1) Which of the following is an example of the planning function of a budget?
a. A budget demands integrated input from different business units and functions.
b. Employees are motivated to achieve the goals set by the budget.
c. Budget figures are used to evaluate the performance of managers.
d. The budget outlines a specific course of action for the coming period.
2) Opportunity cost(s):
a. of a resource with excess capacity is zero
b. should be maximized by organizations
c. are recorded as an expense in the accounting records
d. are most important to financial accountants
3) Gnome Company is trying to decide whether to continue to manufacture a particular component or to buy the component from a supplier. Which of the following is relevant to this decision?
a. the potential uses of the facilities that are currently used to manufacture the component
b. the insurance on the manufacturing facility which will continue regardless of the decision
c. allocated corporate fixed costs which would have to be allocated to other products if the component is no longer manufactured
d. the cost of the equipment that is currently being used to manufacture the component
4) Which of following statements is true of short-term decision making?
a. Fixed costs and variable costs must be analyzed separately.
b. All costs behave in the same way.
c. Unit manufacturing costs are variable costs.
d. All costs involved in a decision are considered relevant.
5) A company is analyzing its month-end results by comparing it to both static and flexible budgets. During the previous month, the actual selling price was higher than the expected price as per the static budget. This difference results in a(n):
a. favorable flexible budget variance for sales revenues.
b. favorable sales volume variance for sales revenues.
c. unfavorable flexible budget variance for sales revenues.
d. unfavorable sales volume variance for sales revenues.
6) When replacing an old asset with a new one, the original purchase price of the old asset represents:
a. relevant cost.
b. differential costs.
c. opportunity cost.
d. sunk cost.
7) Polynesia Company manufactures sonars for fishing boats. Model 70 sells for $300. Polynesia produces and sells 5,500 of them per year. Cost data are as follows:
Variable manufacturing $100 per unit
Variable marketing $15 per unit
Fixed manufacturing $280,000 per year
Fixed marketing & admin $150,000 per year
The sales manager says he has an opportunity to pitch a special sale to a new Canadian fishing company that is outfitting new boats. He proposes a sale of 40 units at a special price of $150 per unit. He says it will not cannibalize the company’s regular sales and is a one-time transaction. It will require the normal amount of variable costs, both marketing and manufacturing, but will not impact fixed costs in any way. The president of the company has some reservations, but finally agrees to make the deal if and only if it adds a minimum of $1,500 to operating income. Based on the president’s criteria, what will Polynesia decide to do? (show the calculation to support this decision)
8) Mountain Sports Equipment Company projected sales of 78,000 units at a unit sale price of $12 for the year 2015. Actual sales of 2015 were 75,000 units at $14.00 per unit. Variable costs were budgeted at $3 per unit; actual amount was $4 per unit. Budgeted fixed costs totaled $375,000, while actual fixed costs amounted to $400,000. What is the sales volume variance for total revenue?
9) Western Outfitters projected sales of 75,000 units for the year 2015 at a unit sale price of $12.00. Actual sales in 2015 was 72,000 units, at $14.00 per unit. Variable costs were budgeted at $4.00 per unit; actual variable cost was $4.75 per unit. Budgeted fixed costs totaled $375,000 while actual fixed costs amounted to $400,000. What is the flexible budget variance for operating income?
10) Kapital Inc. has prepared the operating budget for the first quarter of 2015. They forecast sales of $50,000 in January, $60,000 in February, and $70,000 in March. Variable and fixed expenses are as follows:
Variable: Power cost (40% of Sales)
Miscellaneous expenses: (5% of Sales)
Fixed: Salary expense: $8,000 per month
Rent expense: $5,000 per month
Depreciation expense: $1,200 per month
Power cost/fixed portion: $800 per month
Miscellaneous expenses/fixed portion: $1,000 per month
Calculate total selling and administrative expenses for the month of January & February.
11) McPherson Company is facing a $6 increase in the variable cost of producing one of its products for the upcoming year. Because of this situation, the sales manager has made a proposal to increase the selling price of the product while increasing the advertising budget at the same time. The price increase will lower sales volume, but the other changes may help the company maintain its profit margins. McPherson has provided the following information regarding the current year results and the proposal made by the sales manager:
Current Year Proposal
Unit sales 27,000 18,000
Sales price per unit $48 $58
Variable cost per unit $30 $36
Fixed cost $76,000 $96,000
Relative to the current year, the sales manager’s proposal will do what to Operating Income? (show calculations to support this)
12) Evans Company has estimated the following amounts for its next fiscal year:
Total fixed expenses $832,500
Sale price per unit 40
Variable expenses per unit 25
If the company spends an additional $30,000 on advertising, sales volume would increase by 2,500 units. What effect will this decision have on the operating income of Evans? (show calculations)
13) Moylan Company has provided the following information:
Variable expenses 504,000
Fixed expenses 212,000
What will be the change in variable expenses if the sales volume increases by 10%?
14) On the ________, cash dividends become a liability of a corporation.
a. declaration date
b. date of record
c. end of the fiscal year
d. payment date
15) ________ are equity securities in which the investor owns 20% or more, but less than 50%, of the investee’s voting stock.
a. Held-to-maturity investments
b. Significant interest investments
c. Controlling interest investments
d. Available-for-sale investments
16) Held-to-maturity investments applies only to debt securities because:
a. these securities earn periodic interest.
b. equity securities do not mature on a specific date.
c. these are long-term investments.
d. equity securities are held for a very short period.
17) Equity securities in which the investor owns less than 20% ownership in the voting stock of the investee can be:
a. significant interest investments.
b. controlling interest investments.
c. held-to-maturity investments.
d. either trading investments or available-for-sale investments (security).
18) A bond is issued at premium :
a. when a bond’s stated interest rate is equal to the market interest rate.
b. when a bond’s stated interest rate is less than the effective interest rate.
c. when a bond’s stated interest rate is less than the market interest rate.
d. when a bond’s stated interest rate is higher than the market interest rate.
19) The date on which the principal amount is repaid to the bondholder is known as:
a. issuing date.
b. interest date.
c. maturity date.
d. installment date.
20) The following is summary of information presented on the financial statements of a company on December 31, 2015.
Account 2015 2014
Net Sales Revenue $600,000 $500,000
Cost of Goods Sold 450,000 400,000
Gross Profit $150,000 $100,000
Selling Expenses 50,000 50,000
Net income before income tax expense $100,000 $50,000
Income tax expense 35,000 18,000
Net Income $65,000 $32,000
What would a horizontal analysis report show with respect to net income?
21) The accounts receivable turnover ratio of a merchandiser is 9.8 times. Calculate the days’ sales in receivables for the merchandiser. (Round to the nearest day.)
22) Zebra Inc. cost of goods sold for the year is $1,900,000 and average merchandise inventory for the year is $129,000. Calculate the inventory turnover ratio of the company.
23) A $30,000, three-month, 7% note payable was issued on December 1, 2015. What is the journal entry to record the accrued interest on December 31, 2015?
24) Revival Corporation’s annual report is as follows.
March 31, 2014 March 31, 2015
Net Income $350,000 $423,500
Preferred Dividends 0 0
Total Stockholders’ Equity $4,200,000 $5,082,000
Stockholders’ Equity attributable to Preferred Stock 0 0
Number of Common Shares Outstanding 275,464 192,168
If the current market price is $15 on March 31, 2015, find the price/earnings ratio on March 31, 2015.
25) The Avatar Company uses the direct method to prepare its statement of cash flows. Refer to the following information reported for the year 2015:
• Sales Revenue, $515,000
• Accounts Receivable, beginning balance, $92,000
• Accounts Receivable, ending balance, $57,000
• Accounts Payable, beginning balance, $43,000
• Accounts Payable, ending balance, $27,500
In the operating activities section of the statement of cash flows, what amount will be shown for collections from customers?
26) Trek Company signed a 9%, 10-year note for $150,000. The company paid $1,900 as the installment for the first month. After the first payment, what is the updated principal balance?
27) Which of the following is one of the reasons why companies use standard costs?
a. to enhance customer loyalty
b. to set performance targets
c. to share best practices with other companies
d. to ensure the accuracy of the financial records
28) Which of the following does the efficiency variance measure?
a. the difference between the quantity used by the company and the quantity used by its competitors
b. the change in quantities used over time
c. the difference between actual and standard quantity used
d. how quickly materials are processed into finished goods
29) The production manager of a company was experiencing a high defect rate on the assembly line, which was slowing production and causing wastage of valuable materials. He decided to recruit some highly skilled production workers from another company to bring down the defect rate, but was worried that the higher wages of these workers might negatively affect operating income. This situation would have produced a(n):
a. unfavorable direct materials cost variance.
b. unfavorable direct labor cost variance.
c. unfavorable direct labor efficiency variance.
d. unfavorable direct materials efficiency variance.
30) Which of the following is used to charge the cost of direct labor to the production?
a. Debit for standard quantity for actual production times standard cost per hour
b. Credit for standard quantity usage for actual production times actual cost per hour
c. Debit for actual quantity times standard cost per hour
d. Credit for standard quantity for actual production times standard cost per hour
31) Brad, one of the managers of a multi-national company, is responsible to generate revenues and control costs in order to increase the operating income of his division. However, he is not concerned with investment-related decisions. Brad is most likely to be the manager of a(n):
a. cost center.
b. investment center.
c. profit center.
d. revenue center.
32) If fixed costs are $1,000, variable cost per unit is $2.00 and budgeted units of output is 1,000 unites, what is the budgeted production costs?
33) Wood Designs Company, a custom cabinet manufacturing company, is setting standard costs for one of its products. The main material is cedar wood, sold by the square foot. The current cost of cedar wood is $4.00 per square foot from the supplier. Delivery costs are $0.25 per board foot. Carpenters’ wages are $25.00 per hour. Payroll costs are $3.60 per hour and benefits are $5.00 per hour. How much is the direct labor cost standard (per hour)?
34) Emerald Marine Stores Company manufactures decorative fittings for luxury yachts that require highly skilled labor, and special metallic materials. Emerald uses standard costs to prepare its flexible budget. For the first quarter of 2015, direct material and direct labor standards for one of their popular products were as follows:
Direct materials: 3 pounds per unit; $4 per pound
Direct labor: 4 hours per unit; $15 per hour
During the first quarter, Emerald produced 5,000 units of this product. Actual direct materials and direct labor costs were $65,000 and $325,000, respectively.
For the purposes of preparing the flexible budget, calculate the total standard direct materials cost at a production volume of 5,000 units.
35) Emerald Marine Stores Company manufactures decorative fittings for luxury yachts that require highly skilled labor, and special metallic materials. Emerald uses standard costs to prepare its flexible budget. For the first quarter of 2015, direct material and direct labor standards for one of their popular products were as follows:
Direct materials: 1 pound per unit; $12 per pound
Direct labor: 4 hours per unit; $15 per hour
Emerald produced 5,000 units during the quarter. At the end of the quarter, an examination of the materials records showed that the company used 7,000 pounds of materials and actual total material costs were $98,000.
Calculate the direct materials cost variance.
36) Accurate Tax Returns budgets 2 direct labor hours for every tax return that it prepares, at a standard cost of $32 an hour. During the most recent year, 500 returns were completed with the labor cost totaling $18,000. The actual labor cost was $36 per hour during that period. The actual number of labor hours was 1,000. What was the direct labor cost variance?
37) Elite Brands Company uses standard costs for their manufacturing division. Standards specify 0.1 direct labor hours per unit of product. At the beginning of the year, the static budget for variable overhead costs included the following data:
Production volume 6,000 units
Estimated variable overhead costs $13,500
Estimated direct labor hours 600 hours
At the end of the year, actual data were as follows:
Production volume 4,000 units
Actual variable overhead costs $15,000
Actual direct labor hours 480 hours
How much is the standard cost per direct labor hour for variable overhead?
38) From the following particulars of Rose Mary Company, calculate the total direct materials variance.
39) Recreation Equipment Company has several divisions that are investment centers. Data for the Boat Division and the Trailer Division are shown here:
Boat Division Trailer Division
Operating income $90,000 $36,000
Total assets at Jan 1 $670,000 $230,000
Total assets at Dec 31 $710,000 $220,000
With regard to the efficient use of assets, which division has a higher ROI (show your calculations)
1) Which of the following is an example of the planning function of a budget?