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Managerial Accounting of Original Works on Commission

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An artist creates original works on commission. She is likely to use what type of costing?
job order

John Adams is a cash receipts clerk for Boro Company. He receives payments from customers and records the payments to the customers' accounts. John receives a payment from Bobbie Jones for merchandise purchased on account. But, instead of recording the payment to Jones' account and depositing the cash, he pockets the cash. Later, John receives a payment from Shorty Cobb. Instead of recording the payment to Cobb's account, he records it to Jones' account. This is an example of
misstating inventory
understating accounts receivables

A potential capital investment will be depreciated $5,000 per year for five years. Which of the following pieces of information would a manager need to calculate the cash flow associated with depreciation?
the asset's residual value
the discount rate
the tax rate
none of the above, since there is no cash flow associated with depreciation

Capital investment decisions typically involve several kinds of cash flows. Which kind best describes an asset's residual value?
annuity due
lump sum
ordinary annuity
none of the above

Choosing the proper method of allocating costs to products and services can have a major impact on what?
the selling price of the product or service if selling price is based on competition
arriving at a proper cost for the product or service
total manufacturing costs
the method used doesn't matter

In large firms where different divisions compete for limited investment capital, managers are tempted to make liberal cash flow assumptions that show positive Net Present Values (NPV) to obtain approval for their projects. What can senior management do to offset this tendency?
senior management should stipulate a discount rate much higher than the company's cost of capital to reduce the present value of projects
senior management should stipulate a discount rate slightly higher than the company's cost of capital to reduce the present value of projects
senior management should stipulate a discount rate much lower than the company's cost of capital to reduce the present value of projects
senior management should stipulate a discount rate slightly lower than the company's cost of capital to reduce the present value of projects

It is estimated that the cost of electricity to run a machine for an entire 8-hour shift is $16. The machine can produce 200 units of product for each hour of operation. How much electricity cost is allocated to each unit of product?
cannot calculate from the information given

Fast Delivery Company delivers packages and business documents for local businesses located in the Houston metropolitan area. If the company decided to adopt an ABC costing system to accumulate costs for its service, what would be an appropriate cost driver to use for the cost of the packaging envelopes provided to customers?
number of miles to be driven in the delivery
number of drivers on the truck
number of packages
number of orders

Which of the following elements of Cooper's cost hierarchy is most difficult to allocate because they cannot be associated directly with a product?
unit-level costs
batch-level costs
product-level costs
facility-level costs

All of the following are strategic decisions except
the types of products a company should manufacture
how products should be distributed
whether to enter new markets
improving machine setup times

Sebastian, an investment center manager in RKH Corporation, is trying to boost the current period's return on investment. Which of the following actions will achieve that goal?
purchasing a new piece of equipment on the last day of the fiscal year
raising commission rates for salespeople from 3% to 4%
delaying preventive maintenance on existing equipment until next year
all of the above will increase the current period's ROI

A collection of related operating budgets is known as a
pro forma financial statement
flexible budget
static budget
master budget

Hamilton has budgeted total manufacturing overhead costs for the year as $125,000 based on 20,000 direct labor hours. The ratio of variable manufacturing overhead costs to fixed manufacturing overhead costs is 2:1. In a given month 2,000 direct labor hours are budgeted for production. How much overhead is budgeted?

Research has shown that managers perform best when
there is no budget to worry about
there is a moderately difficult but achievable budget
the budget is obviously unachievable, but presents a tremendous challenge
budgets contain a maximum of slack

Kirland Company collected the following information to prepare its cash budget for the first quarter of a recent fiscal period.
If Kirkland wants an ending cash balance of $4,000, how much will it have to borrow in the first quarter?
Beginning cash balance $4,250
Capital Expenditures 3,000
Collections on account 23,000
Depreciation on factory equipment 1,000
Dividends 1,000
Period costs 11,100
Product costs (excludes depreciation) 20,150

some other amount

The cost of customer ill will caused by a defective product is an example of a(n)
prevention cost
appraisal cost
internal failure cost
external failure cost

Control charts may be used for each of the following except
provide a warning for an unexpected change
return the system to an "in-control" status
decrease inspection costs
identify errors in the process and determine basic causes

All of the above are key elements of just-in-time except
cycle times are longer
high quality output is required
inventory levels are reduced
suppliers become partners rather than adversaries

If a materials quantity variance is based on the amount of material used in a period, who should be held accountable for managing the variance?
production manager
purchasing manager
accounting manager
cannot be determined from the information given

Which of the following statements is TRUE?
marketing managers never contribute to production variances
unfavorable materials quantity variances are always the responsibility of the production manager
both 1 and 2 are true
neither 1 nor 2 is true

Product variability has what effect on costs and customer satisfaction?
increases costs and increases customer dissatisfaction
decreases costs and increases customer dissatisfaction
increases costs and decreases customer dissatisfaction
decreases costs and decreases customer dissatisfaction

Holding all other factors equal, if net income increases, what will be the effect on return on investment (ROI)?
it will increase proportionately
it will decrease proportionately
it will remain the same
ROI will increase at twice the rate of the increase in net income

All of the following are disadvantages of the just-in-time manufacturing philosophy except
producing in small batches increases the number of machine setups
having lower inventory levels decreases carrying costs
maintaining low levels of inventory can cause the company to miss a sales opportunity
receiving raw materials in small batches increases shipping costs

Bottlenecks are generally caused by
inefficient machine operators
poor management
a machine that produces at a slower rate than other machines in the process
none of the above will generally produce bottlenecks

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Solution Summary

The solution explains some multiple choice questions in managerial accounting