1)

A cost center is a unit of a business that incurs costs without directly generating revenues. All of the following are considered cost centers except:

Accounting department at Warner Bros.

Purchasing department at Best Buy.

Research department at Microsoft.

Advertising department at Hertz.

Juice division at Coca Cola.

2)

Regardless of the system used in departmental cost analysis:

Direct costs are allocated, indirect costs are not.

Indirect costs are allocated, direct costs are not.

Both direct and indirect costs are allocated.

Neither direct nor indirect costs are allocated.

Total departmental costs will always be the same.

3)

The salaries of employees who spend all their time working in one department are:

Variable expenses.

Indirect expenses.

Direct expenses.

Responsibility expenses.

Unavoidable expenses.

4)

The most useful allocation basis for the departmental costs of an advertising campaign for a storewide sale is likely to be:

Floor space of each department.

Relative number of items each department had on sale.

Number of customers to enter each department.

An equal amount of cost for each department.

Proportion of sales of each department.

5)

In a responsibility accounting system:

Managers are responsible for their departments' controllable costs.

Each accounting report contains all items allocated to a responsibility center.

Organized and clear lines of authority and responsibility are only incidental.

All managers at a given level have equal authority and responsibility.

Outputs of the departments are not part of the evaluation process.

6)

A college uses advisors who work with all students in all divisions of the college. The most useful allocation basis for the salaries of these employees would likely be:

number of classes offered in each division.

student graduation rate.

square footage of each division.

number of students advised from each division.

relative salaries of division heads.

7)

In the preparation of departmental income statements, the preparer completes the following steps in the following order:

Identify direct expenses; allocate indirect expenses; allocate service department expenses.

Identify indirect expenses; allocate direct expenses; allocate service department expenses.

Identify service department expenses; allocate direct expenses; allocate indirect expenses.

Identify direct expenses; allocate service department expenses; allocate indirect expenses.

Allocate all expenses.

8)

Departmental contribution to overhead is calculated as the amount of sales of the department less:

Controllable costs.

Product and period costs.

Direct expenses.

Direct and indirect costs.

Joint costs.

9)

A retail store has three departments, S, T, and U, and does general advertising that benefits all departments. Advertising expense totaled $41,000 for the year, and departmental sales were as follows. Allocate advertising expense to Department T based on departmental sales. (Do not round your intermediate calculations.)

Department S	$137,000
Department T	215,050
Department U	160,450
Total	512,500

$19,367.

$16,700.

$13,700.

$17,204.

$41,000.

10)

Rent and maintenance expenses would most likely be allocated based on:

Sales volume by department.

Square feet of floor space occupied.

Number of hours worked.

Number of invoices processed.

Number of employees in each department.

11)

The following is a partially completed lower section of a departmental expense allocation spreadsheet for Brickland. It reports the total amounts of direct and indirect expenses for the four departments. Purchasing department expenses are allocated to the operating departments on the basis of purchase orders. Maintenance department expenses are allocated based on square footage.

	Purchasing	Maintenance	Fabrication	Assembly
Operating costs	$32,000	$18,000	$96,000	$62,000
No. of purchase orders			16	4
Sq. ft. of space			3,300	2,700

Required: Compute the amount of Purchasing department expense to be allocated to Assembly.

$6,400.

$9,900.

$8,100.

$14,400.

$25,600.

12)

Capital budgeting decisions are generally based on:

Tentative and potentially unreliable predictions of future outcomes.

Predictions of future outcomes where risk is eliminated.

Results from past outcomes only.

Results from current outcomes only.

Speculation of interest rates and economic performance only.

13)

A company paid $200,000 ten years ago for a specialized machine that has no salvage value and is being depreciated at the rate of $10,000 per year. The company is considering using the machine in a new project that will have incremental revenues of $28,000 per year and annual cash expenses of $20,000. In analyzing the new project, the $200,000 original cost of the machine is an example of a(n):

Incremental cost.

Opportunity cost.

Variable cost.

Sunk cost.

Out-of-pocket cost.

14)

Gordon Corporation inadvertently produced 10,000 defective digital watches. The watches cost $8 each to produce. A salvage company will purchase the defective units as they are for $3 each. Gordon's production manager reports that the defects can be corrected for $5 per unit, enabling them to be sold at their regular market price of $12.50. Gordon should:

Sell the watches for $3 per unit.

Correct the defects and sell the watches at the regular price.

Sell the watches as they are because repairing them will cause their total cost to exceed their selling price.

Sell 5,000 watches to the salvage company and repair the remainder.

Throw the watches away.

15)

A disadvantage of using the payback period to compare investment alternatives is that:

It ignores cash flows beyond the payback period.

It includes the time value of money.

It cannot be used when cash flows are not uniform.

It cannot be used if a company records depreciation.

It cannot be used to compare investments with different initial investments.

16)

A company is considering the purchase of a new machine for $48,000. Management predicts that the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $12,000 per year including depreciation of $3,000 per year. The company's tax rate is 40%. What is the payback period for the new machine?

20.0 years.

6.0 years.

7.5 years.

12.0 years.

8.9 years.

17)

Which of the following cash flows is not considered when using the net present value method?

Future cash inflows.

Future cash outflows.

Past cash outflows.

Non-uniform cash inflows.

Future year-end cash flows.

18)

W

hich one of the following methods considers the time value of money in evaluating alternative capital expenditures?

Accounting rate of return.

Net present value.

Payback period.

Cash flow method.

Return on average investment.

19)

The discount rate that yields a net present value of zero for an investment is the:

Internal rate of return.

Accounting rate of return.

Net present value rate of return.

Zero rate of return.

Payback rate of return.

20)

The following is a partially completed departmental expense allocation spreadsheet for Brickland. It reports the total amounts of direct and indirect expenses for its four departments. Purchasing department expenses are allocated to the operating departments on the basis of purchase orders. Maintenance department expenses are allocated based on square footage. Compute the amount of Maintenance department expense to be allocated to Fabrication.

	Purchasing	Maintenance	Fabrication	Assembly
Operating costs	$32,000	$18,000	$96,000	$62,000
No. of purchase orders			16	4
Sq. ft. of space			3,300	2,700

$6,400.

$9,900.

$8,100.

$9,000.

$25,600.

21)

A company is considering the purchase of a new machine for $66,000. Management predicts that the machine can produce sales of $22,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $10,400 per year including depreciation of $5,800 per year. The company's tax rate is 40%. What is the payback period for the new machine?

3.00 years.

6.73 years.

5.17 years.

11.38 years.

17.19 years.

22)

Butler Corporation is considering the purchase of new equipment costing $84,000. The projected annual after-tax net income from the equipment is $3,000, after deducting $28,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of 3 years and no salvage value. Butler requires a 9% return on its investments. The present value of an annuity of 1 for different periods follows:

Periods	9 Percent
1	0.9174
2	1.7591
3	2.5313
4	3.2397

What is the net present value of the machine? (closest to)

$70,876.

$78,470.

$9,000.

$84,000.

$(5,530).

23)

A company is considering a new project that will cost $19,000. This project would result in additional annual revenues of $6,000 for the next 5 years. The $19,000 cost is an example of a(n):

Sunk cost.

Fixed cost.

Incremental cost.

Uncontrollable cost.

Opportunity cost.