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Accounting 241 Final Exam Review 1) Which of the following is not a characteristic of managerial accounting? a) b) c) d) 2) Emphasizes relevance focuses on the future more than the past provides detailed information about parts of the company, not just the company as a whole. Emphasizes reliability Which of the following is not a part of Toyota's manufacturing overhead? a) b) c) d) 3) Insurance on plant and equipment depreciation on its North American corporate headquarters plant property taxes plant utilities The three inventoriable costs are direct materials, direct labor and..... a) b) c) d) 4) Direct materials used manufacturing overhead cost of goods sold work in process If manufacturing overhead is over allocated for the period by $200, then..... a) b) c) d) 5) the $200 should be prorated between work in process inventory, finished goods inventory, and cost of goods sold actual manufacturing overhead is greater than allocated manufacturing overhead jobs have been over costed during the period cost of goods sold should be adjusted by an increase of $200 When Dell applies manufacturing overhead, it traces the cost by..... a) b) c) d) 6) debiting manufacturing overhead and crediting raw materials debiting manufacturing overhead and crediting work in process debiting work in process and crediting manufacturing overhead debiting work in process and credit raw materials Which of the following is false? a) b) c) d) 7) ABC focuses on allocating indirect costs. advances in information technology have made it feasible for more companies to adopt ABC. ABC is only for manufacturing firms. A system that uses ABC is more refined than one that uses departmental overhead rates. Actual and normal costing are similar in their accounting for: A) material and labor costs B) materials and overhead costs C) labor and overhead costs D) all of the above 8) a) b) c) d) 9) Volume-based cost systems tend to: Under-cost low-volume products and under-cost high volume products Under-cost low-volume products and over-cost high volume products Over-cost low-volume products and under-cost high volume products Over-cost both low and high volume products A construction company currently uses traditional costing where overhead is applied based on direct labor hours. Using traditional costing, the applied overhead rate is $20 per direct labor hour, and 50 Direct labor hours were used for this current job. They are considering a switch to ABC. The company controller has come up with the following information: Activity Rate Actual Activity Usage Current Job Material delivery and Number of handling deliveries Inspections Number of inspections $100 per delivery 2 deliveries $75 per inspection 3 inspections Supervision $30 per supervisor hour $60 per purchase order 2 hours Activity Allocation base Purchasing Hours of supervision time Number of purchase orders 5 purchase orders Which of the following statements is true when comparing the total overhead allocated to the job using traditional costing versus ABC costing? a) ABC costing will yield $215 less in overhead cost being allocated to the job b) c) d) 10) ABC costing will yield $735 less in overhead cost being allocated to the job ABC costing will yield $545 more in overhead cost being allocated to the job ABC costing will yield $785 more in overhead cost being allocated to the job. Handling a customer complaint is an example of which of the following costs? a) b) c) d) 11) appraisal costs external failure costs internal failure costs prevention costs Which of the following activities in a manufacturing firm is value-added? a) b) c) d) Operate production equipment to bring product to partial completion Place partially finished product in storage area to await further work maintain storage area for partially finished product remove partially finished product from storage area. 12) Eddie's has the following transactions for the month of September: 1) purchased materials on account $77,000 2) 3) 4) 5) 6) 7) materials requisitioned $55,000 Direct labor for the month was incurred (but not paid) of $33,000 Actual Overhead for the month was $21,000 (not paid, charged to payables) Overhead is applied to production at the rate of 80% of direct labor Jobs totaling $70,000 were transferred from Work in process to finished goods Jobs totaling $45,000 were sold. Inventory balances at the beginning of the month were: Materials: 20,000 Work in process: 1,000 Finished goods: 8,000 What is the ending balance in finished goods? a) $50,000 b) c) d) $33,000 b) c) d) Debit Work in Process and credit cost of goods sold. $34,000 $35,000 13) Kaitlin's Company had a debit balance of $5,000 in MOH at the end of the period. What is the proper journal entry to adjust Cost of Goods Sold? a) Debit MOH and credit Cost of goods sold. 14) Debit cost of goods sold and credit finished goods inventory. The legal costs associated with filing a patent for a new model of an oven at an appliance manufacturer is an example of which type of activity? a) unit-level b) c) d) 15) Debit Cost of goods sold and credit MOH. batch-level product-level facility-level What statements are product costs found on? a) b) c) d) only the balance sheet only the income statement on the balance sheet before the goods are sold, and on the income statement after the goods are sold on the income statement before the goods are sold, and on the balance sheet after the goods are sold 16) Matt's company had the following information for the year: Direct materials used $140,000 Direct Labor incurred (8,000 $190,000 hours) Actual MOH incurred $210,000 Matt's company used a predetermined overhead rate of $30 per direct labor hour for the year. Assume the only inventory balance is an ending work in process inventory balance of $20,000. What was the adjusted cost of goods sold? a) $540,000 b) c) d) $570,000 17) a) b) c) d) Which of the following is NOT a good reason for dell to use ABC? 18) In a job costing system, all of the following statements about materials are correct except for which of the following? $600,000 $520,000 The computer industry is highly competitive Dell produces many more desktops than servers, and the servers are more difficult to assemble Most costs are direct; indirect costs are a small proportion of total costs Dell has advanced information technology, including bar-coded materials and labor. a) b) c) a materials requisition is used to request materials needed from the storeroom. The job cost record for a job will contain all the direct material used for that particular job Materials that cannot be traced to a particular job are treated as manufacturing overhead d) 19) Which is NOT an element of Toyota's value chain? a) b) c) d) 20) a) b) c) d) all materials are always classified as direct materials. administrative costs cost of shipping cars to dealers salaries of engineers who update car design cost of print ads and television commercials Dell enjoys many benefits from committing to lean production. Which is not a benefit of adopting a lean production philosophy. lower inventory carrying costs more space available for production ability to respond more quickly to changes in customer demand ability to continue production despite disruptions in deliveries of raw materials 21) A company produces a single product selling for $40 per unit. Variable costs are $20, and total fixed costs are $8,000. What is the Break-even point in sales dollars? a) 600 b) c) d) 16,000 b) c) d) 1,600,000 10,000 400 22) Dave's Steel produces Steel parts for the automobile industry. The company has monthly fixed expenses of $600,000 and a contribution margin of 80% of revenues. However, lately the automotive manufacturers are demanding lower prices, and the steel producers have increased raw material costs. Dave's contribution margin has shrunk to 50% of revenues. To maintain the level of profit he did when his contribution margin was 80%, what sales dollar amount must Dave now achieve if his income prior to these pressures was $200,000? a) 2,000,000 1,800,000 2,100,000 23) Kaitlin's company currently sells 15,000 units a month for $50 each, has variable costs of $20 per unit, and fixed costs of $300,000. Kaitlin is considering increasing the price of her units to $60 per unit. This will not affect costs, but demand is expected to drop 20%. Should Kaitlin increase the cost of her product? a) No, net income will decrease $30,000 b) c) d) No, net income will decrease by $150,000 b) c) d) fixed cost b) c) d) variable costs and mixed costs b) 35,500 Yes, net income will increase $30,000 Yes, net income will increase $150,000 24) If a per-unit cost remains constant over a wide range of volume, the cost is most likely a: a) variable cost mixed cost step cost 25) The cost per unit decreases as volume increase for which of the following cost behaviors: a) variable costs and fixed costs fixed and mixed costs only fixed costs 26) Record's of Harrison's traveling circus show that he had a total overhead cost of $30,000 for 900 labor hours worked and $33,000 for 1,100 labor hours worked. What are Harrison's total expected overhead costs if he expects that 950 hours will be used next month. a) 30,000 c) d) 30,750 b) c) d) The break-even point will decrease 42,000 27) If the sales of a product increases while everything else remains the same, what happens to the break-even point? a) The break-even point will increase the break-even point will remain the same the effect cannot be determined without further information 28) Suppose Amazon.com is considering investing in warehouse-management software that costs $500,000, has $50,000 residual value, and should lead to cost savings of $120,000 per year for its five-year life. What is the ARR? a) 4% b) 6% c) 5% d) 8% 29) A company plans to sell 80,000 units in June and 100,000 units in july. This company's policy is that 15% of the following months sales must be in ending inventory. What is the budgeted production for units in june? a) 80,000 b) 83,000 c) 81,000 d) 79,000 30) A company finds that typically 20% of a month's sales are cash. Payments on accounts receivable are 70% in the month of sale and 30% in the month following sale. Budgeted sales for January are $200,000, February $250,000, and $150,000 in March. What are the total cash receipts for February? a) $248,000 b) $254,000 c) $238,000 d) $255,000 31) A flexible budget variance is: a)The difference between actual costs and estimated costs found on the static budget b)The difference between actual costs this year and the prior year's actual costs c)The difference between the costs of the static budget and the expected costs of the flexible budget d)The difference between actual costs and the expected costs at the same level of actual activity 32) A company makes desks and uses a standard cost system. From the accounting records, one can see that the company's standard costs are $3.90 per pound, and $6.00 per labor hour. Each desk uses 5 pounds of lumber, and 3 hours of labor. Materials purchased and used for the year were 39,500 pounds and 22,000 labor hours. Actual material costs were $4.05 per pound and labor actually costed $6.95 per hour. The company's estimated production was 10,000 desks, and they actually produced 8,000. What was the company's materials quantity variance? a) 5925 U b) 1950 U c) 5925 F d) 1950 F 33) Using the Information from number 32, what is the Labor Rate variance? a) 20,900 U b) 20,900 F c) 6000 U d) 6000 F 34) Suppose that your aunt wants to give you $200,000 on your 35th birthday in 15 years! how much does she need to invest now, in order to ensure that you get that much in 15 years, assuming her account earns 6%? a) $59,000 b) $70,000 c) $83,400 d) $93,450 35) A company has an initial investment on a project of $8,000,000. The project earns annual net income of $300,000. the project has annual depreciation of 100,000. How long will the payback period be for this project? a) 20 years b) 25 years c) 10 years d) 16 years 36) Assume you want to retire early at age 52. You plan to save using one of the following strategies. Option 1: Save $3,000 per year in an IRA beginning when you are 22 and ending when you are 52, or option 2: wait until you are 40, and save $7,500 for the next 12 years. which option should you choose, and how much savings will you accumulate with this option assuming that you can get a return of 10%? a) option 1, $493,470 b) option 2, $160,380 c) Option 1, $ 740,346 d) option 2, $205,000 37) You Won the Lottery! The state lottery offers you the following payout options: Option 1: $12,000,000 5 years from now. Option 2: $2,250,000 at the end of each year for the next five years. Option 3: $10,000,000 three years from now. Which option would you choose with an 8% discount rate? a) option 1 b) option 2 c) option 3 d) none of the above 38) A machine costs $90,000. A company incurs labor costs of $45,000 annually that can be avoided if the new machine is purchased. The machine will also allow the company to produce an additional 8,000 units per year. The company realizes a contribution margin of $.40 per unit. The machine will cost $16,000 per year to operate. Straight line depreciation is used, and the useful life of the machine is 9 years with no salvage value. Although the machine has a live of 9 years, a $6,000 overhaul will be required at the end of the third year. After 9 years, the machine would be sold for $20,000. The company is subject to a 30% tax rate, and requires 10% return on all investments in the equipment. What is the present value of depreciation tax shield? a) 16,737 b) 17,277 c) 18,717 d) 20,568 39) What is the Net Present Value of the machine mentioned in number 38? a) $149,867 b) $59,867 c) 165,789 d) 75,449 40) Which of the following is the starting point for the master budget? a) the sales budget b) the direct materials c) the production budget d) the operating expenses budget 41) Which of the following responsibility centers is a profit center? a) The accounting department for a local bank b) the sales office for a charter airline service c) the headquarters for an international tire manufacturer d) the local branch office for a national bank 42) Which of the following managers is at the highest level of organization? a) Cost center manager b) revenue center manager c) profit center manager d) investment center manager 43) A favorable material quantity variance indicates that: a) The standard material price is less than the actual material price b) the actual material price is less than the standard material price c) the actual quantity of material used is less than the standard material allowed for the actual quantity of output. d) the standard material allowed for the actual quantity of output is less than the actual quantity of material used. 44) Advantages of using standard costs include all of the following except that a) standard costing allows companies to create flexible budgets b) managers can evaluate the efficiency of production workers c) differences between the static budget and the flexible budget can be broken down into price and quantity components d) the price sensitivity of consumers can be analyzed 45) A company has fixed expenses of $500,000, a unit sales price of $75, and variable costs of $25. If a company wants to make and after-tax profit of $60,000, assuming a 40% tax rate, how many units must this company sell? 46) a) 12,000 b) 13,000 c) 14,000 d) 15,000 If a company produces more units than it sells, one would expect..... a) Net income would be greater under absorption costing than variable costing b) Net income would be greater under variable costing than absorption costing c) Net income would be less under variable costing than absorption costing d) Net income would be less under absorption costing e) a and c 47) A company is comprised of 2 divisions: Music and News. A summary of the expected operations for the year for each division and the total corporation follows: Music News Sales $800,000 $2,000,000 Expenses $700,000 $900,000 Average Assets $1,000,000 $2,000,000 A new project has just been identified that could be purchased and put in place by 2010. The required investment in assets is $500,000 and it would generate a net income of $70,000 next year. The project is available to either division. Who would be in favor of this if their performance was evaluated based on ROI? a) The music manager and news manager b) Neither the music manager, nor the news manager c) The music manager but not the news manager d) the news manager, but not the music manager 48) 49) Who would be in favor of investing in the new project assuming that the divisions are organized as investment centers and their performance is evaluated on the basis of residual income? The corporate target rate of return is 12%. a) Both managers b) neither manager c) the music manager, but not the news manager d) the news manager, but not the music manager If NPV is positive, the IRR is.... a) greater than the discount rate b) less than the discount rate c) the same as the discount rate d) none of the above 50) Knight Fashion in New York operates 3 departments: Men's, Women's, and Accessories. Knight Fashion allocates all fixed expenses (unavoidable building depreciation and utilities) based on each department's square footage. Departmental operating income data for the 3rd quarter of the current year are as follows: Department Men's Women's Accessories Total Department Sales Revenue $105,000 $54,000 $100,000 $259,000 Variable Expenses $60,000 $30,000 $80,000 $170,000 Fixed Expenses $25,000 $20,000 $25,000 $70,000 Operating Income (loss) $20,000 $4,000 $5,000 $19,000 Assume that all the fixed costs are unavoidable. If Knight fashion drops one of the departments, it plans to replace the department with a new shoe department. The company expects the Shoe department to produce $80,000 in sales and have $50,000 variable costs. Because the shoe business would be new to Knight Fashion, the company would have to incur $7,000 of fixed costs (advertising, new shoe racks, etc) per quarter related to the department. What effect would this have on operating income? a) decrease $3,000 b) increase $3,000 c) decrease $22,000 d) increase $22,000 51) Deep Blue manufactures flotation vests in Charleston, South Carolina. Deep Blue's contribution margin income statement for the most recent month contains the following data: Sales in units 31,000 Sales Revenue $434,000 Variable Expenses $186,000 Fixed Expenses $332,000 Operating LOSS $84,000 Deep Blue is currently producing 31,000 vests. Boats and More asks Deep Blue if they will fill a special order of 4,600 vests at $8 each. Deep Blue's maximum production capacity is 34,600 vests. They normally sell their vests at $14 each. If Deep Blue accepts this offer, what would the effect on sales be? a) sales will increase by $14,000 b) sales will increase by $22,800 c) sales will decrease by $14,000 d) sales will decrease by $22,800 52) Each morning, Murry Cole stocks the drink case at Murry's Beach Hut in Charlotte, North Carolina. Murry's Beach Hut has 105 linear feet of refrigerated display space for cold drinks. Each linear foot can hold either five 12-oz cans or four 20-oz plastic or glass bottles. Murry's Hut sells three types of cold drinks..... Cold Drink Can Size GrandCola 12 oz Selling price per bottle $1.50 Cost per bottle FizzlePop 20 oz $1.75 $0.40 ValueSoda 20 oz $2.30 $0.80 $0.25 To provide variety to customers, suppose Murry refuses to devote more than 60 linear feet and no less than 5 linear feet to any individual product. Under this condition , how many linear feet of each drink should Murry stock? a) 35 feet of value soda, 35 feet of fizzle pop, and 35 feet of grand cola b) 60 feet of Grand Cola, 40 feet of fizzle pop, and 5 feet of value soda c) 60 feet of value soda, 40 feet of fizzle pop, and 5 feet of grand cola d) 60 feet of Grand Cola, 40 feet of value-soda, and 5 feet of fizzle-pop 53) A company has 3 products: 1,2, and 3. Each of these products can either be sold right away or processed further into a more complete product. Given the following information which of the following products should NOT be processed further? Product Current Sales Price Later Sales Price Unit cost of further processing ONE $5 $10 $6 TWO $10 $15 $4 THREE $15 $20 $3 a) 1, 2, 3 b) 2 and 3 only c) 1 only d) all should be further processed 54) Tech Systems manufactures an optical switch that is used in its final product. Tech systems incurred the following manufacturing costs when it produced 68,000 units last year: Direct Materials $680,000 Direct Labor $136,000 Variable Overhead $68,000 Fixed Overhead $374,000 Manufacturing cost for 68,000 units $1,258,000 Another company has offered to sell tech systems the switch for $15.00 per unit. Assume that Tech Systems can avoid $204,000 of fixed costs a year by outsourcing production. If Tech systems accepts the offer, what effect will this have on operating income? a) Operating income would decrease by $68,000 b) Operating income would decrease by $80,000 c) Operating income would increase by $68,000 d) Operating income would increase by $80,000 55) Rapid Scooters plans to sell a motorized standard scooter for $65 and a motorized chrome scooter for $75. Rapid Scooters purchases the standard scooter for $50 and the chrome scooter for $55. Rapid Scooters expects to sell two chrome scooters for every three standard scooters. Rapid Scooters' monthly fixed expenses are $15,300. How many of each type of scooter must Rapid Scooters sell monthly to make $9,350? a) 580 standard scooters and 870 chrome scooters b) c) d) 870 standard scooters and 580 chrome scooters b) c) d) has lower risk and lower potential for reward 540 standard scooters and 360 chrome scooters 360 standard scooters and 540 chrome scooters 56) A firm with a high operating leverage....... a) has higher levels of variable costs and lower levels of fixed costs has higher risk, but a lower potential for reward has higher levels of fixed costs and lower levels of variable costs