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1) The amount of increase or decrease in cost that is expected from a particular course of action

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1) The amount of increase or decrease in cost that is expected from a particular course of action as compared with an alternative is

product cost

differential cost

period cost

discretionary cost

 

2) Sage Company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $15 per unit. The unit cost for the business to make the part is $20, including fixed costs, and $11, not including fixed costs. If 30,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?

$150,000 cost increase

$120,000 cost increase

$120,000 cost decrease

$150,000 cost increase

 

3) Yasmin Co. can further process Product B to produce Product C. Product B is currently selling for $30 per pound and costs $28 per pound to produce. Product C would sell for $55 per pound and would require an additional cost of $31 per pound to produce. What is the differential cost of producing Product C?

$28 per pound

$31 per pound

$30 per pound

$55 per pound

 

4) Lara Technologies is considering a cash outlay of $250,000 for the purchase of land, which it could lease out for $35,000 per year. If alternative investments are available that yield a 12% return, the opportunity cost of the purchase of the land is

$30,000

$4,200

$250,000

$35,000

 

 

5) Delaney Company is considering replacing equipment which originally cost $600,000 and which has $420,000 accumulated depreciation to date. A new machine will cost $790,000 and the old equipment can be sold for $8,000. What is the sunk cost in this situation?

$180,000

$172,000

$290,000

$188,000

 

6) Falcon Co. produces a single product. Its normal selling price is $30.00 per unit. The variable costs are $19.00 per unit. Fixed costs are $25,000 for a normal production run of 5,000 units per month. Falcon received a request for a special order that would not interfere with normal sales. The order was for 1,500 units with a special price of $20.00 per unit. Falcon has the capacity to handle the special order, and for this order, a variable selling cost of $1.00 per unit would be eliminated.

 

If the order is accepted, what would be the impact on net income?

a.decrease of $750

b.increase of $1,500

c.increase of $3,000

d.decrease of $4,500

 

7) Discontinuing a product or segment is a huge decision that must be carefully analyzed. Which of the following would be a valid reason not to discontinue an operation?

variable costs are more than revenues

losses are minimal

allocated fixed costs are more than revenues

variable costs are less than revenues

 

8) Which of the following would be considered a sunk cost?

equipment rental for the production area

net book value of equipment that has no market value

warehouse lease expense

purchase price of new equipment

 

 

 

9) The condensed income statement for a Hayden Corp. for the past year is as follows:

 

Product

 

    T

    U

Sales

$680,000 

$320,000

Costs:

 

 

     Variable costs

  $540,000 

 $ 220,000

     Fixed costs

145,000 

40,000

Total costs

$685,000 

$260,000

Income (loss) 

$  (5,000)

$ 60,000


Management is considering the discontinuance of the manufacture and sale of Product T at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Product U. What is the amount of change in net income for the current year that will result from the discontinuance of Product T?

a.$5,000 increase

b.$140,000 increase

c.$5,000 decrease

d.$140,000 decrease

 

 

10) Carmen Co. can further process Product J to produce Product D. Product J is currently selling for $20 per pound and costs $15.75 per pound to produce. Product D would sell for $38 per pound and would require an additional cost of $8.55 per pound to produce.

 

What is the differential revenue of producing Product D?

a.$6.75 per pound

b.$6.25 per pound

c.$22.25 per pound

d.$18.00 per pound

 

11) Decisions to install new equipment, replace old equipment, and purchase or construct a new building are examples of

variable cost analysis

net present value analysis

capital investment analysis

sales mix analysis

 

 

 

12) The methods of evaluating capital investment proposals can be separated into two general groups—present value methods and

past value methods

reducing value methods

straight-line methods

methods that ignore present value

 

13) Which of the following is a present value method of analyzing capital investment proposals?

accounting rate of return

net present value

average rate of return

cash payback method

 

14) The expected average rate of return for a proposed investment of $800,000 in a fixed asset with a useful life of 4 years, straight-line depreciation, no residual value, and an expected total net income of $360,000 for the 4 years, is

11.3%

22.5%

5.5%

45%

 

15) Hayden Company is considering the acquisition of a machine that costs $675,000. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash flow of $150,000, and annual operating income of $87,500. What is the estimated cash payback period for the machine?

4 years

5 years

3.5 years

4.5 years

 

 

 

16) Using the following partial table of present value of $1 at compound interest, the present value of $15,000 to be received 3 years hence with earnings at the rate of 6% a year is

Year

6%

10%

12%

1

0.943

0.909

0.893

2

0.890

0.826

0.797

3

0.840

0.751

0.712

4

0.792

0.683

0.636

 

$11,265

$13,350

$12,600

$11,880

 

17) The management of Arkansas Corporation is considering the purchase of a new machine costing $490,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment:


Year

Income from
Operations

Net Cash
Flow

1

$100,000

 

$180,000

 

2

40,000

 

120,000

 

3

40,000

 

100,000

 

4

10,000

 

90,000

 

5

10,000

 

120,000

 


The net present value for this investment is

a.$55,200

b.$(126,800)

c.$36,400

d.$(16,170)

 

 

 

 

 

 

 

 

18) The management of California Corporation is considering the purchase of a new machine costing $400,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment:


Year

Income from
Operations

Net Cash
Flow

1

$100,000

 

$180,000

 

2

40,000

 

120,000

 

3

20,000

 

100,000

 

4

10,000

 

90,000

 

5

10,000

 

90,000

 


The present value index for this investment is

a.1.45

b.0.70

c.0.98

d.0.88

 

19) By converting dollars to be received in the future into current dollars, the present value methods take into consideration that money

has an international rate of exchange

has a time value

is the measure of assets, liabilities, and stockholders' equity on financial statements

is the language of business

 

20) All of the following qualitative considerations may impact upon capital investment analysis except

manufacturing productivity

manufacturing sunk cost

manufacturing flexibility

market opportunities

 

 

 

 

 

21) Pinacle Corp. budgeted $700,000 of overhead cost for the current year. Actual overhead costs for the year were $650,000. Pinacle's plantwide allocation base, machine hours, was budgeted at 100,000 hours. Actual machine hours were 80,000. A total of 100,000 units was budgeted to be produced and 98,000 units were actually produced. Pinacle's plantwide factory overhead rate for the current year is:

$6.50 per machine hour

$8.75 per machine hour

$7.00 per machine hour

$8.13 per machine hour

 

22) The Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below.


Product

Number of
Units

Labor Hours
Per Unit

Machine Hours
Per Unit

Blinks

1,000

4

5

Dinks

2,000

2

8


All of the machine hours take place in the Fabrication department, which has an estimated overhead of $84,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $72,000. 

The Ramapo Company uses a single overhead rate to apply all overhead costs based on labor hours. What is the overhead cost per unit for Blinks?

a.$78.00

b.$56.00

c.$19.50

d.$37.45

 

 

23) Common allocation bases are

direct labor dollars, direct labor hours, machine dollars

direct labor dollars, direct labor hours, direct material dollars

direct labor dollars, direct labor hours, machine hours

machine dollars, direct labor dollars, direct labor hours

 

 

 

 

 

 

24) Blackwelder Factory produces two similar products-small lamps and desk lamps. The total plant overhead budget is $640,000 with 400,000 estimated direct labor hours. It is further estimated that small lamp production will require 275,000 direct labor hours and desk lamp production will need 125,000 direct labor hours. 

 

Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much factory overhead will Blackwelder Factory allocate to small lamp production if actual direct hours for the period is 285,000?

a.$275,000

b.$285,000

c.$440,000

d.$456,000

 

25) Using multiple department factory overhead rates instead of a single plantwide factory overhead rate:

results in distorted product costs

results in more accurate product costs

is simpler and less expensive to compute than a plantwide rate

applies overhead costs to all departments equally

 

26) Given the following information, determine the activity rate for setups.

Activity Pool

Activity Base

Budgeted Amount

Setups

10,000

$180,000

Inspections

24,000

$120,000

Assembly (DLH)

80,000

$400,000

a.$18.00

b.$5.09

c.$58.00

d.$0.75

 

 

 

 

 

 

27) The Skagit Company manufactures Hooks and Nooks. The following shows the activities per product and total activity information:

 

Setups

Inspections

Assembly (dlh)

Hooks - 4,000 units

1

3

1

Nooks - 8,000 units

2

2

3

 

 

 

 

 

      Activity Pool

Activity Base

Budgeted Amount

Setups

20,000

$  60,000

Inspections

24,000

120,000

Assembly (dlh)

28,000

420,000


Calculate the total factory overhead to be charged to Nooks.

a.$300,000

b.$488,000

c.$600,000

d.$400,000

 

28) Activity-based costing for selling and administrative expenses can also be beneficial in allocating expenses to various products. Which of the following is the best allocation base for help desk costs?

Number of sales employees

Number of products sold

Number of calls

Square footage of the help desk office

 

29) Which of the following is not a reason for banks to use activity-based costing?

to determine service quality

to determine profitability of services provided

to determine the amounts charged to customers for services provided

All of these choices are correct.

 

 

 

 

 

30) The Beauty Beyond Words Salon uses an activity-based costing system in its beauty salon to determine the cost of services. The salon has determined the costs of services by activity as follows:

Activity

Activity Rate

Hair washing

$4.00

Conditioning

$3.50

Chemical treatment

$25.00

Styling

$10.00

 

 


Hair Washing


Conditioning

Chemical Treatment


Styling

Haircut

1

1

0

0

Complete style

1

1

0

1

Perm

2

3

1

1

Highlights

3

4

2

1


Calculate the cost of services for a haircut.

a.$7.50

b.$3.50

c.$11.50

d.$4.00

 

31) How are the objectives of lean manufacturing achieved?

Employee involvement

Product-oriented production layout

Supplier partnering

All of these choices are correct.

 

32) Which of the following is considered non-value-added lead time?

moving from process to process

packing

converting raw materials to finished product

All of these choices are correct.

 

 

 

 

 

33) Which of the following drives work-in-process inventory levels higher?

Machine breakdowns

Production rate losses

Rework processes

All of these choices are correct.

 

34) Which of the following is characteristic of a lean production layout?

Decemtralized maintenance and organization around processes

Decentralized maintenance and small production batches

Large production batches and organization around processes.

Organization around processes and small production batches

 

 

35) In a lean environment, process problems are more visible than they are in a traditional environment because:

process problems cause production to shut down immediately.

the lack of work in process inventory creates problems.

inventories are maintained at higher levels.

the push manufacturing system leads to increased inventory level.

 

36) A local college is aggressively working to reduce the time it takes students to enroll for each semester. Which of the following changes would not help achieve this goal?

Having more number of staff to help facilitate admission process

One application is good at the community college and at the transferring university

Counselors are specializing in common degree plans

A one stop area includes admissions, advising, registration and student ID's

 

 

 

 

 

 

37) Kilbuck Manufacturing operates in a lean manufacturing environment. Kilbuck's actual conversion costs for the month of May follow:

Direct and indirect labor

$150,000

Machine depreciation

85,000

Maintenance and supplies

    60,000

Total conversion costs

$295,000


The journal entry to record May's conversion costs will include:

a debit to Raw Materials Inventory

a credit to Raw and In Process Inventory

a credit to Work in Process Inventory

a debit to Raw and In Process Inventory

 

38)  

                                      Schedule of Activity Costs

Quality Control Activities

Activity Cost

Process audits

$50,000

Training of machine operators

28,000

Processing returned products

19,000

Scrap processing (disposal)

25,000

Rework

8,000

Preventative maintenance

30,000

Product design

46,000

Warranty work

12,000

Finished goods inspection

23,000


From the above schedule of activity costs, determine the non-value-added costs.

a.$30,000

b.$64,000

c.$50,000

d.$85,000

 

39) Which of the following is not a prevention cost?

operator training

design engineering

preventive maintenance

testing finished products

 

 

 

 

40) Which of the following is a value-added activity?

scrap processing

preventive maintenance

warranty work

rework

 

41) Cash paid for preferred stock dividends should be shown on the statement of cash flows under

noncash investing and financing activities

investing activities

operating activities

financing activities

 

42) Which of the following is a noncash investing and financing activity?

payment of a cash dividend

purchase of merchandise inventory on account

issuance of common stock to acquire land

payment of a six-month note payable

 

43) Cash receipts received from the issuance of a mortgage notes payable would be classified as a(n)

operating activity

financing activity

investing activity

noncash investing and financing activity

 

44) The order of presentation of activities on the statement of cash flows is

operating, investing, and financing

financing, operating, and investing

financing, investing, and operating

operating, financing, and investing

 

 

 

45) Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method?

a decrease in accounts payable

a decrease in accounts receivable

preferred dividends declared and paid

an increase in inventory

 

46) On the statement of cash flows prepared by the indirect method, a $50,000 gain on the sale of investments would be

added to net income in converting the net income reported on the income statement to cash flows from operating activities

deducted from net income in converting the net income reported on the income statement to cash flows from operating activities

added to dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends

deducted from dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends

 

47) The net income reported on the income statement for the current year was $275,000. Depreciation recorded on fixed assets and amortization of patents for the year were $40,000 and $9,000, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows:

 

End

Beginning

Cash

$50,000

$60,000

Accounts receivable

112,000

108,000

Inventories

105,000

93,000

Prepaid expenses

4,500

6,500

Accounts payable (merchandise creditors)

75,000

89,000


What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?

$296,000

$324,000

$352,000

$198,000

 

 

 

 

 

48) A building with a book value of $54,000 is sold for $63,000 cash. Using the indirect method, this transaction should be shown on the statement of cash flows as follows:

an increase of $9,000 from investing activities

an increase of $63,000 from investing activities and a deduction from net income of $9,000

an increase of $54,000 from investing activities and an addition to net income of $9,000

an increase of $54,000 from investing activities

 

49) The current period statement of cash flows includes the following:

Cash balance at the beginning of the period

$310,000

Net cash flow from operating activities

185,000

Net cash flow used for investing activities

43,000

Net cash flow used for financing activities

97,000


The cash balance at the end of the period is

$635,000

$45,000

$125,000

$355,000

 

50) Zenith Corporation sells some of its used store fixtures. The acquisition cost of the fixtures is $12,500 and the accumulated depreciation on these fixtures is $9,750 at the time of sale. The fixtures are sold for $5,300. The value of this transaction in the investing section of the statement of cash flows is

$5,300

$12,500

$2,550

$2,750

 

 

 

 

 

 

 

 

51) What type of analysis is indicated by the following?

 

 

 

        Increase (Decrease)

 

Current Year

Preceding Year

Amount

Percent

Current assets

$   430,000

$   500,000

$ (70,000)

(14%)

Fixed assets

1,740,000

1,500,000

240,000  

16%  

 

a.horizontal analysis

b.liquidity analysis

c.vertical analysis

d.common-size analysis

 

52) One reason that a common-sized statement is a useful tool in financial analysis is that it enables the user to

determine which companies in a single industry are of the same value

make a better comparison of two companies of different sizes in the same industry

determine which companies in a single industry are of the same size

judge the relative potential of two companies of similar size in different industries

 

53) Assume the following sales data for a company:

 

Current year

$325,000

 

Preceding year

250,000


What is the percentage increase in sales from the preceding year to the current year?

70%

50%

30%

76.9%

 

54) On a common-sized balance sheet, 100% is

total assets

total liabilities

total property, plant, and equipment

total current assets

 

 

 

55) In a common-sized income statement, 100% is the

net income

gross profit

net cost of goods sold

sales

 

56)  

Accounts payable

$  40,000

Accounts receivable

65,000

Accrued liabilities

7,000

Cash

30,000

Intangible assets

40,000

Inventory

72,000

Long-term investments

110,000

Long-term liabilities

75,000

Marketable securities

36,000

Notes payable (short-term)

30,000

Property, plant, and equipment

625,000

Prepaid expenses

2,000


Based on the above data, what is the amount of working capital?

a.$168,000

b.$238,000

c.$128,000

d.$203,000

 

 

 

 

 

 

 

 

 

 

 

57)

Accounts payable

$  40,000

Accounts receivable

65,000

Accrued liabilities

7,000

Cash

30,000

Intangible assets

40,000

Inventory

72,000

Long-term investments

110,000

Long-term liabilities

75,000

Marketable securities

36,000

Notes payable (short-term)

30,000

Property, plant, and equipment

625,000

Prepaid expenses

2,000


Based on the above data, what is the quick ratio, rounded to one decimal point?

a.2.7

b.0.9

c.2.6

d.1.7

 

58) Based on the following data, what is the accounts receivable turnover?

Sales on account during year

$700,000

Cost of merchandise sold during year

270,000

Accounts receivable, beginning of year

45,000

Accounts receivable, end of year

35,000

Inventory, beginning of year

90,000

Inventory, end of year

110,000

 

20.0

15.5

2.6

17.5

 

 

 

 

 

 

 

 

59) Based on the following data for the current year, what is the inventory turnover?

Sales on account during year

$700,000

Cost of merchandise sold during year

270,000

Accounts receivable, beginning of year

45,000

Accounts receivable, end of year

35,000

Inventory, beginning of year

90,000

Inventory, end of year

110,000

 

3.0

2.7

2.5

9.7

 

60) Richards Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000. It had 50,000 shares of common stock outstanding during the entire year. Richards Corporation's common stock is selling for $35 per share. The price-earnings ratio is

14 times

5 times

2 times

7 times

 

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