) $93,500 C) $63,500 D) $79,000 Answer: A Explanation: A) First, calculate the net realizable value of processing further.

Sales value at split-off point

Small $52,000

Large $52,000

Sales value after further processing Costs of further processing Net realizable value

67,000 27,000 $40,000

67,000 13,500 $53,500

Then, identify the option that maximizes profit and calculate the total profit.

Sell small at split-off Process large further Total profit

$52,000 $53,500 $105,500

Objective: 7 AACSB: Analytical thinking

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7) Grant Company reported the following information for two of its products: Units produced Joint costs Sales value without processing further Additional costs to process further Sales value if processed further Decision

Maple Syrup Maple Candy 12,000 4,000 $100,000 $25,000 $230,000 ??? $275,000 Sell As-Is

$120,000 ??? $140,000 Process Further

Which of the following is true with respect to selling as-is or processing further?

A) Additional costs to process further are irrelevant to the decision.

B) The additional costs to process Maple Candy further are greater than $20,000.

C) The additional costs to process Maple Syrup further are greater than $20,000.

D) The additional costs to process Maple Syrup further are greater than $45,000.

Answer: D Explanation: D) For Maple Syrup, the cost to sell as is is $230,000 and the sales price to process further is $275,000. If the decision is to sell as is then the net realizable value must be less than $230,000. This means that the additional costs must be greater than $45,000 or the difference between the sales at split off and sales after processing further.

Objective: 7 AACSB: Analytical thinking 8) Which of the following is an example of a relevant constraining factor in a joint costing decision?

A) Avoidable fixed costs.

B) Rent on machines.

C) Bottlenecks and scheduling problems.

D) Allocation of the joint costs.

Answer: C Objective: 7 AACSB: Reflective thinking Learning Objective 8.8 1) If a defective product is detected during the production process, the only option is to discard (scrap) the product.

Answer: FALSE Objective: 8 AACSB: Application of knowledge

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2) The Tolar Corporation has 400 obsolete desk calculators carried in inventory at a cost of $26,800. If the calculators are upgraded at a cost of $10,000, they can be sold for $30,000.

Alternatively, the calculators can be sold as is for $11,200.

What information is irrelevant to upgrade or sell as is?

A) $26,800 B) $11,200 C) $10,000 D) $30,000 Answer: A Objective: 8 AACSB: Application of knowledge 3) When considering whether to rework defective products, management should focus on products requiring the least amount of direct labor and overhead.

Answer: FALSE Objective: 8 AACSB: Application of knowledge 4) The production costs up to the inspection point are relevant to the decision of whether to scrap or rework defective units.

Answer: FALSE Objective: 8 AACSB: Application of knowledge 5) Uneven Company is facing variability production problems and high production time.

Company policy is to inspect the products at the 20% completion mark and sell the defective items to a discount store. A manager delays inspection until the 50% mark since many of the products would fail inspection.

What is NOT a reason why the manager wants to delay inspection?

A) The manager wants additional time to investigate the production problems.

B) The manager is getting a commission from the discount store. The more defective products there are, the more money he receives.

C) The manager's bonus is based on having a certain percentage of products pass inspection.

D) The manager does not agree with the company policy.

Answer: B Objective: 8 AACSB: Ethical understanding and reasoning

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6) Repairs & Maintenance Co. has 100 damaged tools in inventory. The tools can be sold for $21 each or repaired at a total cost of $400 and sold for $26 each. The original cost of the tools was $1,000.

What is the net realizable value difference between selling the tools as damaged and after being repaired?

A) $900 higher if sold as damaged.

B) $500 higher if sold as damaged.

C) $600 higher if repaired.

D) $100 higher if repaired.

Answer: D Explanation: D) Sold as is: $2100 Repaired: $2200 ($26 x 100 tools - $400) Difference $100 if repaired Objective: 8 AACSB: Analytical thinking 7) Stationary Bikes Corporation is discontinuing its stationary bike model. The company has some partially completed bikes on hand with incurred costs of $500 per bike. The company could complete the bikes with the following additional unit costs: Direct materials: $105 Direct labor: $195 Variable overhead: $75 Allocated fixed overhead: $125 If Stationary Bikes Corporation completes the bikes, they can be sold at $900 each. Another company is willing to buy the bikes as is for $540 each.

Which of the following statements is true?

A) Stationary Bikes should discard the bikes because the total cost of the bikes exceeds the potential revenue by $100.

B) Stationary Bikes should accept the outside offer since the company could net $40 per unit.

C) Stationary Bikes should accept the outside offer since the net relevant profit between the two options is $15.

D) Stationary Bikes should complete the bikes since the relevant profits would be $525 which is greater than the incurred costs of $500.

Answer: C

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Explanation: C) Sell as is Finish the bikes Selling price Less: Direct materials Direct labor Variable overhead Profit

$540 $900 $105 $195 $75 $525

Fixed overhead is irrelevant because it will be incurred whether or not the company finishes the bikes.

Stationary Bikes should sell the remaining bikes as is because it will earn $15 more.

Objective: 8 AACSB: Analytical thinking 8) Which of the following is NOT a qualitative consideration in the scrap or rework decision?

A) Is the product a complementary good?

B) Will selling the damaged product as-is hurt the company's brand or reputation?

C) Will the reworked product be at an acceptable level of quality?

D) Is the difference in profits worth the effort to rework the product?

Answer: A Objective: 8 AACSB: Reflective thinking Learning Objective 8.9 1) A company should NOT review the actual results of a special order decision after the decision is implemented.

Answer: FALSE Objective: 9 AACSB: Reflective thinking 2) Related to the input-process-output model when making short-term decisions, output is to post-audits as process is to: A) classification of fixed and variable costs.

B) analysis of available alternatives.

C) general ledger accounts.

D) integration with key initiatives.

Answer: B Objective: 9 AACSB: Reflective thinking

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Learning Objective 8.10 1) Companies that are price-takers have considerable flexibility in setting prices of their products because demand for products or services is high and products are unique.

Answer: FALSE Objective: 10 AACSB: Application of knowledge 2) Companies operating in highly competitive industries with products or services that have similar substitutes are generally price-setters.

Answer: FALSE Objective: 10 AACSB: Application of knowledge 3) Jones Company commissions art pieces for its customers. What is the most likely method Jones uses to set the selling price of its products?

A) Cost-plus costing.

B) Activity-based costing.

C) Process costing.

D) Job costing.

Answer: A Objective: 10 AACSB: Application of knowledge 4) Turner is bidding on a job. Total expected costs are $42,000. Turner desires a profit of 30%.

How much should Turner bid?

A) $18,000 B) $29,400 C) $54,600 D) $60,000 Answer: D Explanation: D) Total costs / cost % = Target revenues $42,000 / (100% - 30%) = $60,000 Objective: 10 AACSB: Analytical thinking 5) Which is NOT a question managers should consider when pricing products or services?

A) How much are customers willing to pay for the product or service?

B) How reliable is the vendor?

C) Does the market dictate the maximum price that can be charged for the product?

D) Who are the company's biggest competitors? What prices do competitors charge?

Answer: B Objective: 10 AACSB: Reflective thinking

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6) Which is NOT a way for a company to meet target total cost if the current cost of the product is higher than the target cost?

A) Produce more units.

B) Revise the target cost to accept a lower profit C) Redesign the process to eliminate unnecessary costs D) Coordinate with suppliers to obtain a volume discount Answer: A Objective: 10 AACSB: Reflective thinking 7) Fluffy Pillows has the following monthly information for one of its products: Variable costs: $15 per pillow Fixed costs: $11,000 per month.

Sales (units): 1,000 pillows Sales price: $45 per pillow Fluffy is entering a new market and anticipates that it can increase the sales price of each pillow by increasing the quality. The cost of enhancing the quality would be a $2 increase in variable cost and a 15% increase in fixed costs.

What would be the revised sales price to achieve the current market's operating income if 1,000 pillows were sold?

A) $45 B) $51.75 C) $48.65 D) $28 Answer: C Explanation: C) First, calculate the existing operating income.

Current Operating Income Sales ($45 x 1,000 pillows) Variable Costs ( $15 x 1,000 pillows) Contribution Margin Fixed Costs Operating Income

$45,000 15,000 30,000 11,000 19,000

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Then, calculate the revised total costs and add in the desired operating income to calculate the new sales price per pillow.

Revised Costs Variable Costs ($15 + $2) x 1,000 pillows) Fixed Costs Total costs Operating income Total Desired sales / pillows Sales Price per pillow

$17,000 12,650 29,650 19,000 48,650 1,000 $48.65

Objective: 10 AACSB: Analytical thinking 8) A homebuilder is considering expanding into unique and custom homes. Annual projected information on custom homes follows: Sales: 1,000 homes Variable costs (40% manufacturing): $157,000 per home Fixed costs (20% manufacturing): $1,000,000 in total If the company desires operating income to be 25% of projected sales, what should be the sales price per custom home?

A) $196,250 B) $210,667 C) $117,000 D) $157,000 Answer: B Explanation: B) Variable Costs $157,000,000 $157,000 x 1,000 homes Fixed Costs 1,000,000 Total Costs 158,000,000 Costs 75% of sales 1 - 25% desired profit Sales $210,666,667 # homes 1,000 Sales price per home $210,667 Objective: 10 AACSB: Analytical thinking 9) The theory of constraints is an approach to effectively manage an organization's constraints.

Answer: TRUE Objective: 10 AACSB: Application of knowledge 32 Copyright © 2023 Pearson Education, Inc.

10) The Theory of Constraints suggests that a company's performance is only as strong as the strongest link (constraint). Therefore, overall performance is maximized if the emphasis is placed on coordinating all of the weaker constraints.

Answer: FALSE Objective: 10 AACSB: Application of knowledge 11) The Theory of Constraints suggests that managements should perform the following steps EXCEPT: A) Calculate the contribution margin per unit.

B) Fully describe the existing situation so that a solution can be developed.

C) Map out what the company should change to after breaking the bottleneck.

D) Develop a detailed action plan so everyone in the organization understands how to achieve the desired goal.

Answer: A Objective: 10 AACSB: Application of knowledge 12) Supply chain management is the process of designing, implementing, controlling, and monitoring activities along the supply chain.

Answer: TRUE Objective: 10 AACSB: Application of knowledge 13) Data analytics should not be used to coordinate any aspects of the supply chain since it should only be used for product costing and planning decisions.

Answer: FALSE Objective: 10 AACSB: Reflective thinking 14) If the supply chain is operating efficiently and effectively, the synergies created should assist a company in the following areas EXCEPT when: A) increasing the flexibility of delivery and response times.

B) minimizing costs and eliminating waste.

C) promoting revenue growth.

D) eliminating joint costs.

Answer: D Objective: 10 AACSB: Application of knowledge

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Managerial Accounting, 1e (Cainas, Pope, Joszi) Chapter 9 Capital Budgeting Decisions Learning Objective 9.1 1) High-level managers make strategic decisions which support a company's goals that meet the company's objectives.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 2) In strategic decision making, capital budgeting analysis should be performed prior to establishing the company's mission and strategy.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 3) Work in Process Inventory is an example of a capital investment because it is an Asset.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 4) Capital budgeting deals with plans for the repurchase of capital stock.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 5) Which of the following is NOT a component of a company's strategy?

A) Assessing competitors and risk.

B) Accepting a one-time special order.

C) Determining the markets to serve.

D) Establishing performance targets.

Answer: B Objective: 1 AACSB: Application of knowledge 6) Which of the following is a characteristic of a strategic decision?

A) Requires a large amount of planning and resources.

B) Takes place in the short-run.

C) Can be changed quickly.

D) Uses assets already acquired.

Answer: A Objective: 1 AACSB: Application of knowledge

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7) Strategic decisions often rely on estimation models. Assumptions used in the estimation models are typically accurate and not subject to change.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 8) The purpose of capital budgeting is to evaluate which capital projects will yield the highest possible returns.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 9) Which of the following is NOT an example of a capital investment?

A) "Cloud" technology storage of data.

B) RFID chips attached to clothing.

C) Driverless cars.

D) Outsourced sustainable materials.

Answer: D Objective: 1 AACSB: Reflective thinking 10) Investing in solar panel energy is an example of a capital project for an energy company.

Answer: TRUE Objective: 1 AACSB: Reflective thinking 11) Which is NOT a main category of capital projects?

A) Replacement Investments.

B) Strategic Investments.

C) Capital Stock.

D) Compliance Investments.

Answer: C Objective: 1 AACSB: Application of knowledge 12) Operating cost is to the hiring of a general manager as capital budgeting cost is to: A) performing a routine quality evaluation of vendors.

B) purchasing technology powered by machine learning.

C) paying for repairs and maintenance on existing robotics.

D) incurring nightly cleaning costs for the manufacturing plant.

Answer: B Objective: 1 AACSB: Reflective thinking

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Learning Objective 9.2 1) When evaluating a potential capital project, management should focus on the projected increase in income but not on future cash flows.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 2) Estimating the expected cash flows of potential capital projects is the most challenging aspect of the capital budgeting process because there is no "single correct answer".

Answer: TRUE Objective: 2 AACSB: Application of knowledge 3) Cash flows for capital budgeting projects should be estimated solely by the accounts payable accountants because they have the most financial expertise.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 4) In a capital budgeting decision, cash outflows are to the original cost of the investment as cash inflows are to: A) the residual value.

B) additional operating costs.

C) disposal costs.

D) activity-based costs.

Answer: A Objective: 2 AACSB: Application of knowledge

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5) The following are the steps for the capital budgeting process: 1 - Identify relevant information and estimate key inputs to the decision.

2 - Incorporate taxes, feasibility factors, tangible benefits, and intangible benefits into the capital budgeting decision 3 - Analyze the potential investments using one of the four capital budgeting models.

4 - Perform post audits of each capital budgeting decision to evaluate its effectiveness.

5 - Develop an action plan based on the company's goals and identify potential capital investments.

6 - Choose between alternative projects and manage the implementation.

Identify the correct order.

A) 1, 2, 3, 4, 5, 6 B) 1, 2, 5, 3, 6, 4 C) 5, 1, 3, 2, 6, 4 D) 5, 1, 2, 3, 4, 6 Answer: C Objective: 2 AACSB: Application of knowledge 6) In evaluating a move to a new headquarters, which of the following questions is NOT relevant information for Aldrich Company?

A) What are the loan terms?

B) What is the current research and development spending?

C) Should Aldrich purchase an existing building or build a new building?

D) How would buying a new building add to the overall profitability?

Answer: B Objective: 2 AACSB: Application of knowledge Learning Objective 9.3 1) If future cash flows are the same each year, only payback and accounting rate of return models should be used.

Answer: FALSE Objective: 3 AACSB: Reflective thinking 2) The accounting rate of return is more accurate than the internal rate of return because it does not use the time value of money.

Answer: FALSE Objective: 3 AACSB: Application of knowledge

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3) Payback is used by some firms because it is simple and it can provide more relevant information for risky projects.

Answer: TRUE Objective: 3 AACSB: Reflective thinking 4) Companies may use multiple capital budgeting models to get a more complete picture of a capital budgeting decision.

Answer: TRUE Objective: 3 AACSB: Reflective thinking 5) The following are all methods of analyzing capital budgeting investments EXCEPT: A) Internal Rate of Return B) Net Present Value C) Net Realizable Value D) Accounting Rate of Return Answer: C Objective: 3 AACSB: Application of knowledge 6) Which of the following is an advantage for using the discounted cash flow methods when evaluating capital projects?

A) Easy to understand and use.

B) Incorporates the time value of money.

C) Incorporates non-cash expenses.

D) Emphasizes liquidity.

Answer: B Objective: 3 AACSB: Application of knowledge

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7) Jennings Company is evaluating a 5 year lease for new kitchen space. The following information is available: Anticipated increased revenues: $80,000 per year Existing revenues: $150,000 per year Additional operating expenses: $20,000 per year Additional rent: $15,000 per year.

Leasehold improvements to upgrade the kitchen: $40,000 Current equipment's book value: $15,000. It can be sold now for $10,000 Value of leasehold improvements at the end of 5 years: $7,000 What information is irrelevant regarding the proposed 5 year lease?

A) Existing revenues.

B) Anticipated gain on the sale of current equipment.

C) Residual (Salvage) Value of Leasehold Improvements.

D) Additional rent costs.

Answer: A Objective: 3 AACSB: Reflective thinking 8) Internal rate of return is to measure the true return of a project as accounting rate of return is to: A) focuses on time.

B) incorporates the time value of money.

C) emphasizes cash flows.

D) measures the income statement profitability of the project.

Answer: D Objective: 3 AACSB: Reflective thinking 9) The payback method provides the time period in which the cash invested for a capital project will be recouped.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 10) Capital projects with longer payback periods are more desirable.

Answer: FALSE Objective: 3 AACSB: Reflective thinking

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11) Gould Inc. is deciding between two capital projects using the payback method. What should Gould Inc. do?

A) The payback period does not provide relevant information.

B) Select the project with the shortest payback period.

C) Select the project with the longest payback period.

D) Select either option.

Answer: B Objective: 3 AACSB: Application of knowledge 12) Salisbury Corporation is considering two capital projects with the following data: Investment Useful life Estimated annual net cash inflows Residual value

Project VT $500,000 5 years $50,000 $15,000

Project NH $750,000 5 years $100,000 $0

Salisbury uses the payback method to initially screen capital investment projects and wants to recoup the investment before the end of the project's useful life. What should Salisbury do?

A) Accept Project NH because the estimated annual net cash inflows are higher.

B) Accept Project VT because the cost of the investment is lower.

C) Accept Project NH because the payback period is shorter.

D) Reject both projects because the payback periods are longer than the useful life.

Answer: D Explanation: D) Project VT Project NH Investment $500,000 $750,000 Estimated annual net cash inflows $50,000 $100,000 Payback period 10 years 7.5 years Useful life

5 years

5 years

Both projects payback period exceed their useful life.

Objective: 3 AACSB: Analytical thinking

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13) Gurney Company is planning to purchase a new building for $56,000 with a useful life of 10 years and expected payback period of 5 years. The new building is expected to provide cash flow from operations of $9,000 in year 4 and $2,000 in year 5.

What is the amount of the cash flow from operations that the new machine is expected to produce in the first 3 years assuming the cash flows are equal? (Round to the nearest dollar.)

A) $15,000 B) $6,429 C) $9,000 D) $4,500 Answer: A Explanation: A) Payback Period = Cash flows to recover the initial investment 5 years to recover $56,000 = Years 1 - 3 + 9,000 + 2,000 $45,000 = Years 1 - 3 $15,000 per year in years 1 - 3 Objective: 3 AACSB: Analytical thinking 14) The accounting rate of return reflects the minimum earnings which the company would accept on a given investment.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 15) The accounting rate of return calculation when analyzing capital projects subtracts depreciation because depreciation is a cash outflow.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 16) If the accounting rate of return exceeds the required rate of return, A) only invest if the payback period is also greater than the required rate of return.

B) only invest if the internal rate of return also exceeds the required rate of return.

C) invest in the capital asset.

D) do not invest in the capital asset.

Answer: C Objective: 3 AACSB: Application of knowledge

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17) How does depreciation affect the calculation of a capital project's accounting rate of return (ARR)?

A) Is irrelevant to the ARR calculation.

B) Has no effect on ARR because it is a non-cash expense.

C) Increases the ARR. D) Decreases the ARR. Answer: D Objective: 3 AACSB: Application of knowledge 18) Warner is considering buying a new machine costing $20,000 that is expected to generate cost savings of $9,000 for each of the first 2 years and $1,500 in each of the last 2 years. There is no salvage value.

What is the approximate accounting rate of return on the new machine?

A) 45.0% B) 2.5% C) 1.3% D) -23.7% Answer: C Explanation: C) Accounting Rate of Return = Annual average net cash inflows - depreciation expense / initial investment ARR = ( (9,000 x 2 + 1,500 x 2) - 20,000 ) / 4 / 20,000 ARR = (21,000 -20,000) / 4 / 20,000 ARR = 250 / 20,000 ARR = 1.3% Objective: 3 AACSB: Analytical thinking

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19) Montezuma Company is considering buying a new truck and compiles the following information: Estimated useful life: 3 years Initial investment: $320,000 Savings year 1: $160,000 Savings year 2: $113,000 Savings year 3: $110,000 Residual value after 3 years: $50,000 Which of the following statements is incorrect? (Round intermediate calculations to the nearest dollar.)

A) The accounting rate of return is 33.3%.

B) The average annual net cash inflows during the useful life of the asset are $127,667.

C) The average annual operating income from the asset are $37,667.

D) The annual depreciation expense is $90,000.

Answer: A Explanation: A) Accounting Rate of Return = Annual average net cash inflows - depreciation expense / initial investment ARR = ( (160,000 + 113,000 + 110,000) - (320,000 - 50,000) ) / 3 / 320,000 ARR = (383,000 - 270,000) / 3 / 320,000 ARR = 37,667 / 320,000 ARR = 11.8% Objective: 3 AACSB: Analytical thinking 20) The Newbury Company expects a 7% accounting rate of return on an investment that cost $95,000 and has an expected 8-year life with $4,000 salvage value.

What is the annual average operating income? (Round to the nearest dollar.)

A) $11,375 B) $6,650 C) $18,025 D) Information on the annual average net cash flows is needed to solve the problem.

Answer: B Explanation: B) Accounting Rate of Return = Average annual operating income / initial investment 7% = Average annual operating income / 95,000 Average annual operating income = $6,650 Objective: 3 AACSB: Analytical thinking

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21) The Newbury Company expects a 11% accounting rate of return on an investment that cost $65,000, annual net cash inflows of $10,000, and annual depreciation expense of $5,250.

What is the approximate payback on the project assuming equal cash inflows? Round answer one decimal place.

A) 6.5 B) 4.3 C) 9.1 D) Information on the annual average net cash flows is needed to solve the problem.

Answer: A Explanation: A) Payback Period = Cash flows to recover the initial investment Payback period = Initial investment / expected annual cash flows Payback period = $65,000 / $10,000 Payback period = 6.5 years Objective: 3 AACSB: Analytical thinking 22) If the net present value is zero, the project has no merit and should be rejected.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 23) If the net present value is positive, the internal rate of return is higher than the cost of capital.

The project should be accepted.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 24) In capital budgeting, the term "discounted cash flows" refers to subtracting out cash discounts provided to customers from gross sales.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 25) If two projects have the same net present value but different initial investment requirements, the company should choose the project with the lower initial investment requirement.

Answer: TRUE Objective: 3 AACSB: Reflective thinking

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26) What is the impact on a capital project's net present value if the capital project's salvage value of $10,000 was accidentally omitted from the calculation?

A) NPV would be lower.

B) NPV would be higher.

C) NPV would not change D) The effect on NPV depends on the IRR of the capital project.

Answer: B Objective: 3 AACSB: Reflective thinking 27) One & Only Bridal wants to expand operations. One & Only can add to the current building, or sell the building and lease a larger facility nearby. A NPV analysis was performed on the two options and the results are provided below:

Which of the following statements is false based on the information presented above?

A) The difference in NPV is driven by a higher cost of capital in Option 1.

B) The NPV analysis for expanding the current building is presented as Option 1.

C) One & Only should lease the larger facility nearby.

D) One & Only should examine qualitative factors.

Answer: A Objective: 3 AACSB: Analytical thinking

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28) A company is choosing between two capital projects. A graph is prepared to compare the Net Present Value and Discount Rate of the projects.

Managers will rely on qualitative factors the most when the discount rate is: A) 16%.

B) 7%.

C) 0%.

D) Managers should ignore qualitative factors.

Answer: B Objective: 3 AACSB: Reflective thinking 29) What is the impact on a capital project's net present value if the project's discount rate that is used in the calculation changes from 8% to 6%?

A) NPV would not change.

B) NPV would be lower.

C) NPV would be higher.

D) The effect on NPV depends on the IRR of the capital project.

Answer: C Objective: 3 AACSB: Reflective thinking

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30) Sullivan Co. is purchasing a truck with a useful life of 3 years and no salvage value. The truck is expected to produce cash flows from operations of $15,000 per year. Sullivan's expected internal rate of return is 6%.

Approximately how much will the truck cost?

Present value of $1: Periods 5% 6% 3 0.864 0.840 4 0.823 0.792 5 0.784 0.747 6 0.746 0.705 7 0.711 0.665 8 0.677 0.627

8% 0.794 0.735 0.681 0.630 0.583 0.540

Present value of an ordinary annuity of $1: Periods 5% 6% 8% 3 2.723 2.673 2.577 4 3.546 3.465 3.312 5 4.329 4.212 3.993 6 5.076 4.917 4.623 7 5.786 5.582 5.206 8 6.463 6.210 5.747 A) $39,360 B) $32,400 C) $40,095 D) $27,495 Answer: C Explanation: C) Cost of the truck = PV annuity $15,000 x (PV annuity factor for n = 3, I = 6%) Cost of truck = $15,000 x $2.673 Cost of truck = $40,095 Excel Formula = -PV(6%,3,15,000) The numbers may vary slightly depending on if the formula or tables are used.

Objective: 3 AACSB: Analytical thinking

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31) Hodgson Company is evaluating three capital projects. Selected information on each of the three projects follows: Project 1 Project 2 Project 3 Investment required $80,000 $50,000 $65,000 Net present value of project $99,000 $68,000 $69,000 Using the profitability index, rank the projects from most profitable to least profitable.

A) 2, 1, 3 B) 2, 3, 1 C) 1, 3, 2 D) 3, 1, 2 Answer: A Explanation: A) Profitability index = present value of future cash flows / initial investment Project 1 Project 2 Project 3 Net present value of project$99,000 $68,000 $69,000 Investment required $80,000 $50,000 $65,000 Profitability index 1.24 1.36 1.06 The higher the value the greater the profitability.

Objective: 3 AACSB: Analytical thinking 32) Duane Company is planning to invest in robotics process automation (RPA) costing $400,000 with a useful life of 8 years and $11,000 salvage value. The investment is expected to produce net cash (after taxes) operating savings of $100,000 per year. A repair of $54,000 is anticipated at the end of 4 years. The company uses straight-line depreciation. The desired rate of return is 8%.

What is the approximate net present value of the capital project?

Present Value of $1 Periods 5% 6% 4 0.823 0.792 5 0.784 0.747 6 0.746 0.705 7 0.711 0.665 8 0.677 0.627 9 0.645 0.592 10 0.614 0.558

8% 0.735 0.681 0.630 0.583 0.540 0.500 0.463

10% 0.683 0.621 0.564 0.513 0.467 0.424 0.386

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Present Value of Annuity of $1 Periods 5% 6% 8% 10% 4 3.546 3.465 3.312 3.170 5 4.329 4.212 3.993 3.791 6 5.076 4.917 4.623 4.355 7 5.786 5.582 5.206 4.868 8 6.463 6.210 5.747 5.335 9 7.108 6.802 6.247 5.759 10 7.722 7.360 6.710 6.145 A) $220,330 B) $114,693 C) $167,208 D) $140,950 Answer: D Explanation: D) Year(s) Amount 8% factor Present value Initial investment Now ($400,000) 1.000 ($400,000) PV annual savings 1 to 8 $100,000 5.747 574,700 PV salvage 8 $11,000 0.540 5,940 PV repair 4 ($54,000) 0.735 -39,690 Net present value $140,950 Initial investment -$400,000 PV annual savings 574,700 PV annuity $100,000(n = 8, i = 8) PV salvage 5,940 PV single sum $11,000 (n = 8, i = 8) PV repair -39,690 PV single sum 54,000 (n = 4, i = 8) Net present value $140,950 Excel formula = -400,000-PV(8%,8,11,000)-PV(8%,8,(100,000))+PV(8%,4,54,000) Values may differ within $100 based on what is used to calculate.

Objective: 3 AACSB: Analytical thinking

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33) Concord Corp. is interested in expanding operations and wants to evaluate the difference between continuing with the existing lease and purchasing a new facility. After tax information on the two options are provided below.

Existing Facility Lease: Annual cash contribution margin: $200,000 Annual cash fixed costs: $35,000 Acquired 10 years ago at: $530,000 New Facility: Cost of new facility: $640,000 Annual cash contribution margin: $250,000 Annual cash fixed costs: $70,000 Sublease revenue per year: $45,000 Present Value of Annuity of $1 Periods 8% 10% 12% 5 3.993 3.791 3.605 10 6.710 6.145 5.650 15 8.559 4.917 4.623 20 9.818 8.514 7.469 25 10.675 9.077 7.843 30 11.858 9.427 8.055 The company has a cost of capital of 12% and estimates a useful life of 20 years for the new facility. What should Concord do?

A) Continue to lease the existing facility because the cost of the new facility is $110,000 more than the existing lease.

B) Continue to lease the existing facility because the net present value between the two options is -191,860 if Concord buys a new facility.

C) Acquire the new facility because Concord will receive $900,000 in sublease revenue that will cover the cost of the new facility.

D) Acquire the new facility because the annual cash contribution margin is $50,000 greater than the existing lease.

Answer: B Explanation: B) Concord should use the net present value to consider the differences in costs between the two options using the useful life of 20 years and interest rate of 12%.

Plus: Increase in contribution margin $50,000 Minus: Increase in fixed costs 35,000 Plus: Increase in sublease revenue 45,000 Total Change Increase 60,000 per year PV annuity $60,000 x (PV annuity factor for n = 20, I = 12%) Purchase new facility = $60,000 x 7.469 Increase in revenue = $448,140 17 Copyright © 2023 Pearson Education, Inc.

Excel Formula = PV(12%,20,70,000) = 448,140 Less cost of new facility 640,000 Difference in cost -191,860 Objective: 3 AACSB: Analytical thinking 34) The internal rate of return represents the discount rate that will make a project's net present value equal 0.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 35) All projects that have an internal rate of return greater than zero should be accepted.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 36) What will happen to the internal rate of return (IRR) of a capital project if the discount rate is increased from 7% to 9%?

A) The discount rate change will not affect IRR. B) IRR will increase.

C) IRR will decrease.

D) The direction of the effect on IRR cannot be determined from the information provided.

Answer: A Objective: 3 AACSB: Reflective thinking 37) Brewster Company is considering investing in a capital project with an estimated payback period of 4 years, expected cash flows of $8,000 per year, and a useful life of 5 years.

What is the approximate internal rate of return? (Use an Excel formula to calculate the answer.)

A) Greater than 10%.

B) Between 4% and 6%.

C) Between 8% and 10% D) Between 6% and 8%.

Answer: D

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Explanation: D) Original Investment -32,000 Year 1 8,000 Year 2 8,000 Year 3 8,000 Year 4 8,000 Year 5 8,000 Year 6 0 Year 7 0 Year 8 0

$8,000 x 4 year payback

Excel Formula = IRR (Reference Cells Above) Objective: 3 AACSB: Analytical thinking 38) A company should accept a capital project if the: A) payback period is greater than the useful life of the project.

B) accounting rate of return is greater than the required rate of return.

C) project has positive net cash flows.

D) internal rate of return is less than the required rate of return.

Answer: B Objective: 3 AACSB: Application of knowledge 39) Angulo is considering three projects and has the resources to accept all projects. Angulo seeks a return greater than the cost of capital and maximum payback of 4 years.

Initial investment Net present value Payback period (years)

Project A $40,000 $57,000

Project B $25,000 -$29,500

Project C $15,000 $21,000

3.6

3.0

4.75

What should Angulo do?

A) Accept Project A. B) Accept Projects A and B. C) Accept Project C. D) Accept all projects.

Answer: A Objective: 3 AACSB: Analytical thinking

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40) Which of the following actions would not potentially violate the IMA's Standards of Ethical Professional Practice?

A) Decrease the payback period.

B) Increase the estimated useful life.

C) Decrease the discount rate (cost of capital).

D) Increase the number of capital budgeting analyses performed.

Answer: D Objective: 3 AACSB: Reflective thinking 41) Beverages Inc is considering the following capital investment proposals. The criteria include a maximum payback period of 4 years and a required rate of return of 10.5%.

Which chart helps eliminate proposals that do not meet the payback period requirement?

A)

B)

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C)

D)

Answer: A Objective: 3 AACSB: Reflective thinking

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42) Beverages Inc is considering four capital investment proposals. To assist with decision making, management prepares a graph showing both the NPV and IRR for each project.

What is the required rate of return of the company?

A) 5.5% B) 10.0% C) 12.5% D) 1.5% Answer: B Objective: 3 AACSB: Reflective thinking Learning Objective 9.4 1) Management estimates that a capital project will generate additional income. The additional taxes represent a cash outflow.

Answer: TRUE Objective: 4 AACSB: Reflective thinking 2) Management is considering investing in a capital project. There will be tax savings because of the additional depreciation costs.

Answer: TRUE Objective: 4 AACSB: Reflective thinking 3) Which of the following is NOT an uncertainty that companies must consider when predicting future cash flow?

A) Cybersecurity breaches.

B) Inflation.

C) Terrorist attacks.

D) Historical cash receipts from customers.

Answer: D Objective: 4 AACSB: Reflective thinking 22 Copyright © 2023 Pearson Education, Inc.

4) Which is NOT an example of a factor considered in a capital budgeting decision?

A) Changing customer preferences.

B) The number of units required to breakeven.

C) Management's perception of the project.

D) Taxes.

Answer: B Objective: 4 AACSB: Application of knowledge 5) Ponte is planning to purchase new equipment even though the current equipment is functioning well.

Which is NOT an example of additional facts you should gather before discussing the decision with the controller?

A) How many years have the salesperson and the controller been friends?

B) Is technology rapidly changing which renders the existing equipment obsolete?

C) Does the old equipment undergo significant regular maintenance that would be mostly eliminated with the new equipment?

D) Were quantitative analyses performed over all of the bids?

Answer: A Objective: 4 AACSB: Reflective thinking 6) A feasibility study should only evaluate factors related to management, operations, and the achievement of expected results. Such a study should ignore all quantitative and financial analyses.

Answer: FALSE Objective: 4 AACSB: Application of knowledge 7) Operations is to considering that the equipment is too complex for the employees to use as management is to: A) needing a project to be finished in 3 months but projected to take 6 months.

B) conducting an evaluation of a potential vendor.

C) unwilling senior management investment in certain projects.

D) a lack of strategic fit with the mission of the rest of the company.

Answer: C Objective: 4 AACSB: Reflective thinking 8) Intangible benefits have measurable financial results and are not important to the capital budgeting decision.

Answer: FALSE Objective: 4 AACSB: Application of knowledge 23 Copyright © 2023 Pearson Education, Inc.

9) Which of the following is an example of a tangible benefit that is most likely tracked in an accounting system?

A) Increased customer engagement.

B) Increased customer satisfaction.

C) Increased customer purchases.

D) Increased employee productivity.

Answer: C Objective: 4 AACSB: Application of knowledge 10) Which of the following is NOT a factor that can result in intangible benefits from setting up an online store in addition to having a physical store location?

A) The store can sell to customers outside of the current physical location.

B) Customers can learn about the store through targeted ads and online searches.

C) Customers can pick their preferred shopping experience.

D) The store can manufacture its own products.

Answer: D Objective: 4 AACSB: Reflective thinking 11) When applying the input-process-output model to capital budgeting, input is to identifying potential capital investments as output is to: A) performing a post-audit.

B) calculating the net present value.

C) analyzing other factors such as taxes and feasibility.

D) identifying relevant information and key assumptions.

Answer: A Objective: 4 AACSB: Reflective thinking 12) A company identifies increased customer purchases as a tangible benefit and increased customer engagement as an intangible benefit.

Which of the following technology investments might support those benefits?

A) "Cloud" technology storage of data.

B) Electronic messages and coupons sent to customers while shopping.

C) Driverless cars.

D) Wearable technology such as uniforms that track time spent at stations in factory.

Answer: B Objective: 4 AACSB: Reflective thinking

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Learning Objective 9.5 1) You are reviewing a capital budgeting analysis that was prepared by the controller. The analysis assumes an upfront cost for the new system to manage customer preferences of $75,000.

You agree with the upfront cost but believe that there will be additional costs to maintain the software of $5,000 per year. When you question the controller, you are informed that the Director of Marketing said to "make the numbers work" because the marketing department needs this software.

Which of the following is an unethical response to the scenario?

A) Reperform the analysis including the additional operating costs.

B) Approve the capital budgeting analysis.

C) Remove yourself from the project.

D) Interview the software vendor and marketing department for potential cost savings.

Answer: B Objective: 5 AACSB: Ethical understanding and reasoning 2) A post-audit compares the actual results of capital projects with the anticipated results.

Answer: TRUE Objective: 5 AACSB: Application of knowledge 3) The assumptions used in a net present value analysis are always accurate so post-audits are rarely required.

Answer: FALSE Objective: 5 AACSB: Application of knowledge 4) Management conducts a post-audit. Which of the following is a response to an unsuccessful or underperforming capital project?

A) Correct identified problems.

B) Expand the project.

C) Use the information in other capital budgeting decisions.

D) Reward capital budgeting decision makers.

Answer: A Objective: 5 AACSB: Application of knowledge

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5) Capital budgeting decisions are difficult because of increased uncertainty of risks. Which of the following is NOT an example of a risk?

A) Global competition and supply chains.

B) Cutting edge and emerging technology.

C) 3 year service contract with a customer.

D) New regulations from changes in the administration.

Answer: C Objective: 5 AACSB: Application of knowledge

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Managerial Accounting, 1e (Cainas, Pope, Joszi) Chapter 10 The Master Budget Learning Objective 10.1 1) Qualitative objectives are valuable in developing an operational plan.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 2) Since the future is unpredictable, companies with clear measurable short-term objectives can ignore long-term objectives.

Answer: FALSE Objective: 1 AACSB: Reflective thinking 3) Identify an appropriate short-term objective and an appropriate long-term objective for a clothing retailer.

A) Short Term: Increase sales through targeted social media advertising Long Term: Increase sales by expanding into new markets B) Short Term: Increase sales volume by offering a promotion or sales discount Long Term: Decrease on-hand inventory by delaying the receipt of inventory purchases C) Short Term: Increase sales by opening stores in new markets Long Term: Increase sales by introducing new products or services D) Short Term: Decrease on-hand inventory by delaying the receipt of inventory purchases Long Term: Increase sales through targeted social media advertising Answer: A Objective: 1 AACSB: Reflective thinking 4) Objective is to results that management wants to achieve as Strategic Plan is to: A) the process of developing a plan when all levels of management assume an active role.

B) a budget that changes as a result of changes in activity.

C) a document that establishes the company's direction, performance, strategic & financial targets, and how the company plans to execute its strategy in the current macroeconomic environment.

D) a document that includes a prediction of sales revenue for the upcoming period.

Answer: C Objective: 1 AACSB: Reflective thinking

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5) The CEO asks for a description of the master budget process. What is the correct timeline for phases leading up to the master budget process?

A) Establish an operational vision, set company's objectives, develop performance targets, create a master budget.

B) Establish a strategic vision, set company's objectives, develop performance targets, create a master budget.

C) Establish a strategic vision, develop performance targets, create a master budget, set company's objectives.

D) Set company's objectives, develop performance targets, establish an operational vision, create a master budget.

Answer: B Objective: 1 AACSB: Application of knowledge 6) What would likely not be included in a full-time student's budget?

A) Shares of common stock and goodwill acquired.

B) Cash received for work performed.

C) Payments for rent.

D) Purchase of a new computer.

Answer: A Objective: 1 AACSB: Reflective thinking 7) The master budget is typically prepared annually, several months in advance of the new fiscal year. Thus, the biggest criticism is that traditional master budget are not responsive to change.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 8) Which of the following is NOT an advantage of the budgeting process?

A) Initiates communication and coordination within and across departments.

B) Results in a benchmark to which performance can be compared.

C) Provides improved planning and improved decision-making based on evaluation of alternative scenarios.

D) Promises accelerated filing of financial statements with the SEC. Answer: D Objective: 1 AACSB: Application of knowledge 9) The master budget is concerned with both the planning of operations and the controlling of operations.

Answer: TRUE Objective: 1 AACSB: Application of knowledge

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10) Companies are required to use a standardized budgeting process.

Answer: FALSE Objective: 1 AACSB: Reflective thinking 11) What is NOT a key role of the budget committee in the formation of a master budget?

A) Ensuring that the budget is completed and submitted to upper-level management for final approval on a timely basis.

B) Resolving conflicts among departments regarding individual departmental goals.

C) Ensuring that the budget is prepared with specific guidelines.

D) Establishing a strategic vision and setting the company's objectives.

Answer: D Objective: 1 AACSB: Application of knowledge 12) Identify the statement that does not accurately describe the budgeting process.

A) The master budget depicts the projected performance of a business.

B) The budgeting process encourages communication and coordination across the organization.

C) If the annual budget is properly prepared, modifications may not be necessary during the year.

D) A cross-functional budget committee enables all areas of the organization to have input into the budget.

Answer: C Objective: 1 AACSB: Reflective thinking 13) Ideally, budgets should be prepared completely by the controller and given to middle and lower-level managers.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 14) Companies are not allowed to use a combination of top-down and participatory budgeting.

Companies must choose either top down budgeting or participatory budgeting.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 15) What is a disadvantage of using a participatory budgeting approach?

A) Lower-level managers could prepare budgets that include budgetary slack.

B) Lower level managers are closer to the day to day operations of the business.

C) Employees may be more motivated if they are included in setting goals and objectives for their area of responsibility.

D) Employees involved in the budgeting process will be less likely to blame others if they are unable to meet budget expectations.

Answer: A Objective: 1 AACSB: Application of knowledge 3 Copyright © 2023 Pearson Education, Inc.

16) Which of the following statements about zero-based budgeting approach is true?

A) It forces managers to justify each budgeted item and potentially eliminates slack.

B) Zero-based budgeting only looks at non-value added activities.

C) The results are the same as other budgeting approaches like participatory budgeting.

D) Zero-based budgeting means that there are zero budgets prepared.

Answer: A Objective: 1 AACSB: Application of knowledge Learning Objective 10.2 1) If employees have worked but will not get paid until the next period, the amount will be included in the Budgeted Income Statement but will not appear as a cash outflow in the Combined Cash Budget.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 2) Depreciation for the period would appear on both the Budgeted Income Statement and the Combined Cash Budget.

Answer: FALSE Objective: 2 AACSB: Reflective thinking 3) In developing the master budget, which budget should be prepared first?

A) Production budget.

B) Sales budget.

C) Budgeted income statement.

D) Direct labor budget.

Answer: B Objective: 2 AACSB: Application of knowledge 4) Unit sales is to sales budget as units to be produced is to: A) cost of goods sold budget.

B) direct materials, direct labor, and overhead budgets.

C) cash receipts budget.

D) capital expenditures budget.

Answer: B Objective: 2 AACSB: Reflective thinking

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5) Cost of goods sold appears on which budget?

A) Capital expenditures budget.

B) Cash receipts budget.

C) Budgeted income statement.

D) More than one of the answers is correct.

Answer: C Objective: 2 AACSB: Application of knowledge 6) The combined cash budget is to cash sales and collections from credit sales during the period as the income statement is to: A) credit sales less cash sales and credit card fees for the period.

B) cost of materials, direct labor, and manufacturing overhead for the period.

C) issuance of common stock.

D) all sales for the period.

Answer: D Objective: 2 AACSB: Reflective thinking Learning Objective 10.3 1) Which of the following is NOT information (an input) used in the budgeting process?

A) Planned initiatives such as technology upgrades equipment replacement.

B) The most recent balance sheet and income statement.

C) Prediction of activity for the upcoming budget period.

D) Historical results of a company that is a similar size but operates in a different industry.

Answer: D Objective: 3 AACSB: Application of knowledge 2) In developing the Budgeted Income Statement, what is the proper order to prepare the operating budgets?

A) Sales budget, production budget, direct materials budget, direct labor budget, manufacturing overhead budget, cost of goods sold budget, budgeted income statement.

B) Sales budget, cost of goods sold budget, production budget, direct materials budget, direct labor budget, manufacturing overhead budget, budgeted income statement.

C) Production budget, sales budget, direct materials budget, direct labor budget, manufacturing overhead budget, cost of goods sold budget, budgeted income statement.

D) Production budget, sales budget, cost of goods sold budget, production budget, direct materials budget, direct labor budget, manufacturing overhead budget, budgeted income statement.

Answer: A Objective: 3 AACSB: Application of knowledge

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3) The sales budget determines the number of units the company will sell during the period and provides an input for multiple operating and financial budgets.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 4) In preparing the sales forecast, management should consider all of the following EXCEPT: A) expected economic conditions.

B) beginning cash balance.

C) competitor reactions.

D) desired inventory levels.

Answer: B Objective: 3 AACSB: Reflective thinking 5) Classy Wear projects T-shirt sales for the quarter as follows: 100 in October, 350 in November, and 700 in December. Each T-shirt is expected to sell for $10, which includes a $6 markup over cost per T-shirt. What are budgeted quarterly sales for the 4th quarter?

A) $6,900 B) $4,600 C) $11,500 D) $18,400 Answer: C Explanation: C) October 100 November 350 December 700 Total T-shirts 1,150 x Price $10 Total Sales $11,500 Objective: 3 AACSB: Analytical thinking

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6) Pine Company manufactures end tables that sell for $150 per table. Sales are 40% cash and 60% on credit collected in the following month. Budgeted unit sales by month are: October November December

15,000 12,000 21,500

What are the total budgeted sales for the 4th quarter ending December 31?

A) $48,500 B) $7,275,000 C) $35,600 D) $5,340,000 Answer: B Explanation: B) October 15,000 November 12,000 December 21,500 Total End Tables 48,500 x Price $150 Total Sales 7,275,000 Objective: 3 AACSB: Analytical thinking 7) One & Only Bridal sells bridal gowns at an average price of $2,000. Customers pay 50% as a non-refundable deposit when they place the order and the rest when they pick up the dress six months later.

Some customers change their minds. Which of the following assumptions related to the Sales Budget is not appropriate?

A) Unit sales is based on the date the order was placed.

B) There could be fluctuation in the sales budget based on economic trends.

C) The average sales price is $2,000.

D) The estimated sales should be separated into cash and credit sales amounts.

Answer: A Objective: 3 AACSB: Reflective thinking 8) A minimum balance of finished goods inventory is kept so that no sales are lost if actual demand exceeds expected sales.

Answer: TRUE Objective: 3 AACSB: Reflective thinking

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9) The production budget determines the number of units the company should produce and is based on the sales budget.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 10) The formula to determine the number of units to be produced in the production budget is: A) desired ending inventory (from COGS budget) + unit sales - beginning finished goods inventory.

B) unit sales (from sales budget) - desired ending inventory + beginning finished goods inventory.

C) unit sales (from sales budget) + desired ending inventory + beginning finished goods inventory.

D) desired ending inventory (from COGS budget) - unit sales + beginning finished goods inventory.

Answer: A Objective: 3 AACSB: Analytical thinking 11) Axel Company projects sales of 33,000 units in October and wishes to have 3,100 units on hand at the end of the month. If 2,900 units are on hand on October 1, how many units must Axel produce in October?

A) 36,100 B) 32,800 C) 33,000 D) 33,200 Answer: D Explanation: D) Inventory - October Beginning Inventory 2,900 Sales 33,000 Production ?

Ending Inventory 3,100 Ending Inventory = Beginning Inventory + Production - Sales 3,100 = 2,900 + Production 33,000 3,100 + 33,000 - 2,900 = Production 33,200 = Production Objective: 3 AACSB: Analytical thinking

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12) Fassino Company sells a product for $40. Budgeted sales for the last quarter are as follows: October November December

$700,000 $800,000 $850,000

The company wants to maintain an inventory equal to 20% of the following month's sales. There are 9,000 units on hand at the beginning of the quarter.

Budgeted production in units for November are: A) 19,750.

B) 18,000.

C) 20,250.

D) 15,250.

Answer: C Explanation: C) Inventory - November Sales Beginning Inventory 4,000* 20,000*** Production ??

Ending Inventory 4,250** *($800,000/$40 x 20%) ** ($850,000/$40 x 20%) ***($800,000/$40) Ending Inventory = Beginning Inventory + Production - Sales 4,250 = 4,000 + Production 20,000 4,250 + 20,000 - 4,000 = Production 20,250 = Production Objective: 3 AACSB: Analytical thinking

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13) Working Industries has the following budgeted sales and production information: Sales in units Production in units

January February ??

123,850 101,035 126,600

On January 1st, the company has 9,850 units on hand. The company's policy is to have 10% of the next month's sales in units on hand at the end of each month. Budgeted unit sales for January are: A) 111,139.

B) 123,850.

C) 98,500.

D) December information is not provided so this question cannot be answered.

Answer: C Explanation: C) If the ending balance is 10% of the next month's sales, the beginning balance in January represents 10% of January sales.

January Sales = 9,850 / 10% January Sales = 98,500 Alternatively, this could be solved using T-Accounts.

Inventory - January Beginning Inventory 9,850 Sales Production 101,035 Ending Inventory 12,385*

??

* (123,850 x 10%) Ending Inventory = Beginning Inventory + Production - Sales 12,385 = 9,850 + 101,035 - Sales Sales = 9,850 + 101,035 - 12,385 Sales = 98,500 Objective: 3 AACSB: Analytical thinking 14) The direct materials budget determines the quantity and cost of raw materials that a company should purchase during the period and is based on the production budget.

Answer: TRUE Objective: 3 AACSB: Application of knowledge

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15) Manufacturers often budget to have direct materials on hand in excess of what is required to meet unanticipated demand.

What is NOT a reason manufacturers might budget to have extra direct materials?

A) To keep up with competitor's production.

B) A failure to accurately predict demand.

C) Delays in materials arriving.

D) Purchase of defective materials that are unable to be used in production.

Answer: A Objective: 3 AACSB: Reflective thinking 16) Cloud has budgeted unit quarterly sales and production as follows: January February March

14,000 17,000 15,000

Other information: - Each unit requires 2 pounds of direct materials - The policy is to have 5% of next month's sales and production as safety stock of direct materials ending inventory - Materials standard cost is $6 per pound What is the dollar amount of purchases for materials in January?

A) $84,900 B) $169,800 C) $168,000 D) $84,000 Answer: B Explanation: B) First, calculate the January production.

Inventory - January Beginning Inventory 700* Sales Production ?

Ending Inventory 850 **

14,000

*(14,000 x 5%) **(17,000 x 5%) Ending Inventory = Beginning Inventory + Production - Sales 850 = 700 + Production - 14,000 850 + 14,000 - 700 = Production 14,150 = Production Then, calculate the number of pounds required and the total cost for direct materials.

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January Purchases x # pounds needed x cost per pound Direct materials purchases

14,150 2 $6 $169,800

Objective: 3 AACSB: Analytical thinking 17) The direct labor budget determines the amount of hours needed and the cost of labor incurred during the manufacturing process. It is based on the production budget.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 18) Rosales Industries manufactures lip balm. Each unit takes 0.1 direct labor hours to produce.

The direct labor rate per hour is $20. Budgeted production for the year in units is as follows: Quarter 1 65,000

Quarter 2 45,000

Quarter 3 55,000

Quarter 4 80,000

Total 245,000

What is the projected total direct labor cost for the year?

A) $122,500 B) $4,900,000 C) $24,500 D) $490,000 Answer: D Explanation: D) Total Production 245,000 x DL hours/unit 0.1 x Cost per DLH $20 Direct Labor Cost $490,000 Objective: 3 AACSB: Analytical thinking

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19) For the upcoming month, Woodlands Company budgets sales of 90,000 units, production of 99,000 units, and direct labor cost of $2,450,250. The direct labor-hours required per unit is 1.5 hours.

What is the budgeted direct labor rate per hour? (Round answer to the nearest cent.)

A) $16.50 B) $24.75 C) $37.13 D) $18.15 Answer: A Explanation: A) Direct labor cost = DL cost per hour x number of DLH $2,450,250 = DL cost per hour x (99,000 x 1.5) $2,450,250 = DL cost per hour x 148,500 hours Direct labor costs $16.50 per hour Objective: 3 AACSB: Analytical thinking 20) The manufacturing overhead budget determines the total estimated indirect costs of production and is based on the production budget.

Answer: TRUE Objective: 3 AACSB: Analytical thinking 21) Variable overhead is estimated to be $10 per unit. Fixed overhead is estimated to be $50,000 per period within a relevant range of 1,000 to 50,000 units.

Which of the following is true?

A) Fixed overhead includes all of the following: raw materials, factory property taxes, and depreciation.

B) The fixed overhead per unit will decrease if more units are produced and the costs can be spread among more units.

C) If 5,000 units are produced, the manufacturing overhead for the period is estimated to be $90,000.

D) The variable overhead per unit will decrease if more units are produced and the costs can be spread among more units.

Answer: B Objective: 3 AACSB: Reflective thinking

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22) Gressel Company produces and sells calligraphy pens. Projected production for the year is 210,000 pens. Estimated costs include: Direct materials: $2.00 per pen Indirect materials and factory utilities: $0.50 per pen Factory property taxes: $9,000 per year Direct labor: $1.50 per hour Production supervisor's salary: $30,000 per year What is the expected total overhead for the year?

A) $525,000 B) $144,000 C) $114,000 D) $420,000 Answer: B Explanation: B) Overhead Costs: Indirect materials ($0.50 x 210,000) 105,000 Factory property taxes 9,000 Production supervisor's salary 30,000 Budgeted overhead costs 144,000 Objective: 3 AACSB: Analytical thinking 23) For March, James Company budgets production of 22,000 units and the following costs: Variable overhead: $17 per unit.

Advertising costs: $1,500 per month Depreciation expense related to production: $15,000 per month Production supervisor's salary: $4,000 per month What is the total budgeted manufacturing overhead costs for March?

A) $389,000 B) $323,000 C) $374,000 D) $393,000 Answer: D Explanation: D) Overhead Costs: Variable overhead ($17 x 22,000) 374,000 Depreciation expense 15,000 Supervisor's salary 4,000 Budgeted overhead costs 393,000 Objective: 3 AACSB: Analytical thinking

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24) The cost of goods sold budget for a manufacturer determines the estimated product costs during the period. The inputs come from the sales, direct materials, direct labor, and manufacturing overhead budgets.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 25) Tacky Tourist Products manufactures and sells souvenirs for $18 per souvenir. The sales price represents a markup of 50% above the cost of materials. The company projects the following for September: Beginning Inventory: 4,000 units Sales: 32,000 units Desired Ending Inventory: 16,000 units Conversion costs of $58,000 are budgeted for September. What is budgeted total production costs for September?

A) $850,000 B) $528,000 C) $586,000 D) $154,000 Answer: C Explanation: C) First, calculate the number of units to be produced.

Inventory - September Beginning Inventory 4,000 Sales Production ??

Ending Inventory 16,000

32,000

Ending Inventory = Beginning Inventory + Production - Sales 16,000 = 4,000 + Production - 32,000 16,000 + 32,000 - 4,000 = Production 44,000 = Production Then, calculate the cost of materials and add in the conversion costs.

Cost of Materials $528,000 Conversion 58,000 Budgeted Cost $586,000

$18 / 1.50 x 44,000

Objective: 3 AACSB: Analytical thinking

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26) Annual fixed overhead is estimated to be $10,000. Expected annual production is 2,000 units. Variable manufacturing costs are estimated at $2.00 per unit. Variable selling costs are projected to be $0.25 per unit. Fixed selling costs are estimated to be $20,000.

Which of the following is true?

A) If the flexible budget instead called for 1,000 units to be produced and sold for the year, the total annual costs are $32,250.

B) Estimated full product cost per unit is $7.25.

C) If the flexible budget instead called for 1,000 units to be produced and sold for the year, the total annual costs are $7,250.

D) Estimated variable cost per unit is $2.00.

Answer: A Explanation: A) Costs @ 1,000 units Fixed overhead $10,000 Variable costs ( ($2.00 + $0.25) x 1,000) 2,250 Fixed selling 20,000 Total costs 32,250 Objective: 3 AACSB: Analytical thinking 27) Budgeted annual fixed overhead is $100,000. Expected annual production is 5,000 units.

Direct materials are budgeted at $3.25 per unit. Variable selling costs are budgeted at $1.50 per unit. Conversion costs of $5 per unit assume production of 5,000 units.

What would be the effect on a flexible budget for 10,000 units instead? Assume there is available capacity to produce and no other constraints.

A) The product cost per unit would increase because fixed costs are spread over more units.

B) The product cost per unit would decrease because fixed costs are spread over more units.

C) The product cost per unit would not change because the contribution margin would not change.

D) The product cost per unit would increase because the contribution margin is spread over more units.

Answer: B Objective: 3 AACSB: Reflective thinking

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28) Clocks Inc has the following budgeted information for the second quarter: Variable selling and administrative costs $2,000 Fixed selling and administrative costs $13,500 Direct materials used in production $9,500 Direct materials purchased $19,000 Direct labor $16,000 Fixed overhead $4,500 Variable overhead $4,000 Assume no change in finished goods inventory. What is the estimated production cost for the quarter?

A) $43,500 B) $47,500 C) $34,000 D) $58,000 Answer: C Explanation: C) Production costs include direct materials, direct labor, and overhead.

Direct materials used Direct labor Fixed overhead Variable overhead Budgeted production costs

$9,500 16,000 4,500 4,000 34,000

Objective: 3 AACSB: Analytical thinking

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29) Fancy Runners manufactures and sells table runners. Quarterly projections include: Projected Sales (units) Projected Ending Inventory (units) Conversion Costs

August September 20,000 28,000 2,300 1,900 $13,000 $18,000

October 24,000 1,700 $16,000

- Materials expected cost is $5 per runner.

- Average sales price is $10 per runner.

What are the budgeted total production costs for September?

A) $156,000 B) $138,000 C) $340,000 D) $158,000 Answer: A Explanation: A) First, calculate the number of units to be produced.

Inventory - September Beginning Inventory 2,300 Sales Production ??

Ending Inventory 1,900

28,000

Ending Inventory = Beginning Inventory + Production - Sales 1,900 = 2,300 + Production - 28,000 1,900 - 2,300 + 28,000 = Production 27,600 = Production Then, calculate the cost of materials and add in the conversion costs.

Cost of Materials Conversion Budgeted Cost

138,000 (5 x 27,600) 18,000 $156,000

Objective: 3 AACSB: Analytical thinking 30) The budget for selling and administrative expenses determines the estimated period costs and is an input to the Budgeted Income Statement.

Answer: TRUE Objective: 3 AACSB: Application of knowledge

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31) Angulo Company has budgeted period costs as follows: - Depreciation expense for office equipment per quarter: $1,800 - Credit card fees per unit sold: $0.25 - Advertising expense per month: $200 - Rent for administrative office per month: $1,000 - Delivery expenses per unit sold: $1.00 If Angulo produces and sells 4,300 units in Quarter 1, what are the budgeted selling and administrative expenses for Quarter 1?

A) $10,775 B) $8,375 C) $22,675 D) $41,375 Answer: A Explanation: A) Quarter 1 Depreciation expense $1,800 Credit card fees 1,075 $0.25 x 4,300 transactions Advertising expense 600 $200 x 3 months Rent expense 3,000 $1,000 x 3 months Delivery expense 4,300 $1.00 x 4,300 units sold Budgeted SGA expense 10,775 Objective: 3 AACSB: Analytical thinking 32) Inputs into the Budgeted Income Statement for the period include the sales, cost of goods sold, and selling and administrative expenses budgets.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 33) If budgeted sales are low and budgeted cost of goods sold is high, the ending cash balance should always be negative.

Answer: FALSE Objective: 3 AACSB: Reflective thinking 34) Dividends, depreciation, and cost of goods sold are items that appear on the budgeted income statement.

Answer: FALSE Objective: 3 AACSB: Application of knowledge

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35) Identify the items that would appear on the budgeted income statement.

A) Cost of Goods Sold; amount paid to suppliers from last month's credit purchase of materials B) equipment purchased through long-term financing; depreciation expense C) amount paid to suppliers from last month's credit purchase of materials; CEO salary D) depreciation expense; CEO salary Answer: D Objective: 3 AACSB: Application of knowledge 36) Clark Company has the following quarterly projections: sales $50,000; gross margin 70% of sales; selling and administrative expenses $11,000; interest and tax expenses $2,500.

What is Clark's budgeted net income for the quarter?

A) $1,500 B) $21,500 C) $35,000 D) $24,000 Answer: B Explanation: B) Sales $50,000 Gross Margin ($50,000 x 70%) 35,000 SGA 11,000 Operating Income 24,000 Tax Expense 2,500 Net Income 21,500 Objective: 3 AACSB: Analytical thinking

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37) The following budget information is known for Eskew Company: - Salaries of $3,000 will incur each month. The December salaries will be paid on January 7.

- A 6-month insurance policy for $1,200 will be purchased on October 1.

- A $10,000 note payable must be paid on November 30.

- Total sales in the fourth quarter are projected to be $20,000. Of this amount, collections during the quarter are expected to be $18,000.

What is budgeted net income for the three-months ending December 31st?

A) $15,800 B) $9,800 C) $10,400 D) $16,400 Answer: C Explanation: C) Sales $20,000 Salaries expense 9,000 $3,000 x 3 months Insurance expense 600 $1,200 / 6 months x 3 months used Budgeted net income 10,400 Objective: 3 AACSB: Analytical thinking Learning Objective 10.4 1) The financial budget is comprised of the budgeted financial statements and the cash budgets.

Answer: TRUE Objective: 4 AACSB: Application of knowledge 2) Which budget should be prepared last?

A) Budgeted income statement.

B) Budgeted balance sheet.

C) Combined cash budget.

D) Sales budget.

Answer: B Objective: 4 AACSB: Application of knowledge 3) The Capital Expenditures budget reflects the investments in long-term assets and assists management with evaluating non-recurring expenditures and anticipated cash needs.

Answer: TRUE Objective: 4 AACSB: Application of knowledge

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4) Which of the following statements regarding the Capital Expenditures budget is incorrect?

A) It typically includes payments for purchases of materials.

B) The decision to purchase buildings and equipment is part of a strategic plan.

C) It does not include depreciation expense.

D) Capital expenditures typically exclude the issuance of capital stock.

Answer: A Objective: 4 AACSB: Reflective thinking 5) The capital expenditures budget represents the company's plan for purchasing current assets.

Answer: FALSE Objective: 4 AACSB: Application of knowledge 6) For a new store, One & Only Bridal projects that leasehold improvements of $75,000 will be paid as follows: 45% at the start of construction, 45% after 50% completion, and 10% upon completion. Other projected expenditures include: $5,000 for office equipment; $100,000 for inventory, and $2,000 for store equipment.

What are the projected capital expenditures for the new store?

A) $40,750 B) $182,000 C) $82,000 D) $140,750 Answer: C Explanation: C) Capital expenditure include leasehold improvements, office equipment and store equipment. Inventory is considered a current asset and not a capital expenditure (long term asset).

Leasehold improvements $75,000 Office equipment 5,000 Store equipment 2,000 Budgeted capital expenditures 82,000 Objective: 4 AACSB: Analytical thinking 7) The Cash Receipts Budget determines the estimated cash inflows for the period and is based on the sales budget.

Answer: TRUE Objective: 4 AACSB: Application of knowledge

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8) Prompt collections and cash sales maximize cash flows. Companies can also offer cash discounts to speed up collections.

Answer: TRUE Objective: 4 AACSB: Reflective thinking 9) Budgeted sales and budgeted cash receipts may differ from one another on a monthly or quarterly basis but they must equal on a year-to-date basis.

Answer: FALSE Objective: 4 AACSB: Reflective thinking 10) The following budgeted information is known for Rhea Company: Sales Cash Receipts

Q1 Q2 Q3 Q4 $320,000 $480,000 $800,000 $400,000 305,000 440,000 720,000 500,000

Rhea anticipates selling each unit at $8 each. Collection of sales are expected to be 75% in the quarter of the sale and the remaining 25% in the following quarter.

From the budget facts given, identify which of the following statements is incorrect.

A) If accounts receivable beginning balance in Q1 was $0 and Q1 cash receipts were instead projected to be $400,000, management should review the Q1 cash receipts projections.

B) In anticipation of a new bonus structure based on unit sales, Quarter 3 sales are projected to increase significantly.

C) Management should double capital expenditures by the end of Q4 in response to increased sales in Q3.

D) Promotions and advertising could influence the projected sales and cash receipts budgets.

Answer: C Objective: 4 AACSB: Reflective thinking

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11) Based on the visual analytics, which of the following would NOT be important to analyze further?

A) Economic trends and outlook.

B) Collections and credit policy.

C) Customer preferences for specific products.

D) Allocation of fixed costs.

Answer: D Objective: 4 AACSB: Reflective thinking

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12) Line Company began operations on January 1 of this year. Projected sales for the first quarter are: January$475,000 February450,000 March 375,000 Other budget information: - Cash sales are expected to be 10%; the remaining are credit sales - The expected credit collection pattern is: 75% in the month of sale, and 25% in the following month.

What are projected total cash receipts in February?

A) $348,750 B) $455,625 C) $456,250 D) $411,250 Answer: B Explanation: B) Budgeted Cash Receipts February Cash Sales ($450,000 x 10%) $45,000 Credit Sales This Month ($450,000 x 90% x 75%) 303,750 Previous Month ($475,000 x 90% x 25%) 106,875 Budgeted Cash Receipts $455,625 Objective: 4 AACSB: Analytical thinking

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13) Premiere Suits sells hand-detailed suits and provides alteration services. Budget information includes: - The average selling price per suit is $350.

- All of the $70,000 expected February alteration services revenue is projected to be collected in the same month.

- Suit sales are expected to be: 700 in January; 500 in February, and 600 in March.

- 85% of the suit sales are expected to be on credit with 90% collected in the month of sale and the rest in the month following the sale.

What are expected February operating cash receipts for Premiere Suits?

A) $250,950 B) $281,750 C) $180,950 D) $230,125 Answer: A Explanation: A) Budgeted Cash Receipts February Cash Sales - Alteration $70,000 Cash Sales - Suits ($350 x 500 x 15%) 26,250 Credit Sales This Month ($350 x 500 x 85% x 90%) 133,875 Previous Month ($350 x 700 x 85% x 10%) 20,825 Budgeted Cash Receipts $250,950 Objective: 4 AACSB: Analytical thinking 14) The Cash Disbursements Budget reflects estimated cash outflows for the period.

Manufacturers base this budget on the amounts reported on the following budgets: direct materials, direct labor, manufacturing overhead, selling and administrative expenses, and capital expenditures.

Answer: TRUE Objective: 4 AACSB: Application of knowledge 15) On April 2, a 1-year insurance policy is purchased with cash. On the April to June Cash Disbursements Budget, one quarter of the insurance policy will appear as a negative item.

Answer: FALSE Objective: 4 AACSB: Application of knowledge 16) A company should only pay all of its purchases in the same month if the cash discount savings are greater than other uses of the cash.

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17) Bote Company's budgeted direct materials purchases are $10,000 in January, $15,000 in February, and $12,000 in March. Payments to suppliers are 35% in the month of purchase, 60% in the following month, and 5% in the second month following the purchases.

What are the budgeted payments to suppliers in March?

A) $13,700 B) $13,100 C) $12,000 D) $4,200 Answer: A Explanation: A) Budgeted Cash Disbursements March This month ($12,000 x 35%) $4,200 Previous month ($15,000 x 60%) 9,000 2 months ago ($10,000 x 5%) 500 Budgeted Cash Disbursements $13,700 Objective: 4 AACSB: Analytical thinking 18) Lily & Lace, LLC has the following budgeted cash disbursements: - Property taxes of $2,000 to be paid annually in October.

- Salaries of $10,000 per month to be paid 50% in the month incurred and 50% in the following month.

- Rent of $7,000 per month to be paid from the prior month.

- Workers' Compensation Insurance of $3,000 to be paid semi-annually in March and September.

- Depreciation of $1,500 per month.

What are Lily & Lace's budgeted cash disbursements for March?

A) $21,500 B) $20,000 C) $15,000 D) $23,500 Answer: B Explanation: B) Budgeted Cash Disbursements March Salaries (50% this month and 50% next month) $10,000 Rent 7,000 Workers' Compensation 3,000 Budgeted Cash Disbursements $20,000 Objective: 4 AACSB: Analytical thinking

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19) The Combined Cash Budget reflects the total cash inflow (outflow) for the period and assists managers with managing the cash balance.

Answer: TRUE Objective: 4 AACSB: Application of knowledge 20) If a monthly cash deficiency is anticipated, a loan should be arranged at the end of that month to ensure adequate funds.

Answer: FALSE Objective: 4 AACSB: Reflective thinking 21) Which of the following items would NOT appear on the budgeted quarterly statement of cash receipts and disbursements?

A) Common stock issued for cash during the quarter.

B) Cash purchase of 5-year equipment.

C) Rent paid in the current quarter that had been incurred in the prior quarter.

D) Depreciation expense.

Answer: D Objective: 4 AACSB: Application of knowledge 22) Q1 Q2 Q3 Q4

Beginning Balance $15,000 $15,000 $12,000 $14,000

Cash Cash Receipts Payments $30,000 $30,000 $45,000 $48,000 $42,000 $40,000 $50,000 $46,500

Ending Balance $15,000 $12,000 $14,000 $17,500

Juniperberry Jam Company wishes to maintain a $15,000 cash balance. Excess funds can earn a 3% return. Cash deficiencies must be financed at 10% rate on a line of credit. Which of the following statements is true?

A) The net annual cash deficiency is $375.

B) Juniperberry will have to access the line of credit in multiple quarters.

C) Juniperberry should plan on investing excess cash in Q2.

D) Given the projections, at the end of Q4, Juniperberry could repay the full amount borrowed on the line of credit during the year.

Answer: B Objective: 4 AACSB: Reflective thinking

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23) The following visualizations compare cash receipts to cash payments for the year. Which of the visualizations best highlights the quarterly trends of cash receipts and cash payments for further analysis and decision making?

A)

B)

C)

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D)

Answer: A Objective: 4 AACSB: Reflective thinking 24) For Quarter 1, Shadow Ranch Company projects cash receipts of $60,000, cash disbursements of $52,500 and beginning Cash balance of $17,500.

What is the projected balance of Cash at the end of Quarter 1?

A) -$10,000 B) $130,000 C) $25,000 D) $10,000 Answer: C Explanation: C) Beginning Balance Cash $17,500 + Cash Receipts 60,000 - Cash Disbursements 52,500 Ending Balance Cash $25,000 Objective: 4 AACSB: Analytical thinking

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25) At the beginning of the month, Petunia LLC had a Cash balance of $52,000. During the month, Petunia projected collections of $200,000 and cash disbursements of $379,000. Petunia desires a minimum cash balance of $20,000. Excess cash can be deposited in short-term investments. Cash deficiencies can be resolved by drawing on an existing line of credit.

Given the projections, Petunia should: A) borrow $199,000.

B) deposit $107,000.

C) borrow $127,000.

D) borrow $147,000.

Answer: D Explanation: D) Beginning Balance Cash + Cash Receipts - Cash Disbursements Ending Balance Cash Desired Balance Borrow

$52,000 200,000 379,000 -127,000 20,000 147,000

Objective: 4 AACSB: Analytical thinking 26) The Budgeted Balance Sheet reflects the balances in asset, liability, and equity accounts at the end of a period. Inputs for the Budgeted Balance Sheet include: the cash receipts and disbursements budgets, the capital expenditures budget, and the budgeted income statement.

Answer: TRUE Objective: 4 AACSB: Application of knowledge

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27)

Which of the following statements is correct?

A) The company budget reflects a sound financial position to pay all outstanding debt.

B) Total projected cash available for dividends and capital expenditures is $49,840 as of the Balance Sheet date.

C) The Balance Sheet is for a service company.

D) If the company could plan on accelerating the sale of existing inventory, the company would project an increase in accounts payable.

Answer: A Objective: 4 AACSB: Reflective thinking

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28) Bay Villa Corporation has the following budget information: Month March April May June

Budgeted Purchases $8,100 7,650 8,900 6,600

Budgeted purchases are paid as follows: - 30% in the month of purchase - 65% in the month after purchase - 5% in the second month after purchase What is the expected balance of Accounts Payable as of May 31st? (Round your final answer to the nearest dollar.)

A) $5,065 B) $6,613 C) $7,643 D) $11,585 Answer: B Explanation: B) The balance in Accounts Payable at May 31 represents the total amount of purchases that remain unpaid related to May and April.

May Unpaid ($8,900 x (65% + 5%) April Unpaid ($7,650 x 5%) Budgeted Accounts Payable

$6,230 382.5 $6,613

Objective: 4 AACSB: Analytical thinking

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29) Compere Company has created the following 6-month sales budget: January February March

$120,000 April 75,000 May 90,000 June

$85,000 110,000 100,000

All sales are on credit. The expected sales collection pattern is: - 50% collected in the month of sale - 40% collected in the month following the sale - 10% collected in the second month following the sale What is the projected balance of Accounts Receivable as of April 30th?

A) $86,000 B) $42,500 C) $51,500 D) $78,500 Answer: C Explanation: C) The balance in Accounts Receivable at April 30 represents the total amount of cash that remains uncollected from customers related to April and March sales on credit.

April Uncollected $85,000 x ($40% + 10%) March Uncollected $90,000 x 10% Budgeted Accounts Receivable

$42,500 9,000 $51,500

Objective: 4 AACSB: Analytical thinking

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30) The following budgeted information is known:

Also known: All inventory purchases are on credit. Payments are expected to be 75% in the month of purchase and the remainder in the following month.

Which of the following statements is true?

A) Projected September cost of inventory available for sale is $55,224.

B) September payments related to September purchases cannot be determined from the information given.

C) October cash outflows are projected to be $48,750.

D) Beginning balance of finished goods inventory for the year is budgeted at $10,764.

Answer: A Objective: 4 AACSB: Reflective thinking

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31) The following budgeted information is known:

Which of the following statements is false?

A) Operating income is projected to be $58,240 for October.

B) Gross Margin is projected to be $53,760 for October.

C) Net cash inflows is projected to be $45,883 for October.

D) Purchases, finished goods inventory, and cost of goods sold are all projected to increase from September to October.

Answer: A Objective: 4 AACSB: Reflective thinking 32) Which of the following statements does not potentially violate the IMA's Standards of Ethical Professional Practice?

A) Sales personnel are paid a bonus if they significantly increase sales compared to previous periods. The marketing director underestimated sales for this period when developing the sales budget so that the bonus is likely to be achieved.

B) The service team intentionally padded the budget to ensure a bonus for later spending less than budgeted.

C) The budgeting director developed the budgeted balance sheet using a much lower interest rate than was quoted by the bank in anticipation of interest rates decreasing in future months.

D) The accounting manager suggests deferring scheduled maintenance on equipment.

Answer: D Objective: 4 AACSB: Reflective thinking

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Learning Objective 10.5 1) The budgeting process for a service company is more complex because it includes more components than a manufacturer's master budget.

Answer: FALSE Objective: 5 AACSB: Application of knowledge 2) What financial statement account will not appear on a budgeted balance sheet for a service company?

A) Accounts payable.

B) Cash.

C) Inventory.

D) Revenue.

Answer: C Objective: 5 AACSB: Application of knowledge 3) Riverwalk Boating Company provides boat rentals. Fassino's Fashions sells t-shirts and souvenirs.

Which item is included in the budget for Fassino's Fashions but not in Riverwalk Boating's budget?

A) Payroll costs.

B) Capital expenditures.

C) Future sales.

D) Inventory purchases.

Answer: D Objective: 5 AACSB: Application of knowledge

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4) Liana Air Company has budgeted unit quarterly sales as follows: January February March

29,000 34,000 24,000

Also known: - Budgeted sales price per unit is $58 - The company wishes to have finished goods ending inventory equal to 5% of next month's sales as safety stock - The expected unit product cost is $27 What is the dollar amount of finished goods purchases in January?

A) $789,750 B) $1,696,500 C) $906,750 D) $783,000 Answer: A Explanation: A) First, calculate the number of units to be purchased.

Inventory - January Beginning Inventory 1,450* Sales Production ??

Ending Inventory 1,700**

29,000

*29,000 x 5% **34,000 x 5% Ending Inventory = Beginning Inventory + Purchases - Sales 1,700 = 1,450 + Purchases - 29,000 1,700 - 1,450 +29,000 = Purchases 29,250 = Purchases Then, calculate the cost of purchases.

Budgeted Units 29,250 Budgeted Cost $27 Budgeted Purchases $789,750 Objective: 5 AACSB: Analytical thinking

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5) Budgeted information for Pet Grooming Company is: Sales

April $180,000

May $240,000

Payroll Costs: $3,000 per month + 10% of Sales Other Monthly Operating Costs: $9,000 What is budgeted operating income for May? A) $213,000 B) $204,000 C) $228,000 D) $150,000 Answer: B Explanation: B) Budgeted Income Statement May Sales $240,000 Payroll ($3,000 + $240,000 x 10%) 27,000 Other Costs 9,000 Operating Income $204,000 Objective: 5 AACSB: Analytical thinking 6) Bright Bottling Company has the following budget information: Desired ending inventory: 10% of next month's sales Budgeted Sales Budgeted Cost of Goods Sold

June $750,000 300,000

July $900,000 360,000

Which of the following cannot be determined from the data provided?

A) Budgeted July purchases.

B) Budgeted June purchases.

C) Budgeted June ending inventory.

D) Budgeted June beginning inventory.

Answer: A Objective: 5 AACSB: Reflective thinking

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Learning Objective 10.6 1) Assumptions are to scenario planning as activity volume is to: A) participatory budget.

B) rolling forecast.

C) zero-based budgeting.

D) flexible budget.

Answer: D Objective: 6 AACSB: Reflective thinking 2) A budget that changes as a result of changes in activity is to flexible budget as a planning tool where the number of period remains the same but months and data are updated is to: A) zero-based budgeting.

B) budgetary slack.

C) rolling forecast.

D) participatory budget.

Answer: C Objective: 6 AACSB: Reflective thinking 3) Anzalone Art Supplies sells premium art supplies. Aly, the owner, travels around the world to find different products to sell; she does not make any of the products herself.

What would NOT be a scenario that Aly might want to consider when preparing the operational budgets for the upcoming year?

A) What if she doubles the capital expenditures on machinery and equipment?

B) What if the art supplies she typically purchases are banned and not available for purchase?

C) What if the minimum wage increases to $15.00?

D) What if consumer preferences shift to more sustainable products?

Answer: A Objective: 6 AACSB: Reflective thinking

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4) The following is information is known about Sanchez Company's budget: - Sanchez Company projects sales to increase 20% each month.

- July sales are expected to be $80,000.

What are September budgeted sales?

A) $112,000 B) $115,200 C) $96,000 D) $32,000 Answer: B Explanation: B) July Sales $80,000 August Sales $96,000 $80,000 x 20% increase September Sales $115,200 $96,000 x 20% increase Objective: 6 AACSB: Analytical thinking 5)

Which of the following should Silver not take into consideration when evaluating the two scenarios?

A) The long-term satisfaction of customers.

B) The allocation of overhead and executive salaries.

C) The allocation of advertising between print, online, and social media.

D) The quality of competitor's materials and the reaction to the advertising campaign.

Answer: B Objective: 6 AACSB: Reflective thinking 41 Copyright © 2023 Pearson Education, Inc.

6) For the upcoming year, Kralik's Krazy Kostumes budgets gross sales of $50,000 and cost of goods sold of $25,000. All current sales are cash sales. What is the effect on gross margin if Kralik's instead only accepts credit cards as payment and credit cards have a fee of 3% of sales?

A) Decrease by $750.

B) Increase by $750.

C) Decrease by $1,500.

D) Increase by $1,500.

Answer: C Explanation: C) Gross margin would decrease by the amount of credit card fees.

Credit card fees = $50,000 x 3% Credit card fees = $1,500 Objective: 6 AACSB: Analytical thinking Learning Objective 10.7 1) Budgetary slack is more likely with a bottoms-up budget approach; managers may add slack in order to be able to achieve performance targets later.

Answer: TRUE Objective: 7 AACSB: Application of knowledge 2) What is the term when managers add a cushion into budgets to ensure that they will meet or exceed the budget?

A) Sensitivity analysis.

B) Budgetary slack.

C) Zero-based budgeting.

D) Participatory budgeting.

Answer: B Objective: 7 AACSB: Application of knowledge 3) A major criticism of the budgeting process is that the traditional master budget is not timely because it is prepared once a year.

Answer: TRUE Objective: 7 AACSB: Application of knowledge 4) Data analytics provides the opportunity for management to integrate financial, operational, and external information into the budgeting process.

Answer: TRUE Objective: 7 AACSB: Application of knowledge

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5) The following visualization compares the actual monthly sales from last year and two years ago to the budgeted sales for the upcoming year.

Is the visualization of the current year's sales budget useful for decision making?

A) No. The budget does not capture the historic trend of seasonality.

B) Yes. December's budgeted sales is consistent with an anticipated 5% growth rate.

C) Yes. It is appropriate because the actual amounts from January to June two years ago and last year are consistent.

D) No. There is too much variability in the data for budgeting to be useful for decision making.

No budget should be prepared.

Answer: A Objective: 7 AACSB: Reflective thinking

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Managerial Accounting, 1e (Cainas, Pope, Joszi) Chapter 11 Standard Costs and Performance Evaluation Learning Objective 11.1 1) The master budget is often called the static budget and is prepared before the budget period begins.

Answer: TRUE Objective: 1 AACSB: Application of knowledge 2) The flexible budget calculates what the revenues and costs should be using the company's ideal capacity.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 3) Not-for-profit organizations should compare actual results against flexible budgets for the services provided in order to identify non-value-added activities.

Answer: TRUE Objective: 1 AACSB: Reflective thinking 4) Which component of the flexible budget remains constant, within the relevant range, despite changes in sales volume?

A) Total operating income (loss).

B) Total gross margin.

C) Total sales revenue.

D) Total fixed costs.

Answer: D Objective: 1 AACSB: Application of knowledge 5) When using the input-process-output framework for variance analysis, output is to a performance report as input is to: A) preparing a flexible budget.

B) interviewing marketing, production, and purchasing individuals.

C) analyzing variances.

D) taking corrective actions in order to eliminate non-value-added activities.

Answer: B Objective: 1 AACSB: Reflective thinking

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6) Actual costs were less than the master budget. A company's results are evaluated against the master budget. All significant variances are investigated.

Why might this comparison not provide relevant information?

A) The variable cost variances could be incorrectly interpreted due to a difference in sales activity.

B) A balanced scorecard must be used when evaluating results.

C) The master budget does not include direct materials, direct labor, and overhead costs.

D) There is no reason to evaluate actual results against a master budget since the actual costs are already incurred.

Answer: A Objective: 1 AACSB: Reflective thinking Learning Objective 11.2 1) Unfavorable variances should be investigated. Favorable variances should be ignored because actual costs are less than budgeted costs.

Answer: FALSE Objective: 2 AACSB: Application of knowledge 2) Variances only list the amounts over or under budget but do not explain the causes of the problems.

Answer: TRUE Objective: 2 AACSB: Reflective thinking 3) With increased automation, standard cost systems should ignore significant labor and overhead variances because the technology is a fixed cost.

Answer: FALSE Objective: 2 AACSB: Reflective thinking 4) Variances between actual and budgeted costs would not occur because of a: A) change in revenues.

B) change in activity.

C) change in a competitor.

D) change in costs.

Answer: C Objective: 2 AACSB: Application of knowledge

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5) Which of the following is an example of a favorable variance?

A) Actual activity is less than expected.

B) Actual sales are higher than expected.

C) Actual costs are higher than expected.

D) Actual sales are less than expected.

Answer: B Objective: 2 AACSB: Application of knowledge 6) Which of the following describes efficiency when analyzing a company's results against budget?

A) How well the company used its inputs to produce its outputs.

B) How well the company has attained its objectives as set forth in the master budget.

C) The difference in expected units to be produced and units actually produced.

D) Efficiency is not relevant to the performance analysis process.

Answer: A Objective: 2 AACSB: Reflective thinking 7) The performance report helps management understand differences in expected results and identify problems that need to be addressed.

Answer: TRUE Objective: 2 AACSB: Application of knowledge

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8) The following is a performance report for Kralikova Corporation.

Which of the following statements is false?

A) The sales variance is unfavorable.

B) The fixed cost spending variance is favorable.

C) The variable cost difference between actuals and flexible budget variance is favorable.

D) The operating income difference between the actual and flexible budget variance is unfavorable.

Answer: B Objective: 2 AACSB: Analytical thinking 9) Cory's Colanders prepared the following performance report for the last quarter.

Units Revenue Variable Costs Contribution Margin

Actual Master Flexible Income Budget Budget Statement 13,000 10,400 10,400 $130,000 $83,200 $74,880 $52,000 $33,280 $37,960 $78,000 $49,920

$36,920

What is the correct interpretation of the chart?

A) Variable costs were inefficient by $4,680.

B) Variable costs were efficient by $14,040.

C) Revenue was inefficient by $55,120.

D) The contribution margin percentage was better than expected.

Answer: A Explanation: A) Efficiency evaluates how well the resources were used. In this scenario, the variable costs were inefficient by $4,680 because the actual costs of $37,960 exceeded the flexible budget amount of $33,280.

Objective: 2 AACSB: Analytical thinking 4 Copyright © 2023 Pearson Education, Inc.

Learning Objective 11.3 1) Variances should not be analyzed because the actual costs incurred are sunk costs.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 2) Ideal standards motivate employees to excel because they represent what it should cost to produce units when conditions are perfect.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 3) A standard cost should be developed for each different type of product.

Answer: TRUE Objective: 3 AACSB: Reflective thinking 4) For product costing under a standard costing system, unfavorable variances are recorded in cost of goods sold and favorable variances are recorded in Work in Process Inventory.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 5) Standard costs are not determined by: A) performing time and motion studies of equipment.

B) evaluating all operating activities.

C) analyzing historical costs.

D) examining competitors' pricing.

Answer: D Objective: 3 AACSB: Application of knowledge 6) A golf ball manufacturer bases its standard costs on ideal conditions.

What is one potential consequence of using ideal standards instead of practical standards?

A) Operations may be at less than optimal level.

B) Employees may view goals as unrealistic and become demotivated.

C) Employees may view the goals as easy and be unmotivated to continuously improve.

D) There is sufficient allowance for down-time and inefficiencies.

Answer: B Objective: 3 AACSB: Application of knowledge

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7) Developing a standard cost for each product does not help a company: A) allocate overhead costs to each job.

B) understand its costs.

C) analyze the root cause of variances.

D) set competitive prices for its products.

Answer: A Objective: 3 AACSB: Reflective thinking 8) The production supervisors are usually responsible for both the price and quantity variances for direct materials.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 9) Fixed overhead price and volume variances are calculated for control purposes but not for recording fixed costs.

Answer: FALSE Objective: 3 AACSB: Application of knowledge 10) The direct labor rate is to labor contracts as the direct materials price is to: A) work orders.

B) maintenance contracts.

C) purchase orders.

D) timesheets.

Answer: C Objective: 3 AACSB: Reflective thinking 11) The direct materials quantity variance is to the production manager as the direct materials price variance is to: A) chief human resources officer.

B) production department.

C) engineering department.

D) purchasing agent.

Answer: D Objective: 3 AACSB: Reflective thinking

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Learning Objective 11.4 1) The direct materials price variance determines the difference between the amount paid for materials and the amount in the budget for direct material purchases.

Answer: TRUE Objective: 4 AACSB: Application of knowledge 2) The Fashionista Company produces popular fashion scarves. The following is known for the upcoming year for the production and sale of 5,700 scarves: Standard Costs per scarf: 4.50 yards at $10 per yard Actual Costs: Production and sales: 6,700 scarves.

Purchases: 32,750 yards at $10.50 per yard.

Production usage: 29,750 yards.

Which of the following statements is incorrect?

A) The direct materials flexible budget variance is primarily driven by an increased cost of raw materials.

B) The direct materials flexible budget variance is $12,375 unfavorable.

C) The direct materials quantity variance is $10,875 favorable.

D) The direct materials price variance is $16,375 unfavorable.

Answer: C Explanation: C) Direct Materials Quantity Variance is $6,000 favorable, not $1,000 favorable. = (AQ used - SQ) SP = [29,750 - (4.50 x 6,700)] × 10 = (400) × $10 = $4,000 favorable The variance is favorable because the yards used in production (29,750) is less than the budgeted production (30,150).

Objective: 4 AACSB: Analytical thinking

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3) The DIY Company manufactures spray paint to repurpose worn down furniture. The following is known for last year.

Standard Cost per Can of Spray Paint: 0.5 feet of aluminum at $3.00 per foot Actual Costs: Purchases: 1,200 feet at $3.50 per foot Production usage: 1,600 feet Production: 1,800 cans of spray paint Also known: Budgeted Production: 1,900 cans of spray paint What was the direct materials quantity variance?

A) $1,950 unfavorable.

B) $2,100 unfavorable.

C) $2,450 unfavorable.

D) $2,275 unfavorable Answer: B Explanation: B) Direct Materials Quantity Variance = (AQ used - SQ) SP = [1,600 - (0.5 × 1,800)] × 3.00 = 700 × $3.00 = $2,100 unfavorable The variance is unfavorable because the feet used in production (1,600) exceeded the budgeted production (900).

Objective: 4 AACSB: Analytical thinking

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4) The performance report for James's Jump Ropes includes the following direct materials variances: Price Variance: $2,400 unfavorable Flexible budget (total) variance: $5,900 favorable Also known: Units produced: 3,700 Materials purchased and used: 6,700 yards Standards per unit: 2 yards @ $5 per yard What was the price paid per pound? (Rounded to the nearest cent.)

A) $5.36 B) $5.88 C) $4.64 D) $4.53 Answer: A Explanation: A) Direct Materials Price Variance = (AP - SP) AQ Purchased $2,400 unfavorable = (AP - $5) × 6,700 $0.36 unfavorable = (AP - $5) AP = $5.36 The $0.36 is added to the standard price of $5 because the variance is unfavorable. In other words, the actual cost of the direct materials exceeded budgeted cost by $0.36.

Objective: 4 AACSB: Analytical thinking 5) The direct labor rate variance identifies the difference between the budgeted labor rate and the labor rate paid.

Answer: TRUE Objective: 4 AACSB: Application of knowledge

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6) Dunn Corporation produces custom driving gloves and reported the following information for last year: Standard costs: 1.5 hours per glove @ $19 per direct labor hour Actual costs: Production: 5,200 gloves using 7,600 labor hours Cost per Direct Labor Hour: $22 Also known: Budgeted Production and Sales: 4,500 gloves What was the direct labor quantity (efficiency) variance?

A) $3,800 favorable.

B) $18,700 favorable.

C) $4,400 favorable.

D) $16,150 favorable.

Answer: A Explanation: A) Direct Labor Quantity (Efficiency) Variance = (AH - SH) SR Direct Labor Quantity Variance = (7,600 - 1.75 x 5,500) × $19 = (7,600 - 7,800) × $19 = $3,800 favorable The direct labor quantity (efficiency) variance is favorable because the actual direct labor hours used to manufacture the gloves (7,600) was less than the budgeted direct labor hours to manufacture the 5,200 gloves (7,800).

Objective: 4 AACSB: Analytical thinking

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7) Saoirse Company is known for its soft, handmade blankets and throws. The following is known for the last year: Standard costs per blanket: 3.5 yards at $25 per yard 2.5 hours at $23 per hour Actual costs for 25,000 blankets produced and sold: Purchases: 86,500 yards at $28 per yard Production usage: 84,500 yards and 65,500 direct labor hours Total direct labor cost: $1,473,750 What is the price variances for direct materials and the rate variance for direct labor?

A) Direct Materials: $253,500 unfavorable Direct Labor: $31,250 favorable B) Direct Materials: $259,500 unfavorable Direct Labor: $31,250 favorable C) Direct Materials: $259,500 unfavorable Direct Labor: $32,750 favorable D) Direct Materials: $253,500 unfavorable Direct Labor: $32,750 favorable Answer: C Explanation: C) Direct Materials Price Variance = (AP - SP) AQ Purchased = ($28 - $25) × 86,500 = ($3) × $86,500 = $259,500 unfavorable The direct materials price variance is unfavorable because the cost paid per yard ($28) was greater than the budgeted cost per yard ($25).

Direct Labor Rate Variance = (AR - SR) AH = [($1,473,750/65,500) - $23] × 65,500 = ($22.50 - $23) × 65,500 = $32,750 favorable The direct labor rate variance is favorable because the cost per direct labor hour ($22.50) was less than the budgeted cost per direct labor hour ($23).

Objective: 4 AACSB: Analytical thinking

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8) The performance report of Baaske Baggage Inc. included the following variances for direct labor: Price (rate): $2,050 unfavorable Quantity (efficiency): $4,400 favorable Also known: Units produced: 6,500 Actual hours: 9,000 Standard cost per direct labor hour: $11 What were the standard direct labor hours allowed for production?

A) 9,186 B) 6,686 C) 6,900 D) 9,400 Answer: D Explanation: D) Direct Labor Quantity (Efficiency) Variance = (AH - SH) SR $4,400 favorable = (9,000 - SH) $11 400 favorable = 9,000 - SH SH = 9,400 hours The 400 hours are added to the actual hours of 9,000 because the direct labor quantity variance is favorable. In other words, the number of direct labor hours used in production of the baggage is less than the budgeted direct labor hours.

Objective: 4 AACSB: Analytical thinking

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9) The performance report for Zhang Industries includes the following variances:

Direct Materials Direct Labor Variable Overhead

Flexible Budget $25,500 F $10,000 U $14,200 F

Price $5,000 U ?? $16,700 F

Quantity ?? $7,500 U $2,500 U

Some items are missing. Based on the other information provided, what is the direct labor rate variance?

A) 17,500 F B) 2,500 U C) 7,500 F D) Information on the standard and actual direct labor rates is needed to solve the problem.

Answer: B Explanation: B) Direct Labor Flexible Budget Variance = Direct Labor Price Variance + Direct Labor Quantity Variance $10,000 U = Direct Labor Price Variance + $7,500 U Direct Labor Price Variance = $10,000 U - $7,500 U Direct Labor Price Variance = $2,500 U The amounts can be subtracted from each other because both variances are unfavorable.

Objective: 4 AACSB: Analytical thinking

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10) Carrillo Company manufactures drink koozies. The following is known for the budgeted production and sale of 11,500 koozies: Standard costs: 0.75 hour per koozie @ $16 per direct labor hour Actual costs for the 11,000 units produced and sold: Total payroll costs: $123,900 for 8,850 labor hours.

Which of the following statements is correct?

A) The direct labor efficiency variance is $3,600 U. B) The direct labor rate variance is $17,700 F. C) The direct labor flexible budget variance is $14,100 F. D) The direct labor flexible budget variance is primarily driven by the decreased wages paid to employees.

Answer: B Explanation: B) Direct Labor Rate Variance = (AR - SR) AH = [($123,900/8,850) - 16] × 8,850 = ($14 - $16) × 8,850 = $17,700 favorable The direct labor rate variance is favorable because the cost per direct labor hour ($14) was less than the budgeted cost per direct labor hour ($16).

Objective: 4 AACSB: Analytical thinking 11) The fixed overhead volume variance measures the difference between the fixed overhead costs incurred and the standard fixed overhead cost allocated to production.

Answer: FALSE Objective: 4 AACSB: Application of knowledge 12) Assume that overhead is applied using machine hours. The fixed overhead spending variance must be unfavorable if the direct labor efficiency variance is unfavorable.

Answer: FALSE Objective: 4 AACSB: Reflective thinking

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13) Richter Productions manufactured 5,000 units in March. Normal activity per month is 4,500 units. The March budgeted fixed overhead was $12,400. Actual fixed overhead for March was $14,600.

What was the March fixed overhead spending variance?

A) 2,200 U B) 2,200 F C) 1,200 U D) 1,200 F Answer: A Explanation: A) Fixed Overhead Spending Variance = actual fixed overhead - budgeted fixed overhead = $14,600 - $12,400 = 2,200 unfavorable The variance is unfavorable because the actual fixed overhead incurred was greater than the amount budgeted.

Objective: 4 AACSB: Analytical thinking 14) Fancy Fixing uses a standard costing system and reports the following fixed overhead information for December: Standards per unit: 5 hours @ $4.00 per hour Actual units produced: 26,000 Variances: Spending variance: $2,200 unfavorable Volume variance: $8,200 unfavorable What was the amount of budgeted fixed overhead for December?

A) $511,800 B) $520,000 C) $522,200 D) $528,200 Answer: D Explanation: D) Fixed Overhead Volume Variance = budgeted fixed overhead - applied fixed overhead $8,200 unfavorable = budgeted fixed overhead - 26,000 units × 5 hours per unit × $4.00 per hour $8,200 unfavorable = budgeted fixed overhead - $520,000 Budgeted fixed overhead = $528,200 The $8,200 is added to the total applied overhead because the fixed overhead volume variance is unfavorable. In other words, the amount of fixed overhead applied to units is more than the amount budgeted for fixed overhead.

Objective: 4 AACSB: Analytical thinking 15 Copyright © 2023 Pearson Education, Inc.

15) Costa's Calendars uses a standard cost system to apply factory overhead costs based on machine hours. The following facts are known: Standard costs: Flexible budgeted machine hours: 24,000 Practical capacity: 29,000 machine hours Variable overhead rate: $1.50 per machine hour Actual costs: Machine hours: 25,000 Variable overhead cost: $1.25 per machine hour Which of the following statements is incorrect?

A) The variable overhead flexible budget variance is $4,750 favorable.

B) The variable overhead rate variance is $6,250 unfavorable.

C) The variable overhead efficiency is $1,250 unfavorable.

D) The variable overhead flexible budget variance ignores the practical capacity machine hours.

Answer: C Explanation: C) Variable Overhead Quantity (Efficiency) Variance = (AH - SH) SR Variable Overhead Quantity Variance = (25,000 - 24,000) $1.50 = (1,000) $1.50 = $1,500 unfavorable The variable overhead quantity (efficiency) variance is unfavorable because the actual machine hours used to manufacture the calendars (25,000) was more than the flexible budget machine hours (24,000).

Objective: 4 AACSB: Analytical thinking Learning Objective 11.5 1) A company may define a "significant variance" in terms of a dollar amount, a percentage of the standard, or a statistical limit.

Answer: TRUE Objective: 5 AACSB: Application of knowledge 2) A bonus for realizing a favorable direct materials price variance may motivate the purchasing department to buy inferior goods.

Answer: TRUE Objective: 5 AACSB: Reflective thinking

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3) Hula Hoop Company budgeted to manufacture 10,000 units for the upcoming year. After the first quarter, the sales team revised projections that customers would only buy 8,000 total units during the year.

What should Hula Hoop Company NOT do?

A) Let the facility sit idle.

B) Lease out the facility to another company.

C) Manufacture a different product.

D) Accept a special discounted order.

Answer: A Objective: 5 AACSB: Reflective thinking 4) As part of the management by exception philosophy, a ring light manufacturer gives bonuses based on achieving favorable variances.

Which of the following might indicate that managers are rewarded based on the direct materials price variance?

A) Reclassifying expenses from selling and administrative to cost of goods sold.

B) Producing more products than customer demand.

C) Hiring of new employees without prerequisite skills.

D) Purchasing of direct materials below minimum quality requirements.

Answer: D Objective: 5 AACSB: Ethical understanding and reasoning 5) Which of the following incentives would most likely result in positive overall performance?

A bonus is awarded if: A) less materials are used than expected.

B) a company receives high customer satisfaction ratings.

C) lower fixed costs are incurred than expected.

D) lower prevention and appraisal costs are incurred than expected.

Answer: B Objective: 5 AACSB: Reflective thinking

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6) As part of the management by exception philosophy, a camera manufacturer gives bonuses based on positive direct labor efficiency variances.

Which of the following is a potential consequence of this performance system?

A) Reducing production levels instead of meeting customer demand.

B) Higher internal and external failure costs.

C) Higher defects.

D) Underestimating capacity.

Answer: C Objective: 5 AACSB: Ethical understanding and reasoning 7) A favorable direct materials price variance and an unfavorable direct materials quantity variance might be the result of cheaper, lower quality materials.

Answer: TRUE Objective: 5 AACSB: Reflective thinking 8) Which of the following is NOT the cause of an unfavorable direct materials quantity variance?

A) Machine downtime.

B) Higher quality materials.

C) Poor scheduling.

D) Equipment inefficiencies.

Answer: B Objective: 5 AACSB: Reflective thinking 9) Cainas Cookies bakes and sells custom cookies. The cost of flour doubled this quarter.

Which variance would reflect this change?

A) Direct materials price variance.

B) Direct materials quantity variance.

C) Direct labor efficiency variance.

D) Variable overhead efficiency variance.

Answer: A Objective: 5 AACSB: Reflective thinking 10) A favorable direct labor efficiency variance and an unfavorable direct labor rate variance might indicate the use of skilled workers in the production process.

Answer: TRUE Objective: 5 AACSB: Reflective thinking

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11) Connie's Cupcakes bakes and sells many varieties of cupcakes. Due to seasonality, Francisco hired temporary production workers to meet customer demand. The temporary workers were not as experienced and slower than normal employees.

Which variance would reflect the use of slower seasonal help?

A) Direct materials price variance.

B) Variable overhead rate variance.

C) Direct labor rate variance.

D) Direct labor efficiency variance.

Answer: D Objective: 5 AACSB: Reflective thinking 12) Which of the following most likely explains the cause of a favorable direct labor rate variance?

A) Material bottlenecks.

B) Use of college interns.

C) Delays in the supply chain.

D) Use of lower quality materials.

Answer: B Objective: 5 AACSB: Reflective thinking 13) Which of the following may lead to an unfavorable fixed overhead volume variance?

A) A decrease in customer demand because of changes in consumer preferences.

B) Purchase of new factory equipment that was not budgeted for.

C) Unplanned increase in janitor hours due to a spill at the factory.

D) Utility rate hike due to an unplanned natural disaster.

Answer: A Objective: 5 AACSB: Reflective thinking

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14) Recyclable Materials Inc. recycles plastic and cardboard. The production department notes the following direct labor efficiency variances over the past three quarters: Quarter 1 $25,000 unfavorable Quarter 2 $20,000 unfavorable Quarter 3 $10,000 unfavorable The following report summarizes the percentages per quarter of the variance attributed to various issues.

Which of the following is an inappropriate response to the report?

A) Management should re-evaluate if existing equipment needs to be replaced.

B) Management should re-evaluate the quality of the raw materials vendor.

C) Maintenance should be performed on all equipment.

D) Workers with performance issues should be immediately terminated.

Answer: D Objective: 5 AACSB: Reflective thinking 15) Responsibility accounting suggests that blame should be assigned for unfavorable variances and reward for favorable variances.

Answer: FALSE Objective: 5 AACSB: Application of knowledge 16) A revenue center is to increasing market share as an investment center is to: A) increasing sales and controlling costs.

B) increasing sales.

C) effectively using assets to generate profit.

D) controlling costs.

Answer: C Objective: 5 AACSB: Application of knowledge

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17) A manager seeks to increase sales and minimize their related costs.

The manager is most likely responsible for a: A) revenue center.

B) profit center.

C) cost center.

D) investment center.

Answer: B Objective: 5 AACSB: Application of knowledge 18) The sales department of a manufacturer received a customer order with a delivery date of February 1st. The sales department submitted the order on January 15th. The purchasing department placed an order for the necessary materials on January 20th for production to begin on January 24th. Due to delays at the supplier, production did not begin until January 26th and the order shipped on February 2nd.

Who should be responsible for the late shipment?

A) Purchasing department B) Sales department C) Production department D) Shipping department Answer: A Objective: 5 AACSB: Reflective thinking 19) Activity-Based Management can be used to understand what non-value-added activities can be eliminated.

Answer: TRUE Objective: 5 AACSB: Application of knowledge 20) Which of the following is NOT a principle of total quality management (TQM) approach?

A) Infrequent cost monitoring.

B) Employee involvement.

C) Continuous improvement.

D) Customer satisfaction.

Answer: A Objective: 5 AACSB: Application of knowledge 21) If a company spends more on prevention and appraisal costs, the company should realize lower internal and external failure costs in future periods.

Answer: TRUE Objective: 5 AACSB: Application of knowledge 21 Copyright © 2023 Pearson Education, Inc.

22) One of Zappos core values is to "Deliver WOW Through Service". It is likely that Zappos budgets more for prevention and appraisal costs over internal and external failure costs.

Answer: TRUE Objective: 5 AACSB: Reflective thinking 23) The goal of increased spending on quality is to increase the sales returns rate.

Answer: FALSE Objective: 5 AACSB: Reflective thinking 24) External failure costs are to product recalls as internal failure costs are to: A) employee training programs.

B) inspection of raw materials.

C) rework of defective products.

D) canceled sales.

Answer: C Objective: 5 AACSB: Application of knowledge 25) What is the objective of appraisal cost expenditures?

A) To mitigate a problem from occurring.

B) To ensure that the product quality is at an acceptable level through the production process.

C) To identify a problem before the product reaches the customer.

D) To respond to customer complaints and dissatisfaction.

Answer: B Objective: 5 AACSB: Reflective thinking 26) Gerard Company prepared the following summary of quality costs for the past two years.

Based on the information presented in the report, which of the following statements is most likely correct?

A) Increased spending in training and testing resulted in a higher quality product.

B) Quality costs such as scrap and rework decreased by 55%.

C) Quality costs such as warranty repairs decreased by 60% D) Increased inspection costs drove the overall decrease in total quality costs.

Answer: A Objective: 5 AACSB: Reflective thinking 22 Copyright © 2023 Pearson Education, Inc.

27) Granier Corporation prepared a visualization showing the total amount spent on quality costs and the breakdown by COQ category.

Which of the following statements is false based on the information presented in the visualization?

A) Granier incurred more on employee expenses to coordinate training programs in Year 5 than in Year 1.

B) Total quality costs have increased over the five years.

C) Granier incurred more on materials, labor, and overhead costs for scrapped units in Year 1 than Year 5.

D) Granier incurred the same amount of testing and supplier monitoring costs from Year 1 to Year 3.

Answer: D Objective: 5 AACSB: Reflective thinking Learning Objective 11.6 1) The Balanced Scorecard provides a comprehensive picture of a company's goals by including both financial and non-financial performance measures.

Answer: TRUE Objective: 6 AACSB: Application of knowledge 2) Employee skill level is an example of a lag indicator that measures a past action or event.

Answer: FALSE Objective: 6 AACSB: Reflective thinking

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3) When using the balanced scorecard as a performance management tool, the financial perspective is to earnings per share as learning and growth perspective is to: A) customer satisfaction ratings.

B) employee satisfaction ratings.

C) budgets and variances reports.

D) scrap and spoilage.

Answer: B Objective: 6 AACSB: Application of knowledge 4) ZYXW Company uses the balanced scorecard to measure performance.

Which metric falls under the customer perspective?

A) Secret shopper ratings.

B) New patents pending.

C) Employee skill level.

D) Rework cost.

Answer: A Objective: 6 AACSB: Application of knowledge Learning Objective Appendix 1) In a standard costing system, the inventory and cost of goods sold accounts reflect the standard costs for the products instead of the actual costs.

Answer: TRUE Objective: Appx.

AACSB: Application of knowledge 2) In a standard costing system, actual costs are ignored for journal entries because only the standard costs are relevant.

Answer: FALSE Objective: Appx.

AACSB: Application of knowledge

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3) A company records the following journal entry: Direct Materials Inventory Accounts Payable Direct Materials Price Variance

200,000 188,000 12,000

What can be inferred from the entry?

A) The actual direct materials quantity used was more than anticipated.

B) The actual direct materials cost was more than anticipated.

C) The direct materials price variance was unfavorable.

D) The direct materials price variance was favorable.

Answer: D Objective: Appx.

AACSB: Reflective thinking 4) A company uses a standard costing system and all variance journal entries have been recorded. What do the costs on the year-end balance sheet and income statement reflect?

A) Actual Costs.

B) Standard Costs.

C) Budgeted Costs.

D) Applied Costs.

Answer: A Objective: Appx.

AACSB: Reflective thinking

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Managerial Accounting, 1e (Cainas, Pope, Joszi) Chapter 12 Analyzing Managerial Accounting Information to Create Value Learning Objective 12.1 1) The income statement reports assets and liabilities for a period of time.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 2) Which of the following would be reported on the income statement?

A) Unearned Service Revenue.

B) Rent Revenue.

C) Supplies.

D) Leasehold Improvements.

Answer: B Objective: 1 AACSB: Application of knowledge 3) Total sales were $200,000. Gross profit represented 65% of sales. Net income was $4,500.

What were operating expenses?

A) $134,500 B) $195,500 C) $65,500 D) $125,500 Answer: D Explanation: D) Gross Profit = $200,000 Sales × 65% Gross Profit = $130,000 Net Income = Gross Profit - Operating Expenses $4,500 = $130,000 - Operating Expenses Operating Expenses = $125,500 Objective: 1 AACSB: Analytical thinking 4) The Statement of Retained Earnings reflects the amount that has been invested by owners and the accumulated payments to customers and owners.

Answer: FALSE Objective: 1 AACSB: Application of knowledge

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5) Last year was the first year of operations for J&K Company. J&K had a net loss of $29,000.

This year, J&K generated a profit of $1,800 which represents a 10% profit margin. What is the amount reported as retained earnings at the end of this year?

A) -$27,200 B) $1,800 C) -$28,820 D) The problem cannot be solved without sales information.

Answer: A Explanation: A) Retained Earnings, Beginning ($29,000) Net income, current year 1,800 Retained Earnings, Ending ($27,200) Objective: 1 AACSB: Analytical thinking 6) All of the following are assets: Cash, Contributed Capital, and Accounts Receivable.

Answer: FALSE Objective: 1 AACSB: Application of knowledge 7) Which of the following is classified as a current asset on the balance sheet?

A) Accounts Payable.

B) Cash.

C) Equipment.

D) Unearned Revenue.

Answer: B Objective: 1 AACSB: Application of knowledge 8) Fernanda report the following balances in its working capital accounts: Cash Accounts receivable Inventory Accounts payable

$50,000 15,000 25,000 30,000

Which question is irrelevant related to the working capital accounts?

A) Are any discounts provided to customers for paying early?

B) How will equipment purchases be financed?

C) Is any of the inventory on hand obsolete?

D) What are the terms of payment and volume discounts with the vendor?

Answer: B Objective: 1 AACSB: Reflective thinking

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9) Aksana's financial statement had the following balances at year end: Accounts Payable Accounts Receivable (net) Accrued Expenses Payable Cash Inventory Notes Payable Prepaid Expenses Property, Plant, and Equipment Unearned Revenue

$78,000 150,000 96,000 126,000 166,000 477,000 28,000 350,000 51,000

What was the amount of liabilities?

A) $225,000 B) $651,000 C) $174,000 D) $702,000 Answer: D Explanation: D) Accounts payable $78,000 Accrued expenses payable 96,000 Notes payable 477,000 Unearned revenue 51,000 Total liabilities $702,000 Objective: 1 AACSB: Analytical thinking

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10) Elias has working capital of $12,000 and the following current accounts: Cash Accounts Receivable Inventory

$27,000 5,000 7,100

The only other current account is accounts payable. What is the amount of accounts payable?

A) $32,000 B) $15,000 C) $27,100 D) $39,100 Answer: C Explanation: C) Working capital = current assets - current liabilities Working capital = cash + accounts receivable + inventory - accounts payable $12,000 = $27,000+ 5,000+ 7,100 - accounts payable $12,000 = $39,100 - accounts payable Accounts payable = $27,100 Objective: 1 AACSB: Analytical thinking 11) It is generally preferable to have the highest amount of cash flows from operating activities rather than from investing or financing activities.

Answer: TRUE Objective: 1 AACSB: Reflective thinking 12) Which of the following cash flows would be classified as an investing activity?

A) Dividends were paid.

B) Preferred stock was issued for cash.

C) A machine was sold for cash.

D) Cash income.

Answer: C Objective: 1 AACSB: Application of knowledge 13) Financial statement information is the only input needed to analyze a company's performance.

Answer: FALSE Objective: 1 AACSB: Application of knowledge

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14) Which of the following is NOT a limitation of financial statement information when analyzing company performance?

A) Financial statement information is comparable across companies in the same industry.

B) Financial statement information is summarized and limited.

C) Assets are typically recorded at historical cost.

D) Many costs are expensed immediately instead of recorded as an asset.

Answer: A Objective: 1 AACSB: Reflective thinking Learning Objective 12.2 1) Financial statement analysis is required by generally accepted accounting principles (GAAP).

Answer: FALSE Objective: 2 AACSB: Application of knowledge 2) The purpose of a horizontal analysis is to analyze the company's performance from year to year.

Answer: TRUE Objective: 2 AACSB: Application of knowledge 3) Which of the following is false regarding a horizontal analysis of financial statements?

A) The purpose is to relate each item on the financial statement to a base amount.

B) Changes are examined in dollars and as a percentage.

C) It is commonly prepared for both the balance sheet and income statement.

D) The change is the difference between the two years divided by the earliest year.

Answer: A Objective: 2 AACSB: Application of knowledge

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4) Last year, Cannon Company had Sales of $500,000 and the Cost of Goods Sold of $200,000.

This year, revenue increased 10% and Cost of Goods Sold decreased 5%.

What was the change in gross margin?

A) 15% increase.

B) 15% decrease.

C) 5% increase.

D) 20% increase.

Answer: D Explanation: D) G ross margin = Sales - COGS Change in gross margin = (Gross Margin, current year - Gross Margin, prior year) / Gross Margin, prior year Gross Margin, prior year = $500,000 - $200,000 = $300,000 Gross Margin, current year = ($500,000 × 1.1) - ($200,000 × 0.95) = $550,000 - $190,000 = $360,000 Change in Gross Margin = ($360,000 - $300,000) / $300,000 = 20% increase Objective: 2 AACSB: Analytical thinking 5) Financial statement ratio trends are more valuable when they can be evaluated against the company's predetermined goals, competitors, and the industry.

Answer: TRUE Objective: 2 AACSB: Application of knowledge

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6) You are presented with the following visualization.

Which statement cannot be supported by the visualization?

A) The direct labor cost per unit is expected to increase in Year 4.

B) The visualization shows product cost trends over a 3 year period.

C) The total cost of direct materials has significantly increased over the 3 years.

D) Information on the number of units produced would be helpful for decision making.

Answer: A Objective: 2 AACSB: Reflective thinking 7) Sales for LMNO Company have increased in the last five years. Which question would you NOT ask to analyze the positive revenue trend?

A) Did sales grow similarly each year or was the growth concentrated in one year?

B) How much was spent on research and development each year?

C) Are competitors and the overall industry experiencing similar trends?

D) Are there seasonal fluctuations in sales during the year?

Answer: B Objective: 2 AACSB: Reflective thinking Learning Objective 12.3 1) A vertical analysis evaluates the financial performance by showing the relationship between each item on the financial statement and a base amount.

Answer: TRUE Objective: 3 AACSB: Application of knowledge

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2) Which of the following statements is false regarding a vertical analysis?

A) The base amount used to analyze the balance sheet is total assets.

B) The analysis is typically prepared for both the balance sheet and income statement.

C) The goal is to show the relationship of each item on the financial statement to a base amount.

D) The base amount used to analyze the income statement is net income.

Answer: D Objective: 3 AACSB: Application of knowledge 3) Sales Revenue for Adroa Company was $250,000. Cost of Goods Sold was 40% of sales.

What was the gross margin?

A) $100,000 B) $150,000 C) $416,667 D) $625,000 Answer: B Explanation: B) Sales $250,000 (100%) COGS (40%) Gross margin (60%) Gross margin in $ = $250,000 × 60% = $150,000 Objective: 3 AACSB: Analytical thinking 4) The purpose of a common-size financial statement is to benchmark the results of one company against another.

Answer: TRUE Objective: 3 AACSB: Application of knowledge 5) Jitka Company and Pavel Corporations are competitors in the paper industry. COGS as a percent of sales is 80% for Jitka and 60% for Pavel. Jitka is the better investment.

Answer: FALSE Objective: 3 AACSB: Reflective thinking

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6) Cristobal Corporation generated $100,000 in annual sales. Its competitor, Emilia Industries, generated $1 million in annual sales.

Should Cristobal compare its performance to Emilia? If so, how?

A) No, Cristobal and Emilia cannot be compared.

B) Yes, management should perform a horizontal analysis comparing Cristobal to Emilia.

C) Yes, management should prepare a common-size financial statement for Cristobal and Emilia.

D) Yes, management should perform a trend analysis of Cristobal.

Answer: C Objective: 3 AACSB: Reflective thinking 7) The following analysis was prepared for Madison Industry's assets.

Which of the following is an incorrect statement based on the analysis?

A) The decrease in cash and increase in accounts receivable over the prior year could indicate an issue with cash collections from customers.

B) The higher balances in accounts receivable and inventory indicate that Madison is performing better than the industry.

C) Madison's long-term assets are lower than the industry. Madison should verify that it is making appropriate capital investments to remain competitive.

D) Madison's cash balance is lower than the prior year and the industry. This could signal potential cash flow problems.

Answer: B Objective: 3 AACSB: Reflective thinking Learning Objective 12.4 1) Liquidity ratios measure a company's ability to pay its short-term obligations as they become due.

Answer: TRUE Objective: 4 AACSB: Application of knowledge 2) The quick ratio is typically higher than the current ratio.

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3) If the current ratio is greater than one, paying off accounts payable with cash will decrease the current ratio.

Answer: FALSE Objective: 4 AACSB: Analytical thinking 4) Which ratio is not useful when evaluating a company's ability to pay its short-term obligations?

A) Quick Ratio.

B) Working capital.

C) Return on sales.

D) Current Ratio.

Answer: C Objective: 4 AACSB: Application of knowledge 5) Harrison Inc. reported a quick ratio of 2.3 this year and 2.5 in the year prior. This year's industry quick ratio is 1.9.

Which is a correct statement regarding Harrison's quick ratio?

A) Harrison's quick ratio declined over the prior year but it is better than the industry.

B) Harrison's quick ratio improved over the prior year but it is worse than the industry.

C) If Harrison's quick ratio is above 1, it is always a good investment.

D) Harrison's quick ratio is not useful because it does not include accounts receivable.

Answer: A Objective: 4 AACSB: Reflective thinking 6) How can a company improve its working capital position?

A) Collect outstanding accounts receivable.

B) Acquire land with a mortgage.

C) Purchase additional inventory on account.

D) Issue common stock.

Answer: D Objective: 4 AACSB: Reflective thinking

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7) Isla Company reported a current ratio of 3.0.

Which of the following questions is not relevant when evaluating the current ratio?

A) Are there other potential capital investments this year financed by long-term loans?

B) Will improvements in the supply chain lead to less on-hand inventory?

C) Are we taking advantage of available vendor discounts?

D) What is the current ratio of Isla's competitors?

Answer: A Objective: 4 AACSB: Reflective thinking 8) Amahle Inc. has a current ratio of 1.75 and current liabilities of $150,000.

What is Amahle's working capital?

A) $262,500 B) $112,500 C) $150,000 D) $412,500 Answer: B Explanation: B) Working Capital = Current Assets - Current Liabilities Current Ratio = Current Assets / Current Liabilities 1.75 = Current Assets / 150,000 Current Assets = $262,500 Working Capital = $262,500- $150,000 = $112,500 Objective: 4 AACSB: Analytical thinking

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9) Eman Corporation has a quick ratio of 1.7. Current assets consist of cash, accounts receivable, and inventories. Inventory equals $83,000 and current liabilities equal $150,000.

What is Eman's current ratio? (Round to the nearest tenth, X.X.) A) 3.5 B) 1.1 C) 1.7 D) 2.3 Answer: D Explanation: D) Current Ratio = Current Assets / Current Liabilities Quick Ratio = Current Assets - Inventory / Current Liabilities 1.7 = Current Assets - $83,000 / $150,000 $255,000 = Current Assets - $83,000 Current Assets = $338,000 Current Ratio = $338,000 / $150,000 = 2.3 Objective: 4 AACSB: Analytical thinking 10) Efficiency ratios are used to identify problems with operations.

Answer: TRUE Objective: 4 AACSB: Application of knowledge 11) Companies should seek to increase the number of days' sales in receivables.

Answer: FALSE Objective: 4 AACSB: Reflective thinking 12) Selling inventory increases the inventory turnover ratio.

Answer: TRUE Objective: 4 AACSB: Reflective thinking 13) The accounts receivable turnover ratio increases with cash sales.

Answer: FALSE Objective: 4 AACSB: Reflective thinking

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14) The Chief Financial Officer of Nadia Company discussed the change in inventory and inventory turnover ratio in a recent earnings call.

What information would you NOT want to know more about regarding the company's inventory?

A) Does the company operate in different geographical locations?

B) How many different products does the company sell?

C) How much has the company invested in customer relationship management (CRM) software?

D) Are the products similar or different in nature?

Answer: C Objective: 4 AACSB: Reflective thinking 15) How can a company improve its inventory turnover ratio?

A) Eliminate obsolete inventory.

B) Change the credit policy terms with customers.

C) Increase the percentage of safety stock.

D) Improve the number of days' sales in receivables.

Answer: A Objective: 4 AACSB: Ethical understanding and reasoning 16) The accounts receivable turnover for Khalid Corp. increased this month over last month.

Which question would not be relevant to understand the increase?

A) Were there any significant write offs this month or last month?

B) What are the sales for this month compared to last month?

C) Has there been a change to the credit policy terms?

D) Has there been a change to the gross margin percentage?

Answer: D Objective: 4 AACSB: Reflective thinking

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17) An inventory trend analysis was performed for Mason Industries for the previous five years.

Which question would not be relevant to the inventory analysis?

A) Why has the inventory turnover ratio declined over time?

B) Why was inventory on-hand significantly lower in 20X4?

C) What is the difference in COGS between 20X2 and 20X5?

D) What is the inventory turnover and on-hand inventory of competitors?

Answer: A Objective: 4 AACSB: Reflective thinking 18) Sanchez Corporation purchased $420,000 of inventory and reported cost of goods sold of $610,000 during the year. The inventory balance at the end of the year was $90,000.

What was the inventory turnover ratio? (Round to the nearest tenth, X.X.) A) 6.8 B) 1.6 C) 3.3 D) 4.4 Answer: C Explanation: C) Inventory turnover = COGS / average inventory balance Average inventory = (beginning inventory + ending inventory) / 2 Beginning inventory = ending inventory - purchases + COGS = $90,000 -$420,000 + $610,000 = $280,000 Inventory Turnover = $610,000 / ($280,000 + $90,000)/2 = 3.3 Objective: 4 AACSB: Analytical thinking 14 Copyright © 2023 Pearson Education, Inc.

19) Aaliyah Company had the following information regarding accounts receivable: Accounts receivable, beginning balance Accounts receivable, ending balance Accounts receivable turnover ratio Sales: 75% credit and 25% cash

$170,000 $190,000 1.75

What were total sales for Aaliyah Company? (Round final answer to the nearest dollar.)

A) $443,333 B) $236,250 C) $315,000 D) $420,000 Answer: D Explanation: D) Accounts receivable turnover = Credit sales / average accounts receivable 1.75 = Credit sales / [($170,000 +$190,000) / 2] 1.75 = Credit sales / $180,000 Credit Sales = $315,000 Total Sales (100%) = Credit Sales (75%) + Cash Sales (25%) = $315,000 / 75% = $420,000 Objective: 4 AACSB: Analytical thinking 20) Solvency ratios measure a company's ability to pay its long-term debts.

Answer: TRUE Objective: 4 AACSB: Application of knowledge 21) An existing loan is reclassified to a current liability because it is due next year. The debt to equity ratio decreases.

Answer: FALSE Objective: 4 AACSB: Reflective thinking

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22) Which of the following ratios is used by creditors to assess a company's ability to pay its long-term debts?

A) Quick ratio.

B) Times interest earned ratio.

C) Price / equity ratio.

D) Return on sales.

Answer: B Objective: 4 AACSB: Application of knowledge 23) Flynn Co. seeks to automate its distribution center. Flynn lacks the cash to pay for the new equipment and software.

Which question is NOT relevant for the decision to approve a loan for Flynn?

A) Is rent on the distribution center paid at the beginning or end of the month?

B) What is Flynn's current outstanding debt?

C) Is the existing debt subject to any debt covenants?

D) What is Flynn's debt ratio currently and if the loan is granted?

Answer: A Objective: 4 AACSB: Reflective thinking 24) Evans Industries reported 23.0 as the times interest earned ratio. Income from operations for the year was $75,000. The effective tax rate was 25%.

What was the interest expense for the year? (Round to the nearest dollar.)

A) $92 B) $815 C) $3,261 D) $18,750 Answer: C Explanation: C) Times interest earned = income from operations / interest expense 23.0 = $75,000 / interest expense Interest expense = $75,000 / 23 Interest expense = $3,261 Objective: 4 AACSB: Analytical thinking

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25) Lubanzi Corp. has a Debt Ratio of 0.4. Other information is known: Working Capital Current Liabilities Long-term Liabilities

$150,000 $25,000 $200,000

What is the amount of long-term assets? (Round to the nearest dollar.)

A) $500,000 B) $375,000 C) $562,500 D) $387,500 Answer: D Explanation: D) Debt Ratio = Total liabilities / total assets Debt Ratio = (current liabilities + long-term liabilities) / (current assets + long term assets) 0.4 = ($25,000+ $200,000) / total assets Total assets = $225,000 / 0.4 Total assets = $562,500 Working capital = current assets - current liabilities $150,000 = current assets - 25,000 Current assets = $175,000 Total assets = current assets + long term assets $562,500 = $175,000 + long-term assets Long-term assets = $387,500 Objective: 4 AACSB: Analytical thinking 26) Profitability ratios are calculated to assess how well a company is performing.

Answer: TRUE Objective: 4 AACSB: Application of knowledge 27) If a company finances the full cost of a building without cash, the company's return on assets will increase.

Answer: FALSE Objective: 4 AACSB: Reflective thinking

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28) Jacques Industries reported a large increase in its return on equity for the most recent year.

Which question is relevant to obtain additional information regarding the increase?

A) Did net income increase over last year?

B) Was any debt paid during the year?

C) Were new buildings or land purchased with cash during the year?

D) Were preferred shares issued during the year?

Answer: A Objective: 4 AACSB: Reflective thinking 29) Management at Lux Company prepared the following graph to analyze Lux's profitability over the last five years.

Which of the following statements is incorrect given the information presented in the graph?

A) Total expenses are greater in 20X4 over 20X3.

B) Sales have steadily increased over the five years.

C) 20X1 is an anomaly and should be investigated further.

D) 20X5 is the most profitable year in terms of Lux's return on sales.

Answer: C Objective: 4 AACSB: Reflective thinking 30) Jean Corp.'s management compared its EPS against its competitors and concluded that Jean Corp. performed worse than its competitors.

How can Jean Corp improve its EPS? A) Increase sales without increasing expenses.

B) Issue additional common stock.

C) Declare preferred dividends.

D) Reduce expenses. Sales are anticipated to decrease by a higher amount.

Answer: A Objective: 4 AACSB: Reflective thinking

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31) Investors analyze stock investment ratios to determine their return on investment.

Answer: TRUE Objective: 4 AACSB: Application of knowledge 32) An increase in the number of common shares outstanding results in an increase in EPS. Answer: FALSE Objective: 4 AACSB: Reflective thinking 33) Eevi Inc. disclosed a decrease in the book value per common share for the year.

What other information is useful regarding the decrease in the book value per common share for the year?

A) Did Eevi provide customers an incentive to pay accounts early?

B) What was Eevi's working capital?

C) Did the market value of Eevi stock decrease?

D) Did Eevi incur any significant one-time expenses such as impairment?

Answer: D Objective: 4 AACSB: Reflective thinking 34) Alejo Company reported a price earnings (P/E) ratio of $175 for the year. Its competitor, Armand Corporation, reported a P/E ratio of $10 for the same period.

Which company is a better investment and why?

A) Alejo. The higher P/E ratio indicates a higher viewed potential for the investment than is reported on the financial statements.

B) Armand. The lower P/E ratio reflects that the financial statements properly represents the value of the company.

C) Armand because it is a cheaper investment to buy.

D) Neither because the P/E ratio should be less than 1.

Answer: A Objective: 4 AACSB: Reflective thinking

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35) Javier Industries reported the following information last year: Book value per share Earnings per share Dividends per share Dividend yield ratio

$30 $100 $7 5%

What was the price earnings (P/E) ratio for the year? (Round to the nearest tenth, X.X) A) 5.0 B) 1.4 C) 0.1 D) 3.3 Answer: B Explanation: B) P/E Ratio = market price per common share / earnings per share Dividend yield ratio = dividend per share / market price per share 5% = $7 per share / market price per share Market price per share = $7 per share / 5% = $140 per share P/E Ratio = $140 per share / $100 per share = 1.4 Objective: 4 AACSB: Analytical thinking 36) Ratio analysis for financial statements can guarantee that all financial information is accurate.

Answer: FALSE Objective: 4 AACSB: Reflective thinking 37) Financial statement analysis is complete once the calculations are performed.

Answer: FALSE Objective: 4 AACSB: Reflective thinking

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38) Which of the following scenarios is not a violation of the IMA Standards of Ethical Conduct?

A) The controller reclassified some debt due next year to long-term so that the current ratio was in line with the industry number.

B) The controller reclassified some manufacturing overhead to administrative expenses so that the gross margin would be in line with last year. There was no effect on Net Income.

C) The controller initiated a program to buy back shares in order to reduce the number of common shares outstanding. As a result, EPS increased.

D) The controller included sales for inventory that had been ordered but not shipped. Without that revenue, the company would not meet the targets required on the loans.

Answer: C Objective: 4 AACSB: Ethical understanding and reasoning 39) The following ratios are provided for an electronics retailer and a clothing manufacturer.

Accounts receivable turnover Quick ratio EPS Debt to equity

Electronics N/A 2.11 $1.79 0.25

Clothing 5.11 3.50 $10.90 0.95

Which company is performing better in terms of the ratios provided and why?

A) The Clothing Manufacturer is a better investment because the accounts receivable turnover ratios is not applicable for the Electronics Retailer.

B) The Electronics Retailer appears to be the better investment from a solvency standpoint.

C) The Clothing Manufacturer appears to be the better investment from an efficiency, liquidity, and profitability standpoint.

D) It is not possible to answer the question because the companies operate in different industries and are not comparable.

Answer: D Objective: 4 AACSB: Reflective thinking Learning Objective 12.5 1) Data analytics tools compile large amounts of both structured and unstructured data to help managers make better decisions.

Answer: TRUE Objective: 5 AACSB: Application of knowledge 2) There is no need to determine which data is valuable and relevant because the data available is almost limitless.

Answer: FALSE Objective: 5 AACSB: Reflective thinking 21 Copyright © 2023 Pearson Education, Inc.

3) Past financial information and ratios are all that is necessary to evaluate the performance of a company. Qualitative information on supplier quality and customer relationships is irrelevant.

Answer: FALSE Objective: 5 AACSB: Application of knowledge 4) Which of the following is NOT a potential improvement that can be made from using data analytics?

A) Historical sustainability efforts.

B) Reduce costs.

C) Determine new product offerings.

D) Provide improved customer service.

Answer: A Objective: 5 AACSB: Application of knowledge

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5) Which of the following visualizations is least likely to have been created from a managerial accounting information system?

A)

B)

C)

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D)

Answer: B Objective: 5 AACSB: Reflective thinking 6) Which question is relevant to the processing phase of the input-process-output framework when using data analytics?

A) Who will be using the information?

B) How should the information be formatted?

C) What software is used to collect, store, and manage structured and unstructured data?

D) How frequently will the information be needed?

Answer: C Objective: 5 AACSB: Application of knowledge 7) A company is implementing a data analytics program. The implementation team has developed a list of questions. The team lead organized the questions using the input-processoutput framework.

Which question would fall under the input phase?

A) What should be the format of the information provided to decision makers?

B) Where is the data being captured and stored?

C) Is artificial intelligence needed to collect and analyze unstructured data?

D) How frequently is the information provided to decision makers?

Answer: B Objective: 5 AACSB: Reflective thinking

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8) Watkins Manufacturing is analyzing the most recent year's performance to plan for the upcoming year.

Which question is likely to be answered using information from the accounting information system?

A) Will the economy recover from a pandemic?

B) On average, will customer preferences change?

C) Should the company finance a planned expansion with stock or bonds?

D) What is the allocation between direct labor, direct materials, and overhead for each product?

Answer: D Objective: 5 AACSB: Reflective thinking 9) When discussing data analytics in terms of the input-process-output framework, the output is to the format and frequency of reporting as process is to: A) machine learning to classify images.

B) clear and concise reporting.

C) using an ERP system to store and manage data.

D) customer feedback on public sites such as Google, Yelp, or Facebook.

Answer: A Objective: 5 AACSB: Reflective thinking Learning Objective 12.6 1) The IMA identified six domains of core knowledge that are required to be a management accountant. Employees without the knowledge should be immediately terminated.

Answer: FALSE Objective: 6 AACSB: Application of knowledge 2) Which of the following is NOT one of the six domains of knowledge identified as a core competency by the IMA? A) Generally accepted accounting principles (GAAP).

B) Reporting and control.

C) Business acumen and operations.

D) Professional ethics and value.

Answer: A Objective: 6 AACSB: Application of knowledge

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3) Related to the IMA Core Competency Framework, budgeting and forecasting is to strategy, planning, and performance as data visualizations is to: A) operations.

B) values.

C) technology and analytics.

D) leadership.

Answer: C Objective: 6 AACSB: Reflective thinking

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