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Management Accounting Practice Exam

1. When an organization involves its many employees in the budgeting process in a meaningful way, the organization is said to be using an approach most commonly known as:
a. participative budgeting.
b. budget padding.
c. imposed budgeting.
d. employee-based budgeting.
2. A budget serves as a benchmark against which:
a. actual results can be compared.
b. allocated results can be compared.
c. actual results become inconsequential.
d. allocated results become inconsequential.
e. cash balances can be compared to expense totals.
3. Cost-volume-profit analysis is based on certain general assumptions. Which of the following is not one of these assumptions?
a. Product prices will remain constant as volume varies within the relevant range.
b. Costs can be categorized as fixed, variable, or semivariable.
c. The efficiency and productivity of the production process and workers will change to reflect manufacturing advances.
d. Total fixed costs remain constant as activity changes.
e. Unit variable cost remains constant as activity changes.
4. Sanderson sells a single product for $50 that has a variable cost of $30. Fixed costs amount to $5 per unit when anticipated sales targets are met. If the company sells one unit in excess of its break-even volume, profit will be:
A. $15.
B. $20.
C. $50.
D. an amount that cannot be derived based on the information presented.

5. Which of the following would take place if a company were able to reduce its variable cost per unit?

a. Choice A
b. Choice B
c. Choice C
d. Choice D
e. Choice E

6. When should variances be investigated?
a. when they fall out of the accepted range or the control limit
b. when the variances are unfavorable
c. when the variances are over $10,000
d. all variances should be investigated

7. The cash budget must be prepared before you can complete the
a. schedule of cash receipts
b. sales budget
c. production budget
d. budgeted balance sheet

8. A company's plan for the acquisition of long-lived assets, such as buildings and equipment, is commonly called a:
A. pro-forma budget.
B. master budget.
C. financial budget.
D. profit plan.
E. capital budget.
9. Wilson Corporation is budgeting its equipment needs on an on-going basis, with a new quarter being added to the budget as the current quarter is completed. This type of budget is most commonly known as a:
A. capital budget.
B. rolling budget.
C. revised budget.
D. pro-forma budget.
E. financial budget.
10. A manufacturing firm would begin preparation of its master budget by constructing a:
A. sales budget.
B. production budget.
C. cash budget.
D. capital budget.
E. set of pro-forma financial statements.
11. The underlying difference between absorption costing and variable costing lies in the treatment of:
A. direct labor.
B. variable manufacturing overhead.
C. fixed manufacturing overhead.
D. variable selling and administrative expenses.
E. fixed selling and administrative expenses.
12. Which of the following conditions would cause absorption-costing net income to be lower than variable-costing net income?
A. Units sold exceeded units produced.
B. Units sold equaled units produced.
C. Units sold were less than units produced.
D. Sales prices decreased.
E. Selling expenses increased.
13. For external-reporting purposes, generally accepted accounting principles require that net income be based on:
A. absorption costing.
B. variable costing.
C. direct costing.
D. semivariable costing.
E. activity-based costing.
14. The break-even point is that level of activity where:
A. total revenue equals total cost.
B. variable cost equals fixed cost.
C. total contribution margin equals the sum of variable cost plus fixed cost.
D. sales revenue equals total variable cost.
E. profit is greater than zero.
15. Which of the following would take place if a company experienced an increase in fixed costs?
A. Net income would increase.
B. The break-even point would increase.
C. The contribution margin would increase.
D. The contribution margin would decrease.
16. Assuming no change in sales volume, an increase in company's per-unit contribution margin would:
A. increase net income.
B. decrease net income.
C. have no effect on net income.
D. increase fixed costs.
17. A favorable labor efficiency variance is created when:
A. actual labor hours worked exceed standard hours allowed.
B. actual hours worked are less than standard hours allowed.
C. actual wages paid are less than amounts that should have been paid.
D. actual units produced exceed budgeted production levels.
E. actual units produced exceed standard hours allowed.
18. The individual generally responsible for the direct-material price variance is the:
A. sales manager.
B. production supervisor.
C. purchasing manager.
D. finance manager.
E. head of the human resources department.
19. To improve its manufacturing efficiency, companies should strive toward increasing __________ as a percentage of processing time + inspection time + waiting time + move time. The blank is:
A. processing time
B. lead time
C. waiting time
D. move time
E. inspection time
20. The typical balanced scorecard is best described as containing:
A. financial performance measures.
B. nonfinancial performance measures.
C. neither financial nor nonfinancial performance measures.
D. both financial and nonfinancial performance measures.
21. Cohen Corporation has a favorable materials quantity variance. Which department would likely be asked to explain the cause of this variance?
A. Shipping.
B. Purchasing.
C. Production.
D. Marketing.
E. None, because the variance is favorable.
22. Flexible budgets reflect a company's anticipated costs based on variations in:
A. activity levels.
B. inflation rates.
C. managers.
D. anticipated capital acquisitions.
E. standards.
23. A flexible budget for 15,000 hours revealed variable manufacturing overhead of $90,000 and fixed manufacturing overhead of $120,000. The budget for 21,000 hours would reveal total overhead costs of:
A. $240,000.
B. $270,000.
C. $290,000.
D. $246,000.

24. Atlanta Enterprises incurred $828,000 of fixed overhead during the period. During that same period, the company reported an unfavorable budget variance of $41,000. How much was Atlanta's budgeted fixed overhead?
A. $869,000.
B. $804,000.
C. $787,000.
D. $886,000.

25. If a company was concerned with controlling expenditures on overhead items, which variance would be useful?
a. fixed overhead volume variance
b. variable overhead efficiency variance
c. variable overhead spending variance
d. both b and c

Make sure you show your work on the problems.
Problem 1

Combs, Inc., reports the following information for January sales:
Sales $50,000
Variable costs 10,000
Fixed costs 6,000
Operating income $34,000

Required: The questions below are independent of each other, so go back to the original information above when you answer the question. You can use the table below to answer the questions.

1. If sales volume doubles in January what is the projected operating income?

2. If sales volume decrease by 10%, what is the projected operating income?

Original Sales double Decrease of 10% in sales
Sales $50,000
Variable costs 10,000
Fixed costs 6,000
Operating income $34,000

Problem 2: The information that follows is the total for the period when the company sold 200,000 units.
Sales $800,000
Variable costs 200,000
Fixed costs 120,000
Required:
A. Compute the company's per-unit contribution margin.
B. Compute the company's break-even point in units.
C. What is the safety margin in units?

D. How many total units must company sell to produce a target net profit of $30,000?

E. Assume that the company was able to reduce the fixed cost from $120,000 to $100,000. What selling price per unit could management charge if it desired to maintain the current break-even point?

F. Depreciation charges of $20,000 are included in the firm's fixed costs of $120,000. If these charges were to increase by 10%, what effect, if any, would this cost increase have on the company's contribution margin?

Problem 3

Bruster Company sells its products for $65 each. The current production level is 20,000 units, although only 17,000 units were sold.

Unit manufacturing costs are:
Direct materials $10.00
Direct manufacturing labor $11.00
Variable manufacturing overhead costs $9.00

Total fixed manufacturing overhead costs $40,000 per month
Marketing expenses $1.00 per unit, plus $26,000 per month

Required:
A. Assuming the use of variable costing, compute the unit inventoriable cost for the month. Hint: What is the product cost under variable costing?

B. Determine the fixed manufacturing overhead rate under absorption costing. Hint: I am asking for the predetermined overhead rate per unit.

C. Compute the unit inventoriable cost by using absorption costing. Hint: What is the product cost under absorption costing?

D. What is the ending finished goods balance using variable costing? Hint: I am asking for the ending finished goods balance in dollar terms.

E. What is the ending finished goods balance using Absorption costing? Hint: I am asking for the ending finished goods balance in dollar terms.

F. What will be the difference in the dollar amount of income between variable costing and absorption costing? Which one will have the highest income? Why?
Hint: You do not need to prepare income statements, since you can reconcile the difference in the change in inventory times the FOH rate.

Problem 4 Budgeted sales for Katie Company for the second quarter of the current year are as follows:

Budgeted Sales
April $150,000
May 200,000
June 120,000

The company collects 20 percent in the month of sale, 50 percent in the first month following the sale, and 30 percent in the second month following the sale.

Budgeted purchases for Katie Company for the second quarter of the current year are as follows:

Budgeted Purchases
April $ 70,000
May 80,000
June 100,000

The company pays for 45 percent of its purchases in the month of purchase and 55 percent in the following month.

Required: Complete the partial cash budget below. You need to compute the cash receipts from credit sales collected in June and the cash disbursement from payment of purchases in June. Make sure you show your work and how you determined the cash receipts and payments for June.

Budgeted Sales April May June
April 150,000
May 200,000
June 120,000
Total cash receipts from sales received in June

Disbursements for AP
April 70,000
May 80,000
June 100,000
Total cash disbursements from payment for Purchases in June

Problem 5 The following standard costs were developed for one of the products of ABC Company:
The following standards have been set:
Direct Labor:
Quantity, 1 hour per unit
Rate, $18 per hour

Direct Material:
Quantity, 2 pounds per unit
Price, $3 per pound

Actual material purchases amounted to 50,000 pounds at $2.20 per pound. Actual costs incurred in the production of 20,000 units were as follows:
Direct Labor $399,000 for 21,000 hours
Direct Material $99,000 for 45,000 pounds

Required:
a. Calculate the labor rate variance and labor efficiency variance; indicate whether it is favorable or unfavorable.

b. Calculate the materials price variance and material quantity variance; indicate whether it is favorable or unfavorable. Material price variance is determined at time of purchase and Material quantity variance is determined at production time.
c. Explain how these variances may be interrelated and how management can use this information to control costs.

Problem 6 Alphabet Corporation sells three products: X,Y, and Z. The following information was taken from a recent budget:
X Y Z
Unit sales 6,000 10,000 4,000
Selling price $7 $7 $7
Variable cost $4 $5 $6
Total fixed costs are anticipated to be $21,000.
Required:
A. Determine Alphabet's sales mix.

B. Determine the weighted-average contribution margin.

C. Calculate the number of units of X, Y, and Z that must be sold to break even.(Make sure you have given me the number of units to breakeven for each of the products)

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Your tutorial includes comments to explain multiple choice and excel spreadsheet to show you the process for the problems. Click in cells to see computations.

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