Managerial Accounting Review Questions

____ 1. A responsibility center that incurs costs (and expenses) and generates revenues is classified as a(n)
a. cost center.
b. revenue center.
c. profit center.
d. investment center.

____ 2. The most useful measure for evaluating a manager's performance in controlling revenues and costs in a profit center is
a. contribution margin.
b. contribution net income.
c. contribution gross profit.
d. controllable margin.

____ 3. Pentecost Corporation desires to earn target net income of $40,000. If the selling price per unit is $30, unit variable cost is $24, and total fixed costs are $160,000, the number of units that the company must sell to earn its target net income is
a. 13,333.
b. 33,333.
c. 20,000.
d. 26,667.

____ 4. Shaulter Corporation uses a process cost accounting system. Given the following data, compute the number of units transferred out during the current period.
Beginning Work in Process 12,000 units (1/2 complete)
Ending Work in Process 15,000 units (1/3 complete)
Started into Production 80,000 units
a. 65,000
b. 75,000
c. 77,000
d. 80,000

____ 5. Guerry Company applies overhead on the basis of machine hours. Given the following data, compute overhead applied and the under- or overapplication of overhead for the period:
Estimated annual overhead cost $600,000
Actual annual overhead cost $575,000
Estimated machine hours 150,000
Actual machine hours 140,000
a. $560,000 applied and $15,000 underapplied
b. $600,000 applied and $15,000 overapplied
c. $560,000 applied and $15,000 overapplied
d. $575,000 applied and neither under- nor overapplied

____ 6. The following data has been collected for use in analyzing the behavior of maintenance costs of Ryder Corporation:
Month Maintenance Costs Machine Hours
January $242,000 20,000
February 250,000 23,000
March 256,000 24,000
April 318,000 34,000
May 336,000 36,000
June 356,000 38,000
July 362,000 40,000
Using the high-low method to separate the maintenance costs into their variable and fixed cost components, these components are
a. $10 per hour plus $40,000.
b. $10 per hour plus $60,000.
c. $8 per hour plus $82,000.
d. $6 per hour plus $122,000.

____ 7. Given the following data for Rene Company, compute (A) total manufacturing costs and (B) cost of goods manufactured:
Direct materials used $120,000 Beginning work in process $20,000
Direct labor 100,000 Ending work in process 10,000
Manufacturing overhead 150,000 Beginning finished goods 25,000
Operating expenses 175,000 Ending finished goods 15,000
(A) (B)
a. $360,000 $380,000
b. $370,000 $360,000
c. $370,000 $380,000
d. $380,000 $390,000

____ 8. The starting point of a master budget is the preparation of the
a. cash budget.
b. sales budget.
c. production budget.
d. budgeted balance sheet.

____ 9. The most useful measure for evaluating the performance of the manager of an investment center is
a. contribution margin.
b. controllable margin.
c. return on investment.
d. income from operations.

____ 10. The cost classification scheme most relevant to responsibility accounting is
a. controllable vs. uncontrollable.
b. fixed vs. variable.
c. semivariable vs. mixed.
d. direct vs. indirect.

____ 11. Rebel Company incurs the following costs in producing 50,000 units of product:
Direct materials $150,000
Direct labor 100,000
Variable manufacturing overhead 125,000
Fixed manufacturing overhead 450,000
An outside supplier has offered to supply the 50,000 units at $10.50 each. All of Rebel's related variable costs, but only $300,000 of the fixed costs would be eliminated if the offer is accepted. Acceptance will result in a
a. savings of $300,000.
b. loss of $150,000.
c. savings of $150,000.
d. loss of $300,000.

____ 12. Finish Company has a production process where two products result from a joint processing procedure; both can be sold immediately or processed further. Given the following additional per unit information, determine which of the products should be processed further.
Allocated Additional New
Product Joint Cost Selling Price Processing Cost Selling Price
A $100 $200 $180 $400
B 60 100 50 160
a. A
b. B
c. Both
d. Neither

____ 13. A flexible budget
a. is also called a static budget.
b. can be considered a series of related static budgets.
c. can be prepared for sales or production budgets, but not for an operating expense budget.
d. typically uses an activity index different from that used in developing the predetermined overhead rate.

____ 14. An appropriate cost driver for an assembling cost pool is the number of
a. purchase orders.
b. setups.
c. parts.
d. direct labor hours.

____ 15. Careful Company's equipment account increased $1,200,000 during the period; the related accumulated depreciation increased $90,000. New equipment was purchased at a cost of $2,100,000 and used equipment was sold at a loss of $60,000. Depreciation expense was $300,000. Proceeds from the sale of the used equipment were
a. $630,000.
b. $750,000.
c. $840,000.
d. $960,000.

____ 17. All of the following are profitability ratios except the
a. asset turnover ratio.
b. times interest earned ratio.
c. price earnings ratio.
d. payout ratio.

____ 18. Under the absorption cost approach, all of the following are included in the cost base except
a. direct materials.
b. fixed manufacturing overhead.
c. selling and administrative costs.
d. variable manufacturing overhead.

MANAGERIAL MINI-PROBLEM

Carlton Corporation manufactures paper shredding equipment. You are requested to "audit" a sampling of computations made by Carlton's internal accountants via your independent recalculation of the information.

Instructions: Compute the requested information for each of the following independent situations (present supporting calculations).

(a) Each paper shredder has a standard material cost of 20 pounds at $6.50 per pound or $130 in total. 60,000 pounds of material were purchased for $420,000 during the period and 39,000 pounds were used in the production of 2,000 good units. Compute the direct materials price and quantity variances, and label them as favorable or unfavorable.

(b) Carlton uses a process costing system. 2,000 units were in process at the beginning of the period, 60% complete. 20,000 units were started into production during the period; 1,000 were in process at the end of the period, 60% complete. Compute equivalent units for conversion costs.

(c) Carlton sells each unit for $500. Variable costs per unit equal $350. Total fixed costs equal $600,000. Carlton is currently selling 5,000 units per period and would like to earn net income of $300,000. Compute: (1) break-even point in dollars; (2) sales units necessary to attain desired income; and (3) margin of safety ratio for current operations.

(1) Break-even = $_________________________________________.

(2) Desired sales = ____________________________________ units.

(3) Margin of safety = _____________________________________%.

MATCHING

Instructions: Designate the terminology that best represents the definition or statement given below by placing the identifying letter(s) in the space provided. No term should be used more than once.

A. Activity-based costing B. Job cost sheet
C. Profit center D. Overhead controllable variance
E. Negotiated transfer price G. Controllable costs
F. Contribution margin H. Variable costs
I. Absorption costing J. Equivalent units of production
K. Variances

____ 1. Costs that a manager has the authority to incur within a given period of time.

____ 2. A form used to record the costs chargeable to a job.

____ 3. A responsibility center that incurs costs and also generates revenues.

____ 4. The difference between overhead budgeted for standard hours allowed and overhead incurred.

____ 5. The amount of revenue remaining after deducting variable costs.

____ 6. A transfer price that is determined by the agreement of the division managers.

____ 7. Costs that vary in total directly and proportionately with changes in the activity level.

____ 8. The differences between actual costs and standard costs.

____ 9. Allocates overhead to multiple cost pools and assigns the cost pools to products by means of cost drivers.

____ 10. A measure of the work done during the period, expressed in fully completed units.

____ 11. A costing approach in which all manufacturing costs are charged to the product..