1._____Which of the following is a characteristic of fixed assets?

a)Fixed assets are offered for sale as a part of normal operations.

b)Fixed assets do not exist physically.

c)Fixed assets are long-term or relatively permanent assets.

d)Fixed assets that are no longer used in operations are still classified as fixed assets.

2._____Which of the following expenditures would be included in the cost of a fixed asset?

a)Uninsured theft.

b)Vandalism.

c)Mistakes in installation.

d)Sales tax.

3._____Which of the following is an example of a capital expenditure?

a)Cleaning the carpet in the front office.

b)Replacing an engine in the company car.

c)Regular tune-up of the company truck.

d)Replacing burned-out light bulbs in the factory.

4._____Liabilities due beyond one year are classified as:

a)Long-term liabilities.

b)Current liabilities.

c)Contingent liabilities.

d)Fixed liabilities.

5._____The FICA tax withheld from employees contributes to:

a)Federal and state unemployment compensation.

b)Social security and federal unemployment compensation.

c)Social security and Medicare.

d)Medicare only.

6._____When the contract rate of interest on bonds is less than the market rate of interest, the bonds sell at:

a)Premium.

b)Face value.

c)Maturity rate value.

d)Discount.

7._____Profitability refers to the ability of a business to:

a)Pay its current and noncurrent liabilities.

b)Earn a reasonable amount of income.

c)Manage its accounts receivable and inventory.

d)Provide owners with a dividend.

8.______The percentage change in long-term liabilities between two balance sheet dates is an example of:

a)Profitability analysis.

b)Solvency analysis.

c)Horizontal analysis.

d)Vertical analysis.

9._____Which of the following is the formula for calculating current ratio?

a)Cost of goods sold/average inventory.

b)Quick assets/current liabilities.

c)Sales/average accounts receivable.

d)Current assets/current liabilities.

10._____Which of the following is true of a direct material cost?

a)Direct material cost is included in factory overhead.

b)It is sometimes called 'factory burden'.

c)It is not a significant portion of the total product cost.

d)It is the cost of any material that is an integral part of finished product.

11._____The cost of wages paid to employees directly involved in the manufacturing process of converting materials into finished goods is classified as:

a)Factory overhead cost.

b)Direct labor cost.

c)Direct material cost.

d)Administrative cost.

12.______Which of the following items would be classified as a prime cost?

a)Direct labor cost.

b)Factory overhead cost.

c)Selling cost.

d)Administrative cost.

13.______ Cost behavior refers to the manner in which:

a. A cost is allocated to products.

b. A cost is used in setting selling prices.

c. A cost change as the related activity changes.

d. A cost is estimated.

14._____The electricity expense in a production plant is an example of a:

a)Variable cost.

b)Margin cost.

c)Fixed cost.

d)Distribution cost.

15.______The systematic examination of the relationship among selling prices, volume of sales and production, costs, expenses, and profits is termed as:

a)Contribution margin analysis.

b)Cost-volume-profit analysis.

c)Budgetary analysis.

d)Gross profit analysis.

16.______The amount of increase or decrease in revenue that is expected from a particular course of action as compared with an alternative is termed:

a)Manufacturing margin.

b)Differential margin.

c)Deferred revenue.

d)Differential revenue.

17.______A cost that has been incurred in the past and is irrelevant is termed a(n):

a)Variable cost.

b)Opportunity cost.

c)Sunk cost.

d)Differential cost.

18.______The revenue that is forgone from an alternative use of an asset is called a(n):

a)Opportunity cost.

b)Differential revenue.

c)Sunk cost.

d)Differential income.

19.______Which of the following processes is involved in budgeting?

a)Assessing the utilization rate of assets.

b)Identifying the industry standards of stock returns.

c)Periodically comparing actual results with the budget.

d)Dismissing all managers who fail to achieve operational goals specified in the budget.

20.______A variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained always is termed:

a)Flexible budgeting.

b)Master budgeting.

c)Zero-based budgeting.

d)Continuous budgeting.

21.______The ______ estimates the number of units to be manufactured to meet budgeted sales and desired inventory levels.

a)Capital expenditure budget.

b)Production budget.

c)Sales budget.

d)Cash budget.

22._____Identify the type of organization in which all major planning and operation decisions ae made by top management.

a)Decentralized.

b)Consolidated.

c)Centralized.

d)Segmented.

23._____A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called a(n):

a)Profit center.

b)Investment center.

c)Volume center.

d)Cost center.

24._____The process by which management plans, evaluates, and controls long-term investment decisions involving fixed assets is called:

a)Absorption cost analysis.

b)Variable cost analysis.

c)Capital investment analysis.

d)Cost-volume-profit analysis.

25._____The two methods that consider the time value of money concept to analyze capital investment proposals are:

a)The net present value method and the internal rate of return method.

b)The net present value method and the average rate of return method.

c)The internal rate of return method and the average rate of return method.

d)The cash payback method and the net present value method.

5 Problems (10 points each)

A.Classify each of the costs as a capital expenditure (C) or a revenue expenditure (E).

1.Changed engine oil.

2.Installed a television in the sleeping compartment of a truck.

3.Installed a wind deflector on top of the cab to increase fuel mileage

4.Modified the factory-installed turbo charger with a special-order kit designed to add 50 more horsepower to the engine performance.

5.Removed the old GPS navigation system and replaced it with a newer model.

6.Replaced fog and cab light bulbs.

7.Replaced a headlight that had burned out.

8.Replaced a shock absorber that had worn out.

9.Replaced the hydraulic brake system that had begun to fail during last trip.

10.Replaced the old radar detector with a newer model that detects additional frequencies.

B.An employee earns $28 per hour and 1.5 times that rate for all hours in excess of 40 hours per week.Assume that the employee worked 46 hours during the week.Assume that the FICA tax rate is 7.5% and that federal income tax of $200 was withheld.

1.Determine the gross pay for the week.

2.Determine the net pay for the week.

C.Revenue and expense data for Searle Technologies Co. are as follows:

20182017

Sales$900,000$725,000

Cost of Goods Sold558,000435,000

Selling expenses117,000116,000

Administrative expenses63,00065,250

Income tax expense76,50058,000

1.Prepare an income statement in comparative form, stating each item for both 2018 and 2017 as a percent of sales.Round to one decimal place.

2.Comment on the significant changes disclosed by the comparative income statement.

D.Following is a list of various costs incurred in producing and selling college textbooks.Classify each cost as either variable (V), fixed (F), or mixed (M).

1.Art commission of $36,000 paid for use of art on textbook cover.

2.Sales commission paid sales representatives based upon number of textbooks sold.

3.Electricity costs, $.04 per kilowatt-hour.

4.Hourly wages of operators of printing presses.

5.Janitorial costs, $5,000 per month.

6.Packaging for customized texts.

7.Paper used in printing the textbooks.

8.Property insurance premiums, $1,800 per month plus $0.05 for each dollar of property over $2,000,000.

9.Property taxes, $615,000 per year on factory building and equipment.

10.Rent on warehouse, $12,800 per month plus $2.50 per square foot of storage used.

E.Ultimate Audio Company manufactures two models of speakers, U500 and S1000.Based on the following production and sales data for June, prepare (a) a sales budget and (b) a production budget.

U500S1000

Estimated inventory(units), June 125,00010,000

Desired inventory(units), June 3030,00015,000

Expected sales volume(units):

Northeast Region140,000100,000

Southwest Region160,000125,000

Unit sales price$45$80