Q1. If sales total $1,000,000, fixed costs total $400,000, andvariable costs are 55% of sales, the contribution margin ratio is45%.
a. true
b. false
Q2. Which of the following is an example of a cost that variesin total as the number of units produced changes?
a. Electricity per KWH to operate factoryequipment
b. Monthly rent on a factory building
c. Straight-line depreciation on factoryequipment
d. Salary of a production supervisor
Q3. As production increases, what should happen to the variablecosts per unit?
a. Stay the same
b. Increase
c. Decrease
d. Either increase or decrease, depending onthe fixed costs
Q4. If the property tax rates are increased, this change infixed costs will result in an increase in the break-even point.
a. true
b. false
Q5. The point where the sales line and the total costs lineintersect on the cost-volume-profit chart represents
a. the maximum possible operating loss.
b. the maximum possible operating income.
c. the total fixed costs.
d. the break-even point.
Q6. For purposes of analysis, mixed costs are generally
a. classified as fixed costs.
b. classified as variable costs.
c. classified as period costs.
d. separated into their variable and fixedcost components.
Q7. If direct materials cost per unit decreases, the break-evenpoint will increase.
a. true
b. false
Q8. As production increases, what would you expect to happen tofixed costs per unit?
a. Increase
b. Decrease
c. Remain the same
d. Either increase or decrease, depending onthe variable costs
Q9. Which of the following activity bases would be the mostappropriate for food costs of a hospital?
a. Number of cooks scheduled to work
b. Number of x-rays taken
c. Number of patients who stay in thehospital
d. Number of scheduled surgeries
Q10. The graph of a variable cost when plotted against itsrelated activity base appears as a
a. circle.
b. rectangle.
c. straight line.
d. curved line.
Q11. The amount of income that would result from an alternativeuse of cash is called
a. differential income.
b. sunk cost.
c. differential revenue.
d. opportunity cost.
Q12. Differential revenue is the amount of income that wouldresult from the best available alternative for the proposed use ofcash.
a. true
b. false
Q13. Whiteville Co. can further process Product B to produceProduct C. Product B is currently selling for $45 per pound andcosts $30 per pound to produce. Product C would sell for $80 perpound and would require an additional cost of $18 per pound toproduce. What is the differential cost of producing Product C?
a. $30 per pound
b. $18 per pound
c. $17 per pound
d. $12 per pound
Q14. The amount of increase or decrease in cost that is expectedfrom a particular course of action as compared to an alternative istermed
a. period cost.
b. product cost.
c. differential cost.
d. discretionary cost.
Q15. Granger Co. can further process Product B to produceProduct C. Product B is currently selling for $55 per pound andcosts $42 per pound to produce. Product C would sell for $82 perpound and would require an additional cost of $13 per pound toproduce. What is the differential revenue of producing and sellingProduct C?
a. $15 per pound
b. $42 per pound
c. $45 per pound
d. $27 per pound
Q16. In deciding whether to accept business at a special price,the short- run price should be set high enough to cover allvariable costs and expenses.
a. true
b. false
Q17. When standard costs are used in applying the cost-plusapproach to product pricing, the standards should be based uponnormal levels of performance.
a. true
b. false
Q18. Dinkins Inc. is considering disposing of a machine with abook value of $50,000 and an estimated remaining life of fiveyears. The old machine can be sold for $15,000. A new machine witha purchase price of $150,000 is being considered as a replacement.It will have a useful life of five years and no residual value. Itis estimated that variable manufacturing costs will be reduced from$70,000 to $45,000 if the new machine is purchased. The netdifferential increase or decrease in cost for the entire five yearsfor the new equipment is
a. $10,000 increase.
b. $25,000 decrease.
c. $10,000 decrease.
d. $25,000 increase.
Q19. In using the product cost concept of applying the cost-plusapproach to product pricing, selling expenses, administrativeexpenses, and profit are covered in the markup.
a. true
b. false
Q20. Hill Co. can further process Product O to produce ProductP. Product O is currently selling for $65 per pound and costs $42per pound to produce. Product P would sell for $82 per pound andwould require an additional cost of $13 per pound to produce.
The differential revenue of producing Product P is $17 perpound.
a. true
b. false
Q21. The budgeted direct materials purchases are based on thesum of (1) the materials needed for production and (2) the desiredending materials inventory, less (3) the estimated beginningmaterials inventory.
a. true
b. false
Q22. The first budget to be prepared is usually the salesbudget.
a. true
b. false
Q23. The master budget of a small manufacturer would normallyinclude all component budgets that impact the financialstatements.
a. true
b. false
Q24. The following data relate to direct labor costs for thecurrent period:
Standard costs 9,000 hours at $5.50
Actual costs 8,750 hours at $5.25
What is the direct labor rate variance?
a. $2,250.00 unfavorable
b. $2,187.50 unfavorable
c. $2,250.00 favorable
d. $2,187.50 favorable
Q25. The process of developing budget estimates by requiring alllevels of management to estimate sales, production, and otheroperating data as though operations were being initiated for thefirst time is referred to as
a. flexible budgeting.
b. continuous budgeting.
c. zero-based budgeting.
d. master budgeting.
Q26. Supervisor salaries, maintenance, and indirect factorywages would normally appear in the factory overhead costbudget.
a. true
b. false
Q27. The master budget of a small manufacturer would normallyinclude all necessary component budgets EXCEPT the capitalexpenditures budget.
a. true
b. false
Q28. Production estimates for August are as follows:
Estimated inventory (units), August 1
3,000
Desired inventory (units), August31
2,000
Expected sales volume (units), August
40,000
For each unit produced, the direct materials requirements are asfollows:
Direct material A ($2 per lb.)
5 lbs.
Direct material B ($11 perlb.)
1 lb.
The number of pounds of materials A and B required for Augustproduction is
a. 195,000 lbs. of A; 39,000 lbs. of B.
b. 200,000 lbs. of A; 40,000 lbs. of B.
c. 205,000 lbs. of A; 41,000 lbs. of B.
d. 210,000 lbs. of A; 42,000 lbs. of B.
Q29. The standard factory overhead rate is $7.50 per machinehour ($6.20 for variable factory overhead and $1.30 for fixedfactory overhead) based on 100% capacity of 80,000 machine hours.The standard cost and the actual cost of factory overhead for theproduction of 15,000 units during August were as follows:
Actual: Variable factoryoverhead $360,000
Fixed factoryoverhead 104,000
Standard: 60,000 hours at $7.50 450,000
What is the amount of the fixed factory overhead volumevariance?
a. $26,000 unfavorable
b. $12,000 favorable
c. $26,000 favorable
d. $12,000 unfavorable
Q30. Benjamin Corporation began its operations on September 1 ofthe current year. Budgeted sales for the first three months ofbusiness are $250,000, $300,000, and $420,000, respectively, forSeptember, October, and November. The company expects to sell 20%of its merchandise for cash. Of sales on account, 70% are expectedto be collected in the month of the sale, 25% in the monthfollowing the sale, and the remainder in the following month.
The cash collections from accounts receivable in Novemberare
a. $305,200.
b. $294,000.
c. $235,200.
d. $381,500.
Q31. Assume that divisional income from operations amounts to$187,000 and top management has established 12% as the minimum rateof return on divisional assets totaling $1,000,000. The residualincome for the division is
a. $67,000.
b. $22,440.
c. $120,000.
d. $0.
Q32. If income from operations for a division is $6,000,invested assets are $25,000, and sales are $30,000, the profitmargin is 24%.
a. true
b. false
Q33. By use of the rate of return on investment as a divisionalperformance measure, divisional managers will always be motivatedto invest in proposals that will increase the overall rate ofreturn for the company.
a. true
b. false
Q34. How do the responsibilities of a manager in an investmentcenter compare to the responsibilities of a cost or profitcenter?
a. Investment center managers have moreauthority and responsibility than managers of a cost or profitcenter.
b. Investment center managers have moreauthority and responsibility than managers of a cost center butless than managers of a profit center.
c. Investment center managers have about thesame authority and responsibility than managers of a cost or profitcenter.
d. Investment center managers have moreauthority and responsibility than managers of a profit center butless than managers of a cost center.
Q35. Division Q for Mott Company has a rate of return oninvestment of 28% and an investment turnover of 1.4. What is theprofit margin?
a. 28%
b. 20%
c. 14%
d. 39.2%
Q36. If income from operations for a division is $120,000, salesare $975,000, and invested assets are $750,000, the investmentturnover is 6.3.
a. true
b. false
Q37. A decentralized business organization is one in which allmajor planning and operating decisions are made by topmanagement.
a. true
b. false
Q38. Which of the following expenses incurred by the sportinggoods department of a department store is a direct expense?
a. Depreciation expense–office equipment
b. Insurance on inventory of sportinggoods
c. Uncollectible accounts expense
d. Office salaries
Q39. The major shortcoming of income from operations as aninvestment center performance measure is that it ignores the amountof assets invested in the center.
a. true
b. false
Q40. Identify the formula for the rate of return oninvestment.
a. Invested Assets/Income From Operations
b. Sales/Invested Assets
c. Income From Operations/Sales
d. Income From Operations/Invested Assets
Q41. A qualitative characteristic that may impact upon capitalinvestment analysis is manufacturing productivity.
a. true
b. false
Q42. Leasing assets may be a favorable alternative to purchasingassets if the asset has a high risk of becoming obsolete.
a. true
b. false
Q43. When evaluating a proposal by use of the net present valuemethod, if there is a deficiency of the present value of futurecash inflows over the amount to be invested, the proposal should beaccepted.
a. true
b. false
Q44. In capital rationing, an initial screening of alternativeproposals is usually performed by establishing minimum standards.Which of the following evaluation methods are normally used?
a. Cash payback method and average rate ofreturn method
b. Average rate of return method and netpresent value method
c. Net present value method and cash paybackmethod
d. Internal rate of return and net presentvalue methods
Q45. Average rate of return equals estimated average annualincome divided by average investment.
a. true
b. false
Q46. The rate of earnings is 10% and the cash to be received intwo years is $10,000. Determine the present value amount, using thefollowing partial table of present value of $1 at compoundinterest.
Year 6% 10% 12%
1 .943 .909 .893
2 .890 .826 .797
3 .840 .751 .712
4 .792 .683 .636
a. $8,900
b. $8,260
c. $7,970
d. $9,090
Q47. The expected average rate of return for a proposedinvestment of $3,000,000 in a fixed asset giving effect todepreciation (straight-line method) with a useful life of 20 years,no residual value, and an expected total income of $6,000,000is
a. 25%.
b. 18%.
c. 40%.
d. 20%.
Q48. When evaluating a proposal by use of the cash paybackmethod, if net cash flows exceed the capital investment within thetime deemed acceptable by management, the proposal should beaccepted.
a. true
b. false
Q49. The average rate of return method of capital investmentanalysis gives consideration to the present value of future cashflows.
a. true
b. false
Q50. Internal rate of return is often called the payback rate ofreturn.
a. true
b. false
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