Multiple Choice Questions

1. Which of the following is an element of manufacturing overhead? a. Factory workers wagesb. Components used in calculators during productionc.Plant manager’s salaryd. Flour used in manufactured cake mixes

2. For 2006, Sparkman Company has cost of goods manufactured of $200,000, beginning finished goods inventory of $40,000, and ending finished goods inventory of $30,000. How much is cost of goods sold?a. $210,000b. $240,000c.$190,000d. $230,000

3. Costs of good manufactured of SuperK Company are shown below.

SuperK CompanyCost of Goods manufactured

Year Ending December 31, 2006Beginning work in process: $15,000Direct materials:Beginning raw materials $14,000Raw material purchases 22,000Total raw materials available for use 36,000Ending raw materials 5,500 Direct materials used 30,500Direct Labor 6,000Total manufacturing overhead 10,500Ending work in process 18,000Total manufacturing costs $44,000

How much is the total manufacturing cost?a. $20,500b. $23,000c. $47,000d. $44,000

4. The drying and cool down process represents 25% of the total costs of all set ups associated with all activities. Using an activity-based cost system, how much is attributed to the drying and cool down process for steel sheeting if overhead is $4,000?a. $0 since all of the overhead cost is typically allocated well before the end of

productionb. $4,000 since all of the overhead should be allocated to the last activity due to proper

use of ABCc. $1,000 based on the cost associated with all set-upsd. Cannot be determined from the above information

5. Markley Manufacturing calculated its predetermined overhead rate to be 120% of direct labor cost. During June, the company incurred $90,000 of factory labor costs, of which $85,000 is direct labor and $5,000 is indirect labor. Actual overhead incurred was $84,000. How much will Markley debit to Work in Process Inventory in June?a. $108,000b. $198,000c. $174,000d. $102,000

6. To which control account do job cost sheets represent the subsidiary ledger?a. Cost of Goods Sold b. Cost of Goods Manufactured c. Work in Process Inventory d. Finished Goods Inventory

7. A materials requisition slip showed that total materials requested were $42,500 with $1,500 of this amount consisting of indirect materials. What entry is made to record the transfer of materials from the storeroom?a. Work in Process Inventory ................................41,000

Manufacturing Overhead ................................1,500Raw Materials Inventory ................................ 42,500

b. Work in Process Inventory ................................42,500Raw Material Inventory ................................ 42,500

c. Direct Materials ................................41,000Indirect Materials ................................1,500

Work in Process Inventory ................................ 42,500d. Manufacturing Overhead ................................42,500

Raw Materials Inventory ................................ 42,500

8. Sportly, Inc. completed Job No. B14 during 2004. The job cost sheet listed the following:

Direct materials $33,000Direct labor $18,000Manufacturing overhead applied $12,000Units produced 3,000 unitsUnits sold 1,800 units

How much is the cost of the finished goods on hand from this job?a. $63,000b. $37,800c. $25,200d. $30,600

9. Which one of the following would most likely use a process cost system?

a. The company that makes Frosted Flakesb. A company that prints wedding invitationsc. A company which makes motion picturesd. A body shop which does collision repairs

10. A product requires processing in two departments, Department 22 and then Department 23, before it is completed. What happens to costs transferred out of Department 22?

a. They are debited to Finished Goods Inventory.b. They are transferred to Cost of Goods Sold.c. The are debited to Work in Process—Department 23.d. They are credited to Manufacturing Overhead.

Use the following information to answer questions 11–12. In the month of March, a department had 8,000 units in beginning work in process that were 70% complete. During March, 30,000 units were transferred into production from another department. At the end of March there were 2,000 units in ending work in process that were 75% complete. Materials are added at the beginning of the process while conversion costs are incurred uniformly throughout the process. The weighted average method is used.

11. How many units were transferred out of the process in March?a. 36,000 unitsb. 21,000 unitsc. 2,000 unitsd. 30,000 units

12. How much is the equivalent units of production for conversion costs for March?a. 38,000 equivalent unitsb. 28,500 equivalent unitsc. 37,500 equivalent unitsd. 30,000 equivalent units

13. What is the primary role of a job cost sheet?a. It lists the materials on hand available to be used for jobsb. It is the primary accounting record used in assigning costs to jobsc. It is used instead of a cost of goods manufactured scheduled. It shows the detail of the Manufacturing Overhead Control account

14. Which statement best reflects a distinguishing factor between a job order cost system and a process cost system?a. The detail at which costs are calculatedb. The time period each coversc. The number of work in process accounts d. The manufacturing cost elements included

15. Which of the following factors would suggest a switch to activity-based costing?a. Product lines similar in volume and manufacturing complexity.b. Overhead costs constitute a significant portion of total costs.c. The manufacturing process has been stable.d. Production managers use data provided by the existing system.

16. All of the following are examples of a value-added activity in a service company excepta. delivering packages by a delivery service.b. ordering supplies.c. performing surgery.d. providing legal research for legal services.

17. Sleep-Tight manufactures mattresses for the hotel industry. It has two products, Downy and Firm and total overhead of $474,000. The company plans to manufacture 400 Downy mattresses and 100 Firm mattresses this year. In manufacturing the mattresses, the company must perform 600 material moves for the Downy and 400 for the Firm; it processes 900 purchase orders for the Downy and 700 for the Firm; and the company’s employees work 1,400 direct labor hours on the Downy product and 3,400 on the Firm. Sleep-Tight’s total material handling costs are $300,000 and its total purchasing costs are $174,000. Under a traditional costing approach based on direct labor hours, how much overhead would be assigned to the Downy product?

a. $138,250b. $335,750c.$237,000d. $277,875

18. In September, Smith Company had the following financial statement amounts related to producing 1,000 units:

Direct materials $30,000Depreciation expense 12,000Sales revenue 88,000Direct labor 10,000Rent expense 13,000

How much is contribution margin per unit?a. $48b. $58c. $35

d. $13

19. H55 Company sells two products, beer and wine. Beer has a 10 percent profit margin and wine has a 12 percent profit margin. Beer has a 27 percent contribution margin and wine has a 25 percent contribution margin. If other factors are equal, which product should H55 push to customers?

       a.   Beer . b. Wine

c. Selling either results in the same additional income for the companyd. It should sell an equal quantity of both.

20. Which one of the following is most likely a variable cost?a. Direct materialsb. Depreciationc. Rent expensed. Property taxes

21. Which one of the following is possible if Hollywood Video cuts its DVD rental rates by 20%?a. Its fixed costs will decrease.b. Its profit will decrease by 20%.c. Total costs increase.d. A profit can be earned by increasing the number of videos rented.

22. A company requires $600,000 in sales to meet its target net income. Its contribution margin is 40%, and fixed costs are $80,000. How much is the target net income?a. $360,000b. $280,000c. $208,000d. $160,000

23. When is incremental analysis most useful?a. After a decision has been made to determine its effectivenessb. In choosing between capital budgeting methodsc. In evaluating the profitability of a companyd. In developing relevant information for management decisions

Use the following information for questions 24–25.

Hermantic, Inc. can produce 100 units of a component part with the following costs:Direct Materials $30,000Direct Labor 13,000Variable Overhead 32,000Fixed Overhead 22,000

24. If Hermantic Industries purchase the units externally for $80,000, by what amount will its total costs change?a. An increase of $80,000b. A increase of $5,000c. An increase of $17,000d. A decrease of $22,000

25. If Hermantic, Inc. can purchase the component externally for $88,000 and only $8,000 of the fixed costs can be avoided, what is the correct "make or buy decision"?a. Make and save $1,000b. Buy and save $1,000c. Make and save $5,000d. Buy and save $13,000

26. Diversified Machines has four product lines, one of which reflects the following results:

Sales $220,000Variable expenses 120,000Contribution margin 100,000Fixed expenses 120,000Net loss $(20,000)

If this product line is eliminated, 40% of the fixed expenses can be eliminated and the other 60% will be allocated to other product lines. If management decides to eliminate this product line, what will happen to the company's net income?

a. It will increase by $20,000.b. It will decrease by $52,000.c. It will decrease by $32,000.d. It will increase by $48,000.

27. If sales equals production in the long run,a. absorption costing income will exceed variable costing income.b. absorption costing income will equal variable costing income.c. variable costing income will exceed absorption costing income.d. absorption costing income may be greater than, equal to, or less than variable

costing income depending on the situation.

28. The Colin Division of Mochrie Company sells its product for $30 per unit. Variable costs per unit are: manufacturing, $12; and selling andadministrative, $2. Fixed costs are: $200,000 manufacturing overhead, and $50,000 selling and administrative. There was no beginning inventory at 1/1/05. Expected sales for next year is 40,000 units. Ryan Stiles, the manager of the Colin Division, is under pressure to improve the performance of the Division. As he plans for next year, he has to decide whether to produce 40,000 units or 50,000 units.

What would the manufacturing cost per unit be under absorption costing for each alternative?

40,000 units 50,000 unitsa. $12.00 $12.00b. $14.00 $14.00c. $16.00 $17.00d. $17.00 $16.00

29. T’pol Corporation is considering a plan that will increase total units sold. The plan will cause a shift from high- to low-margin sales. The plan willa. definitely increase net income.b. definitely decrease net income.c. not change net income.d. either increase, decrease or not affect net income; more information is needed.

30. Which of the following statements is not true?a. Operating leverage refers to the extent to which a company’s net income reacts to a

given change in sales.b. Companies that have higher fixed costs relative to variable costs have higher

operating leverage.c. When a company’s sales revenue is increasing, high operating leverage is a good

thing because it means that profits will increase rapidly.d. When a company’s sales revenue is decreasing, high operating leverage is a good

thing because it means that profits will decrease at a slower pace than revenues decrease.

31. Which of the following is most likely a mixed cost?a. Car rental feeb. Storage unit rentc. Equipment depreciationd. Direct labor

Use the following information for questions 32-33.

The following data is available for Wheels ‘N Spokes Repair Shop for 2006:Repair technician's wages $ 180,000Fringe benefits 40,000Overhead 30,000Total $250,000

The desired profit margin is $20 per labor hour. The material loading charge is 40% of invoice cost. It is estimated that 5,000 labor hours will be worked in 2006.

32. Wheels ‘N Spokes’ labor charge in 2006 would bea. $50.b. $56.c. $64.d. $70.

33. In January 2006, Wheels ‘N Spokes repairs a bicycle that uses parts of $160. Its material loading charge on this repair would bea. $64.b. $96.c. $160.d. $224.

34. Variable costs of units sold internally will always bea. lower than the variable costs of units sold externally.b. higher than the variable costs of units sold externally.c. the same as the variable costs of units sold externally.d. Variable costs of units sold internally may be either higher or lower than for units sold

externally.

35. Hen Company has developed a new product, egg crates that prevent breakage. The cost per crate is $50 and the company expects to sell 1,000 crates per year. Hen Company has invested $1,000,000 in equipment to produce the crates and desires a 10% return on investment. What is Hen Company’s desired markup percentage?

a. 10%b. 20%c. 100%d. 200%

Use the following information for questions 36 - 37.

Livanos, Inc.reports all its sales on credit, and pays operating costs in the month incurred. Amounts for 2005 are:         

  March April May June July Budgeted sales  $300,000  $290,000  $320,000  $280,000   $210,000 Budgeted purchases $144,000 $120,000 $128,000 $132,000    $90,000

  Customer amounts on account are collected 70% in the month of sale and 30% in the

following month. Cost of goods sold is 60% of sales. Livanos purchases and pays for merchandise 40% in the month of acquisition and 60%

in the following month. Operating expenses are: Salaries, $50,000; Depreciation, $12,000; Rent, $15,000; and

Utilities, $14,000; Accounts payable is used only for inventory acquisitions.

36. How much cash will Livanos receive during May from customers?     a.    $308,000     b.    $311,000     c.    $224,000     d.    $299,000

37.   How much is Livanos’ budgeted balance for Accounts Payable at May 30, 2005?a.    $124,800b.    $72,000c.    $51,200d.    $76,800

  

38. Which one of the following is correct concerning a budget? a. It can focus as a substitute for management.b. It is a written statement of managements’ plans for a specified future time period. c. It is required for all business operations. d. It is used only by manufacturing companies.

39. Which one of the following is an operating budget?a. Cash budgetb. Sales budgetc. Budgeted balance sheetd. Capital expenditure budget

40. Which time period is the most common for budget periods?a. One monthb. Five yearsc. One yeard. There is no common time period since companies use any period desired.

41. Farley Company reported the following information for 2006:         

  September October November December January Budgeted sales  $240,000  $310,000 $290,000  $360,000 $200,000 Budgeted purchases $90,000 $120,000 $128,000 $144,000 $88,000

Cost of goods sold is 35% of sales. Farley purchases and pays for merchandise 60% in the month of acquisition and

40% in the following month. Accounts payable is used only for inventory acquisitions.  

How much is the budgeted balance for Accounts Payable at October 31, 2006?a.    $48,000b.    $72,000c.    $102,000d.    $51,200

42. Halpern Division’s operating results include: controllable margin of $150,000, sales totaling $1,200,000; and average operating assets of $500,000. Halpern is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000. Halpern’s required rate of return is 9%. Should Halpern accept this project?

      a. Yes, ROI will drop by 6.6% which is still above the required rate of return.      b. No, the return is less than the required rate of 9%.      c. Yes, ROI still exceeds the cost of capital.      d. No, ROI will decrease to 7%.

43. The difference between overhead budgeted and overhead applied is the

a. budget variance. b. controllable variance. c. spending variance. d. volume variance.

44. Labor efficiency is measured by the

a. materials quantity variance.b. total labor variance.c. labor quantity variance.d. labor rate variance.

45. Which one of the following is not controllable by a profit center manager?a. Variable costsb. Salesc. Controllable margind. Assets used by the center

46. Which statement is true concerning direct fixed costs?a. They also called traceable costs.b. Profit center managers are not able to control them.c. The often apply to more than one center.d. They are deducted from controllable margin on a responsibility report.

47.   Frame, Inc. requires a return for Picture Division totaling 8%. Which projects would add value to the company?

Project Average Operating Assets Controllable MarginA $500,000 $40,000B $450,000 $30,000C $375,000 $32,000D $425,000 $40,000

a.   A, B, C, and Db.   Projects A, C, and Dc.   Projects C and Dd.   Project A, B, and D

48. A managerial accountant1. does not participate in the standard setting process.2. provides knowledge of cost behaviors in the standard setting process.3. provides input of historical costs to the standard setting process.

a. 1b. 2c. 3d. 2 and 3

49. The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month, 11,200 gallons of direct materials that actually cost $42,400 were used to produce 6,000 units of product. The direct materials quantity variance for last month wasa. $3,200 favorable.b. $2,400 favorable.c. $3,200 unfavorable.d. $5,600 unfavorable.

50. A company uses 3,150 pounds of materials and exceeds the standard by 150 pounds. The quantity variance is $900 unfavorable. What is the standard price?a. $2.00.b. $3.50.c. $4.00.d. $6.00.