Multiple Choice

1. Which of the following items would not be classified as part of factory overhead?
Direct labor used
Amortization of manufacturing patents
Production supervisors' salaries
Factory supplies used

2. For which of the following businesses would the process cost system be appropriate?
Book publisher
Dress designer
Lumber mill
Printing firm

3. The four steps necessary to determine the cost of goods completed and the ending inventory valuation in a process cost system are:
1. allocate cost to transferred and partially completed units
2. determine the units to be assigned costs
3. determine the cost per equivalent unit
4. calculate equivalent units of production
The correct ordering of the steps is:
2,4,3,1
4,2,3,1
2,3,4,1
2,3,1,4

4. Department R had 5,000 units in work in process that were 75% completed as to labor and overhead at the beginning of the period, 30,000 units of direct materials were added during the period, 32,000 units were completed during the period, and 3,000 units were 40% completed as to labor and overhead at the end of the period. All materials are added at the beginning of the process. The first-in, first-out method is used to cost inventories. The number of equivalent units of production for conversion costs for the period was:
32,450
29,450
31,950
26,000

5. Which of the following is an example of a cost that varies in total as the number of units produced changes?
Salary of a production supervisor
Direct materials cost
Property taxes on factory buildings
Straight-line depreciation on factory equipment

6. Which of the following is not an example of a cost that varies in total as the number of units produced changes?
Electricity per KWH to operate factory equipment
Direct materials cost
Insurance premiums on factory building
Wages of assembly worker

7. Which of the following describes the behavior of the variable cost per unit?
Varies in increasing proportion with changes in the activity level
Varies in decreasing proportion with changes in the activity level
Remains constant with changes in the activity level
Varies in direct proportion with the activity level

8. For March, sales revenue is $800,000; sales commissions are 4% of sales; the sales manager's salary is $80,000; advertising expenses are $75,000; shipping expenses total 1% of sales; and miscellaneous selling expenses are $2,100 plus 3/4 of 1% of sales. Total selling expenses for the month of March are:
$203,100
$187,550
$194,100
$192,100

9. If the expected sales volume for the current period is 7,000 units, the desired ending inventory is 200 units, and the beginning inventory is 300 units, the number of units set forth in the production budget, representing total production for the current period, is:
7,000
6,900
7,100
7,200

10. Wright Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of business are $240,000, $300,000, and $420,000, respectively, for September, October, and November. The company expects to sell 20% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month of the sale, 25% in the month following the sale, and the remainder in the following month. The cash collections in September from accounts receivable are:
$240,000
$134,400
$192,000
$168,000

11. As of January 1, the Joyner Company had an account receivable of $50,000. The sales for January, February, and March were as follows: $120,000, $140,000 and $150,000. 20% of each months sales are for cash. Of the remaining 80% (the credit sales), 60% are collected in the month of sale, with remaining 40% collected in the following month. What is the total cash collected (both from accounts receivable and for cash sales) in the month of January?
$74,000
$110,000
$71,600
$131,600

12. Standards that represent levels of operation that can be attained with reasonable effort are called:
theoretical standards
ideal standards
variable standards
normal standards

13. The following data relate to direct materials costs for November:
Actual costs 4,600 pounds at $5.50
Standard costs 4,500 pounds at $6.00

What is the direct materials quantity variance?

$550 unfavorable
$600 favorable
$550 favorable
$600 unfavorable

14. Favorable volume variances may be harmful when:
machine repairs cause work stoppages
supervisors fail to maintain an even flow of work
production in excess of normal capacity cannot be sold
there are insufficient sales orders to keep the factory operating at normal capacity

15. Businesses that are separated into two or more managable units in which managers have authority and responsibility for operations are said to be:
decentralized
consolidated
diversified
centralized

16. In a profit center, the department manager has responsibility for and the authority to make decisions that affect:
not only costs and revenues, but also assets invested in the center
the assets invested in the center, but not costs and revenues
both costs and revenues for the department or division
costs and assets invested in the center, but not revenues

17. Division T reported income from operations of $875,000 and total service department charges of $575,000. Therefore:
net income was $300,000
The gross profit margin was $300,000
income from operations before service department charges were $1,450,000
consolidated net income was $300,000

18. The amount of increase or decrease in cost that is expected from a particular couse of action as compared with an alternative is termed:
period cost
product cost
differential cost
discretionary cost

19. A cost that will not be affected by later decisions is termed a(n):
historical cost
differential cost
sunk cost
replacement cost

20.
Product
F G H Total
Sales $300,000 $220,000 $340,000 $860,000
Less Variable Costs $180,000 $190,000 $220,000 $590,000
Contribution Margin $120,000 $ 30,000 $120,000 $270,000
Less Fixed Costs $ 50,000 $ 50,000 $ 40,000 $140,000
Income (Loss) from operations $ 70,000 $(20,000) $ 80,000 $130,000
Management is considering the discontinuance of the manufacture and sale of Product G at the beginning of the current year. The discontinuance would have no effect on the total fixed csots and expenses or on the sales of Product F and H. What is the amount of change in net income for the current year that will result from the discontinuance of Product G?
$20,000 increase
$30,000 increase
$20,000 decrease
$30,000 decrease

21. The process by which management plans, evaluates, and controls long-term investment decision involving fixed assets is called:
absorption cost analysis
variable cost analysis
capital investment analysis
cost-volume-profit analysis

22. An anticipated purchase of equipment for $400,000, with a useful life of 8 years and no residual value, is expected to yield the following annual net incomes and net cash flows:
Year Net Income Net Cash Flow
1 $60,000 $110,000
2 $50,000 $100,000
3 $50,000 $100,000
4 $40,000 $90,000
5 $40,000 $90,000
6 $40,000 $90,000
7 $40,000 $90,000
8 $40,000 $90,000

What is the cash payback period?
5 years
4 years
6 years
3 years

23. Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?
Average rate of return
Accounting rate of return
Cash payback period
Internal rate of return

24. Complete an income statement using the following data:
Sales 100,000
Gross Profit 93,000
Total Selling Expenses 50,000
Total Operating Expenses 65,000
Show all work

25. A company with a break-even point at $900,000 in sales revenue and had fixed costs of $225,000. When actual sales were $1,000,000 variable costs were $750,000. Determine (a) the margin of safety expressed in dollars, (b) the margin of safety expressed as a percentage of sales, (c) the contribution margin ratio, and (d) the operating income.
Label each part of your answer.

26. Delicious Cake Factory normally sells their specialty cake for $22. An offer to buy 100 cakes for $18 per cake was made by an organization hosting a national event in the city. The variable cost per cake is $12. A special decoration per cake will add another $1 to the cost. Determine the differential income or loss per cake from selling the cakes.