Category Archives: ACC 560 Complete Class Solution

Need help with your exams and quizzes?

Visit www.hwgala.com

search through our website for Exams and Quizzes Solutions, Assignments and Discussion Questions and ACE your class.If you cannot find what you are looking for, email us at
writersorg@gmail.com

ACC 560 Week 11 Quiz

ACC 560 Week 11 Quiz – Strayer NEW
Click On The Link Below to Purchase:

http://www.hwmojo.com/products/acc-560-week-11-quiz

 

Week 11 Quiz 10: Chapter 14

TRUE-FALSE STATEMENTS
1. Intracompany comparisons of the same financial statement items can often detect changes in financial relationships and significant trends.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

2. Calculating financial ratios is a financial reporting requirement under generally accepted accounting principles.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

3. Measures of a company’s liquidity are concerned with the frequency and amounts of dividend payments.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

4. Analysis of financial statements is enhanced with the use of comparative data.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

5. Comparisons of company data with industry averages can provide some insight into the company’s relative position in the industry.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

6. Vertical and horizontal analyses are concerned with the format used to prepare financial statements.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

7. Horizontal, vertical, and circular analyses are the most common tools of financial statement analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

8. Horizontal analysis is a technique for evaluating a financial statement item in the current year with other items in the current year.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

9. Another name for trend analysis is horizontal analysis.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

10. If a company has sales of $110 in 2012 and $154 in 2013, the percentage increase in sales from 2012 to 2013 is 140%.

Ans: LO: 3, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement

11. In horizontal analysis, if an item has a negative amount in the base year, and a positive amount in the following year, no percentage change for that item can be computed.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

12. Common size analysis expresses each item within a financial statement in terms of a percent of a base amount.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

13. Vertical analysis is a more sophisticated analytical tool than horizontal analysis.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

14. Vertical analysis is useful in making comparisons of companies of different sizes.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

15. Meaningful analysis of financial statements will include either horizontal or vertical analysis, but not both.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

16. Using vertical analysis of the income statement, a company’s net income as a percentage of net sales is 10%; therefore, the cost of goods sold as a percentage of sales must be 90%.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement

17. In the vertical analysis of the income statement, each item is generally stated as a percentage of net income.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

18. A ratio can be expressed as a percentage, a rate, or a proportion.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

19. A solvency ratio measures the income or operating success of an enterprise for a given period of time.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

20. The current ratio is a measure of all the ratios calculated for the current year.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

21. Inventory turnover measures the number of times on the average the inventory was sold during the period.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

22. Profitability ratios are frequently used as a basis for evaluating management’s operating effectiveness.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

23. The rate of return on total assets will be greater than the rate of return on common stockholders’ equity if the company has been successful in trading on the equity at a gain.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

24. From a creditor’s point of view, the higher the total debt to total assets ratio, the lower the risk that the company may be unable to pay its obligations.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Investment Decisions

25. A current ratio of 1.2 to 1 indicates that a company’s current assets exceed its current liabilities.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement

26. Using borrowed money to increase the rate of return on common stockholders’ equity is called “trading on the equity.”

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

27. When the disposal of a significant segment occurs, the income statement should report both income from continuing operations and income (loss) from discontinued operations.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communcations, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

28. An event or transaction should be classified as an extraordinary item if it is unusual in nature or if it occurs infrequently.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

29. Variations among companies in the application of generally accepted accounting principles may reduce quality of earnings.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

30. Pro forma income usually excludes items that the company thinks are unusual or nonrecurring.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communcations, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

31. The three basic tools of analysis are horizontal analysis, vertical analysis, and ratio analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

32. A percentage change can be computed only if the base amount is zero or positive.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

33. In vertical analysis, the base amount in an income statement is usually net sales.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

34. Profitability ratios measure the ability of the enterprise to survive over a long period of time.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

35. The days in inventory is computed by multiplying inventory turnover by 365.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

36. Extraordinary items are reported net of applicable taxes in a separate section of the income statement.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

MULTIPLE CHOICE QUESTIONS
37. Which one of the following is primarily interested in the liquidity of a company?
a. Federal government
b. Stockholders
c. Long-term creditors
d. Short-term creditors

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

38. Which one of the following is not a characteristic generally evaluated in analyzing financial statements?
a. Liquidity
b. Profitability
c. Marketability
d. Solvency

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

39. In analyzing the financial statements of a company, a single item on the financial statements
a. should be reported in bold-face type.
b. is more meaningful if compared to other financial information.
c. is significant only if it is large.
d. should be accompanied by a footnote.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

40. Short-term creditors are usually most interested in evaluating
a. solvency.
b. liquidity.
c. marketability.
d. profitability.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

41. Long-term creditors are usually most interested in evaluating
a. liquidity and solvency.
b. solvency and marketability.
c. liquidity and profitability.
d. profitability and solvency.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

42. Stockholders are most interested in evaluating
a. liquidity and solvency.
b. profitability and solvency.
c. liquidity and profitability.
d. marketability and solvency.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

43. A stockholder is interested in the ability of a firm to
a. pay consistent dividends.
b. appreciate in share price.
c. survive over a long period.
d. all of these.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

44. Comparisons of financial data made within a company are called
a. intracompany comparisons.
b. interior comparisons.
c. intercompany comparisons.
d. intramural comparisons.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

45. A technique for evaluating financial statements that expresses the relationship among selected items of financial statement data is
a. common size analysis.
b. horizontal analysis.
c. ratio analysis.
d. vertical analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

46. Which one of the following is not a tool in financial statement analysis?
a. Horizontal analysis
b. Circular analysis
c. Vertical analysis
d. Ratio analysis

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

47. In analyzing financial statements, horizontal analysis is a
a. requirement.
b. tool.
c. principle.
d. theory.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

48. Horizontal analysis is also called
a. linear analysis.
b. vertical analysis.
c. trend analysis.
d. common size analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

49. Vertical analysis is also known as
a. perpendicular analysis.
b. common size analysis.
c. trend analysis.
d. straight-line analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

50. In ratio analysis, the ratios are never expressed as a
a. rate.
b. negative figure.
c. percentage.
d. simple proportion.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

51. The formula for horizontal analysis of changes since the base period is the current year amount
a. divided by the base year amount.
b. minus the base year amount divided by the base year amount.
c. minus the base year amount divided by the current year amount.
d. plus the base year amount divided by the base year amount.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

52. Horizontal analysis evaluates a series of financial statement data over a period of time
a. that has been arranged from the highest number to the lowest number.
b. that has been arranged from the lowest number to the highest number.
c. to determine which items are in error.
d. to determine the amount and/or percentage increase or decrease that has taken place.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

53. Horizontal analysis evaluates financial statement data
a. within a period of time.
b. over a period of time.
c. on a certain date.
d. as it may appear in the future.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

54. Assume the following sales data for a company:
2014 $1,050,000
2013 950,000
2012 800,000
2011 550,000
If 2011 is the base year, what is the percentage increase in sales from 2011 to 2013?
a. 100%
b. 90.9%
c. 72.7%
d. 52.4%

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

55. Comparative balance sheets are usually prepared for
a. one year.
b. two years.
c. three years.
d. four years.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

56. Horizontal analysis is appropriately performed
a. only on the income statement.
b. only on the balance sheet.
c. only on the statement of retained earnings.
d. on all three of these statements.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

57. A horizontal analysis performed on a statement of retained earnings would not show a percentage change in
a. dividends paid.
b. net income.
c. expenses.
d. beginning retained earnings.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

58. Under which of the following cases may a percentage change be computed?
a. The trend of the balances is decreasing but all balances are positive.
b. There is no balance in the base year.
c. There is a positive balance in the base year and a negative balance in the subsequent year.
d. There is a negative balance in the base year and a positive balance in the subsequent year.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

59. Assume the following sales data for a company:
2014 $945,000
2013 877,500
2012 650,000
If 2012 is the base year, what is the percentage increase in sales from 2012 to 2013?
a. 24%
b. 35%
c. 76%
d. 135%

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

60. Assume the following cost of goods sold data for a company:
2014 $1,680,000
2013 1,400,000
2012 1,200,000
If 2012 is the base year, what is the percentage increase in cost of goods sold from 2012 to 2014?
a. 140%
b. 40%
c. 23%
d. 17%

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

61. Darius, Inc. has the following income statement (in millions):
DARIUS, INC.
Income Statement
For the Year Ended December 31, 2013
Net Sales $300
Cost of Goods Sold 120
Gross Profit 180
Operating Expenses 44
Net Income $136

MC 61. (Cont.)

Using vertical analysis, what percentage is assigned to Cost of Goods Sold?
a. 30%
b. 40%
c. 100%
d. None of the above

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

62. Darius, Inc. has the following income statement (in millions):
DARIUS, INC.
Income Statement
For the Year Ended December 31, 2013
Net Sales $300
Cost of Goods Sold 120
Gross Profit 180
Operating Expenses 44
Net Income $136

Using vertical analysis, what percentage is assigned to Net Income?
a. 100%
b. 75.6%
c. 45.3%
d. None of the above

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

63. Vertical analysis is also called
a. common size analysis.
b. horizontal analysis.
c. ratio analysis.
d. trend analysis.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

64. Vertical analysis is a technique which expresses each item within a financial statement
a. in dollars and cents.
b. in terms of a percentage of the item in the previous year.
c. in terms of a percent of a base amount.
d. starting with the highest value down to the lowest value.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

65. In common size analysis,
a. a base amount is required.
b. a base amount is optional.
c. the same base is used across all financial statements analyzed.
d. the results of the horizontal analysis are necessary inputs for performing the analysis.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

66. In performing a vertical analysis, the base for prepaid expenses is
a. total current assets.
b. total assets.
c. total liabilities and stockholders’ equity.
d. prepaid expenses.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

67. In performing a vertical analysis, the base for sales revenues on the income statement is
a. net sales.
b. sales.
c. net income.
d. cost of goods available for sale.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

68. In performing a vertical analysis, the base for sales returns and allowances is
a. sales.
b. sales discounts.
c. net sales.
d. total revenues.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

69. In performing a vertical analysis, the base for cost of goods sold is
a. total selling expenses.
b. net sales.
c. total revenues.
d. total expenses.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

70. Each of the following is a liquidity ratio except the
a. acid-test ratio.
b. current ratio.
c. debt to total assets ratio.
d. inventory turnover.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

71. A ratio calculated in the analysis of financial statements
a. expresses a mathematical relationship between two numbers.
b. shows the percentage increase from one year to another.
c. restates all items on a financial statement in terms of dollars of the same purchasing power.
d. is meaningful only if the numerator is greater than the denominator.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

72. A liquidity ratio measures the
a. income or operating success of an enterprise over a period of time.
b. ability of the enterprise to survive over a long period of time.
c. short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash.
d. number of times interest is earned.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

73. The current ratio is
a. calculated by dividing current liabilities by current assets.
b. used to evaluate a company’s liquidity and short-term debt paying ability.
c. used to evaluate a company’s solvency and long-term debt paying ability.
d. calculated by subtracting current liabilities from current assets.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

74. The acid-test (quick) ratio
a. is used to quickly determine a company’s solvency and long-term debt paying ability.
b. relates cash, short-term investments, and net receivables to current liabilities.
c. is calculated by taking one item from the income statement and one item from the balance sheet.
d. is the same as the current ratio except it is rounded to the nearest whole percent.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

75. Harvey Clothing Store had a balance in the Accounts Receivable account of $390,000 at the beginning of the year and a balance of $410,000 at the end of the year. Net credit sales during the year amounted to $3,000,000. The average collection period of the receivables in terms of days was
a. 30 days.
b. 365 days.
c. 274 days.
d. 48.7 days.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

76. Parker Hardware Store had net credit sales of $8,000,000 and cost of goods sold of $5,000,000 for the year. The Accounts Receivable balances at the beginning and end of the year were $600,000 and $700,000, respectively. The receivables turnover was
a. 7.7 times.
b. 4.6 times.
c. 11.4 times.
d. 12.3 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

77. Wagon Department Store had net credit sales of $16,000,000 and cost of goods sold of $15,000,000 for the year. The average inventory for the year amounted to $2,000,000. Inventory turnover for the year is
a. 8 times.
b. 15 times.
c. 7.5 times.
d. 5 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

78. Wagon Department Store had net credit sales of $16,000,000 and cost of goods sold of $15,000,000 for the year. The average inventory for the year amounted to $2,000,000. The average number of days in inventory during the year was
a. 365 days.
b. 48.7 days.
c. 46 days.
d. 30 days.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

79. Each of the following is included in computing the acid-test ratio except
a. cash.
b. inventory.
c. receivables.
d. short-term investments.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

80. Which one of the following would not be considered a liquidity ratio?
a. Current ratio
b. Inventory turnover
c. Acid-test ratio
d. Return on assets

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

81. Asset turnover measures
a. how often a company replaces its assets.
b. how efficiently a company uses its assets to generate sales.
c. the portion of the assets that have been financed by creditors.
d. the overall rate of return on assets.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

82. Profit margin is calculated by dividing
a. sales by cost of goods sold.
b. gross profit by net sales.
c. net income by stockholders’ equity.
d. net income by net sales.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

83. Stout Corporation had net income of $200,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Stout Corporation’s common stock is selling for $75 per share on the New York Stock Exchange. Stout Corporation’s price-earnings ratio is
a. 3.8 times.
b. 15 times.
c. 18.8 times.
d. 12 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

84 Stout Corporation had net income of $200,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Stout Corporation’s common stock is selling for $60 per share on the New York Stock Exchange. Stout Corporation’s payout ratio for 2013 is
a. $4 per share.
b 25%.
c. 20%.
d. 12.5%.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

85 Flake Company reported the following on its income statement:
Income before income taxes $600,000
Income tax expense 150,000
Net income $450,000
An analysis of the income statement revealed that interest expense was $50,000. Flake Company’s times interest earned was
a. 13 times.
b. 12 times.
c. 6 times.
d. 7 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

86. The debt to total assets ratio measures
a. the company’s profitability.
b. whether interest can be paid on debt in the current year.
c. the proportion of interest paid relative to dividends paid.
d. the percentage of the total assets provided by creditors.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

87. Trading on the equity (leverage) refers to the
a. amount of working capital.
b. amount of capital provided by owners.
c. use of borrowed money to increase the return to owners.
d. number of times interest is earned.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

88. The current assets of Margo Company are $300,000. The current liabilities are $100,000. The current ratio expressed as a proportion is
a. 300%.
b. 3.0 : 1
c. .33 : 1
d. $300,000 ÷ $100,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

89. The current ratio may also be referred to as the
a. short run ratio.
b. acid-test ratio.
c. working capital ratio.
d. contemporary ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

90. A weakness of the current ratio is
a. the difficulty of the calculation.
b. that it doesn’t take into account the composition of the current assets.
c. that it is rarely used by sophisticated analysts.
d. that it can be expressed as a percentage, as a rate, or as a proportion.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

91. A supplier to a company would be most interested in the company’s
a. asset turnover.
b. profit margin.
c. current ratio.
d. earnings per share.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

92. Which one of the following ratios would not likely be used by a short-term creditor in evaluating whether to sell on credit to a company?
a. Current ratio
b. Acid-test ratio
c. Asset turnover
d. Receivables turnover

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

93. Ratios are used as tools in financial analysis
a. instead of horizontal and vertical analyses.
b. because they may provide information that is not apparent from inspection of the individual components of the ratio.
c. because even single ratios by themselves are quite meaningful.
d. because they are prescribed by GAAP.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

94. The ratios that are used to determine a company’s short-term debt paying ability are
a. asset turnover, times interest earned, current ratio, and receivables turnover.
b. times interest earned, inventory turnover, current ratio, and receivables turnover.
c. times interest earned, acid-test ratio, current ratio, and inventory turnover.
d. current ratio, acid-test ratio, receivables turnover, and inventory turnover.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

95. A measure of the percentage of each dollar of sales that results in net income is
a. profit margin.
b. return on assets.
c. return on common stockholders’ equity.
d. earnings per share.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

96. West Company had $375,000 of current assets and $150,000 of current liabilities before borrowing $75,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on the amount of West Company’s working capital?
a. No effect
b. $75,000 increase
c. $150,000 increase
d. $75,000 decrease

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

97. West Company had $375,000 of current assets and $150,000 of current liabilities before borrowing $75,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on West Company’s current ratio?
a. The ratio remained unchanged.
b. The change in the current ratio cannot be determined.
c. The ratio decreased.
d. The ratio increased.

Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

98. If equal amounts are added to the numerator and the denominator of the current ratio, the ratio will always
a. increase.
b. decrease.
c. stay the same.
d. equal zero.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

99. The acid-test ratio
a. is a quick calculation of an approximation of the current ratio.
b. does not include all current liabilities in the calculation.
c. does not include inventory as part of the numerator.
d. does include prepaid expenses as part of the numerator.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

100. If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio?
Short-term Borrowing Collection of Receivable
a. Increase No effect
b. Increase Increase
c. Decrease No effect
d. Decrease Decrease

Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

101. A company has a receivables turnover of 10 times. The average receivables during the period are $500,000. What is the amount of net credit sales for the period?
a. $50,000
b. $5,000,000
c. $500,000
d. Cannot be determined from the information given

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

102. If the average collection period is 60 days, what is the receivables turnover?
a. 6.0 times
b. 6.1 times
c. 12.2 times
d. None of these

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

103. A general rule to use in assessing the average collection period is that
a. it should not exceed 30 days.
b. it can be any length as long as the customer continues to buy merchandise.
c. it should not greatly exceed the discount period.
d. it should not greatly exceed the credit term period.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

104. Inventory turnover is calculated by dividing
a. cost of goods sold by the ending inventory.
b. cost of goods sold by the beginning inventory.
c. cost of goods sold by the average inventory.
d. average inventory by cost of goods sold.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

105. A company has an average inventory on hand of $40,000 and the days in inventory is 73 days. What is the cost of goods sold?
a. $200,000
b. $2,920,000
c. $400,000
d. $1,460,000

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

106. A successful grocery store would probably have
a. a low inventory turnover.
b. a high inventory turnover.
c. zero profit margin.
d. low volume.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

107. An aircraft company would most likely have
a. a high inventory turnover.
b. low profit margin.
c. high volume.
d. a low inventory turnover.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

108. Net sales are $6,000,000, beginning total assets are $2,800,000, and the asset turnover is 3.0 times. What is the ending total asset balance?
a. $2,000,000
b. $1,200,000
c. $2,800,000
d. $2,200,000

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

109. Earnings per share is calculated
a. only for common stock.
b. only for preferred stock.
c. for common and preferred stock.
d. only for treasury stock.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

110. Which of the following is not a profitability ratio?
a. Payout ratio
b. Profit margin
c. Times interest earned
d. Return on common stockholders’ equity

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

111. Times interest earned is also called the
a. money multiplier.
b. interest coverage ratio.
c. coupon coverage ratio.
d. premium ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

112. The ratio that uses weighted average common shares outstanding in the denominator is the
a. price-earnings ratio.
b. return on common stockholders’ equity.
c. earnings per share.
d. payout ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

113. Net income does not appear in the numerator of the
a. profit margin.
b. return on assets.
c. return on common stockholders’ equity.
d. payout ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

114. Bria Clothing Store had a balance in the Accounts Receivable account of $920,000 at the beginning of the year and a balance of $980,000 at the end of the year. Net credit sales during the year amounted to $7,600,000. The receivables turnover ratio was
a. 8.0 times.
b. 8.4 times.
c. 7.8 times.
d. 8.3 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

115. Bria Clothing Store had a balance in the Accounts Receivable account of $810,000 at the beginning of the year and a balance of $850,000 at the end of the year. Net credit sales during the year amounted to $6,640,000. The average collection period of the receivables in terms of days was
a. 91.3 days.
b. 45.6 days.
c. 30 days.
d. 46.7 days.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

116. Donner Corporation had net income of $200,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Donner Corporation’s common stock is selling for $35 per share on the New York Stock Exchange. Donner Corporation’s price-earnings ratio is
a. 5 times.
b. 8.75 times.
c. 4 times.
d. 10.9 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

117. Donner Corporation had net income of $400,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Donner Corporation’s common stock is selling for $50 per share on the New York Stock Exchange. Donner Corporation’s payout ratio for 2013 is
a. $8 per share.
b. 10%.
c. 12.5%.
d. 20%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

118. Town Company reported the following on its income statement:
Income before income taxes $750,000
Income tax expense 150,000
Net income $600,000
An analysis of the income statement revealed that interest expense was $100,000. Town Company’s times interest earned was
a. 5 times.
b. 8.5 times.
c. 6 times.
d. 7.5 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

119. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 210,000
Total Assets $300,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $300,000

Income Statement
Sales $ 120,000
Cost of goods sold 66,000
Gross profit 54,000
Operating expenses 30,000
Net income $ 24,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

MC 119. (Cont.)

What is the current ratio for Sampson?
a. 1.80
b. 1.30
c. 1.40
d. .64

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

120. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 35,000
Inventory 20,000
Property, plant and equipment 210,000
Total Assets $310,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $310,000

Income Statement
Sales $ 105,000
Cost of goods sold 66,000
Gross profit 39,000
Operating expenses 30,000
Net income $ 9,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

What is the receivables turnover for Sampson?
a. 1.5 times
b. 1.1 times
c. 3.0 times
d. 12.9 times

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

121. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 11,000
Property, plant and equipment 210,000
Total Assets $291,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 151,000
Total Liabilities and Stockholders’ Equity $291,000

Income Statement
Sales $ 120,000
Cost of goods sold 55,000
Gross profit 65,000
Operating expenses 30,000
Net income $ 35,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

What is the inventory turnover for Sampson?
a. 3.2 times
b. 5 times
c. 10.9 times
d. 0.20 times

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

122. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 210,000
Total Assets $300,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $300,000

MC 122. (Cont.)
Income Statement
Sales $ 120,000
Cost of goods sold 66,000
Gross profit 54,000
Operating expenses 30,000
Net income $ 24,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

What is the return on assets for Sampson?
a. 8.0%
b. 7.0%
c. 18.0%
d. 16.0%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

123. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 310,000
Total Assets $400,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 260,000
Total Liabilities and Stockholders’ Equity $400,000

Income Statement
Sales $ 300,000
Cost of goods sold 66,000
Gross profit 234,000
Operating expenses 30,000
Net income $ 204,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

MC 123. (Cont.)

What is the profit margin for Sampson?
a. 115%
b. 28.2%
c. 68%
d. 51%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

124. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 230,000
Total Assets $320,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 180,000
Total Liabilities and Stockholders’ Equity $320,000

Income Statement
Sales $ 150,000
Cost of goods sold 66,000
Gross profit 84,000
Operating expenses 30,000
Net income $ 54,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

What is the return on common stockholders’ equity for Sampson?
a. 30%
b. 46.7%
c. 36%
d. 16.9%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

125. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 210,000
Total Assets $300,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $300,000

Income Statement
Sales $ 120,000
Cost of goods sold 66,000
Gross profit 54,000
Operating expenses 18,000
Net income $ 36,000

Number of shares of common stock 6,000
Market price of common stock $33
Dividends per share .50

What is the price-earnings ratio for Sampson?
a. 5.5 times
b. 1.1 times
c. 6 times
d. 6.6 times

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

126. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 25,000
Property, plant and equipment 215,000
Total Assets $310,000
Liabilities and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 175,000
Total Liabilities and Stockholders’ Equity $310,000

MC 126. (Cont.)
Income Statement
Sales $ 90,000
Cost of goods sold 45,000
Gross profit 45,000
Operating expenses 25,000
Net income $ 20,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends per share 1.00

What is the return on assets for Eura?
a. 4.8%
b. 9.7%
c. 6.5%
d. 12.9%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

127. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 25,000
Property, plant and equipment 215,000
Total Assets $310,000
Liabilities and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 175,000
Total Liabilities and Stockholders’ Equity $310,000
Income Statement
Sales $ 135,000
Cost of goods sold 45,000
Gross profit 90,000
Operating expenses 25,000
Net income $ 65,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends per share 1.00

What is the profit margin for Eura?
a. 27.8%
b. 51.9%
c. 72.2%
d. 48.1%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

128. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 45,000
Property, plant and equipment 215,000
Total Assets $330,000
Liabilities and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 195,000
Total Liabilities and Stockholders’ Equity $330,000
Income Statement
Sales $ 90,000
Cost of goods sold 45,000
Gross profit 45,000
Operating expenses 30,000
Net income $ 15,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends per share 1.00

What is the return on common stockholders’ equity for Eura?
a. 4.8%
b. 7.7%
c. 23.1%
d. 46.2%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

129. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 25,000
Property, plant and equipment 215,000
Total Assets $310,000
Liabilities and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 175,000
Total Liabilities and Stockholders’ Equity $310,000

MC 129. (Cont.)
Income Statement
Sales $ 90,000
Cost of goods sold 45,000
Gross profit 45,000
Operating expenses 25,000
Net income $ 20,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends per share 1.00

What is the price-earnings ratio for Eura?
a. 5 times
b. 4.0 times
c. 7.3 times
d. 5.5 times

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

130. The following information is available for Compton Company:

2013 2012
Accounts receivable $ 460,000 $ 500,000
Inventory 280,000 320,000
Net credit sales 2,470,000 1,400,000
Cost of goods sold 1,860,000 1,060,000
Net income 300,000 170,000

The receivables turnover ratio for 2013 is
a. 1.6 times.
b. 5.4 times.
c. 5.1 times.
d. 3.9 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

131. The following information is available for Compton Company:

2013 2012
Accounts receivable $ 360,000 $ 400,000
Inventory 340,000 420,000
Net credit sales 2,470,000 1,400,000
Cost of goods sold 1,860,000 1,060,000
Net income 300,000 170,000

The inventory turnover ratio for 2013 is
a. 6.2 times.
b. 4.9 times.
c. 5.5 times.
d. 4.4 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

132. The following amounts were taken from the financial statements of Plant Company:
2013 2012
Total assets $800,000 $1,000,000
Net sales 720,000 650,000
Gross profit 352,000 320,000
Net income 126,000 117,000
Weighted average number of common shares outstanding 90,000 90,000
Market price of common stock $35 $39

The return on assets ratio for 2013 is
a. 16%.
b. 14%.
c. 32%.
d. 28%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

133. The following amounts were taken from the financial statements of Plant Company:
2013 2012
Total assets $800,000 $1,000,000
Net sales 840,000 650,000
Gross profit 352,000 320,000
Net income 155,400 117,000
Weighted average number of common shares outstanding 90,000 90,000
Market price of common stock $35 $39

The profit margin ratio for 2013 is
a. 19.4%.
b. 44.1%.
c. 18.5%.
d. 10.7%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

134. The following amounts were taken from the financial statements of Plant Company:
2013 2012
Total assets $800,000 $1,000,000
Net sales 720,000 650,000
Gross profit 352,000 320,000
Net income 150,000 117,000
Weighted average number of common shares outstanding 60,000 90,000
Market price of common stock $67.50 $39

The price-earnings ratio for 2013 is
a. 27 times.
b. 45 times.
c. 11 times.
d. 2.5 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

135. Star Corporation had net income of $300,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Star Corporation’s common stock is selling for $36 per share on the New York Stock Exchange.

Star Corporation’s price-earnings ratio is
a. 5.2 times.
b. 6 times.
c. 18 times.
d. 6.9 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

136. Star Corporation had net income of $320,000 and paid dividends to common stockholders of $80,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Star Corporation’s common stock is selling for $30 per share on the New York Stock Exchange.

Star Corporation’s payout ratio for 2013 is
a. 16%.
b. 25%.
c. 9%.
d. $4 per share.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

137. The following financial statement information is available for Houser Corporation:
2013 2012
Inventory $ 44,000 $ 43,000
Current assets 81,000 106,000
Total assets 432,000 358,000
Current liabilities 30,000 36,000
Total liabilities 102,000 88,000

The current ratio for 2013 is
a. .37:1.
b. 2.7:1.
c. .79:1.
d. 4.24:1.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

138. The following financial statement information is available for Jones Corporation:
2013 2012
Net sales $784,000 $697,000
Cost of goods sold 406,000 377,000
Net income 112,000 80,000
Tax expense 48,000 29,000
Interest expense 14,000 14,000

The profit margin ratio for 2013 is
a. 14.3%.
b. 16.1%.
c. 48.2%.
d. 11.7%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

139. The following financial statement information is available for Henn Corporation:
2013 2012
Stockholders’ equity – common $330,000 $270,000
Net sales 784,000 697,000
Cost of goods sold 406,000 377,000
Net income 112,000 80,000
Inc tax expense 48,000 29,000
Interest expense 14,000 14,000
Dividends paid to preferred
stockholders 22,000 20,000
Dividends paid to common
stockholders 15,000 10,000
The return on common stockholders’ equity for 2013 is
a. 25.0%.
b. 37.3%.
c. 27.3%.
d. 30.0%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

140. The following financial statement information is available for Bongo Corporation:
2013 2012
Net income $115,000 $ 80,000
Income tax expense 50,000 29,000
Interest expense 15,000 14,000
Dividends paid to preferred
stockholders 22,000 20,000
Dividends paid to preferred
stockholders 15,000 10,000

The times interest earned for 2013 is
a. 8.8 times.
b. 7.7 times.
c. 12 times.
d. 11 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

141. Dean Corporation reported net income $48,000, net sales $400,000, and average assets $800,000 for 2013. The 2013 profit margin was:
a. 6%.
b. 12%.
c. 50%.
d. 200%.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

142. Goin Company reports the following amounts for 2013:
Net income $ 150,000
Average stockholders’ equity 2,000,000
Preferred dividends 48,000
Par value preferred stock 200,000

The 2013 rate of return on common stockholders’ equity is:
a. 5.1%.
b. 5.7%.
c. 7.5%.
d. 8.3%.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

143. Gamble Corporation had beginning inventory $100,000, cost of goods purchased $700,000, and ending inventory $140,000. What was Gamble’s inventory turnover?
a. 5 times.
b. 5.5 times.
c. 5.83 times.
d. 6.6 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

144. In 2013 Shum Corporation reported income from operations $180,000, interest expense $50,000, and income tax expense $40,000. Shum’s times interest earned ratio was:
a. 5.4 times.
b. 4.6 times.
c. 4.4 times.
d. 3.6 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

145. Reynolds Company has income before taxes of $360,000 and an extraordinary loss of $80,000. If the income tax rate is 30% on all items, the income statement should show income before irregular items and an extraordinary loss, respectively, of:
a. $360,000 and ($80,000)
b. $252,000 and ($24,000)
c. $252,000 and ($56,000)
d. $108,000 and ($24,000)

Ans: LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

146. All of the following statements regarding changes in accounting principles are true except:
a. Most changes in accounting principles are only reported in current periods when the principle change takes place.
b. Changes in accounting principles are allowed when new principles are preferable to old ones.
c. Most changes in accounting principles are retroactively reported.
d. Consistency is one of the biggest concerns when a change in accounting principle is undertaken.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

147. Alpha’s Bunny Barn has experienced a $60,000 loss due to tornado damage to its inventory. Tornados have never before occurred in this area. Assuming that the company’s tax rate is 30%, what amount will be reported for this loss on the income statement?
a. $60,000
b. $42,000
c. $18,000
d. $54,000

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

148. Wing Company reported income before taxes of $900,000 and an extraordinary loss of $250,000. Assume that the company’s tax rate is 30%. What amounts will be reported on the income statement for income before irregular items and extraordinary items, respectively?
a. $630,000 and $250,000
b. $630,000 and $175,000
c. $650,000 and $250,000
d. $650,000 and $175,000

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

149. Krug Corporation has income before taxes of $900,000 and an extraordinary gain of $300,000. If the income tax rate is 25% on all items, the income statement should show income before irregular items and extraordinary items, respectively, of
a. $600,000 and $300,000.
b. $600,000 and $225,000.
c. $675,000 and $300,000.
d. $675,000 and $225,000.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

150. Hook Inc. has an investment in available-for-sale securities of $80,000. This investment experienced an unrealized loss of $5,000 during the current year. Assuming a 35% tax rate, the effect of this loss on comprehensive income will be
a. no effect.
b. $80,000 increase.
c. $28,000 decrease.
d. $5,000 decrease.

Ans: LO: 6, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

151. The disposal of a significant component of a business is called
a. a change in accounting principle.
b. an extraordinary item.
c. an other expense.
d. discontinued operations.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

152. ACME Company reports income before income taxes of $2,400,000 and had an extra-ordinary loss of $800,000. If the tax rate is 30%,
a. the income before the extraordinary item is $1,920,000.
b. the extraordinary loss would be reported on the income statement at $800,000.
c. the income before the extraordinary item is $1,680,000.
d. the extraordinary loss will be reported at $240,000.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

153. Eaton, Inc. disposes of an unprofitable segment of its business. The operation of the segment suffered a $360,000 loss in the year of disposal. The loss on disposal of the segment was $180,000. If the tax rate is 30%, and income before income taxes was $2,250,000,
a. the income tax expense on the income before discontinued operations is $513,000.
b. the income from continuing operations is $1,575,000.
c. net income is $1,710,000.
d. the losses from discontinued operations are reported net of income taxes at $270,000.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

154. Each of the following is an extraordinary item except the
a. effects of major casualties, if rare in the area.
b. effects of a newly enacted law or regulation.
c. expropriation of property by a foreign government.
d. losses attributable to labor strikes.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

155. The discontinued operations section of the income statement refers to
a. discontinuance of a product line.
b. the income or loss on products that have been completed and sold.
c. obsolete equipment and discontinued inventory items.
d. the disposal of a significant segment of a business.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

156. Which one of the following would be classified as an extraordinary item?
a. Expropriation of property by a foreign government
b. Losses attributed to a labor strike
c. Write-down of inventories
d. Gains or losses from sales of equipment

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

157. A loss on the write down of obsolete inventory should be reported as
a. “other expenses and losses.”
b. part of discontinued operations.
c. an operating expense.
d. an extraordinary item.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

158. If an item meets one (but not both) of the criteria for an extraordinary item, it
a. only needs to be disclosed in the footnotes of the financial statements.
b. may be treated as sales revenue (if it is a gain) and as an operating expense (if it is a loss).
c. is reported as an “other revenue or gain” or “other expense and loss,” net of tax.
d. is reported at its gross amount as an “other revenue or gain” or “other expense or loss.”

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

159. The order of presentation of nontypical items that may appear on the income statement is
a. Extraordinary items, Discontinued operations, Other revenues and expenses.
b. Discontinued operations, Extraordinary items, Other revenues and expenses.
c. Other revenues and expenses, Discontinued operations, Extraordinary items.
d. Other revenues and expenses, Extraordinary items, Discontinued operations.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

160. Each of the following is a factor affecting quality of earnings except
a. alternative accounting methods.
b. improper recognition.
c. pro forma income.
d. extraordinary items.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

161. Comparisons can be made on each of the following bases except
a. industry averages.
b. intercompany basis.
c. intracompany basis.
d. Each of these is a basis for comparison.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

162. Comparisons of data within a company are an example of the following comparative basis:
a. Industry averages
b. Intercompany
c. Intracompany
d. Interregional

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

163. Center Corporation reported net sales of $200,000, $350,000, and $550,000 in the years 2012, 2013, and 2014 respectively. If 2012 is the base year, what is the trend percentage for 2014?
a. 100%
b. 75%
c. 175%
d. 275%

Ans: LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

164. In vertical analysis, the base amount for each income statement item is
a. gross profit.
b. net income.
c. net sales.
d. sales.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

165. When performing vertical analysis, the base amount for administrative expense is generally
a. administrative expense in a previous year.
b. net sales.
c. gross profit.
d. fixed assets.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

166. Ratios that measure the short-term ability of the company to pay its maturing obligations are
a. liquidity ratios.
b. profitability ratios.
c. solvency ratios.
d. trend ratios.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

167. What type of ratios best measure the short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash?
a. Leverage
b. Solvency
c. Profitability
d. Liquidity

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

168. The acid-test ratio is also known as the
a. current ratio.
b. quick ratio.
c. fast ratio.
d. times interest earned ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

169. The debt to total assets ratio
a. is a solvency ratio.
b. is computed by dividing total assets by total debt.
c. measures the total assets provided by stockholders.
d. is a profitability ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

170. An extraordinary item is one that
a. occurs infrequently and is uncontrollable in nature.
b. occurs infrequently and is unusual in nature.
c. is material and is unusual in nature.
d. is material and is uncontrollable in nature.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

171. Parrish, Inc. decided on January 1 to discontinue its telescope manufacturing division. On July 1, the division’s assets with a book value of $1,250,000 are sold for $850,000. Operating income from January 1 to June 30 for the division amounted to $125,000. Ignoring income taxes, what total amount should be reported on Parrish’s income statement for the current year under the caption, Discontinued Operations?
a. $125,000
b. $275,000 loss
c. $400,000 loss
d. $525,000

Ans: LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

172. When there has been a change in accounting principle,
a. the old principle should be used in reporting the results of operations for the current year.
b. the cumulative effect of the change should be reported in the current year’s retained earnings statement.
c. the change should be reported retroactively.
d. the new principle should be used in reporting the results of operations of the current year, but there is no change to prior years.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

ACC 560 Week 11 Quiz – Strayer University NEW

ACC/560 Week 11 Quiz – Strayer NEW
Click On The Link Below to Purchase A+ Graded Material
Instant Download

http://budapp.net/ACC-560-Week-11-Quiz-Strayer-NEW-ACC560W11Q.htm

 

Week 11 Quiz 10: Chapter 14

TRUE-FALSE STATEMENTS
1. Intracompany comparisons of the same financial statement items can often detect changes in financial relationships and significant trends.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

2. Calculating financial ratios is a financial reporting requirement under generally accepted accounting principles.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

3. Measures of a company’s liquidity are concerned with the frequency and amounts of dividend payments.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

4. Analysis of financial statements is enhanced with the use of comparative data.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

5. Comparisons of company data with industry averages can provide some insight into the company’s relative position in the industry.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

6. Vertical and horizontal analyses are concerned with the format used to prepare financial statements.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

7. Horizontal, vertical, and circular analyses are the most common tools of financial statement analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

8. Horizontal analysis is a technique for evaluating a financial statement item in the current year with other items in the current year.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

9. Another name for trend analysis is horizontal analysis.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

10. If a company has sales of $110 in 2012 and $154 in 2013, the percentage increase in sales from 2012 to 2013 is 140%.

Ans: LO: 3, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement

11. In horizontal analysis, if an item has a negative amount in the base year, and a positive amount in the following year, no percentage change for that item can be computed.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

12. Common size analysis expresses each item within a financial statement in terms of a percent of a base amount.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

13. Vertical analysis is a more sophisticated analytical tool than horizontal analysis.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

14. Vertical analysis is useful in making comparisons of companies of different sizes.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

15. Meaningful analysis of financial statements will include either horizontal or vertical analysis, but not both.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

16. Using vertical analysis of the income statement, a company’s net income as a percentage of net sales is 10%; therefore, the cost of goods sold as a percentage of sales must be 90%.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement

17. In the vertical analysis of the income statement, each item is generally stated as a percentage of net income.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

18. A ratio can be expressed as a percentage, a rate, or a proportion.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

19. A solvency ratio measures the income or operating success of an enterprise for a given period of time.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

20. The current ratio is a measure of all the ratios calculated for the current year.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

21. Inventory turnover measures the number of times on the average the inventory was sold during the period.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

22. Profitability ratios are frequently used as a basis for evaluating management’s operating effectiveness.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

23. The rate of return on total assets will be greater than the rate of return on common stockholders’ equity if the company has been successful in trading on the equity at a gain.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

24. From a creditor’s point of view, the higher the total debt to total assets ratio, the lower the risk that the company may be unable to pay its obligations.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Investment Decisions

25. A current ratio of 1.2 to 1 indicates that a company’s current assets exceed its current liabilities.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement

26. Using borrowed money to increase the rate of return on common stockholders’ equity is called “trading on the equity.”

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

27. When the disposal of a significant segment occurs, the income statement should report both income from continuing operations and income (loss) from discontinued operations.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communcations, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

28. An event or transaction should be classified as an extraordinary item if it is unusual in nature or if it occurs infrequently.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

29. Variations among companies in the application of generally accepted accounting principles may reduce quality of earnings.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

30. Pro forma income usually excludes items that the company thinks are unusual or nonrecurring.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communcations, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

31. The three basic tools of analysis are horizontal analysis, vertical analysis, and ratio analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

32. A percentage change can be computed only if the base amount is zero or positive.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

33. In vertical analysis, the base amount in an income statement is usually net sales.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

34. Profitability ratios measure the ability of the enterprise to survive over a long period of time.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

35. The days in inventory is computed by multiplying inventory turnover by 365.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

36. Extraordinary items are reported net of applicable taxes in a separate section of the income statement.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

MULTIPLE CHOICE QUESTIONS
37. Which one of the following is primarily interested in the liquidity of a company?
a. Federal government
b. Stockholders
c. Long-term creditors
d. Short-term creditors

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

38. Which one of the following is not a characteristic generally evaluated in analyzing financial statements?
a. Liquidity
b. Profitability
c. Marketability
d. Solvency

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

39. In analyzing the financial statements of a company, a single item on the financial statements
a. should be reported in bold-face type.
b. is more meaningful if compared to other financial information.
c. is significant only if it is large.
d. should be accompanied by a footnote.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

40. Short-term creditors are usually most interested in evaluating
a. solvency.
b. liquidity.
c. marketability.
d. profitability.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

41. Long-term creditors are usually most interested in evaluating
a. liquidity and solvency.
b. solvency and marketability.
c. liquidity and profitability.
d. profitability and solvency.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

42. Stockholders are most interested in evaluating
a. liquidity and solvency.
b. profitability and solvency.
c. liquidity and profitability.
d. marketability and solvency.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

43. A stockholder is interested in the ability of a firm to
a. pay consistent dividends.
b. appreciate in share price.
c. survive over a long period.
d. all of these.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

44. Comparisons of financial data made within a company are called
a. intracompany comparisons.
b. interior comparisons.
c. intercompany comparisons.
d. intramural comparisons.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

45. A technique for evaluating financial statements that expresses the relationship among selected items of financial statement data is
a. common size analysis.
b. horizontal analysis.
c. ratio analysis.
d. vertical analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

46. Which one of the following is not a tool in financial statement analysis?
a. Horizontal analysis
b. Circular analysis
c. Vertical analysis
d. Ratio analysis

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

47. In analyzing financial statements, horizontal analysis is a
a. requirement.
b. tool.
c. principle.
d. theory.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

48. Horizontal analysis is also called
a. linear analysis.
b. vertical analysis.
c. trend analysis.
d. common size analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

49. Vertical analysis is also known as
a. perpendicular analysis.
b. common size analysis.
c. trend analysis.
d. straight-line analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

50. In ratio analysis, the ratios are never expressed as a
a. rate.
b. negative figure.
c. percentage.
d. simple proportion.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

51. The formula for horizontal analysis of changes since the base period is the current year amount
a. divided by the base year amount.
b. minus the base year amount divided by the base year amount.
c. minus the base year amount divided by the current year amount.
d. plus the base year amount divided by the base year amount.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

52. Horizontal analysis evaluates a series of financial statement data over a period of time
a. that has been arranged from the highest number to the lowest number.
b. that has been arranged from the lowest number to the highest number.
c. to determine which items are in error.
d. to determine the amount and/or percentage increase or decrease that has taken place.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

53. Horizontal analysis evaluates financial statement data
a. within a period of time.
b. over a period of time.
c. on a certain date.
d. as it may appear in the future.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

54. Assume the following sales data for a company:
2014 $1,050,000
2013 950,000
2012 800,000
2011 550,000
If 2011 is the base year, what is the percentage increase in sales from 2011 to 2013?
a. 100%
b. 90.9%
c. 72.7%
d. 52.4%

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

55. Comparative balance sheets are usually prepared for
a. one year.
b. two years.
c. three years.
d. four years.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

56. Horizontal analysis is appropriately performed
a. only on the income statement.
b. only on the balance sheet.
c. only on the statement of retained earnings.
d. on all three of these statements.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

57. A horizontal analysis performed on a statement of retained earnings would not show a percentage change in
a. dividends paid.
b. net income.
c. expenses.
d. beginning retained earnings.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

58. Under which of the following cases may a percentage change be computed?
a. The trend of the balances is decreasing but all balances are positive.
b. There is no balance in the base year.
c. There is a positive balance in the base year and a negative balance in the subsequent year.
d. There is a negative balance in the base year and a positive balance in the subsequent year.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

59. Assume the following sales data for a company:
2014 $945,000
2013 877,500
2012 650,000
If 2012 is the base year, what is the percentage increase in sales from 2012 to 2013?
a. 24%
b. 35%
c. 76%
d. 135%

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

60. Assume the following cost of goods sold data for a company:
2014 $1,680,000
2013 1,400,000
2012 1,200,000
If 2012 is the base year, what is the percentage increase in cost of goods sold from 2012 to 2014?
a. 140%
b. 40%
c. 23%
d. 17%

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

61. Darius, Inc. has the following income statement (in millions):
DARIUS, INC.
Income Statement
For the Year Ended December 31, 2013
Net Sales $300
Cost of Goods Sold 120
Gross Profit 180
Operating Expenses 44
Net Income $136

MC 61. (Cont.)

Using vertical analysis, what percentage is assigned to Cost of Goods Sold?
a. 30%
b. 40%
c. 100%
d. None of the above

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

62. Darius, Inc. has the following income statement (in millions):
DARIUS, INC.
Income Statement
For the Year Ended December 31, 2013
Net Sales $300
Cost of Goods Sold 120
Gross Profit 180
Operating Expenses 44
Net Income $136

Using vertical analysis, what percentage is assigned to Net Income?
a. 100%
b. 75.6%
c. 45.3%
d. None of the above

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

63. Vertical analysis is also called
a. common size analysis.
b. horizontal analysis.
c. ratio analysis.
d. trend analysis.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

64. Vertical analysis is a technique which expresses each item within a financial statement
a. in dollars and cents.
b. in terms of a percentage of the item in the previous year.
c. in terms of a percent of a base amount.
d. starting with the highest value down to the lowest value.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

65. In common size analysis,
a. a base amount is required.
b. a base amount is optional.
c. the same base is used across all financial statements analyzed.
d. the results of the horizontal analysis are necessary inputs for performing the analysis.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

66. In performing a vertical analysis, the base for prepaid expenses is
a. total current assets.
b. total assets.
c. total liabilities and stockholders’ equity.
d. prepaid expenses.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

67. In performing a vertical analysis, the base for sales revenues on the income statement is
a. net sales.
b. sales.
c. net income.
d. cost of goods available for sale.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

68. In performing a vertical analysis, the base for sales returns and allowances is
a. sales.
b. sales discounts.
c. net sales.
d. total revenues.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

69. In performing a vertical analysis, the base for cost of goods sold is
a. total selling expenses.
b. net sales.
c. total revenues.
d. total expenses.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

70. Each of the following is a liquidity ratio except the
a. acid-test ratio.
b. current ratio.
c. debt to total assets ratio.
d. inventory turnover.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

71. A ratio calculated in the analysis of financial statements
a. expresses a mathematical relationship between two numbers.
b. shows the percentage increase from one year to another.
c. restates all items on a financial statement in terms of dollars of the same purchasing power.
d. is meaningful only if the numerator is greater than the denominator.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

72. A liquidity ratio measures the
a. income or operating success of an enterprise over a period of time.
b. ability of the enterprise to survive over a long period of time.
c. short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash.
d. number of times interest is earned.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

73. The current ratio is
a. calculated by dividing current liabilities by current assets.
b. used to evaluate a company’s liquidity and short-term debt paying ability.
c. used to evaluate a company’s solvency and long-term debt paying ability.
d. calculated by subtracting current liabilities from current assets.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

74. The acid-test (quick) ratio
a. is used to quickly determine a company’s solvency and long-term debt paying ability.
b. relates cash, short-term investments, and net receivables to current liabilities.
c. is calculated by taking one item from the income statement and one item from the balance sheet.
d. is the same as the current ratio except it is rounded to the nearest whole percent.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

75. Harvey Clothing Store had a balance in the Accounts Receivable account of $390,000 at the beginning of the year and a balance of $410,000 at the end of the year. Net credit sales during the year amounted to $3,000,000. The average collection period of the receivables in terms of days was
a. 30 days.
b. 365 days.
c. 274 days.
d. 48.7 days.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

76. Parker Hardware Store had net credit sales of $8,000,000 and cost of goods sold of $5,000,000 for the year. The Accounts Receivable balances at the beginning and end of the year were $600,000 and $700,000, respectively. The receivables turnover was
a. 7.7 times.
b. 4.6 times.
c. 11.4 times.
d. 12.3 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

77. Wagon Department Store had net credit sales of $16,000,000 and cost of goods sold of $15,000,000 for the year. The average inventory for the year amounted to $2,000,000. Inventory turnover for the year is
a. 8 times.
b. 15 times.
c. 7.5 times.
d. 5 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

78. Wagon Department Store had net credit sales of $16,000,000 and cost of goods sold of $15,000,000 for the year. The average inventory for the year amounted to $2,000,000. The average number of days in inventory during the year was
a. 365 days.
b. 48.7 days.
c. 46 days.
d. 30 days.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

79. Each of the following is included in computing the acid-test ratio except
a. cash.
b. inventory.
c. receivables.
d. short-term investments.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

80. Which one of the following would not be considered a liquidity ratio?
a. Current ratio
b. Inventory turnover
c. Acid-test ratio
d. Return on assets

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

81. Asset turnover measures
a. how often a company replaces its assets.
b. how efficiently a company uses its assets to generate sales.
c. the portion of the assets that have been financed by creditors.
d. the overall rate of return on assets.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

82. Profit margin is calculated by dividing
a. sales by cost of goods sold.
b. gross profit by net sales.
c. net income by stockholders’ equity.
d. net income by net sales.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

83. Stout Corporation had net income of $200,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Stout Corporation’s common stock is selling for $75 per share on the New York Stock Exchange. Stout Corporation’s price-earnings ratio is
a. 3.8 times.
b. 15 times.
c. 18.8 times.
d. 12 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

84 Stout Corporation had net income of $200,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Stout Corporation’s common stock is selling for $60 per share on the New York Stock Exchange. Stout Corporation’s payout ratio for 2013 is
a. $4 per share.
b 25%.
c. 20%.
d. 12.5%.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

85 Flake Company reported the following on its income statement:
Income before income taxes $600,000
Income tax expense 150,000
Net income $450,000
An analysis of the income statement revealed that interest expense was $50,000. Flake Company’s times interest earned was
a. 13 times.
b. 12 times.
c. 6 times.
d. 7 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

86. The debt to total assets ratio measures
a. the company’s profitability.
b. whether interest can be paid on debt in the current year.
c. the proportion of interest paid relative to dividends paid.
d. the percentage of the total assets provided by creditors.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

87. Trading on the equity (leverage) refers to the
a. amount of working capital.
b. amount of capital provided by owners.
c. use of borrowed money to increase the return to owners.
d. number of times interest is earned.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

88. The current assets of Margo Company are $300,000. The current liabilities are $100,000. The current ratio expressed as a proportion is
a. 300%.
b. 3.0 : 1
c. .33 : 1
d. $300,000 ÷ $100,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

89. The current ratio may also be referred to as the
a. short run ratio.
b. acid-test ratio.
c. working capital ratio.
d. contemporary ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

90. A weakness of the current ratio is
a. the difficulty of the calculation.
b. that it doesn’t take into account the composition of the current assets.
c. that it is rarely used by sophisticated analysts.
d. that it can be expressed as a percentage, as a rate, or as a proportion.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

91. A supplier to a company would be most interested in the company’s
a. asset turnover.
b. profit margin.
c. current ratio.
d. earnings per share.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

92. Which one of the following ratios would not likely be used by a short-term creditor in evaluating whether to sell on credit to a company?
a. Current ratio
b. Acid-test ratio
c. Asset turnover
d. Receivables turnover

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

93. Ratios are used as tools in financial analysis
a. instead of horizontal and vertical analyses.
b. because they may provide information that is not apparent from inspection of the individual components of the ratio.
c. because even single ratios by themselves are quite meaningful.
d. because they are prescribed by GAAP.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

94. The ratios that are used to determine a company’s short-term debt paying ability are
a. asset turnover, times interest earned, current ratio, and receivables turnover.
b. times interest earned, inventory turnover, current ratio, and receivables turnover.
c. times interest earned, acid-test ratio, current ratio, and inventory turnover.
d. current ratio, acid-test ratio, receivables turnover, and inventory turnover.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

95. A measure of the percentage of each dollar of sales that results in net income is
a. profit margin.
b. return on assets.
c. return on common stockholders’ equity.
d. earnings per share.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

96. West Company had $375,000 of current assets and $150,000 of current liabilities before borrowing $75,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on the amount of West Company’s working capital?
a. No effect
b. $75,000 increase
c. $150,000 increase
d. $75,000 decrease

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

97. West Company had $375,000 of current assets and $150,000 of current liabilities before borrowing $75,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on West Company’s current ratio?
a. The ratio remained unchanged.
b. The change in the current ratio cannot be determined.
c. The ratio decreased.
d. The ratio increased.

Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

98. If equal amounts are added to the numerator and the denominator of the current ratio, the ratio will always
a. increase.
b. decrease.
c. stay the same.
d. equal zero.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

99. The acid-test ratio
a. is a quick calculation of an approximation of the current ratio.
b. does not include all current liabilities in the calculation.
c. does not include inventory as part of the numerator.
d. does include prepaid expenses as part of the numerator.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

100. If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio?
Short-term Borrowing Collection of Receivable
a. Increase No effect
b. Increase Increase
c. Decrease No effect
d. Decrease Decrease

Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

101. A company has a receivables turnover of 10 times. The average receivables during the period are $500,000. What is the amount of net credit sales for the period?
a. $50,000
b. $5,000,000
c. $500,000
d. Cannot be determined from the information given

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

102. If the average collection period is 60 days, what is the receivables turnover?
a. 6.0 times
b. 6.1 times
c. 12.2 times
d. None of these

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

103. A general rule to use in assessing the average collection period is that
a. it should not exceed 30 days.
b. it can be any length as long as the customer continues to buy merchandise.
c. it should not greatly exceed the discount period.
d. it should not greatly exceed the credit term period.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

104. Inventory turnover is calculated by dividing
a. cost of goods sold by the ending inventory.
b. cost of goods sold by the beginning inventory.
c. cost of goods sold by the average inventory.
d. average inventory by cost of goods sold.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

105. A company has an average inventory on hand of $40,000 and the days in inventory is 73 days. What is the cost of goods sold?
a. $200,000
b. $2,920,000
c. $400,000
d. $1,460,000

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

106. A successful grocery store would probably have
a. a low inventory turnover.
b. a high inventory turnover.
c. zero profit margin.
d. low volume.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

107. An aircraft company would most likely have
a. a high inventory turnover.
b. low profit margin.
c. high volume.
d. a low inventory turnover.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

108. Net sales are $6,000,000, beginning total assets are $2,800,000, and the asset turnover is 3.0 times. What is the ending total asset balance?
a. $2,000,000
b. $1,200,000
c. $2,800,000
d. $2,200,000

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

109. Earnings per share is calculated
a. only for common stock.
b. only for preferred stock.
c. for common and preferred stock.
d. only for treasury stock.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

110. Which of the following is not a profitability ratio?
a. Payout ratio
b. Profit margin
c. Times interest earned
d. Return on common stockholders’ equity

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

111. Times interest earned is also called the
a. money multiplier.
b. interest coverage ratio.
c. coupon coverage ratio.
d. premium ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

112. The ratio that uses weighted average common shares outstanding in the denominator is the
a. price-earnings ratio.
b. return on common stockholders’ equity.
c. earnings per share.
d. payout ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

113. Net income does not appear in the numerator of the
a. profit margin.
b. return on assets.
c. return on common stockholders’ equity.
d. payout ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

114. Bria Clothing Store had a balance in the Accounts Receivable account of $920,000 at the beginning of the year and a balance of $980,000 at the end of the year. Net credit sales during the year amounted to $7,600,000. The receivables turnover ratio was
a. 8.0 times.
b. 8.4 times.
c. 7.8 times.
d. 8.3 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

115. Bria Clothing Store had a balance in the Accounts Receivable account of $810,000 at the beginning of the year and a balance of $850,000 at the end of the year. Net credit sales during the year amounted to $6,640,000. The average collection period of the receivables in terms of days was
a. 91.3 days.
b. 45.6 days.
c. 30 days.
d. 46.7 days.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

116. Donner Corporation had net income of $200,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Donner Corporation’s common stock is selling for $35 per share on the New York Stock Exchange. Donner Corporation’s price-earnings ratio is
a. 5 times.
b. 8.75 times.
c. 4 times.
d. 10.9 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

117. Donner Corporation had net income of $400,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Donner Corporation’s common stock is selling for $50 per share on the New York Stock Exchange. Donner Corporation’s payout ratio for 2013 is
a. $8 per share.
b. 10%.
c. 12.5%.
d. 20%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

118. Town Company reported the following on its income statement:
Income before income taxes $750,000
Income tax expense 150,000
Net income $600,000
An analysis of the income statement revealed that interest expense was $100,000. Town Company’s times interest earned was
a. 5 times.
b. 8.5 times.
c. 6 times.
d. 7.5 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

119. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 210,000
Total Assets $300,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $300,000

Income Statement
Sales $ 120,000
Cost of goods sold 66,000
Gross profit 54,000
Operating expenses 30,000
Net income $ 24,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

MC 119. (Cont.)

What is the current ratio for Sampson?
a. 1.80
b. 1.30
c. 1.40
d. .64

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

120. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 35,000
Inventory 20,000
Property, plant and equipment 210,000
Total Assets $310,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $310,000

Income Statement
Sales $ 105,000
Cost of goods sold 66,000
Gross profit 39,000
Operating expenses 30,000
Net income $ 9,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

What is the receivables turnover for Sampson?
a. 1.5 times
b. 1.1 times
c. 3.0 times
d. 12.9 times

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

121. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 11,000
Property, plant and equipment 210,000
Total Assets $291,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 151,000
Total Liabilities and Stockholders’ Equity $291,000

Income Statement
Sales $ 120,000
Cost of goods sold 55,000
Gross profit 65,000
Operating expenses 30,000
Net income $ 35,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

What is the inventory turnover for Sampson?
a. 3.2 times
b. 5 times
c. 10.9 times
d. 0.20 times

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

122. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 210,000
Total Assets $300,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $300,000

MC 122. (Cont.)
Income Statement
Sales $ 120,000
Cost of goods sold 66,000
Gross profit 54,000
Operating expenses 30,000
Net income $ 24,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

What is the return on assets for Sampson?
a. 8.0%
b. 7.0%
c. 18.0%
d. 16.0%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

123. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 310,000
Total Assets $400,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 260,000
Total Liabilities and Stockholders’ Equity $400,000

Income Statement
Sales $ 300,000
Cost of goods sold 66,000
Gross profit 234,000
Operating expenses 30,000
Net income $ 204,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

MC 123. (Cont.)

What is the profit margin for Sampson?
a. 115%
b. 28.2%
c. 68%
d. 51%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

124. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 230,000
Total Assets $320,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 180,000
Total Liabilities and Stockholders’ Equity $320,000

Income Statement
Sales $ 150,000
Cost of goods sold 66,000
Gross profit 84,000
Operating expenses 30,000
Net income $ 54,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

What is the return on common stockholders’ equity for Sampson?
a. 30%
b. 46.7%
c. 36%
d. 16.9%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

125. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 210,000
Total Assets $300,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $300,000

Income Statement
Sales $ 120,000
Cost of goods sold 66,000
Gross profit 54,000
Operating expenses 18,000
Net income $ 36,000

Number of shares of common stock 6,000
Market price of common stock $33
Dividends per share .50

What is the price-earnings ratio for Sampson?
a. 5.5 times
b. 1.1 times
c. 6 times
d. 6.6 times

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

126. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 25,000
Property, plant and equipment 215,000
Total Assets $310,000
Liabilities and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 175,000
Total Liabilities and Stockholders’ Equity $310,000

MC 126. (Cont.)
Income Statement
Sales $ 90,000
Cost of goods sold 45,000
Gross profit 45,000
Operating expenses 25,000
Net income $ 20,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends per share 1.00

What is the return on assets for Eura?
a. 4.8%
b. 9.7%
c. 6.5%
d. 12.9%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

127. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 25,000
Property, plant and equipment 215,000
Total Assets $310,000
Liabilities and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 175,000
Total Liabilities and Stockholders’ Equity $310,000
Income Statement
Sales $ 135,000
Cost of goods sold 45,000
Gross profit 90,000
Operating expenses 25,000
Net income $ 65,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends per share 1.00

What is the profit margin for Eura?
a. 27.8%
b. 51.9%
c. 72.2%
d. 48.1%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

128. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 45,000
Property, plant and equipment 215,000
Total Assets $330,000
Liabilities and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 195,000
Total Liabilities and Stockholders’ Equity $330,000
Income Statement
Sales $ 90,000
Cost of goods sold 45,000
Gross profit 45,000
Operating expenses 30,000
Net income $ 15,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends per share 1.00

What is the return on common stockholders’ equity for Eura?
a. 4.8%
b. 7.7%
c. 23.1%
d. 46.2%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

129. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 25,000
Property, plant and equipment 215,000
Total Assets $310,000
Liabilities and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 175,000
Total Liabilities and Stockholders’ Equity $310,000

MC 129. (Cont.)
Income Statement
Sales $ 90,000
Cost of goods sold 45,000
Gross profit 45,000
Operating expenses 25,000
Net income $ 20,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends per share 1.00

What is the price-earnings ratio for Eura?
a. 5 times
b. 4.0 times
c. 7.3 times
d. 5.5 times

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

130. The following information is available for Compton Company:

2013 2012
Accounts receivable $ 460,000 $ 500,000
Inventory 280,000 320,000
Net credit sales 2,470,000 1,400,000
Cost of goods sold 1,860,000 1,060,000
Net income 300,000 170,000

The receivables turnover ratio for 2013 is
a. 1.6 times.
b. 5.4 times.
c. 5.1 times.
d. 3.9 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

131. The following information is available for Compton Company:

2013 2012
Accounts receivable $ 360,000 $ 400,000
Inventory 340,000 420,000
Net credit sales 2,470,000 1,400,000
Cost of goods sold 1,860,000 1,060,000
Net income 300,000 170,000

The inventory turnover ratio for 2013 is
a. 6.2 times.
b. 4.9 times.
c. 5.5 times.
d. 4.4 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

132. The following amounts were taken from the financial statements of Plant Company:
2013 2012
Total assets $800,000 $1,000,000
Net sales 720,000 650,000
Gross profit 352,000 320,000
Net income 126,000 117,000
Weighted average number of common shares outstanding 90,000 90,000
Market price of common stock $35 $39

The return on assets ratio for 2013 is
a. 16%.
b. 14%.
c. 32%.
d. 28%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

133. The following amounts were taken from the financial statements of Plant Company:
2013 2012
Total assets $800,000 $1,000,000
Net sales 840,000 650,000
Gross profit 352,000 320,000
Net income 155,400 117,000
Weighted average number of common shares outstanding 90,000 90,000
Market price of common stock $35 $39

The profit margin ratio for 2013 is
a. 19.4%.
b. 44.1%.
c. 18.5%.
d. 10.7%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

134. The following amounts were taken from the financial statements of Plant Company:
2013 2012
Total assets $800,000 $1,000,000
Net sales 720,000 650,000
Gross profit 352,000 320,000
Net income 150,000 117,000
Weighted average number of common shares outstanding 60,000 90,000
Market price of common stock $67.50 $39

The price-earnings ratio for 2013 is
a. 27 times.
b. 45 times.
c. 11 times.
d. 2.5 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

135. Star Corporation had net income of $300,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Star Corporation’s common stock is selling for $36 per share on the New York Stock Exchange.

Star Corporation’s price-earnings ratio is
a. 5.2 times.
b. 6 times.
c. 18 times.
d. 6.9 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

136. Star Corporation had net income of $320,000 and paid dividends to common stockholders of $80,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Star Corporation’s common stock is selling for $30 per share on the New York Stock Exchange.

Star Corporation’s payout ratio for 2013 is
a. 16%.
b. 25%.
c. 9%.
d. $4 per share.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

137. The following financial statement information is available for Houser Corporation:
2013 2012
Inventory $ 44,000 $ 43,000
Current assets 81,000 106,000
Total assets 432,000 358,000
Current liabilities 30,000 36,000
Total liabilities 102,000 88,000

The current ratio for 2013 is
a. .37:1.
b. 2.7:1.
c. .79:1.
d. 4.24:1.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

138. The following financial statement information is available for Jones Corporation:
2013 2012
Net sales $784,000 $697,000
Cost of goods sold 406,000 377,000
Net income 112,000 80,000
Tax expense 48,000 29,000
Interest expense 14,000 14,000

The profit margin ratio for 2013 is
a. 14.3%.
b. 16.1%.
c. 48.2%.
d. 11.7%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

139. The following financial statement information is available for Henn Corporation:
2013 2012
Stockholders’ equity – common $330,000 $270,000
Net sales 784,000 697,000
Cost of goods sold 406,000 377,000
Net income 112,000 80,000
Inc tax expense 48,000 29,000
Interest expense 14,000 14,000
Dividends paid to preferred
stockholders 22,000 20,000
Dividends paid to common
stockholders 15,000 10,000
The return on common stockholders’ equity for 2013 is
a. 25.0%.
b. 37.3%.
c. 27.3%.
d. 30.0%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

140. The following financial statement information is available for Bongo Corporation:
2013 2012
Net income $115,000 $ 80,000
Income tax expense 50,000 29,000
Interest expense 15,000 14,000
Dividends paid to preferred
stockholders 22,000 20,000
Dividends paid to preferred
stockholders 15,000 10,000

The times interest earned for 2013 is
a. 8.8 times.
b. 7.7 times.
c. 12 times.
d. 11 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

141. Dean Corporation reported net income $48,000, net sales $400,000, and average assets $800,000 for 2013. The 2013 profit margin was:
a. 6%.
b. 12%.
c. 50%.
d. 200%.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

142. Goin Company reports the following amounts for 2013:
Net income $ 150,000
Average stockholders’ equity 2,000,000
Preferred dividends 48,000
Par value preferred stock 200,000

The 2013 rate of return on common stockholders’ equity is:
a. 5.1%.
b. 5.7%.
c. 7.5%.
d. 8.3%.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

143. Gamble Corporation had beginning inventory $100,000, cost of goods purchased $700,000, and ending inventory $140,000. What was Gamble’s inventory turnover?
a. 5 times.
b. 5.5 times.
c. 5.83 times.
d. 6.6 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

144. In 2013 Shum Corporation reported income from operations $180,000, interest expense $50,000, and income tax expense $40,000. Shum’s times interest earned ratio was:
a. 5.4 times.
b. 4.6 times.
c. 4.4 times.
d. 3.6 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

145. Reynolds Company has income before taxes of $360,000 and an extraordinary loss of $80,000. If the income tax rate is 30% on all items, the income statement should show income before irregular items and an extraordinary loss, respectively, of:
a. $360,000 and ($80,000)
b. $252,000 and ($24,000)
c. $252,000 and ($56,000)
d. $108,000 and ($24,000)

Ans: LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

146. All of the following statements regarding changes in accounting principles are true except:
a. Most changes in accounting principles are only reported in current periods when the principle change takes place.
b. Changes in accounting principles are allowed when new principles are preferable to old ones.
c. Most changes in accounting principles are retroactively reported.
d. Consistency is one of the biggest concerns when a change in accounting principle is undertaken.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

147. Alpha’s Bunny Barn has experienced a $60,000 loss due to tornado damage to its inventory. Tornados have never before occurred in this area. Assuming that the company’s tax rate is 30%, what amount will be reported for this loss on the income statement?
a. $60,000
b. $42,000
c. $18,000
d. $54,000

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

148. Wing Company reported income before taxes of $900,000 and an extraordinary loss of $250,000. Assume that the company’s tax rate is 30%. What amounts will be reported on the income statement for income before irregular items and extraordinary items, respectively?
a. $630,000 and $250,000
b. $630,000 and $175,000
c. $650,000 and $250,000
d. $650,000 and $175,000

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

149. Krug Corporation has income before taxes of $900,000 and an extraordinary gain of $300,000. If the income tax rate is 25% on all items, the income statement should show income before irregular items and extraordinary items, respectively, of
a. $600,000 and $300,000.
b. $600,000 and $225,000.
c. $675,000 and $300,000.
d. $675,000 and $225,000.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

150. Hook Inc. has an investment in available-for-sale securities of $80,000. This investment experienced an unrealized loss of $5,000 during the current year. Assuming a 35% tax rate, the effect of this loss on comprehensive income will be
a. no effect.
b. $80,000 increase.
c. $28,000 decrease.
d. $5,000 decrease.

Ans: LO: 6, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

151. The disposal of a significant component of a business is called
a. a change in accounting principle.
b. an extraordinary item.
c. an other expense.
d. discontinued operations.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

152. ACME Company reports income before income taxes of $2,400,000 and had an extra-ordinary loss of $800,000. If the tax rate is 30%,
a. the income before the extraordinary item is $1,920,000.
b. the extraordinary loss would be reported on the income statement at $800,000.
c. the income before the extraordinary item is $1,680,000.
d. the extraordinary loss will be reported at $240,000.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

153. Eaton, Inc. disposes of an unprofitable segment of its business. The operation of the segment suffered a $360,000 loss in the year of disposal. The loss on disposal of the segment was $180,000. If the tax rate is 30%, and income before income taxes was $2,250,000,
a. the income tax expense on the income before discontinued operations is $513,000.
b. the income from continuing operations is $1,575,000.
c. net income is $1,710,000.
d. the losses from discontinued operations are reported net of income taxes at $270,000.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

154. Each of the following is an extraordinary item except the
a. effects of major casualties, if rare in the area.
b. effects of a newly enacted law or regulation.
c. expropriation of property by a foreign government.
d. losses attributable to labor strikes.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

155. The discontinued operations section of the income statement refers to
a. discontinuance of a product line.
b. the income or loss on products that have been completed and sold.
c. obsolete equipment and discontinued inventory items.
d. the disposal of a significant segment of a business.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

156. Which one of the following would be classified as an extraordinary item?
a. Expropriation of property by a foreign government
b. Losses attributed to a labor strike
c. Write-down of inventories
d. Gains or losses from sales of equipment

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

157. A loss on the write down of obsolete inventory should be reported as
a. “other expenses and losses.”
b. part of discontinued operations.
c. an operating expense.
d. an extraordinary item.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

158. If an item meets one (but not both) of the criteria for an extraordinary item, it
a. only needs to be disclosed in the footnotes of the financial statements.
b. may be treated as sales revenue (if it is a gain) and as an operating expense (if it is a loss).
c. is reported as an “other revenue or gain” or “other expense and loss,” net of tax.
d. is reported at its gross amount as an “other revenue or gain” or “other expense or loss.”

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

159. The order of presentation of nontypical items that may appear on the income statement is
a. Extraordinary items, Discontinued operations, Other revenues and expenses.
b. Discontinued operations, Extraordinary items, Other revenues and expenses.
c. Other revenues and expenses, Discontinued operations, Extraordinary items.
d. Other revenues and expenses, Extraordinary items, Discontinued operations.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

160. Each of the following is a factor affecting quality of earnings except
a. alternative accounting methods.
b. improper recognition.
c. pro forma income.
d. extraordinary items.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

161. Comparisons can be made on each of the following bases except
a. industry averages.
b. intercompany basis.
c. intracompany basis.
d. Each of these is a basis for comparison.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

162. Comparisons of data within a company are an example of the following comparative basis:
a. Industry averages
b. Intercompany
c. Intracompany
d. Interregional

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

163. Center Corporation reported net sales of $200,000, $350,000, and $550,000 in the years 2012, 2013, and 2014 respectively. If 2012 is the base year, what is the trend percentage for 2014?
a. 100%
b. 75%
c. 175%
d. 275%

Ans: LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

164. In vertical analysis, the base amount for each income statement item is
a. gross profit.
b. net income.
c. net sales.
d. sales.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

165. When performing vertical analysis, the base amount for administrative expense is generally
a. administrative expense in a previous year.
b. net sales.
c. gross profit.
d. fixed assets.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

166. Ratios that measure the short-term ability of the company to pay its maturing obligations are
a. liquidity ratios.
b. profitability ratios.
c. solvency ratios.
d. trend ratios.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

167. What type of ratios best measure the short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash?
a. Leverage
b. Solvency
c. Profitability
d. Liquidity

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

168. The acid-test ratio is also known as the
a. current ratio.
b. quick ratio.
c. fast ratio.
d. times interest earned ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

169. The debt to total assets ratio
a. is a solvency ratio.
b. is computed by dividing total assets by total debt.
c. measures the total assets provided by stockholders.
d. is a profitability ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

170. An extraordinary item is one that
a. occurs infrequently and is uncontrollable in nature.
b. occurs infrequently and is unusual in nature.
c. is material and is unusual in nature.
d. is material and is uncontrollable in nature.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

171. Parrish, Inc. decided on January 1 to discontinue its telescope manufacturing division. On July 1, the division’s assets with a book value of $1,250,000 are sold for $850,000. Operating income from January 1 to June 30 for the division amounted to $125,000. Ignoring income taxes, what total amount should be reported on Parrish’s income statement for the current year under the caption, Discontinued Operations?
a. $125,000
b. $275,000 loss
c. $400,000 loss
d. $525,000

Ans: LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

172. When there has been a change in accounting principle,
a. the old principle should be used in reporting the results of operations for the current year.
b. the cumulative effect of the change should be reported in the current year’s retained earnings statement.
c. the change should be reported retroactively.
d. the new principle should be used in reporting the results of operations of the current year, but there is no change to prior years.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

ACC 560 Week 9 Quiz – Strayer University NEW

ACC/560 Week 9 Quiz – Strayer NEW
Click On The Link Below to Purchase A+ Graded Material
Instant Download

http://budapp.net/ACC-560-Week-9-Quiz-Strayer-NEW-ACC560W9Q.htm

 

Week 9 Quiz 8: Chapter 12

TRUE-FALSE STATEMENTS
1. Capital budgeting decisions usually involve large investments and often have a significant impact on a company’s future profitability.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

2. The capital budgeting committee ultimately approves the capital expenditure budget for the year.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

3. For purposes of capital budgeting, estimated cash inflows and outflows are preferred for inputs into the capital budgeting decision tools.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

4. The cash payback technique is a quick way to calculate a project’s net present value.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

5. The cash payback period is computed by dividing the cost of the capital investment by the net annual cash inflow.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Decision Analysis

6. The cash payback method is frequently used as a screening tool but it does not take into consideration the profitability of a project.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Decision Analysis

7. The cost of capital is a weighted average of the rates paid on borrowed funds, as well as on funds provided by investors in the company’s stock.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

8. Using the net present value method, a net present value of zero indicates that the project would not be acceptable.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

9. The net present value method can only be used in capital budgeting if the expected cash flows from a project are an equal amount each year.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

10. By ignoring intangible benefits, capital budgeting techniques might incorrectly eliminate projects that could be financially beneficial to the company.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

11. To avoid accepting projects that actually should be rejected, a company should ignore intangible benefits in calculating net present value.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Decision Analysis

12. One way of incorporating intangible benefits into the capital budgeting decision is to project conservative estimates of the value of the intangible benefits and include them in the NPV calculation.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Decision Analysis

13. The profitability index is calculated by dividing the total cash flows by the initial investment.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

14. The profitability index allows comparison of the relative desirability of projects that require differing initial investments.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

15. Sensitivity analysis uses a number of outcome estimates to get a sense of the variability among potential returns.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Decision Analysis

16. A well-run organization should perform an evaluation, called a post-audit, of its investment projects before their completion.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

17. Post-audits create an incentive for managers to make accurate estimates, since managers know that their results will be evaluated.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

18. A post-audit is an evaluation of how well a project’s actual performance matches the projections made when the project was proposed.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

19. The internal rate of return method is, like the NPV method, a discounted cash flow technique.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Applications

20. The interest yield of a project is a rate that will cause the present value of the proposed capital expenditure to equal the present value of the expected annual cash inflows.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

21. Using the internal rate of return method, a project is rejected when the rate of return is greater than or equal to the required rate of return.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

22. Using the annual rate of return method, a project is acceptable if its rate of return is greater than management’s minimum rate of return.

Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

23. The annual rate of return method requires dividing a project’s annual cash inflows by the economic life of the project.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

24. A major advantage of the annual rate of return method is that it considers the time value of money.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

25. An advantage of the annual rate of return method is that it relies on accrual accounting numbers rather than actual cash flows.

Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

MULTIPLE CHOICE QUESTIONS
26. The capital budget for the year is approved by a company’s
a. board of directors.
b. capital budgeting committee.
c. officers.
d. stockholders.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

27. All of the following are involved in the capital budgeting evaluation process except a company’s
a. board of directors.
b. capital budgeting committee.
c. officers.
d. stockholders.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

28. Most of the capital budgeting methods use
a. accrual accounting numbers.
b. cash flow numbers.
c. net income.
d. accrual accounting revenues.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

29. The first step in the capital budgeting evaluation process is to
a. request proposals for projects.
b. screen proposals by a capital budgeting committee.
c. determine which projects are worthy of funding.
d. approve the capital budget.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

30. The capital budgeting decision depends in part on the
a. availability of funds.
b. relationships among proposed projects.
c. risk associated with a particular project.
d. all of these.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

31. Capital budgeting is the process
a. used in sell or process further decisions.
b. of determining how much capital stock to issue.
c. of making capital expenditure decisions.
d. of eliminating unprofitable product lines.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

32. Net annual cash flow can be estimated by
a. deducting credit sales from net income.
b. adding depreciation expense to net income.
c. deducting credit purchases from net income.
d. adding advertising expense to net income.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

33. Which of the following is not a typical cash flow related to equipment purchase and replacement decisions?
a. Increased operating costs
b. Overhaul of equipment
c. Salvage value of equipment when project is complete
d. Depreciation expense

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

34. Capital expenditure proposals are initially screened by the
a. board of directors.
b. executive committee.
c. capital budgeting committee.
d. stockholders.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

35. Capital budgeting decisions depend in part on all of the following except the
a. relationships among proposed projects.
b. profitability of the company.
c. company’s basic decision making approach.
d. risks associated with a particular project.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

36. The corporate capital budget authorization process consists of how many steps?
a. 4
b. 3
c. 2
d. 1

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

37. Which of the following is not a capital budgeting decision?
a. Constructing new studios
b. Replacing old equipment
c. Scrapping obsolete inventory
d. Remodeling an office building

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

38. Which of the following is a disadvantage of the cash payback technique?
a. It is difficult to calculate
b. It relies on the time value of money
c. It can only be calculated when there are equal annual net cash flows
d. It ignores the expected profitability of a project

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

39. The payback period is often compared to an asset’s
a. estimated useful life.
b. warranty period.
c. net present value.
d. internal rate of return.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

40. Which of the following ignores the time value of money?
a. Internal rate of return
b. Profitability index
c. Net present value
d. Cash payback

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

41. Brady Corp. is considering the purchase of a piece of equipment that costs $20,000. Projected net annual cash flows over the project’s life are:
Year Net Annual Cash Flow
1 $ 3,000
2 8,000
3 15,000
4 9,000
The cash payback period is
a. 2.29 years.
b. 2.60 years.
c. 2.40 years.
d. 2.31 years.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

42. Bradshaw Inc. is contemplating a capital investment of $88,000. The cash flows over the project’s four years are:
Expected Annual Expected Annual
Year Cash Inflows Cash Outflows
1 $30,000 $12,000
2 45,000 20,000
3 60,000 25,000
4 50,000 30,000
The cash payback period is
a. 3.59 years.
b. 3.50 years.
c. 2.37 years.
d. 3.20 years.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

43. Jordan Company is considering the purchase of a machine with the following data:
Initial cost $150,000
One-time training cost 12,000
Annual maintenance costs 15,000
Annual cost savings 75,000
Salvage value 20,000
The cash payback period is
a. 2.70 years.
b. 2.50 years.
c. 2.37 years.
d. 2.17 years.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

44. If project A has a lower payback period than project B, this may indicate that project A may have a
a. lower NPV and be less profitable.
b. higher NPV and be less profitable.
c. higher NPV and be more profitable.
d. lower NPV and be more profitable.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

45. Which of the following does not consider a company’s required rate of return?
a. Net present value
b. Internal rate of return
c. Annual rate of return
d. Cash payback

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

46. The cash payback technique
a. considers cash flows over the life of a project.
b. cannot be used with uneven cash flows.
c. is superior to the net present value method.
d. may be useful as an initial screening device.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

47. If an asset costs $240,000 and is expected to have a $40,000 salvage value at the end of its ten-year life, and generates annual net cash inflows of $40,000 each year, the cash payback period is
a. 7 years.
b. 6 years.
c. 5 years.
d. 4 years.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

48. If a payback period for a project is greater than its expected useful life, the
a. project will always be profitable.
b. entire initial investment will not be recovered.
c. project would only be acceptable if the company’s cost of capital was low.
d. project’s return will always exceed the company’s cost of capital.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

49. The cash payback technique
a. should be used as a final screening tool.
b. can be the only basis for the capital budgeting decision.
c. is relatively easy to compute and understand.
d. considers the expected profitability of a project.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

50. The cash payback period is computed by dividing the cost of the capital investment by the
a. annual net income.
b. net annual cash inflow.
c. present value of the cash inflow.
d. present value of the net income.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

51. When using the cash payback technique, the payback period is expressed in terms of
a. a percent.
b. dollars.
c. years.
d. months.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

52. A disadvantage of the cash payback technique is that it
a. ignores obsolescence factors.
b. ignores the cost of an investment.
c. is complicated to use.
d. ignores the time value of money.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

53. Bark Company is considering buying a machine for $240,000 with an estimated life of ten years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $6,000 each year. The cash payback period on this investment is
a. 20 years.
b. 10 years.
c. 8 years.
d. 4 years.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

54. A company is considering purchasing a machine that costs $400,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the machine is purchased, annual revenues are expected to be $100,000 and annual operating expenses exclusive of depreciation expense are expected to be $38,000. The straight-line method of depreciation would be used. The cash payback period on the machine is
a. 8.0 years.
b. 7.5 years.
c. 6.5 years.
d. 3.2 years.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

55. Nance Company is considering buying a machine for $90,000 with an estimated life of ten years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $3,000 each year. The cash payback on this investment is
a. 15 years.
b. 10 years.
c. 7.5 years.
d. 6 years.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

56. Giraldi Company has identified that the cost of a new computer will be $48,000, but with the use of the new computer, net income will increase by $5,000 a year. If depreciation expense is $3,000 a year, the cash payback period is:
a. 24.0 years.
b. 16.0 years.
c. 9.6 years.
d. 6.0 years.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

57. Richman Co. purchased some equipment 3 years ago. The company’s required rate of return is 12%, and the net present value of the project was $(900). Annual cost savings were: $10,000 for year 1; $8,000 for year 2; and $6,000 for year 3. The amount of the initial investment was
Present Value PV of an Annuity
Year of 1 at 12% of 1 at 12%
1 .893 .893
2 .797 1.690
3 .712 2.402

a. $20,478.
b. $18,316.
c. $20,116.
d. $18,678.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

58. Use the following table,
Present Value of an Annuity of 1
Period 8% 9% 10%
1 .926 .917 .909
2 1.783 1.759 1.736
3 2.577 2.531 2.487
A company has a minimum required rate of return of 9%. It is considering investing in a project which costs $350,000 and is expected to generate cash inflows of $140,000 at the end of each year for three years. The net present value of this project is
a. $354,340.
b. $70,000.
c. $35,436.
d. $4,340.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

59. The discount rate is referred to by all of the following alternative names except the
a. accounting rate of return.
b. cutoff rate.
c. hurdle rate.
d. required rate of return.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

60. The rate that a company must pay to obtain funds from creditors and stockholders is known as the
a. hurdle rate.
b. cost of capital.
c. cutoff rate.
d. all of these.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

61. The higher the risk element in a project, the
a. more attractive the investment.
b. higher the net present value.
c. higher the cost of capital.
d. higher the discount rate.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

62. If a company’s required rate of return is 10% and, in using the net present value method, a project’s net present value is zero, this indicates that the
a. project’s rate of return exceeds 10%.
b. project’s rate of return is less than the minimum rate required.
c. project earns a rate of return of 10%.
d. project earns a rate of return of 0%.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

63. Using the profitability index method, the present value of cash inflows for Project Flower is $88,000 and the present value of cash inflows of Project Plant is $48,000. If Project Flower and Project Plant require initial investments of $90,000 and $40,000, respectively, and have the same useful life, the project that should be accepted is
a. Project Flower.
b. Project Plant.
c. Either project may be accepted.
d. Neither project should be accepted.

Ans: LO: 3, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

64. The primary capital budgeting method that uses discounted cash flow techniques is the
a. net present value method.
b. cash payback technique.
c. annual rate of return method.
d. profitability index method.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

65. When the annual cash flows from an investment are unequal, the appropriate table to use is the
a. future value of 1 table.
b. future value of annuity table.
c. present value of 1 table.
d. present value of annuity table.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

66. A company’s cost of capital refers to the
a. rate the company must pay to obtain funds from creditors and stockholders.
b. total cost of a capital project.
c. cost of printing and registering common stock shares.
d. rate of return earned on common stock.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

67. When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the
a. internal rate of return.
b. annual rate of return.
c. required rate of return.
d. profitability index.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

68. A negative net present value indicates that the
a. project is acceptable.
b. wrong discount rate was used.
c. project’s annual rate of return exceeds the discount rate.
d. present value of the cash inflows was less than the present value of the cash out flows.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

69. A company’s discount rate is based on the
a. cost of capital and the internal rate of return.
b. cost of capital and the risk element.
c. cut-off rate and the risk element.
d. cut-off rate and the internal rate of return.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

70. The discount rate that will result in the lowest net present value for a project is
a. any rate lower that the cost of capital.
b. any rate higher than the cost of capital.
c. the lowest rate used to evaluate the project.
d. the highest rate used to evaluate the project.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

71. The discount rate that will result in the highest net present value for a project is
a. any rate lower that the cost of capital.
b. any rate higher than the cost of capital.
c. the lowest rate used to evaluate the project.
d. the highest rate used to evaluate the project.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

72. Which of the following will increase the net present value of a project?
a. An increase in the initial investment
b. A decrease in annual cash inflows
c. An increase in the discount rate
d. A decrease in the discount rate

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

73. A project with a zero net present value indicates that it is
a. unacceptable.
b. profitable.
c. acceptable.
d. going to have an acceptable cash payback period.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

74. Companies often assume that the risk element in the discount rate is
a. zero.
b. greater that zero.
c. less than zero.
d. known with certainty.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

75. If a project has a salvage value greater than zero, the salvage value will
a. have no effect on the net present value.
b. increase the net present value.
c. increase the payback period.
d. decrease the net present value.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

76. Sloan Inc. recently invested in a project with a 3-year life span. The net present value was $9,000 and annual cash inflows were $21,000 for year 1; $24,000 for year 2; and $27,000 for year 3. The initial investment for the project, assuming a 15% required rate of return, was
Present Value PV of an Annuity
Year of 1 at 15% of 1 at 15%
1 .870 .870
2 .756 1.626
3 .658 2.283
a. $45,792.
b. $45,180.
c. $29,232.
d. $38,376.

Ans: LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

77. Mini Inc. is contemplating a capital project costing $47,019. The project will provide annual cost savings of $18,000 for 3 years and have a salvage value of $3,000. The company’s required rate of return is 10%. The company uses straight-line depreciation.
Present Value PV of an Annuity
Year of 1 at 10% of 1 at 10%
1 .909 .909
2 .826 1.736
3 .751 2.487
This project is
a. unacceptable because it earns a rate less than 10%.
b. acceptable because it has a positive NPV.
c. unacceptable because it has a negative NPV.
d. acceptable because it has a zero NPV.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

78. Johnson Corp. has an 8% required rate of return. It’s considering a project that would provide annual cost savings of $50,000 for 5 years. The most that Johnson would be willing to spend on this project is
Present Value PV of an Annuity
Year of 1 at 8% of 1 at 8%
1 .926 .926
2 .857 1.783
3 .794 2.577
4 .735 3.312
5 .681 3.993
a. $125,910.
b. $165,600.
c. $199,650.
d. $34,050.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

79. Benaflek Co. purchased some equipment 3 years ago. The company’s required rate of return is 12%, and the net present value of the project was $(1,800). Annual cost savings were: $20,000 for year 1; $16,000 for year 2; and $12,000 for year 3. The amount of the initial investment was
Present Value PV of an Annuity
Year of 1 at 12% of 1 at 12%
1 .893 .893
2 .797 1.690
3 .712 2.402
a. $40,956.
b. $36,632.
c. $40,232.
d. $37,356.

Ans: LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

80. In capital budgeting, intangible benefits should be
a. excluded entirely.
b. included using optimistic estimated values.
c. included using conservative estimated values.
d. included only when benefits are known with certainty.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

81. Miles, Inc. is considering the purchase of a new machine for $600,000 that has an estimated useful life of 5 years and no salvage value. The machine will generate net annual cash flows of $105,000. It is believed that the new machine will reduce downtime because of its reliability. Assume the discount rate is 8%. In order to make the project acceptable, the reduction in downtime must be worth
Present Value PV of an Annuity
Year of 1 at 8% of 1 at 8%
1 .926 .926
2 .857 1.783
3 .794 2.577
4 .735 3.312
5 .681 3.993
a. $23,958 per year.
b. $49,662 per year.
c. $18,264 per year.
d. $45,263 per year.

Ans: LO: 4, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

82. Intangible benefits in capital budgeting would include all of the following except increased
a. product quality.
b. employee loyalty.
c. salvage value.
d. product safety.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

83. Intangible benefits in capital budgeting
a. should be ignored because they are difficult to determine.
b. include increased quality or employee loyalty.
c. are not considered because they are usually not relevant to the decision.
d. have a rate of return in excess of the company’s cost of capital.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

84. To avoid rejecting projects that actually should be accepted,
1. intangible benefits should be ignored.
2. conservative estimates of the intangible benefits’ value should be incorporated into the NPV calculation.
3. calculate net present value ignoring intangible benefits and then, if the NPV is negative, estimate whether the intangible benefits are worth at least the amount of the negative NPV.
a. 1
b. 2
c. 3
d. both 2 and 3 are correct.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

85. All of the following statements about intangible benefits in capital budgeting are correct except that they
a. include increased quality and employee loyalty.
b. are difficult to quantify.
c. are often ignored in capital budgeting decisions.
d. cannot be incorporated into the NPV calculation.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

86. In evaluating high-tech projects,
a. only tangible benefits should be considered.
b. only intangible benefits should be considered.
c. both tangible and intangible benefits should be considered.
d. neither tangible nor intangible benefits should be considered.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

87. Using a number of outcome estimates to get a sense of the variability among potential returns is
a. financial analysis.
b. post-audit analysis.
c. sensitivity analysis.
d. outcome analysis.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

88. If a company’s required rate of return is 9%, and in using the profitability index method, a project’s index is greater than 1, this indicates that the project’s rate of return is
a. equal to 9%.
b. greater than 9%.
c. less than 9%.
d. unacceptable for investment purposes.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

89. The profitability index is computed by dividing the
a. total cash flows by the initial investment.
b. present value of cash flows by the initial investment.
c. initial investment by the total cash flows.
d. initial investment by the present value of cash flows.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

90. The capital budgeting method that takes into account both the size of the original investment and the discounted cash flows is the
a. cash payback method.
b. internal rate of return method.
c. net present value method.
d. profitability index.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

91. The profitability index
a. does not take into account the discounted cash flows.
b. is calculated by dividing total cash flows by the initial investment.
c. allows comparison of the relative desirability of projects that require differing initial investments.
d. will never be greater than 1.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

92. The capital budgeting method that allows comparison of the relative desirability of projects that require differing initial investments is the
a. cash payback method.
b. internal rate of return method.
c. net present value method.
d. profitability index.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

93. The following information is available for a potential investment for Panda Company:
Initial investment $95,000
Net annual cash inflow 20,000
Net present value 36,224
Salvage value 10,000
Useful life 10 yrs.
The potential investment’s profitability index is
a. 4.75.
b. 3.22.
c. 2.62.
d. 1.38.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

94. An approach that uses a number of outcome estimates to get a sense of the variability among potential returns is
a. the discounted cash flow technique.
b. the net present value method.
c. risk analysis.
d. sensitivity analysis.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

95. If a project’s profitability index is greater than 1, then the
a. project should always be accepted.
b. project’s net present value is negative.
c. project’s internal rate of return is less than the discount rate.
d. project should be accepted if funds are available.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

96. If a project’s profitability index is less than 1, then
a. its net present value is zero.
b. its net present value is positive.
c. it should be rejected.
d. its internal rate of return is greater than the discount rate.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

97. If a project’s profitability index is equal to 1, then
a. its net present value is zero.
b. its net present value is positive.
c. it should be rejected.
d. its internal rate of return is greater than the discount rate.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

98. A project with an initial investment of $70,000 and a profitability index of 1.239 also has an internal rate of return of 12%. The present value of net cash flows is
a. $78,400.
b. $86,730.
c. $56,497.
d. $70,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

99. A project with a profitability index of 1.156 also has net cash flows with a present value of $69,360. The project’s internal rate of return was 10%. The initial investment was
a. $66,000.
b. $80,180.
c. $60,000.
d. $62,424.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

Use the following information for questions 100 and 101.

Selma Inc. is comparing several alternative capital budgeting projects as shown below:
Projects
A B C
Initial investment $80,000 $120,000 $160,000
Present value of net cash flows 90,000 110,000 200,000

100. Using the profitability index, the projects rank as
a. A, C, B.
b. A, B, C.
c. C, A, B.
d. C, B, A.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

101. Using the profitability index, how many of the projects are acceptable?
a. 3
b. 2
c. 1
d. 0

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

102. If a project has a negative net present value, its profitability index will be
a. one.
b. greater than one.
c. less than one.
d. undeterminable.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

103. If a project has a positive net present value, its profitability index will be
a. one.
b. greater than one.
c. less than one.
d. undeterminable.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

104. If a project has a zero net present value, its profitability index will be
a. one.
b. greater than one.
c. less than one.
d. undeterminable.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

105. If a project has a profitability index of 1.20, then the project’s internal rate of return is
a. equal to the discount rate.
b. less than the discount rate.
c. greater than the discount rate.
d. equal to 20%.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics
106.
Cleaners, Inc. is considering purchasing equipment costing $60,000 with a 6-year useful life. The equipment will provide cost savings of $14,600 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return.
Present Value of an Annuity of 1
Period 8% 9% 10% 11% 12% 15%
6 4.623 4.486 4.355 4.231 4.111 3.784

What is the approximate net present value of this investment?
a. $27,600
b. $3,583
c. $1,772
d. $5,496

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

107.
Cleaners, Inc. is considering purchasing equipment costing $60,000 with a 6-year useful life. The equipment will provide cost savings of $14,600 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return.
Present Value of an Annuity of 1
Period 8% 9% 10% 11% 12% 15%
6 4.623 4.486 4.355 4.231 4.111 3.784
What is the approximate profitability index associated with this equipment?
a. 1.23
b. 1.03
c. 1.06
d. .73

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

108.
Cleaners, Inc. is considering purchasing equipment costing $60,000 with a 6-year useful life. The equipment will provide cost savings of $14,600 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return.
Present Value of an Annuity of 1
Period 8% 9% 10% 11% 12% 15%
6 4.623 4.486 4.355 4.231 4.111 3.784

What is the approximate internal rate of return for this investment?
a. 9%
b. 10%
c. 11%
d. 12%

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

109.

Present Value of an Annuity of 1
Periods 8% 9% 10%
1 .926 .917 .909
2 1.783 1.759 1.736
3 2.577 2.531 2.487

A company has a minimum required rate of return of 9%. It is considering investing in a project that costs $210,000 and is expected to generate cash inflows of $84,000 at the end of each year for three years. The net present value of this project is
a. $212,604.
b. $42,000.
c. $21,261.
d. $2,604.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

110.
Present Value of an Annuity of 1
Periods 8% 9% 10%
1 .926 .917 .909
2 1.783 1.759 1.736
3 2.577 2.531 2.487

A company has a minimum required rate of return of 10%. It is considering investing in a project that costs $50,000 and is expected to generate cash inflows of $25,000 at the end of each year for three years. The profitability index for this project is
a. .80.
b. 1.00.
c. 1.24.
d. 1.27.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

111.
Present Value of an Annuity of 1
Periods 8% 9% 10%
1 .926 .917 .909
2 1.783 1.759 1.736
3 2.577 2.531 2.487

A company has a minimum required rate of return of 8%. It is considering investing in a project that costs $91,116 and is expected to generate cash inflows of $36,000 each year for three years. The approximate internal rate of return on this project is
a. 8%.
b. 9%.
c. 10%.
d. less than the required 8%.

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

112.
Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below:
Project Soup Project Nuts
Initial investment $400,000 $600,000
Annual net income 30,000 46,000
Net annual cash inflow 110,000 146,000
Estimated useful life 5 years 6 years
Salvage value -0- -0-

The company requires a 10% rate of return on all new investments.
Present Value of an Annuity of 1
Periods 9% 10% 11% 12%
5 3.890 3.791 3.696 3.605
6 4.486 4.355 4.231 4.111

The cash payback period for Project Soup is
a. 13.3 years.
b. 6.7 years.
c. 5.0 years.
d. 4.1 years.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

113.
Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below:
Project Soup Project Nuts
Initial investment $400,000 $600,000
Annual net income 30,000 46,000
Net annual cash inflow 110,000 146,000
Estimated useful life 5 years 6 years
Salvage value -0- -0-

The company requires a 10% rate of return on all new investments.
Present Value of an Annuity of 1
Periods 9% 10% 11% 12%
5 3.890 3.791 3.696 3.605
6 4.486 4.355 4.231 4.111

The net present value for Project Nuts is
a. $635,830.
b. $200,330.
c. $100,000.
d. $35,830.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

114.
Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below:
Project Soup Project Nuts
Initial investment $400,000 $600,000
Annual net income 30,000 46,000
Net annual cash inflow 110,000 146,000
Estimated useful life 5 years 6 years
Salvage value -0- -0-

The company requires a 10% rate of return on all new investments.
Present Value of an Annuity of 1
Periods 9% 10% 11% 12%
5 3.890 3.791 3.696 3.605
6 4.486 4.355 4.231 4.111

The internal rate of return for Project Nuts is approximately
a. 11%.
b. 12%.
c. 10%.
d. 9%.

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

115.

Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below:
Project Soup Project Nuts
Initial investment $400,000 $600,000
Annual net income 30,000 46,000
Net annual cash inflow 110,000 146,000
Estimated useful life 5 years 6 years
Salvage value -0- -0-

The company requires a 10% rate of return on all new investments.
Present Value of an Annuity of 1
Periods 9% 10% 11% 12%
5 3.890 3.791 3.696 3.605
6 4.486 4.355 4.231 4.111

The annual rate of return for Project Soup is
a. 7.5%.
b. 15.0%.
c. 27.5%.
d. 55%.

Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

116. A post-audit should be performed using
a. a different evaluation technique than that used in making the original decision.
b. the same evaluation technique used in making the original decision.
c. estimated amounts instead of actual figures.
d. an independent CPA.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

117. A thorough evaluation of how well a project’s actual performance matches the projections made when the project was proposed is called a
a. pre-audit.
b. post-audit.
c. risk analysis.
d. sensitivity analysis.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

118. Performing a post-audit is important because
a. managers will be more likely to submit reasonable data when they make investment proposals if they know their estimates will be compared to actual results.
b. it provides a formal mechanism by which the company can determine whether existing projects should be terminated.
c. it improves the development of future investment proposals because managers improve their estimation techniques by evaluating their past successes and failures.
d. all of these.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

119. A capital budgeting method that takes into consideration the time value of money is the
a. annual rate of return method.
b. return on stockholders’ equity method.
c. cash payback technique.
d. internal rate of return method.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

120. The internal rate of return is the interest rate that results in a
a. positive NPV.
b. negative NPV.
c. zero NPV.
d. positive or negative NPV.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

121. In using the internal rate of return method, the internal rate of return factor was 4.0 and the equal annual cash inflows were $18,000. The initial investment in the project must have been
a. $18,000.
b. $4,500.
c. $72,000.
d. $36,000.

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

122. The capital budgeting technique that finds the interest yield of the potential investment is the
a. annual rate of return method.
b. internal rate of return method.
c. net present value method.
d. profitability index method.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

123. All of the following statements about the internal rate of return method are correct except that it
a. recognizes the time value of money.
b. is widely used in practice.
c. is easy to interpret.
d. can be used only when the cash inflows are equal.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

124. If the internal rate of return is used as the discount rate in the net present value calcula-tion, the net present value will be
a. zero.
b. positive.
c. negative.
d. undeterminable.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

125. If a project costing $80,000 has a profitability index of 1.00 and the discount rate was 12%, then the present value of the net cash flows was
a. $80,000.
b. less than $80,000.
c. greater than $80,000.
d. undeterminable.

Ans: LO: 7, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

126. If a project costing $40,000 has a profitability index of 1.00 and the discount rate was 8%, then the project’s internal rate of return was
a. less than 8%.
b. equal to 8%.
c. greater than 8%.
d. undeterminable.

Ans: LO: 7, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

127. The internal rate of return factor is equal to the
a. capital investment divided by the net cash flows.
b. present value of net cash flows divided by the capital investment.
c. present value of net cash flows divided by the profitability index.
d. capital investment divided by the present value of the net cash flows.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

128. If a 2-year capital project has an internal rate of return factor equal to 1.690 and net annual cash flows of $60,000, the initial capital investment was
a. $101,400.
b. $35,503.
c. $50,700.
d. $71,007.

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

129. If a 3-year capital project costing $77,310 has an internal rate of return factor equal to 2.577, the net annual cash flows assuming straight-line depreciation are
a. $25,770.
b. $30,000.
c. $10,000.
d. $38,655.

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

130. If the internal rate of return exceeds the discount rate, then the net present value of a project is
a. positive.
b. negative.
c. zero.
d. one.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

131. If the internal rate of return is less than the discount rate, then the net present value of a project is
a. positive.
b. negative.
c. zero.
d. one.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

132. If a project has a negative net present value, the internal rate of return will be
a. less than the discount rate.
b. greater than the discount rate.
c. equal to the discount rate.
d. a negative rate of return.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

133. If a project has a zero net present value, then the internal rate of return will be
a. less than the discount rate.
b. greater than the discount rate.
c. equal to the discount rate.
d. a negative rate of return.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

134. Which of the following will cause the internal rate of return to increase?
a. An increase in the annual cash inflows
b. A decrease in the annual cash inflows
c. An increase in the discount rate
d. A decrease in the discount rate

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

135. If project A has a lower internal rate of return than project B, then project A will have a
a. lower NPV and a shorter payback period.
b. higher NPV and a longer payback period.
c. lower NPV and a longer payback period.
d. higher NPV and a shorter payback period.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

136. The internal rate of return factor is also the
a. annual rate of return.
b. profitability index.
c. cash payback period.
d. present value factor for a single amount.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

137. Use the following table,
Present Value of an Annuity of 1
Period 8% 9% 10%
1 .926 .917 .909
2 1.783 1.759 1.736
3 2.577 2.531 2.487

A company has a minimum required rate of return of 8%. It is considering investing in a project that costs $379,650 and is expected to generate cash inflows of $150,000 each year for three years. The approximate internal rate of return on this project is
a. 8%.
b. 9%.
c. 10%.
d. The IRR on this project cannot be approximated.

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

138. A company is considering purchasing a machine that costs $280,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the machine is purchased, annual revenues are expected to be $100,000 and annual operating expenses exclusive of depreciation expense are expected to be $38,000. The straight-line method of depreciation would be used.

If the machine is purchased, the annual rate of return expected on this machine is
a. 22.1%.
b. 44.3%.
c. 9.6%.
d. 19.3%.

Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

139. A company projects an increase in net income of $135,000 each year for the next five years if it invests $900,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $300,000. What is the annual rate of return on this investment?
a. 15.0%
b. 22.5%
c. 30.0%
d. 34.5%

Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

140. Garza Company is considering buying equipment for $320,000 with a useful life of five years and an estimated salvage value of $16,000. If annual expected income is $28,000, the denominator in computing the annual rate of return is
a. $320,000.
b. $160,000.
c. $168,000.
d. $336,000.

Ans: LO: 8, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

141. Mussina Company had an investment which cost $250,000 and had a salvage value at the end of its useful life of zero. If Mussina’s expected annual net income is $15,000, the annual rate of return is:
a. 6.0%.
b. 10.2%.
c. 12.0%.
d. 15.0%.

Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

142. Discounted cash flow techniques include all of the following except
a. profitability index.
b. annual rate of return.
c. internal rate of return.
d. net present value.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

143. Which of the following is based directly on accrual accounting data rather than cash flows?
a. Profitability index
b. Internal rate of return
c. Net present value
d. Annual rate of return

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

144. When calculating the annual rate of return, the average investment is equal to
a. (initial investment plus $0) divided by 2.
b. initial investment divided by life of project.
c. initial investment divided by 2.
d. (initial investment plus salvage value) divided by 2.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

145. A project has an annual rate of return of 15%. The project cost $120,000, has a 5-year useful life, and no salvage value. Straight-line depreciation is used. The annual net income, exclusive of depreciation, was
a. $42,000.
b. $33,000.
c. $47,700.
d. $18,000.

Ans: LO: 8, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

146. A project that cost $75,000 has a useful life of 5 years and a salvage value of $3,000. The internal rate of return is 12% and the annual rate of return is 18%. The amount of the annual net income was
a. $7,020.
b. $6,480.
c. $4,680.
d. $4,320.

Ans: LO: 8, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

147. A project has annual income exclusive of depreciation of $80,000. The annual rate of return is 15% and annual depreciation is $20,000. There is no salvage value. The internal rate of return is 12%. The initial cost of the project was
a. $400,000.
b. $500,000.
c. $1,000,000.
d. $800,000.

Ans: LO: 8, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

148. A project that cost $80,000 with a useful life of 5 years is being considered. Straight-line depreciation is being used and salvage value is $5,000. The project will generate annual cash flows of $21,375. The annual rate of return is
a. 15%.
b. 50.3%.
c. 16%.
d. 17%.

Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

Use the following information for questions 149 and 150.

A company is considering purchasing factory equipment that costs $480,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the equipment is purchased, annual revenues are expected to be $135,000 and annual operating expenses exclusive of depreciation expense are expected to be $39,000. The straight-line method of depreciation would be used.

149. If the equipment is purchased, the annual rate of return expected on this equipment is
a. 40.0%.
b. 7.5%.
c. 15.0%.
d. 20.0%.

Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

150. The cash payback period on the equipment is
a. 13.3 years.
b. 8.0 years.
c. 5.0 years.
d. 2.5 years.

Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

151. The capital budgeting technique that indicates the profitability of a capital expenditure is the
a. profitability index method.
b. net present value method.
c. internal rate of return method.
d. annual rate of return method.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

152. The annual rate of return method is based on
a. accounting data.
b. the time value of money data.
c. market values.
d. cash flow data.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

153. Disadvantages of the annual rate of return method include all of the following except that
a. it relies on accrual accounting numbers instead of actual cash flows.
b. it does not consider the time value of money.
c. no consideration is given as to when the cash inflows occur.
d. management is unfamiliar with the information used in the computation.

Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

154. A company projects an increase in net income of $30,000 each year for the next five years if it invests $300,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $100,000. What is the annual rate of return on this investment?
a. 10%
b. 15%
c. 20%
d. 25%

Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

155. Colaw Company is considering buying equipment for $240,000 with a useful life of five years and an estimated salvage value of $12,000. If annual expected income is $21,000, the denominator in computing the annual rate of return is
a. $240,000.
b. $120,000.
c. $126,000.
d. $252,000.

Ans: LO: 8, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

156. The annual rate of return is computed by dividing expected annual
a. cash inflows by average investment.
b. net income by average investment.
c. cash inflows by original investment.
d. net income by original investment.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

157. All of the following statements about the annual rate of return method are correct except that it
a. indicates the profitability of a capital expenditure.
b. ignores the salvage value of an investment.
c. does not consider the time value of money.
d. compares the annual rate of return to management’s minimum rate of return.

Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

ACC 560 Week 9 Homework Problems – Strayer University NEW

ACC/560 Week 9 Homework Problems – Strayer NEW

Click On The Link Below to Purchase A+ Graded Material
Instant Download

http://budapp.net/ACC-560-Week-9-Homework-Problems-Strayer-NEW-ACC560W9HP.htm

 

Week 9
Homework
o Chapter 13: Exercise 1, 3, 5, and 8; Problems 2 and 5

ACC 560 Week 1 Homework Problems

ACC 560 Week 2 Homework Problems

ACC 560 Week 3 Homework Problems

ACC 560 Week 4 Homework Problems

ACC 560 Week 5 Homework Problems

ACC 560 Week 6 Homework Problems

ACC 560 Week 7 Homework Problems

ACC 560 Week 8 Homework Problems

ACC 560 Week 9 Homework Problems

ACC 560 Week 10 Homework Problems

ACC 560 Problems, Homework problems
Strayer acc560 homework
We have ACC 560 Assignment
ACC 560 Quiz
ACC 560 Final Exam
ACC 560 Midterm Exam
ACC 560 complete class solution
ACC 560 Week

ACC 560 Week 9 Assignment 2 – Strayer University NEW

ACC/560 Week 9 Assignment 2 – Strayer NEW

Click On The Link Below to Purchase A+ Graded Material
Instant Download

http://budapp.net/ACC-560-Assignment-2-Strayer-NEW-ACC560A2.htm

 

Assignment 2 – Johnson Controls Capital Investments

Visit the Website of Johnson Controls Inc., located at http://www.johnsoncontrols.com, and review its 2012 financial forecasts. According to the forecasts, Johnson Controls will increase Capital Investment to approximately $1.7 billion. More than 70% of the company’s capital expenditures in 2012 are associated with growth and margin expansion opportunities.

Write a five to six (5-6) page paper in which you:

1. Suggest a methodology to supplement the traditional methods for evaluating the Capital Investment of Johnson Controls in the emerging markets reduce risk providing a rationale of how risk will be reduced.

2. Assess the potential impact of inflation on planned capital investments in China and examine approaches for an accurate evaluation of the investments. Suggest how this knowledge may impact management’s decisions.

3. Contrast the modifications you would make in evaluating the projects to increase internal capacity in North America to evaluating expansion projects in the global market and how this information will impact the decisions made related to expansion.

4. Examine the benefits of using sensitivity analysis in evaluating the projects for Johnson Controls and how this approach can provide a competitive advantage for the company.

5. Use at least three (3) quality academic resources in this assignment. Note: Wikipedia and other Websites do not quality as academic resources.

Your assignment must follow these formatting requirements:
· Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

· Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

ACC 560 Week 8 Quiz – Strayer University NEW

ACC/560 Week 8 Quiz – Strayer NEW
Click On The Link Below to Purchase A+ Graded Material
Instant Download

http://budapp.net/ACC-560-Week-8-Quiz-Strayer-NEW-ACC560W8Q.htm

 

Week 8 Quiz 7: Chapter 11

TRUE-FALSE STATEMENTS
1. Inventories cannot be valued at standard cost in financial statements.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

2. Standard cost is the industry average cost for a particular item.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

3. A standard is a unit amount, whereas a budget is a total amount.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

4. Standard costs may be incorporated into the accounts in the general ledger.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

5. An advantage of standard costs is that they simplify costing of inventories and reduce clerical costs.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

6. Setting standard costs is relatively simple because it is done entirely by accountants.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: None, IMA: Cost Management

7. Normal standards should be rigorous but attainable.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

8. Actual costs that vary from standard costs always indicate inefficiencies.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

9. Ideal standards will generally result in favorable variances for the company.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

10. Normal standards incorporate normal contingencies of production into the standards.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

11. Once set, normal standards should not be changed during the year.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

12. In developing a standard cost for direct materials, a price factor and a quantity factor must be considered.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

13. A direct labor price standard is frequently called the direct labor efficiency standard.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

14. The standard predetermined overhead rate must be based on direct labor hours as the standard activity index.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

15. Standard cost cards are the subsidiary ledger for the Work in Process account in a standard cost system.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

16. A variance is the difference between actual costs and standard costs.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

17. If actual costs are less than standard costs, the variance is favorable.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

18. A materials quantity variance is calculated as the difference between the standard direct materials price and the actual direct materials price multiplied by the actual quantity of direct materials used.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

19. An unfavorable labor quantity variance indicates that the actual number of direct labor hours worked was greater than the number of direct labor hours that should have been worked for the output attained.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

20. Standard cost + price variance + quantity variance = Budgeted cost.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

21. The overhead controllable variance relates primarily to fixed overhead costs.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

22. The overhead volume variance relates only to fixed overhead costs.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

23. If production exceeds normal capacity, the overhead volume variance will be favorable.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

24. There could be instances where the production department is responsible for a direct materials price variance.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

25. The starting point for determining the causes of an unfavorable materials price variance is the purchasing department.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

26. The total overhead variance is the difference between actual overhead costs and overhead costs applied to work done.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

27. Variance analysis facilitates the principle of “management by exception.”

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

28. A credit to a Materials Quantity Variance account indicates that the actual quantity of direct materials used was greater than the standard quantity of direct materials allowed.

Ans: LO: 9, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

29. A standard cost system may be used with a job order cost system but not with a process cost system.

Ans: LO: 9, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

30. A debit to the Overhead Volume Variance account indicates that the standard hours allowed for the output produced was greater than the standard hours at normal capacity.

Ans: LO: 9, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

31. In concept, standards and budgets are essentially the same.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

32. Standards may be useful in setting selling prices for finished goods.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

33. The materials price standard is based on the purchasing department’s best estimate of the cost of raw materials.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

34. The materials price variance is normally caused by the production department.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

35. The use of an inexperienced worker instead of an experienced employee can result in a favorable labor price variance but probably an unfavorable quantity variance.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

36. In using variance reports, top management normally looks carefully at every variance.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

37. The use of standard costs in inventory costing is prohibited in financial statements.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a38. The overhead controllable variance is the difference between the actual overhead costs incurred and the budgeted costs for the standard hours allowed.

Ans: LO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

MULTIPLE CHOICE QUESTIONS
39. What is a standard cost?
a. The total number of units times the budgeted amount expected
b. Any amount that appears on a budget
c. The total amount that appears on the budget for product costs
d. The amount management thinks should be incurred to produce a good or service

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

40. A standard cost is
a. a cost which is paid for a group of similar products.
b. the average cost in an industry.
c. a predetermined cost.
d. the historical cost of producing a product last year.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

41. The difference between a budget and a standard is that
a. a budget expresses what costs were, while a standard expresses what costs should be.
b. a budget expresses management’s plans, while a standard reflects what actually happened.
c. a budget expresses a total amount, while a standard expresses a unit amount.
d. standards are excluded from the cost accounting system, whereas budgets are generally incorporated into the cost accounting system.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

42. Standard costs may be used by
a. universities.
b. governmental agencies.
c. charitable organizations.
d. all of these.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

43. Which of the following statements is false?
a. A standard cost is more accurate than a budgeted cost.
b. A standard is a unit amount.
c. In concept, standards and budgets are essentially the same.
d. The standard cost of a product is equivalent to the budgeted cost per unit of product.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

44. Budget data are not journalized in cost accounting systems with the exception of
a. the application of manufacturing overhead.
b. direct labor budgets.
c. direct materials budgets.
d. cash budget data.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Budget Preparation

45. It is possible that a company’s financial statements may report inventories at
a. budgeted costs.
b. standard costs.
c. both budgeted and standard costs.
d. none of these.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

46. A standard differs from a budget because a standard
a. is a predetermined cost.
b. contributes to management planning and control.
c. is a unit amount.
d. none of the above; a standard does not differ from a budget.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

47. Marburg Co. expects direct materials cost of $6 per unit for 100,000 units (a total of $600,000 of direct materials costs). Marburg’s standard direct materials cost and budgeted direct materials cost is
Standard Budgeted
a. $6 per unit $600,000 per year
b. $6 per unit $6 per unit
c. $600,000 per year $6 per unit
d. $600,000 per year $600,000 per year

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

48. Using standard costs
a. makes employees less “cost-conscious.”
b. provides a basis for evaluating cost control.
c. makes management by exception more difficult.
d. increases clerical costs.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

49. Using standard costs
a. can make management planning more difficult.
b. promotes greater economy.
c. does not help in setting prices.
d. weakens management control.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

50. If standard costs are incorporated into the accounting system,
a. it may simplify the costing of inventories and reduce clerical costs.
b. it can eliminate the need for the budgeting process.
c. the accounting system will produce information which is less relevant than the historical cost accounting system.
d. approval of the shareholders is required.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

51. Standard costs
a. may show past cost experience.
b. help establish expected future costs.
c. are the budgeted cost per unit in the present.
d. all of these.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

52. Which of the following statements about standard costs is false?
a. Properly set standards should promote efficiency.
b. Standard costs facilitate management planning.
c. Standards should not be used in “management by exception.”
d. Standard costs can simplify the costing of inventories.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

53. Which of the following is not considered an advantage of using standard costs?
a. Standard costs can reduce clerical costs.
b. Standard costs can be useful in setting prices for finished goods.
c. Standard costs can be used as a means of finding fault with performance.
d. Standard costs can make employees “cost-conscious.”

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

54. If a company is concerned with the potential negative effects of establishing standards, it should
a. set loose standards that are easy to fulfill.
b. offer wage incentives to those meeting standards.
c. not employ any standards.
d. set tight standards in order to motivate people.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

55. A standard which represents an efficient level of performance that is attainable under expected operating conditions is called a(n)
a. ideal standard.
b. loose standard.
c. tight standard.
d. normal standard.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

56. Ideal standards
a. are rigorous but attainable.
b. are the standards generally used in a master budget.
c. reflect optimal performance under perfect operating conditions.
d. will always motivate employees to achieve the maximum output.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

57. The final decision as to what standard costs should be is the responsibility of
a. the quality control engineer.
b. the managerial accountants.
c. the purchasing agent.
d. management.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

58. The labor time requirements for standards may be determined by the
a. sales manager.
b. product manager.
c. industrial engineers.
d. payroll department manager.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

59. The two levels that standards may be set at are
a. normal and fully efficient.
b. normal and ideal.
c. ideal and less efficient.
d. fully efficient and fully effective.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

60. The most rigorous of all standards is the
a. normal standard.
b. realistic standard.
c. ideal standard.
d. conceivable standard.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

61. Most companies that use standards set them at
a. the normal level.
b. a conceivable level.
c. the ideal level.
d. last year’s level.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

62. A managerial accountant
1. does not participate in the standard setting process.
2. provides knowledge of cost behaviors in the standard setting process.
3. provides input of historical costs to the standard setting process.
a. 1
b. 2
c. 3
d. 2 and 3

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

63. The cost of freight-in
a. is to be included in the standard cost of direct materials.
b. is considered a selling expense.
c. should have a separate standard apart from direct materials.
d. should not be included in a standard cost system.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

64. The direct materials quantity standard would not be expressed in
a. pounds.
b. barrels.
c. dollars.
d. board feet.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

65. The direct materials quantity standard should
a. exclude unavoidable waste.
b. exclude quality considerations.
c. allow for normal spoilage.
d. always be expressed as an ideal standard.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

66. The direct labor quantity standard is sometimes called the direct labor
a. volume standard.
b. effectiveness standard.
c. efficiency standard.
d. quality standard.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

67. A manufacturing company would include setup and downtime in their direct
a. materials price standard.
b. materials quantity standard.
c. labor price standard.
d. labor quantity standard.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

68. Allowance for spoilage is part of the direct
a. materials price standard.
b. materials quantity standard.
c. labor price standard.
d. labor quantity standard.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

69. The total standard cost to produce one unit of product is shown
a. at the bottom of the income statement.
b. at the bottom of the balance sheet.
c. on the standard cost card.
d. in the Work in Process Inventory account.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

70. An unfavorable materials quantity variance would occur if
a. more materials were purchased than were used.
b. actual pounds of materials used were less than the standard pounds allowed.
c. actual labor hours used were greater than the standard labor hours allowed.
d. actual pounds of materials used were greater than the standard pounds allowed.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

71. Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and fringe benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance for rest periods and setup is .2 hours and .1 hours, respectively. The standard direct materials price per pound is
a. $1.96.
b. $2.00.
c. $2.13
d. $2.17

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

72. Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and fringe benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance for rest periods and setup is .2 hours and .1 hours, respectively. The standard direct materials quantity per unit is
a. 2.6 pounds.
b. 2.7 pounds.
c. 2.9 pounds.
d. 3.0 pounds.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

73. Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and fringe benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance for rest periods and setup is .2 hours and .1 hours, respectively. The standard direct labor rate per hour is
a. $ 12.00.
b. $ 12.30.
c. $15.60.
d. $15.90.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

74. Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and fringe benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance for rest periods and setup is .2 hours and .1 hours, respectively. The standard direct labor hours per unit is
a. 1 hour.
b. 1.1 hours.
c. 1.2 hours.
d. 1.3 hours.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

75. The standard direct materials quantity does not include allowances for
a. unavoidable waste.
b. normal spoilage.
c. unexpected spoilage.
d. all of the above are included.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

76. Allowances should not be made in the direct labor quantity standard for
a. wasted time.
b. rest periods.
c. cleanup.
d. machine downtime.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

77. The standard predetermined overhead rate used in setting the standard overhead cost is determined by dividing
a. budgeted overhead costs by an expected standard activity index.
b. actual overhead costs by an expected standard activity index.
c. budgeted overhead costs by actual activity.
d. actual overhead costs by actual activity.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

78. Hofburg’s standard quantities for 1 unit of product include 2 pounds of materials and 1.5 labor hours. The standard rates are $2 per pound and $7 per hour. The standard overhead rate is $8 per direct labor hour. The total standard cost of Hofburg’s product is
a. $14.50.
b. $17.00.
c. $22.50.
d. $26.50.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

79. Which of the following statements is true?
a. Variances are the differences between total actual costs and total standard costs.
b. When actual costs exceed standard costs, the variance is favorable.
c. An unfavorable variance results when actual costs are decreasing but standards are not changed.
d. All of the above are true.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

80. Unfavorable materials price and quantity variances are generally the responsibility of the
Price Quantity
a. Purchasing department Purchasing Department
b. Purchasing department Production Department
c. Production department Production Department
d. Production Department Purchasing Department

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

81. Scorpion Production Company planned to use 1 yard of plastic per unit budgeted at $81 a yard. However, the plastic actually cost $80 per yard. The company actually made 3,900 units, although it had planned to make only 3,300 units. Total yards used for production were 3,960. How much is the total materials variance?
a. $48,600 U
b. $4,860 U
c. $3,960 F
d. $900 U

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

82. If actual direct materials costs are greater than standard direct materials costs, it means that
a. actual costs were calculated incorrectly.
b. the actual unit price of direct materials was greater than the standard unit price of direct materials.
c. the actual unit price of raw materials or the actual quantities of raw materials used was greater than the standard unit price or standard quantities of raw materials expected.
d. the purchasing agent or the production foreman is inefficient.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

83. If actual costs are greater than standard costs, there is a(n)
a. normal variance.
b. unfavorable variance.
c. favorable variance.
d. error in the accounting system.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

84. A total materials variance is analyzed in terms of
a. price and quantity variances.
b. buy and sell variances.
c. quantity and quality variances.
d. tight and loose variances.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

85. A company developed the following per-unit standards for its product: 2 pounds of direct materials at $4 per pound. Last month, 1,500 pounds of direct materials were purchased for $5,700. The direct materials price variance for last month was
a. $5,700 favorable.
b. $300 favorable.
c. $150 favorable.
d. $300 unfavorable.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management
86. The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month, 11,200 gallons of direct materials that actually cost $42,400 were used to produce 6,000 units of product. The direct materials quantity variance for last month was
a. $3,200 favorable.
b. $2,400 favorable.
c. $3,200 unfavorable.
d. $5,600 unfavorable.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

87. The purchasing agent of the Poplin, Inc. ordered materials of lower quality in an effort to economize on price. What variance will most likely result?
a. Favorable materials quantity variance
b. Favorable total materials variance
c. Unfavorable materials price variance
d. Unfavorable labor quantity variance

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

88. The per-unit standards for direct labor are 2 direct labor hours at $15 per hour. If in producing 1,800 units, the actual direct labor cost was $48,000 for 3,000 direct labor hours worked, the total direct labor variance is
a. $1,800 unfavorable.
b. $6,000 favorable.
c. $3,750 unfavorable.
d. $6,000 unfavorable.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

89. The standard rate of pay is $20 per direct labor hour. If the actual direct labor payroll was $117,600 for 6,000 direct labor hours worked, the direct labor price (rate) variance is
a. $2,400 unfavorable.
b. $2,400 favorable.
c. $3,000 unfavorable.
d. $3,000 favorable.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

90. The standard number of hours that should have been worked for the output attained is 6,000 direct labor hours and the actual number of direct labor hours worked was 6,300. If the direct labor price variance was $3,150 unfavorable, and the standard rate of pay was $9 per direct labor hour, what was the actual rate of pay for direct labor?
a. $8.50 per direct labor hour
b. $7.50 per direct labor hour
c. $9.50 per direct labor hour
d. $9.00 per direct labor hour

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

91. Which one of the following statements is true?
a. If the materials price variance is unfavorable, then the materials quantity variance must also be unfavorable.
b. If the materials price variance is unfavorable, then the materials quantity variance must be favorable.
c. Price and quantity variances move in the same direction. If one is favorable, the others will be as well.
d. There is no correlation of favorable or unfavorable for price and quantity variances.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

92. Variances from standards are
a. expressed in total dollars.
b. expressed on a per-unit basis.
c. expressed on a percentage basis.
d. all of these.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

93. A favorable variance
a. is an indication that the company is not operating in an optimal manner.
b. implies a positive result if quality control standards are met.
c. implies a positive result if standards are flexible.
d. means that standards are too loosely specified.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

94. The total materials variance is equal to the
a. materials price variance.
b. difference between the materials price variance and materials quantity variance.
c. product of the materials price variance and the materials quantity variance.
d. sum of the materials price variance and the materials quantity variance.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

95. Information on Jayhawk’s direct labor costs for the month of August is as follows:
Actual rate $10
Standard hours 11,000
Actual hours 10,000
Direct labor price variance—unfavorable $4,000
What was the standard rate for August?
a. $9.96 c. $10.40
b. $9.60 d. $10.04

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

96. The total variance is $35,000. The total materials variance is $14,000. The total labor variance is twice the total overhead variance. What is the total overhead variance?
a. $3,500
b. $7,000
c. $10,500
d. $14,000

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

97. The formula for the materials price variance is
a. (AQ × SP) – (SQ × SP).
b. (AQ × AP) – (AQ × SP).
c. (AQ × AP) – (SQ × SP).
d. (AQ × SP) – (SQ × AP).

Ans: LO: 4, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

98. The formula for the materials quantity variance is
a. (SQ × AP) – (SQ × SP).
b. (AQ × AP) – (AQ × SP).
c. (AQ × SP) – (SQ × SP).
d. (AQ × AP) – (SQ × SP).

Ans: LO: 4, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

99. A company uses 8,400 pounds of materials and exceeds the standard by 300 pounds. The quantity variance is $1,800 unfavorable. What is the standard price?
a. $2
b. $4
c. $6
d. Cannot be determined from the data provided.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

100. A company purchases 20,000 pounds of materials. The materials price variance is $4,000 favorable. What is the difference between the standard and actual price paid for the materials?
a. $1.00
b. $0.20
c. $5.00
d. Cannot be determined from the data provided.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

101. A company uses 20,000 pounds of materials for which it paid $6.00 a pound. The materials price variance was $15,000 unfavorable. What is the standard price per pound?
a. $0.75
b. $5.25
c. $6.00
d. $6.75

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

102. If the materials price variance is $3,600 F and the materials quantity and labor variances are each $2,700 U, what is the total materials variance?
a. $3,600 F
b. $2,700 U
c. $900 F
d. $4,050 U

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

103. Edgar, Inc. has a materials price standard of $2.00 per pound. Six thousand pounds of materials were purchased at $2.20 a pound. The actual quantity of materials used was 6,000 pounds, although the standard quantity allowed for the output was 5,400 pounds.

Edgar, Inc.’s materials price variance is
a. $120 U.
b. $1,200 U.
c. $1,080 U.
d. $1,200 F.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

104. Edgar, Inc. has a materials price standard of $2.00 per pound. Six thousand pounds of materials were purchased at $2.20 a pound. The actual quantity of materials used was 6,000 pounds, although the standard quantity allowed for the output was 5,400 pounds.

Edgar, Inc.’s materials quantity variance is
a. $1,200 U.
b. $1,200 F.
c. $1,320 F.
d. $1,320 U.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

105. Edgar, Inc. has a materials price standard of $2.00 per pound. Six thousand pounds of materials were purchased at $2.20 a pound. The actual quantity of materials used was 6,000 pounds, although the standard quantity allowed for the output was 5,400 pounds.

Edgar, Inc.’s total materials variance is
a. $2,400 U.
b. $2,400 F.
c. $2,520 U.
d. $2,520 F.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

106. The standard quantity allowed for the units produced was 4,500 pounds, the standard price was $2.50 per pound, and the materials quantity variance was $375 favorable. Each unit uses 1 pound of materials. How many units were actually produced?
a. 4,350
b. 4,500
c. 11,625
d. 4,650

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

107. The matrix approach to variance analysis
a. will yield slightly different variances than the formula approach.
b. is more accurate than the formula approach.
c. does not separate the price and quantity variance calculations.
d. provides a convenient structure for determining each variance.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

108. Labor efficiency is measured by the
a. materials quantity variance.
b. total labor variance.
c. labor quantity variance.
d. labor rate variance.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

109. An unfavorable labor quantity variance may be caused by
a. paying workers higher wages than expected.
b. misallocation of workers.
c. worker fatigue or carelessness.
d. higher pay rates mandated by union contracts.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

110. The investigation of materials price variance usually begins in the
a. first production department.
b. purchasing department.
c. controller’s office.
d. accounts payable department.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

111. The investigation of a materials quantity variance usually begins in the
a. production department.
b. purchasing department.
c. sales department.
d. controller’s department.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

112. If the labor quantity variance is unfavorable and the cause is inefficient use of direct labor, the responsibility rests with the
a. sales department.
b. production department.
c. budget office.
d. controller’s department.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

113. Monster Company produces a product requiring 3 direct labor hours at $16.00 per hour. During January, 2,000 products are produced using 6,300 direct labor hours. Monster’s actual payroll during January was $98,280. What is the labor quantity variance?
a. $2,280 U
b. $4,800 F
c. $2,520 F
d. $4,800 U

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

114. A company developed the following per-unit standards for its product: 2 gallons of direct materials at $8 per gallon. Last month, 3,000 gallons of direct materials were purchased for $22,800. The direct materials price variance for last month was
a. $22,800 favorable.
b. $600 favorable.
c. $1,200 favorable.
d. $1,200 unfavorable.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

115. The per-unit standards for direct materials are 2 pounds at $5 per pound. Last month, 11,200 pounds of direct materials that actually cost $53,000 were used to produce 6,000 units of product. The direct materials quantity variance for last month was
a. $4,000 favorable.
b. $3,000 favorable.
c. $4,000 unfavorable.
d. $7,000 unfavorable.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

116. The per-unit standards for direct labor are 1.5 direct labor hours at $15 per hour. If in producing 2,400 units, the actual direct labor cost was $46,000 for 3,000 direct labor hours worked, the total direct labor variance is
a. $2,400 unfavorable.
b. $8,000 favorable.
c. $5,000 unfavorable.
d. $8,000 unfavorable.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

117. The standard rate of pay is $12 per direct labor hour. If the actual direct labor payroll was $47,040 for 4,000 direct labor hours worked, the direct labor price (rate) variance is
a. $960 unfavorable.
b. $960 favorable.
c. $1,200 unfavorable.
d. $1,200 favorable.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

118. The standard number of hours that should have been worked for the output attained is 10,000 direct labor hours and the actual number of direct labor hours worked was 10,500. If the direct labor price variance was $10,500 unfavorable, and the standard rate of pay was $12 per direct labor hour, what was the actual rate of pay for direct labor?
a. $11 per direct labor hour
b. $9 per direct labor hour
c. $13 per direct labor hour
d. $12 per direct labor hour

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

119. A company purchases 12,000 pounds of materials. The materials price variance is $6,000 favorable. What is the difference between the standard and actual price paid for the materials?
a. $1.00
b. $.50
c. $2.00
d. $6.00

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

120. A company uses 40,000 gallons of materials for which they paid $7.00 a gallon. The materials price variance was $80,000 favorable. What is the standard price per gallon?
a. $2
b. $5
c. $7
d. $9

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

121. All Urban Company produces a product requiring 4 pounds of material costing $3.50 per pound. During December, All Urban purchased 4,200 pounds of material for $14,112 and used the material to produce 500 products. What was the materials price variance for December?
a. $560 F
b. $588 F
c. $112 U
d. $672 U

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

122. Shipp, Inc. manufactures a product requiring two pounds of direct material. During 2013, Shipp purchases 24,000 pounds of material for $99,200 when the standard price per pound is $4. During 2013, Shipp uses 22,000 pounds to make 12,000 products. The standard direct material cost per unit of finished product is
a. $8.27.
b. $9.01.
c. $8.00.
d. $8.53.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

123. Clark Company manufactures a product with a standard direct labor cost of two hours at $18.00 per hour. During July, 2,000 units were produced using 4,200 hours at $18.30 per hour. The labor quantity variance was
a. $3,660 F.
b. $3,600 U.
c. $2,460 U.
d. $3,660 U.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

124. Clark Company manufactures a product with a standard direct labor cost of two hours at $18.00 per hour. During July, 2,000 units were produced using 4,200 hours at $18.30 per hour. The labor price variance was
a. $1,260 U.
b. $4,860 U.
c. $4,860 F.
d. $3,600 U.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

125. A company developed the following per unit materials standards for its product: 3 pounds of direct materials at $5 per pound. If 12,000 units of product were produced last month and 37,500 pounds of direct materials were used, the direct materials quantity variance was
a. $4,500 favorable.
b. $7,500 unfavorable.
c. $4,500 unfavorable.
d. $7,500 favorable.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

126. The standard direct labor cost for producing one unit of product is 5 direct labor hours at a standard rate of pay of $20. Last month, 15,000 units were produced and 73,500 direct labor hours were actually worked at a total cost of $1,350,000. The direct labor quantity variance was
a. $30,000 unfavorable.
b. $45,000 unfavorable.
c. $45,000 favorable.
d. $30,000 favorable.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

127. Atkins, Inc. produces a product requiring 8 pounds of material at $1.50 per pound. Atkins produced 10,000 units of this product during 2013 resulting in a $30,000 unfavorable materials quantity variance. How many pounds of direct material did Atkins use during 2013?
a. 100,000 pounds
b. 80,000 pounds
c. 160,000 pounds
d. 125,000 pounds

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

128. Dillon has a standard of 1.5 pounds of materials per unit, at $6 per pound. In producing 2,000 units, Dillon used 3,100 pounds of materials at a total cost of $18,135. Dillon’s total variance is
a. $450 F.
b. $135 U.
c. $465 U.
d. $600 U.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

129. Dillon has a standard of 1.5 pounds of materials per unit, at $6 per pound. In producing 2,000 units, Dillon used 3,100 pounds of materials at a total cost of $18,135. Dillon’s materials price variance is
a. $135 U.
b. $465 F.
c. $600 F.
d. $1,050 F.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

130. Dillon has a standard of 1.5 pounds of materials per unit, at $6 per pound. In producing 2,000 units, Dillon used 3,100 pounds of materials at a total cost of $18,135. Dillon’s materials quantity variance is
a. $135 F.
b. $465 U.
c. $600 U.
d. $1,050 U.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

131. Dillon has a standard of 2 hours of labor per unit, at $12 per hour. In producing 2,000 units, Dillon used 3,850 hours of labor at a total cost of $46,970. Dillon’s total labor variance is
a. $1,030 U.
b. $800 U.
c. $-1,030 F.
d. $1,930 F.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

132. Dillon has a standard of 2 hours of labor per unit, at $12 per hour. In producing 2,000 units, Dillon used 3,850 hours of labor at a total cost of $46,970. Dillon’s labor price variance is
a. $770 U.
b. $800 U.
c. $1,030 F.
d. $1,930 F.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

133. Dillon has a standard of 2 hours of labor per unit, at $12 per hour. In producing 2,000 units, Dillon used 3,850 hours of labor at a total cost of $46,970. Dillon’s labor quantity variance is
a. $770 U.
b. $770 F.
c. $1,800 F.
d. $1,930 F.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

134. Which one of the following describes the total overhead variance?
a. The difference between what was actually incurred and the flexible budget amount
b. The difference between what was actually incurred and overhead applied
c. The difference between the overhead applied and the flexible budget amount
d. The difference between what was actually incurred and the total production budget

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

135. Manufacturing overhead costs are applied to work in process on the basis of
a. actual hours worked.
b. standard hours allowed.
c. ratio of actual variable to fixed costs.
d. actual overhead costs incurred.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

136. The total overhead variance is the difference between the
a. actual overhead costs and overhead costs applied based on standard hours allowed.
b. actual overhead costs and overhead costs applied based on actual hours.
c. overhead costs applied based on actual hours and overhead costs applied based on standard hours allowed.
d. the actual overhead costs and the standard direct labor costs.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

137. The predetermined overhead rate for Zane Company is $5, comprised of a variable overhead rate of $3 and a fixed rate of $2. The amount of budgeted overhead costs at normal capacity of $150,000 was divided by normal capacity of 30,000 direct labor hours, to arrive at the predetermined overhead rate of $5. Actual overhead for June was $9,500 variable and $6,050 fixed, and standard hours allowed for the product produced in June was 3,000 hours. The total overhead variance is
a. $3,050 F.
b. $550 F.
c. $550 U.
d. $3,050 U.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

138. The predetermined overhead rate for Zane Company is $5, comprised of a variable overhead rate of $3 and a fixed rate of $2. The amount of budgeted overhead costs at normal capacity of $150,000 was divided by normal capacity of 30,000 direct labor hours, to arrive at the predetermined overhead rate of $5. Actual overhead for June was $8,900 variable and $5,400 fixed, and 1,500 units were produced. The direct labor standard is 2 hours per unit produced. The total overhead variance is
a. $1,800 F.
b. $700 F.
c. $700 U.
d. $1,800 U.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

139. Which of the following is true?
a. The form, content, and frequency of variance reports vary considerably among companies.
b. The form, content, and frequency of variance reports do not vary among companies.
c. The form and content of variance reports vary considerably among companies, but the frequency is always weekly.
d. The form and content of variance reports are consistent among companies, but the frequency varies.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

140. Denmark Corporation’s variance report for the purchasing department reports 1,000 units of material A purchased and 2,400 units of material B purchased. It also reports standard prices of $2 for Material A and $3 for Material B. Actual prices reported are $2.10 for Material A and $2.80 for Material B. Denmark should report a total price variance of
a. $380 F.
b. $340 F.
c. $340 U.
d. $380 U.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

141. When is a variance considered to be ‘material’?
a. When it is large compared to the actual cost
b. When it is infrequent
c. When it is unfavorable
d. When it could have been controlled more effectively

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

142. Variance reports are
a. external financial reports.
b. SEC financial reports.
c. internal reports for management.
d. all of these.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

143. In using variance reports, management looks for
a. total assets invested.
b. significant variances.
c. competitors’ costs in comparison to the company’s costs.
d. more efficient ways of valuing inventories.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
144. Parnell Company prepared its income statement for internal use. How would amounts for cost of goods sold and variances appear?
a. Cost of goods sold would be at actual costs, and variances would be reported separately.
b. Cost of goods sold would be combined with the variances, and the net amount reported at standard cost.
c. Cost of goods sold would be at standard costs, and variances would be reported separately.
d. Cost of goods sold would be combined with the variances, and the net amount reported at actual cost.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 2, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

145. Alex Co. prepared its income statement for management using a standard cost accounting system. Which of the following appears at the “standard” amount?
a. Sales
b. Selling expenses
c. Gross profit
d. Cost of goods sold

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

146. The costing of inventories at standard cost for external financial statement reporting purposes is
a. not permitted.
b. preferable to reporting at actual costs.
c. in accordance with generally accepted accounting principles if significant differences exist between actual and standard costs.
d. in accordance with generally accepted accounting principles if significant differences do not exist between actual and standard costs.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

147. Income statements prepared internally for management often show cost of goods sold at standard cost and variances are
a. separately disclosed.
b. deducted as other expenses and revenues.
c. added to cost of goods sold.
d. closed directly to retained earnings.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

148. In Zero Company’s income statement, they report gross profit of $55,000 at standard and the following variances:
Materials price $ 420 F
Materials quantity 600 F
Labor price 420 U
Labor quantity 1,000 F
Overhead 900 F
Zero would report actual gross profit of
a. $51,660.
b. $52,500.
c. $57,500.
d. $58,340.

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

149. In Zero Company’s income statement, they report actual gross profit of $52,500 and the following variances:
Materials price $ 420 F
Materials quantity 600 F
Labor price 420 U
Labor quantity 1,000 F
Overhead 900 F
Zero would report gross profit at standard of
a. $46,660.
b. $47,500.
c. $55,000.
d. $53,340.

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

150. The balanced scorecard
a. incorporates financial and nonfinancial measures in an integrated system.
b. is based on financial measures.
c. is based on nonfinancial measures.
d. does not use financial or nonfinancial measures.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

151. Which is not one of the four most commonly used perspectives on a balanced scorecard?
a. The financial perspective
b. The customer perspective
c. The external process perspective
d. The learning and growth perspective

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

152. The balanced scorecard approach
a. uses only financial measures to evaluate performance.
b. uses rather vague, open statements when setting objectives in order to allow managers and employees flexibility.
c. normally sets the financial objectives first, and then sets the objectives in the other perspectives to accomplish the financial objectives.
d. evaluates performance using about 10 different perspectives in order to effectively incorporate all areas of the organization.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

153. The customer perspective of the balanced scorecard approach
a. is the most traditional view of the company.
b. evaluates the internal operating processes critical to the success of the organization.
c. evaluates how well the company develops and retains its employees.
d. evaluates the company from the viewpoint of those people who buy its products or services.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

154. The perspectives included in the balanced scorecard approach include all of the following except the
a. internal process perspective.
b. capacity utilization perspective.
c. learning and growth perspective.
d. customer perspective.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a155. If 10,000 pounds of direct materials are purchased for $9,300 on account and the standard cost is $.90 per pound, the journal entry to record the purchase is
a. Raw Materials Inventory 9,300
Accounts Payable 9,300
b. Work In Process Inventory 9,300
Accounts Payable 9,000
Materials Quantity Variance 300
c. Raw Materials Inventory 9,300
Accounts Payable 9,000
Materials Price Variance 300
d. Raw Materials Inventory 9,000
Materials Price Variance 300
Accounts Payable 9,300

Ans: LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

a 156. Debit balances in variance accounts represent
a. unfavorable variances.
b. favorable variances.
c. favorable for price variances; unfavorable for quantity variances.
d. favorable for quantity variances; unfavorable for price variances.

Ans: LO: 9, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a 157. If a company purchases raw materials on account for $19,830 when the standard cost is $18,900, it will
a. debit Materials Price Variance for $930.
b. credit Materials Price Variance for $930.
c. debit Materials Quantity Variance for $930.
d. credit Material Quantity Variance for $930.

Ans: LO: 9, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

a158. If a company issues raw materials to production at a cost of $18,900 when the standard cost is $18,300, it will
a. debit Materials Price Variance for $600.
b. credit Materials Price Variance for $600.
c. debit Materials Quantity Variance for $600.
d. credit Material Quantity Variance for $600.

Ans: LO: 9, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

a159. If a company incurs direct labor cost of $82,000 when the standard cost is $84,000, it will
a. debit Labor Price Variance for $2,000.
b. credit Labor Price Variance for $2,000.
c. debit Labor Quantity Variance for $2,000.
d. credit Labor Quantity Variance for $2,000.

Ans: LO: 9, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

a160. If a company assigns factory labor to production at a cost of $84,000 when standard cost is $80,000, it will
a. debit Labor Price Variance for $4,000.
b. credit Labor Price Variance for $4,000.
c. debit Labor Quantity Variance for $4,000.
d. credit Labor Quantity Variance for $4,000.

Ans: LO: 9, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

a161. The overhead variances measure whether overhead costs
Are Effectively Managed Were Used Effectively
a. Controllable Controllable and Volume
b. Controllable Volume
c. Controllable and Volume Controllable
d. Volume Controllable

Ans: LO: 10, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a162. The overhead volume variance is
a. actual overhead less overhead budgeted for actual hours.
b. actual overhead less overhead budgeted for standard hours allowed.
c. overhead budgeted for actual hours less applied overhead.
d. the fixed overhead rate times the difference between normal capacity hours and standard hours allowed.

Ans: LO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a163. Budgeted overhead for Cinnabar Industries at normal capacity of 30,000 direct labor hours is $6 per hour variable and $4 per hour fixed. In May, $310,000 of overhead was incurred in working 31,500 hours when 32,000 standard hours were allowed. The overhead controllable variance is
a. $5,000 favorable.
b. $2,000 favorable.
c. $10,000 favorable.
d. $10,000 unfavorable.

Ans: LO: 10, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

a164. Budgeted overhead for Cinnabar Industries at normal capacity of 30,000 direct labor hours is $6 per hour variable and $4 per hour fixed. In May, $310,000 of overhead was incurred in working 31,500 hours when 32,000 standard hours were allowed. The overhead volume variance is
a. $8,000 favorable.
b. $11,000 favorable.
c. $5,000 favorable.
d. $10,000 favorable.

Ans: LO: 10, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management
a165. Budgeted overhead for Haft, Inc. at normal capacity of 60,000 direct labor hours is $3 per hour variable and $2 per hour fixed. In May, $310,000 of overhead was incurred in working 63,000 hours when 64,000 standard hours were allowed. The overhead controllable variance is
a. $5,000 favorable.
b. $2,000 favorable.
c. $10,000 favorable.
d. $10,000 unfavorable.

Ans: LO: 10, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

a166. Budgeted overhead for Haft, Inc. at normal capacity of 60,000 direct labor hours is $3 per hour variable and $2 per hour fixed. In May, $310,000 of overhead was incurred in working 63,000 hours when 64,000 standard hours were allowed. The overhead volume variance is
a. $8,000 favorable.
b. $11,000 favorable.
c. $5,000 favorable.
d. $10,000 favorable.

Ans: LO: 10, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

a167. An overhead volume variance is calculated as the difference between normal capacity hours and standard hours allowed
a. times the total predetermined overhead rate.
b. times the predetermined variable overhead rate.
c. times the predetermined fixed overhead rate.
d. divided by actual number of hours worked.

Ans: LO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a168. Which of the following statements is false?
a. The overhead volume variance indicates whether plant facilities were used efficiently during the period.
b. The costs that cause the overhead volume variance are usually controllable costs.
c. The overhead volume variance relates solely to fixed costs.
d. The overhead volume variance is favorable if standard hours allowed for output are greater than the standard hours at normal capacity.

Ans: LO: 10, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a169. If the standard hours allowed are less than the standard hours at normal capacity,
a. the overhead volume variance will be unfavorable.
b. variable overhead costs will be underapplied.
c. the overhead controllable variance will be favorable.
d. variable overhead costs will be overapplied.

Ans: LO: 10, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a170. Which of the following statements about overhead variances is false?
a. Standard hours allowed are used in calculating the controllable variance.
b. Standard hours allowed are used in calculating the volume variance.
c. The controllable variance pertains solely to fixed costs.
d. The total overhead variance pertains to both variable and fixed costs.

Ans: LO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a171. The overhead volume variance relates only to
a. variable overhead costs.
b. fixed overhead costs.
c. both variable and fixed overhead costs.
d. all manufacturing costs.

Ans: LO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a172. What does the controllable variance measure?
a. Whether a company incurred more or less fixed overhead costs compared to the amount of overhead applied
b. Whether a company incurred more or less overhead costs than allowed
c. The efficiency of using variable overhead resources
d. Whether the production manager is able to control the production facility

Ans: LO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a173. The overhead controllable variance is calculated as the difference between actual overhead costs incurred and the budgeted
a. overhead costs for the standard hours allowed.
b. overhead costs applied to the product.
c. overhead costs at the normal level of activity.
d. fixed overhead costs.

Ans: LO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a174. If the standard hours allowed are less than the standard hours at normal capacity, the volume variance
a. cannot be calculated.
b. will be favorable.
c. will be unfavorable.
d. will be greater than the controllable variance.

Ans: LO: 10, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a175. The budgeted overhead costs for standard hours allowed and the overhead costs applied to the product are the same amount
a. for both variable and fixed overhead costs.
b. only when standard hours allowed are less than normal capacity.
c. for variable overhead costs.
d. for fixed overhead costs.

Ans: LO: 10, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a176. The following information was taken from the annual manufacturing overhead cost budget of Fergie Manufacturing.
Variable manufacturing overhead costs $92,400
Fixed manufacturing overhead costs $55,440
Normal production level in labor hours 30,800
Normal production level in units 5,775
Standard labor hours per unit 4

During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $151,200. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Fergie’s total overhead rate is
a. $2.40.
b. $4.00.
c. $6.40.
d. $6.53.

Ans: LO: 10, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

a177. The following information was taken from the annual manufacturing overhead cost budget of Fergie Manufacturing.
Variable manufacturing overhead costs $92,400
Fixed manufacturing overhead costs $55,440
Normal production level in labor hours 30,800
Normal production level in units 5,775
Standard labor hours per unit 4

During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $151,200. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Fergie’s total overhead variance is

a. $1,680 U.
b. $6,160 U.
c. $7,840 U.
d. $22,400 U.

Ans: LO: 10, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

a178. The following information was taken from the annual manufacturing overhead cost budget of Fergie Manufacturing.
Variable manufacturing overhead costs $92,400
Fixed manufacturing overhead costs $55,440
Normal production level in labor hours 30,800
Normal production level in units 5,775
Standard labor hours per unit 4

During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $151,200. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Fergie’s controllable overhead variance is
a. $1,680 U.
b. $6,160 U.
c. $7,840 U.
d. $22,400 U.

Ans: LO: 10, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

a179. The following information was taken from the annual manufacturing overhead cost budget of Fergie Manufacturing.
Variable manufacturing overhead costs $92,400
Fixed manufacturing overhead costs $55,440
Normal production level in labor hours 30,800
Normal production level in units 5,775
Standard labor hours per unit 4

During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $151,200. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Fergie’s volume overhead variance is
a. $1,680 U.
b. $6,160 U.
c. $7,840 U.
d. $22,400 U.

Ans: LO: 10, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

180. All of the following are advantages of standard costs except they
a. facilitate management planning.
b. are useful in setting selling prices.
c. simplify costing in inventories.
d. increase net income.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

181. Standards based on the optimum level of performance under perfect operating conditions are
a. attainable standards.
b. ideal standards.
c. normal standards.
d. practical standards.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

182. The direct materials price standard should include an amount for all of the following except
a. receiving costs.
b. storing costs.
c. handling costs.
d. normal spoilage costs.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

183. The standard unit cost is used in the calculation of which of the following variances?
Materials Price Variance Materials Quantity Variance
a. No No
b. No Yes
c. Yes No
d. Yes Yes

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

184. The difference between the actual labor rate multiplied by the actual labor hours worked and the standard labor rate multiplied by the standard labor hours is the
a. total labor variance.
b. labor price variance.
c. labor quantity variance.
d. labor efficiency variance.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

185. The formula for the labor price variance is
a. (AH) x (SR) less (SH) x (SR).
b. (AH) x (AR) less (AH) x (SR).
c. (AH) x (AR) less (SH) x (SR).
d. (AH) x (SR) less (AH) x (SR).

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

186. Which department is usually responsible for a labor price variance attributable to misallocation of workers?
a. Quality control
b. Purchasing
c. Engineering
d. Production

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

187. In reporting variances,
a. promptness is relatively unimportant.
b. management normally investigates all variances.
c. the reports should facilitate management by exception.
d. the reports are not departmentalized.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a188. A standard cost system may be used in
Job Order Costing Process Costing
a. No No
b. Yes No
c. No Yes
d. Yes Yes

Ans: LO: 9, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a189. The formula for computing the overhead volume variance is
a. fixed overhead rate times (actual hours less standard hours allowed).
b. variable overhead rate times (actual hours less standard hours allowed).
c. fixed overhead rate times (normal capacity hours less standard hours allowed).
d. variable overhead rate times (normal capacity hours less standard hours allowed).

Ans: LO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

a190. The overhead controllable variance is the difference between the
a. budgeted overhead based on standard hours allowed and the overhead applied to production.
b. budgeted overhead based on standard hours allowed and budgeted overhead based on actual hours worked.
c. actual overhead and the overhead applied to production.
d. actual overhead and budgeted overhead based on standard hours allowed.

Ans: LO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

ACC 560 Week 8 Homework Problems – Strayer University NEW

ACC/560 Week 8 Homework Problems – Strayer NEW

Click On The Link Below to Purchase A+ Graded Material
Instant Download

http://budapp.net/ACC-560-Week-8-Homework-Problems-Strayer-NEW-ACC560W8HP.htm

 

Week 8
Homework
o Chapter 12: Exercises 3, 6, 7, and 11; Problems 1 and 3

ACC 560 Week 1 Homework Problems

ACC 560 Week 2 Homework Problems

ACC 560 Week 3 Homework Problems

ACC 560 Week 4 Homework Problems

ACC 560 Week 5 Homework Problems

ACC 560 Week 6 Homework Problems

ACC 560 Week 7 Homework Problems

ACC 560 Week 8 Homework Problems

ACC 560 Week 9 Homework Problems

ACC 560 Week 10 Homework Problems

ACC 560 Problems, Homework problems
Strayer acc560 homework
We have ACC 560 Assignment
ACC 560 Quiz
ACC 560 Final Exam
ACC 560 Midterm Exam
ACC 560 complete class solution
ACC 560 Week

ACC 560 Week 2 Quiz – Strayer University New

ACC/560 Chapter 1 Quiz 1 Solutions
Follow the link below to purchase Quiz Solution

http://www.hwmojo.com/products/acc560-quiz-1

 

We have all assignments, quizzes, and homework problems for ACC 560 and other Strayer classes. Email us if you need help. Ewood6440@gmail.com

ACC 560 Quiz 1 Chapter 1 Solution

TRUE-FALSE STATEMENTS
1. Reports prepared in financial accounting are general-purpose reports, whereas reports prepared in managerial accounting are usually special-purpose reports.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

2. Managerial accounting information generally pertains to an entity as a whole and is highly aggregated.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

3. Managerial accounting applies to all forms of business organizations.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

4. Determining the unit cost of manufacturing a product is an output of financial accounting.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

5. Managerial accounting internal reports are prepared more frequently than are classified financial statements.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

6. The management function of organizing and directing is mainly concerned with setting goals and objectives for the entity.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Decision Analysis

7. The Sarbanes-Oxley Act replaces generally accepted accounting principles in a manufacturing company.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

8. Controlling is the process of determining whether planned goals are being met.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Internal Controls

9. Decision-making is an integral part of the planning, directing, and controlling functions.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Decision Analysis

10. Direct materials costs and indirect materials costs are manufacturing overhead.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

11. Manufacturing costs that cannot be classified as direct materials or direct labor are classified as manufacturing overhead.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

12. Raw materials are equal to direct materials minus indirect materials.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

13. Raw materials that can be conveniently and directly associated with a finished product are called materials overhead.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

14. The total cost of a finished product does not generally contain equal amounts of materials, labor, and overhead costs.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

15. Both direct labor cost and indirect labor cost are product costs.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

16. Period costs include selling and administrative expenses.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

17. Indirect materials and indirect labor are both inventoriable costs.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

18. Direct materials and direct labor are the only product costs.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

19. Total period costs are deducted from total cost of work in process to calculate cost of goods manufactured.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

20. Period costs are not inventoriable costs.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

21. Ending finished goods inventory appears on both the balance sheet and the income statement of a manufacturing company.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

22. The beginning work in process inventory appears on both the balance sheet and the cost of goods manufactured schedule of a manufacturing company.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

23. In calculating gross profit for a manufacturing company, the cost of goods manufactured is deducted from net sales.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

24. Finished goods inventory does not appear on a cost of goods manufactured schedule.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

25. If the ending work in process inventory is greater than the beginning work in process inventory, then the cost of goods manufactured will be less than total manufacturing costs for the period.

Ans:, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Cost Management

26. Finished goods inventory for a manufacturing company is equivalent to merchandise inventory for a merchandising company.

Ans:, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

27. Raw materials inventory shows the cost of completed goods available for sale to customers.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

28. The balanced scorecard approach attempts to maintain as little inventory on hand as possible.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Performance Measurement

29. The supply chain is all the activities associated with providing a product or service.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: Global Business

30. Many companies have significantly lowered inventory levels and costs using just-in-time inventory methods.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Cost Management

31. Managerial accounting is primarily concerned with managers and external users.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: None, IMA: Business Economics

32. Planning involves coordinating the diverse activities and human resources of a company to produce a smooth running operation.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: None, IMA: Business Economics

33. When the physical association of raw materials with the finished product is too small to trace in terms of cost, they are usually classified as indirect materials.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

34. Product costs are also called inventoriable costs.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

35. Direct materials become a cost of the finished goods manufactured when they are acquired, not when they are used.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Cost Management

36. The sum of the direct materials costs, direct labor costs, and beginning work in process is the total manufacturing costs for the year.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

37. In a manufacturing company balance sheet, manufacturing inventories are reported in the current assets section in the order of their expected use in production.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

MULTIPLE CHOICE QUESTIONS
38. Managerial accounting applies to each of the following types of businesses except
a. service firms.
b. merchandising firms.
c. manufacturing firms.
d. Managerial accounting applies to all types of firms.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

39. Managerial accounting information is generally prepared for
a. stockholders.
b. creditors.
c. managers.
d. regulatory agencies.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

40. Managerial accounting information
a. pertains to the entity as a whole and is highly aggregated.
b. pertains to subunits of the entity and may be very detailed.
c. is prepared only once a year.
d. is constrained by the requirements of generally accepted accounting principles.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

41. The major reporting standard for presenting managerial accounting information is
a. relevance.
b. generally accepted accounting principles.
c. the cost principle.
d. the current tax law.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

42. Managerial accounting is also called
a. management accounting.
b. controlling.
c. analytical accounting.
d. inside reporting.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

43. Which of the following is not an internal user?
a. Creditor
b. Department manager
c. Controller
d. Treasurer

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Professional Demeanor, IMA: Business Economics

44. Managerial accounting does not encompass
a. calculating product cost.
b. calculating earnings per share.
c. determining cost behavior.
d. profit planning.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Professional Demeanor, IMA: Business Economics

45. Managerial accounting is applicable to
a. service entities.
b. manufacturing entities.
c. not-for-profit entities.
d. all of these.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Professional Demeanor, IMA: Business Economics

46. Management accountants would not
a. assist in budget planning.
b. prepare reports primarily for external users.
c. determine cost behavior.
d. be concerned with the impact of cost and volume on profits.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

47. Internal reports must be communicated
a. daily.
b. monthly.
c. annually.
d. as needed.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

48. Financial statements for external users can be described as
a. user-specific.
b. general-purpose.
c. special-purpose.
d. managerial reports.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

49. Managerial accounting reports can be described as
a. general-purpose.
b. macro-reports.
c. special-purpose.
d. classified financial statements.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

50. The reporting standard for external financial reports is
a. industry-specific.
b. company-specific.
c. generally accepted accounting principles.
d. department-specific.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

51. Which of the following statements about internal reports is not true?
a. The content of internal reports may extend beyond the double-entry accounting system.
b. Internal reports may show all amounts at market values.
c. Internal reports may discuss prospective events.
d. Most internal reports are summarized rather than detailed.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

52. In an analogous sense, external user is to internal user as generally accepted accounting principles are to
a. timely.
b. special-purpose.
c. relevance to decision.
d. SEC.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Professional Demeanor, IMA: Reporting

53. Internal reports are generally
a. aggregated.
b. detailed.
c. regulated.
d. unreliable.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

54. A distinguishing feature of managerial accounting is
a. external users.
b. general-purpose reports.
c. very detailed reports.
d. quarterly and annual reports.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

55. What activities and responsibilities are not associated with management’s functions?
a. Planning
b. Accountability
c. Controlling
d. Directing

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Professional Demeanor, IMA: Reporting

56. Planning is a function that involves
a. hiring the right people for a particular job.
b. coordinating the accounting information system.
c. setting goals and objectives for an entity.
d. analyzing financial statements.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Professional Demeanor, IMA: Decision Analysis

57. The managerial function of controlling
a. is performed only by the controller of a company.
b. is only applicable when the company sustains a loss.
c. is concerned mainly with operating a manufacturing segment.
d. includes performance evaluation by management.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Professional Demeanor, IMA: Decision Analysis

58. Which of the following is not a management function?
a. Constraining
b. Planning
c. Controlling
d. Directing

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Professional Demeanor, IMA: Decision Analysis

59. A manager that is establishing objectives is performing which management function?
a. Controlling
b. Directing
c. Planning
d. Constraining

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Decision Analysis
60. The management function that requires managers to look ahead and establish objectives is
a. controlling.
b. directing.
c. planning.
d. constraining.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: None, IMA: Decision Analysis

61. In determining whether planned goals are being met, a manager is performing the function of
a. planning.
b. follow-up.
c. directing.
d. controlling.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: None, IMA: Decision Analysis

62. Which of the following is not a separate management function?
a. Planning
b. Directing
c. Decision-making
d. Controlling

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: None, IMA: Decision Analysis

63. Directing includes
a. providing a framework for management to have criteria to terminate employees when needed.
b. running a department under quality control standards universally accepted.
c. coordinating a company’s diverse activities and human resources to produce a smooth-running operation.
d. developing a complex performance ranking system to give certain high performers good raises.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: None, IMA: Decision Analysis

64. Both direct materials and indirect materials are
a. raw materials.
b. manufacturing overhead.
c. merchandise inventory.
d. sold directly to customers by a manufacturing company.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

65. The work of factory employees that can be physically and directly associated with converting raw materials into finished goods is
a. manufacturing overhead.
b. indirect materials.
c. indirect labor.
d. direct labor.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

66. Which one of the following would not be classified as manufacturing overhead?
a. Indirect labor
b. Direct materials
c. Insurance on factory building
d. Indirect materials

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

67. Manufacturing costs include
a. direct materials and direct labor only.
b. direct materials and manufacturing overhead only.
c. direct labor and manufacturing overhead only.
d. direct materials, direct labor, and manufacturing overhead.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

68. Which one of the following is not a direct material?
a. A tire used for a lawn mower
b. Plastic used in the covered case for a home PC
c. Steel used in the manufacturing of steel-radial tires
d. Lubricant for a ball-bearing joint for a large crane

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

69. Which one of the following is not a cost element in manufacturing a product?
a. Manufacturing overhead
b. Direct materials
c. Office salaries
d. Direct labor

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

70. A manufacturing process requires small amounts of glue. The glue used in the production process is classified as a(n)
a. period cost.
b. indirect material.
c. direct material.
d. miscellaneous expense.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

71. The wages of a timekeeper in the factory would be classified as
a. a period cost.
b. direct labor.
c. indirect labor.
d. compliance costs.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

72. Which one of the following is not considered as material costs?
a. Partially completed motor engines for a motorcycle plant
b. Bolts used in manufacturing the compressor of an engine
c. Rivets for the wings of a new commercial jet aircraft
d. Lumber used to build tables

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

73. Which of the following is not a manufacturing cost category?
a. Cost of goods sold
b. Direct materials
c. Direct labor
d. Manufacturing overhead

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

74. As current technology changes manufacturing processes, it is likely that direct
a. labor will increase.
b. labor will decrease.
c. materials will increase.
d. materials will decrease.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics

75. For the work of factory employees to be considered as direct labor, the work must be conveniently and
a. materially associated with raw materials conversion.
b. periodically associated with raw materials conversion.
c. physically associated with raw materials conversion.
d. promptly associated with raw materials conversion.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

76. Which of the following is not classified as direct labor?
a. Bottlers of beer in a brewery
b. Copy machine operators at a copy shop
c. Wages of supervisors
d. Bakers in a bakery

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

77. Cotter pins and lubricants used irregularly in a production process are classified as
a. miscellaneous expense.
b. direct materials.
c. indirect materials.
d. nonmaterial materials.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

78. Which of the following is not another name for the term manufacturing overhead?
a. Factory overhead
b. Pervasive costs
c. Burden
d. Indirect manufacturing costs

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

79. Because of automation, which component of product cost is declining?
a. Direct labor
b. Direct materials
c. Manufacturing overhead
d. Advertising

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics

80. The product cost that is most difficult to associate with a product is
a. direct materials.
b. direct labor.
c. manufacturing overhead.
d. advertising.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics

81. Manufacturing costs that cannot be classified as either direct materials or direct labor are known as
a. period costs.
b. nonmanufacturing costs.
c. selling and administrative expenses.
d. manufacturing overhead.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

82. Which one of the following is an example of a period cost?
a. A change in benefits for the union workers who work in the New York plant of a Fortune 1000 manufacturer
b. Workers’ compensation insurance on factory workers’ wages allocated to the factory
c. A box cost associated with computers
d. A manager’s salary for work that is done in the corporate head office

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

83. Which one of the following costs would not be inventoriable?
a. Period costs
b. Factory insurance costs
c. Indirect materials
d. Indirect labor costs

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

84. Direct materials and direct labor of a company total $8,000,000. If manufacturing overhead is $4,000,000, what is direct labor cost?
a. $4,000,000
b. $8,000,000
c. $0
d. Cannot be determined from the information provided

Ans:, LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

85. Which of the following are period costs?
a. Raw materials
b. Direct materials and direct labor
c. Direct labor and manufacturing overhead
d. Selling expenses

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

86. Sales commissions are classified as
a. overhead costs
b. period costs.
c. product costs.
d. indirect labor.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

87. Product costs consist of
a. direct materials and direct labor only.
b. direct materials, direct labor, and manufacturing overhead.
c. selling and administrative expenses.
d. period costs.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

88. Which one of the following represents a period cost?
a. The VP of Sales’ salary and benefits
b. Overhead allocated to the manufacturing operations
c. Labor costs associated with quality control
d. Fringe benefits associated with factory workers

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

89. Product costs are also called
a. direct costs.
b. overhead costs.
c. inventoriable costs.
d. capitalizable costs.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

90. For inventoriable costs to become expenses under the matching principle,
a. the product must be finished and in stock.
b. the product must be expensed based on its percentage-of-completion.
c. the product to which they attach must be sold.
d. all accounts payable must be settled.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

91. As inventoriable costs expire, they become
a. selling expenses.
b. gross profit.
c. cost of goods sold.
d. sales revenue.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

92. A manufacturing company calculates cost of goods sold as follows:
a. Beginning FG inventory + cost of goods purchased – ending FG inventory.
b. Ending FG inventory – cost of goods manufactured + beginning FG inventory.
c. Beginning FG inventory – cost of goods manufactured – ending FG inventory.
d. Beginning FG inventory + cost of goods manufactured – ending FG inventory.

Ans:, LO: 5, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

93. A manufacturing company reports cost of goods manufactured as a(n)
a. current asset on the balance sheet.
b. administrative expense on the income statement.
c. component in the calculation of cost of goods sold on the income statement.
d. component of the raw materials inventory on the balance sheet.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

94. The subtotal, “Cost of goods manufactured” appears on
a. a merchandising company’s income statement.
b. a manufacturing company’s income statement.
c. both a manufacturing and a merchandising company’s income statement.
d. neither a merchandising nor a manufacturing company’s income statement.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

95. Cost of goods manufactured in a manufacturing company is analogous to
a. ending inventory in a merchandising company.
b. beginning inventory in a merchandising company.
c. cost of goods available for sale in a merchandising company.
d. cost of goods purchased in a merchandising company.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

96. Cost of goods sold
a. only appears on merchandising companies’ income statements.
b. only appears on manufacturing companies’ income statements.
c. appears on both manufacturing and merchandising companies’ income statements.
d. is calculated exactly the same for merchandising and manufacturing companies.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

97. Kushman Combines, Inc. has $20,000 of ending finished goods inventory as of December 31, 2013. If beginning finished goods inventory was $10,000 and cost of goods sold was $50,000, how much would Kushman report for cost of goods manufactured?
a. $70,000
b. $10,000
c. $60,000
d. $40,000

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

98. Cost of goods manufactured is calculated as follows:
a. Beginning WIP + direct materials used + direct labor + manufacturing overhead + ending WIP.
b. Direct materials used + direct labor + manufacturing overhead – beginning WIP + ending WIP.
c. Beginning WIP + direct materials used + direct labor + manufacturing overhead – ending WIP.
d. Direct materials used + direct labor + manufacturing overhead – ending WIP – beginning WIP.

Ans:, LO: 6, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

99. If the amount of “Cost of goods manufactured” during a period exceeds the amount of “Total manufacturing costs” for the period, then
a. ending work in process inventory is greater than or equal to the amount of the beginning work in process inventory.
b. ending work in process is greater than the amount of the beginning work in process inventory.
c. ending work in process is equal to the cost of goods manufactured.
d. ending work in process is less than the amount of the beginning work in process inventory.

Ans:, LO: 6, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

100. On the costs of goods manufactured schedule, depreciation on factory equipment
a. is not listed because it is included with Depreciation Expense on the income statement.
b. appears in the manufacturing overhead section.
c. is not listed because it is not a product cost.
d. is not an inventoriable cost.

Ans:, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

101. On the costs of goods manufactured schedule, the item raw materials inventory (ending) appears as a(n)
a. addition to raw materials purchases.
b. addition to raw materials available for use.
c. subtraction from raw materials available for use.
d. subtraction from raw materials purchases.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

102. Dolan Company’s accounting records reflect the following inventories:
Dec. 31, 2013 Dec. 31, 2012
Raw materials inventory $310,000 $260,000
Work in process inventory 300,000 160,000
Finished goods inventory 190,000 150,000

During 2013, $600,000 of raw materials were purchased, direct labor costs amounted to $500,000, and manufacturing overhead incurred was $480,000.
The total raw materials available for use during 2013 for Dolan Company is
a. $910,000.
b. $460,000.
c. $550,000.
d. $860,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

103. Dolan Company’s accounting records reflect the following inventories:
Dec. 31, 2013 Dec. 31, 2012
Raw materials inventory $310,000 $260,000
Work in process inventory 300,000 160,000
Finished goods inventory 190,000 150,000

During 2013, $600,000 of raw materials were purchased, direct labor costs amounted to $500,000, and manufacturing overhead incurred was $480,000.
Dolan Company’s total manufacturing costs incurred in 2013 amounted to
a. $1,530,000.
b. $1,490,000.
c. $1,390,000.
d. $1,580,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

104. Dolan Company’s accounting records reflect the following inventories:
Dec. 31, 2013 Dec. 31, 2012
Raw materials inventory $310,000 $260,000
Work in process inventory 300,000 160,000
Finished goods inventory 190,000 150,000
MC 104. (Cont.)
During 2013, $600,000 of raw materials were purchased, direct labor costs amounted to $500,000, and manufacturing overhead incurred was $480,000.
If Dolan Company’s cost of goods manufactured for 2013 amounted to $1,390,000, its cost of goods sold for the year is
a. $1,500,000.
b. $1,250,000.
c. $1,350,000.
d. $1,430,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

105. What is work in process inventory generally described as?
a. Costs applicable to units that have been started in production but are only partially completed
b. Costs associated with the end stage of manufacturing that are almost always complete and ready for customers
c. Costs strictly associated with direct labor
d. Beginning stage production costs associated with labor costs dealing with bringing in raw materials from the shipping docks

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

106. Worth Company reported the following year-end information: beginning work in process inventory, $180,000; cost of goods manufactured, $816,000; beginning finished goods inventory, $252,000; ending work in process inventory, $220,000; and ending finished goods inventory, $264,000. Worth Company’s cost of goods sold for the year is
a. $804,000.
b. $828,000.
c. $776,000.
d. $552,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

107. Laflin Company reported the following year-end information:
Beginning work in process inventory $1,080,000
Beginning raw materials inventory 300,000
Ending work in process inventory 900,000
Ending raw materials inventory 480,000
Raw materials purchased 960,000
Direct labor 800,000
Manufacturing overhead 720,000
Laflin Company’s cost of goods manufactured for the year is
a. $2,300,000.
b. $2,480,000.
c. $2,120,000.
d. $2,660,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

108. Benson Inc.’s accounting records reflect the following inventories:
Dec. 31, 2012 Dec. 31, 2013
Raw materials inventory $ 80,000 $ 64,000
Work in process inventory 104,000 116,000
Finished goods inventory 100,000 92,000

During 2013, Benson purchased $1,160,000 of raw materials, incurred direct labor costs of $200,000, and incurred manufacturing overhead totaling $128,000.
How much raw materials were transferred to production during 2013 for Benson?
a. $1,392,000
b. $1,176,000
c. $1,160,000
d. $1,144,000

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

109. Benson Inc.’s accounting records reflect the following inventories:
Dec. 31, 2012 Dec. 31, 2013
Raw materials inventory $ 80,000 $ 64,000
Work in process inventory 104,000 116,000
Finished goods inventory 100,000 92,000

During 2013, Benson purchased $1,060,000 of raw materials, incurred direct labor costs of $200,000, and incurred manufacturing overhead totaling $128,000.
How much is total manufacturing costs incurred during 2013 for Benson?
a. $1,392,000
b. $1,404,000
c. $1,388,000
d. $1,400,000

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

110. Benson Inc.’s accounting records reflect the following inventories:
Dec. 31, 2012 Dec. 31, 2013
Raw materials inventory $ 80,000 $ 64,000
Work in process inventory 104,000 116,000
Finished goods inventory 100,000 92,000

During 2013, Benson purchased $1,160,000 of raw materials, incurred direct labor costs of $200,000, and incurred manufacturing overhead totaling $128,000.
Assume Benson’s cost of goods manufactured for 2013 amounted to $1,360,000. How much would it report as cost of goods sold for the year?
a. $1,368,000
b. $1,400,000
c. $1,460,000
d. $1,352,000

Ans:, LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

111. Walker Company reported the following year-end information:
Beginning work in process inventory $ 46,000
Beginning raw materials inventory 24,000
Ending work in process inventory 50,000
Ending raw materials inventory 20,000
Raw materials purchased 830,000
Direct labor 240,000
Manufacturing overhead 100,000
How much is Walker’s cost of goods manufactured for the year?
a. $834,000
b. $1,174,000
c. $1,170,000
d. $1,178,000

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

112. Ogleby Inc.’s accounting records reflect the following inventories:
Dec. 31, 2012 Dec. 31, 2013
Raw materials inventory $120,000 $ 96,000
Work in process inventory 156,000 174,000
Finished goods inventory 150,000 138,000

During 2013, Ogleby purchased $840,000 of raw materials, incurred direct labor costs of $150,000, and incurred manufacturing overhead totaling $192,000.
How much is total manufacturing costs incurred during 2013 for Ogleby?
a. $1,188,000
b. $1,206,000
c. $1,182,000
d. $1,200,000

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

113. Ogleby Inc.’s accounting records reflect the following inventories:
Dec. 31, 2012 Dec. 31, 2013
Raw materials inventory $120,000 $ 96,000
Work in process inventory 156,000 174,000
Finished goods inventory 150,000 138,000

During 2013, Ogleby purchased $840,000 of raw materials, incurred direct labor costs of $150,000, and incurred manufacturing overhead totaling $192,000.
How much would Ogleby Manufacturing report as cost of goods manufactured for 2013?
a. $1,164,000
b. $1,224,000
c. $1,218,000
d. $1,188,000

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

114. Wasson Company reported the following year-end information:
Beginning work in process inventory $ 35,000
Beginning raw materials inventory 18,000
Ending work in process inventory 38,000
Ending raw materials inventory 15,000
Raw materials purchased 560,000
Direct labor 180,000
Manufacturing overhead 120,000
How much is Wasson’s total cost of work in process for the year?
a. $608,000
b. $863,000
c. $860,000
d. $898,000

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

115. Edmiston Company reported the following year-end information: beginning work in process inventory, $80,000; cost of goods manufactured, $780,000; beginning finished goods inventory, $50,000; ending work in process inventory, $70,000; and ending finished goods inventory, $40,000. How much is Edmiston’s cost of goods sold for the year?
a. $780,000
b. $790,000
c. $770,000
d. $800,000

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

116. Using the following information, compute the direct materials used.
Raw materials inventory, January 1 $ 20,000
Raw materials inventory, December 31 40,000
Work in process, January 1 18,000
Work in process, December 31 12,000
Finished goods, January 1 40,000
Finished goods, December 31 32,000
Raw materials purchases 1,400,000
Direct labor 560,000
Factory utilities 150,000
Indirect labor 50,000
Factory depreciation 400,000
Operating expenses 420,000

a. $1,460,000.
b. $1,420,000.
c. $1,400,000.
d. $1,380,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

117. Assuming that the direct materials used is $1,400,000, compute the total manufacturing costs using the following information.
Raw materials inventory, January 1 $ 20,000
Raw materials inventory, December 31 40,000
Work in process, January 1 18,000
Work in process, December 31 12,000
Finished goods, January 1 40,000
Finished goods, December 31 32,000
Raw materials purchases 1,400,000
Direct labor 560,000
Factory utilities 150,000
Indirect labor 50,000
Factory depreciation 400,000
Operating expenses 420,000

a. $2,560,000.
b. $2,554,000.
c. $2,360,000.
d. $2,980,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

118. Using $2,500,000 as the total manufacturing costs, compute the cost of goods manufactured using the following information.
Raw materials inventory, January 1 $ 20,000
Raw materials inventory, December 31 40,000
Work in process, January 1 18,000
Work in process, December 31 12,000
Finished goods, January 1 40,000
Finished goods, December 31 32,000
Raw materials purchases 1,400,000
Direct labor 560,000
Factory utilities 150,000
Indirect labor 50,000
Factory depreciation 400,000
Operating expenses 420,000

a. $2,492,000.
b. $2,494,000.
c. $2,506,000.
d. $2,508,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

119. Using $2,540,000 as the cost of goods manufactured, compute the cost of goods sold using the following information.
Raw materials inventory, January 1 $ 20,000
Raw materials inventory, December 31 40,000
Work in process, January 1 18,000
Work in process, December 31 12,000
Finished goods, January 1 40,000
Finished goods, December 31 32,000
Raw materials purchases 1,400,000
Direct labor 560,000
Factory utilities 150,000
Indirect labor 50,000
Factory depreciation 400,000
Operating expenses 420,000

a. $2,546,000.
b. $2,508,000.
c. $2,532,000.
d. $2,548,000.

Ans:, LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

120. Using the following information, compute the cost of direct materials used.
Raw materials inventory, January 1 $ 30,000
Raw materials inventory, December 31 60,000
Work in process, January 1 27,000
Work in process, December 31 18,000
Finished goods, January 1 60,000
Finished goods, December 31 48,000
Raw materials purchases 1,500,000
Direct labor 690,000
Factory utilities 225,000
Indirect labor 75,000
Factory depreciation 500,000
Operating expenses 630,000

a. $1,590,000.
b. $1,530,000.
c. $1,500,000.
d. $1,470,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

121. Assuming the cost of direct materials used is $1,500,000, compute the total manufacturing costs using the information below.
Raw materials inventory, January 1 $ 30,000
Raw materials inventory, December 31 60,000
Work in process, January 1 27,000
Work in process, December 31 18,000
Finished goods, January 1 60,000
Finished goods, December 31 48,000
Raw materials purchases 1,500,000
Direct labor 690,000
Factory utilities 225,000
Indirect labor 75,000
Factory depreciation 500,000
Operating expenses 630,000

a. $2,990,000.
b. $2,981,000.
c. $2,690,000.
d. $3,620,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

122. Assuming that the total manufacturing costs are $2,900,000, compute the cost of goods manufactured using the information below.
Raw materials inventory, January 1 $ 30,000
Raw materials inventory, December 31 60,000
Work in process, January 1 27,000
Work in process, December 31 18,000
Finished goods, January 1 60,000
Finished goods, December 31 48,000
Raw materials purchases 1,500,000
Direct labor 690,000
Factory utilities 225,000
Indirect labor 75,000
Factory depreciation 500,000
Operating expenses 630,000

a. $2,888,000.
b. $2,891,000.
c. $2,909,000.
d. $2,912,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

123. Assuming that the cost of goods manufactured is $2,960,000 compute the cost of goods sold using the following information.
Raw materials inventory, January 1 $ 30,000
Raw materials inventory, December 31 60,000
Work in process, January 1 27,000
Work in process, December 31 18,000
Finished goods, January 1 60,000
Finished goods, December 31 48,000
Raw materials purchases 1,500,000
Direct labor 690,000
Factory utilities 225,000
Indirect labor 75,000
Factory depreciation 500,000
Operating expenses 630,000

a. $2,969,000.
b. $2,912,000.
c. $2,948,000.
d. $2,972,000.

Ans:, LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

124. Samson Company reported total manufacturing costs of $300,000, manufacturing overhead totaling $52,000, and direct materials totaling $64,000. How much is direct labor cost?
a. Cannot be determined from the information provided.
b. $416,000
c. $416,000
d. $184,000

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

125. Given the following data for Mehring Company, compute (A) total manufacturing costs and (B) cost of goods manufactured:
Direct materials used $230,000 Beginning work in process $30,000
Direct labor 150,000 Ending work in process 15,000
Manufacturing overhead 225,000 Beginning finished goods 38,000
Operating expenses 263,000 Ending finished goods 23,000
(A) (B)
a. $590,000 $620,000
b. $605,000 $590,000
c. $605,000 $620,000
d. $620,000 $635,000

Ans:, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

126. Penner Company reported total manufacturing costs of $410,000, manufacturing overhead totaling $78,000, and direct materials totaling $96,000. How much is direct labor cost?
a. Cannot be determined from the information provided.
b. $584,000
c. $174,000
d. $236,000

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

127. Given the following data for Glennon Company, compute (A) total manufacturing costs and (B) costs of goods manufactured:
Direct materials used $270,000 Beginning work in process $40,000
Direct labor 200,000 Ending work in process 20,000
Manufacturing overhead 300,000 Beginning finished goods 50,000
Operating expenses 350,000 Ending finished goods 30,000
(A) (B)
a. $750,000 $790,000
b. $770,000 $750,000
c. $770,000 $790,000
d. $790,000 $810,000

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

128. Barton Company has beginning work in process inventory of $144,000 and total manufacturing costs of $686,000. If cost of goods manufactured is $640,000, what is the cost of the ending work in process inventory?
a. $170,000.
b. $198,000.
c. $210,000.
d. $190,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

129. Gammil Company has beginning and ending raw materials inventories of $96,000 and $120,000, respectively. If direct materials used were $440,000, what was the cost of raw materials purchased?
a. $440,000.
b. $470,000.
c. $416,000.
d. $464,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

130. Molina Company has beginning and ending work in process inventories of $130,000 and $145,000 respectively. If total manufacturing costs are $650,000, what is the total cost of goods manufactured?
a. $780,000.
b. $795,000.
c. $635,000.
d. $665,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

131. Costas Company has beginning and ending raw materials inventories of $64,000 and $80,000, respectively. If direct materials used were $290,000, what was the cost of raw materials purchased?
a. $290,000.
b. $310,000.
c. $274,000.
d. $306,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

132. Wood Company has beginning work in process inventory of $128,000 and total manufacturing costs of $477,000. If cost of goods manufactured is $480,000, what is the cost of the ending work in process inventory?
a. $110,000.
b. $131,000.
c. $140,000.
d. $125,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

133. Given the following data for Harder Company, compute cost of goods manufactured:
Direct materials used $120,000 Beginning work in process $20,000
Direct labor 200,000 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. $460,000
b. $470,000
c. $480,000
d. $490,000

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

134. Which one of the following does not appear on the balance sheet of a manufacturing company?
a. Finished goods inventory
b. Work in process inventory
c. Cost of goods manufactured
d. Raw materials inventory

Ans:, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

135. The equivalent of finished goods inventory for a merchandising firm is referred to as
a. purchases.
b. cost of goods purchased.
c. merchandise inventory.
d. raw materials inventory.

Ans:, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

136. How have many companies significantly lowered inventory levels and costs?
a. They use activity-based costing.
b. They utilize a balanced scorecard system.
c. They have a just-in-time method.
d. They focus on total quality management.

Ans:, LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

137. What term describes all business processes associated with providing a product or service?
a. The manufacturing chain
b. The product chain
c. The supply chain
d. The value chain

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

138. Which one of the following managerial accounting approaches attempts to allocate manufacturing overhead in a more meaningful fashion?
a. Balanced scorecard
b. Just-in-time inventory
c. Activity-based costing
d. Total quality management

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: None, IMA: Performance Measurement

139. What is “balanced” in the balanced scorecard approach?
a. The number of products produced
b. The emphasis on financial and non-financial performance measurements
c. The amount of costs allocated to products
d. The number of defects found on each product

Ans:, LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: None, IMA: Performance Measurement

140. Which one of the following characteristics would likely be associated with a just-in-time inventory method?
a. Ending inventory of work in process that would allow several production runs
b. A backlog of inventory orders not yet shipped
c. Minimal finished goods inventory on hand
d. An understanding with customers that they may come to the showroom and select from inventory on hand

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics

141. Many companies now focus on reducing defects in finished products with the goal of zero defects. This is called
a. Activity-based costing.
b. Balanced scorecard.
c. Value chain.
d. Total quality management.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics

142. Financial and managerial accounting are similar in that both
a. have the same primary users.
b. produce general-purpose reports.
c. have reports that are prepared quarterly and annually.
d. deal with the economic events of an enterprise.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

143. The function that pertains to keeping the activities of the enterprise on track is
a. planning.
b. directing.
c. controlling.
d. accounting.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Performance Measurement

144. Property taxes on a manufacturing plant are an element of a
Product Cost Period Cost
a. Yes No
b. Yes Yes
c. No Yes
d. No No

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

145. For a manufacturing company, which of the following is an example of a period cost rather than a product cost?
a. Depreciation on factory equipment
b. Wages of salespersons
c. Wages of machine operators
d. Insurance on factory equipment

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

146. For a manufacturing firm, cost of goods available for sale is computed by adding the beginning finished goods inventory to
a. cost of goods purchased.
b. cost of goods manufactured.
c. net purchases.
d. total manufacturing costs.

Ans:, SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

147. If the cost of goods manufactured is less than the cost of goods sold, which of the following is correct?
a. Finished Goods Inventory has increased.
b. Work in Process Inventory has increased.
c. Finished Goods Inventory has decreased.
d. Work in Process Inventory has decreased.

Ans:, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

148. The principal difference between a merchandising and a manufacturing income statement is the
a. cost of goods sold section.
b. extraordinary item section.
c. operating expense section.
d. revenue section.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

149. If the total manufacturing costs are greater than the cost of goods manufactured, which of the following is correct?
a. Work in Process Inventory has increased.
b. Finished Goods Inventory has increased.
c. Work in Process Inventory has decreased.
d. Finished Goods Inventory has decreased.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

150. The sum of the direct materials costs, direct labor costs, and manufacturing overhead incurred is the
a. cost of goods manufactured.
b. total manufacturing overhead.
c. total manufacturing costs.
d. total cost of work in process.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

151. The inventory accounts that show the cost of completed goods on hand and the costs applicable to production that is only partially completed are, respectively
a. Work in Process Inventory and Raw Materials Inventory.
b. Finished Goods Inventory and Raw Materials Inventory.
c. Finished Goods Inventory and Work in Process Inventory.
d. Raw Materials Inventory and Work in Process Inventory.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

ACC 560 Week 11 Quiz – Strayer University New

ACC/560 Chapter 14 Quiz Perfect Solution
Follow link below to purchase chapter 14 quiz solution

http://www.hwmojo.com/products/acc560-ch-14-quiz

 

We can help with many Strayer classes. Email us if you need help with your exams, quizzes, writing assignments, discussion questions and homework problems. Support@hwmojo.com

ACC 560 Week 11 Quiz Chapter 14
ACC 560 Quiz Chapter 14 Week 11

TRUE-FALSE STATEMENTS
1. Intracompany comparisons of the same financial statement items can often detect changes in financial relationships and significant trends.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

2. Calculating financial ratios is a financial reporting requirement under generally accepted accounting principles.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

3. Measures of a company’s liquidity are concerned with the frequency and amounts of dividend payments.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

4. Analysis of financial statements is enhanced with the use of comparative data.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

5. Comparisons of company data with industry averages can provide some insight into the company’s relative position in the industry.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

6. Vertical and horizontal analyses are concerned with the format used to prepare financial statements.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

7. Horizontal, vertical, and circular analyses are the most common tools of financial statement analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

8. Horizontal analysis is a technique for evaluating a financial statement item in the current year with other items in the current year.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

9. Another name for trend analysis is horizontal analysis.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

10. If a company has sales of $110 in 2012 and $154 in 2013, the percentage increase in sales from 2012 to 2013 is 140%.

Ans: LO: 3, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement

11. In horizontal analysis, if an item has a negative amount in the base year, and a positive amount in the following year, no percentage change for that item can be computed.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

12. Common size analysis expresses each item within a financial statement in terms of a percent of a base amount.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

13. Vertical analysis is a more sophisticated analytical tool than horizontal analysis.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

14. Vertical analysis is useful in making comparisons of companies of different sizes.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

15. Meaningful analysis of financial statements will include either horizontal or vertical analysis, but not both.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

16. Using vertical analysis of the income statement, a company’s net income as a percentage of net sales is 10%; therefore, the cost of goods sold as a percentage of sales must be 90%.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement

17. In the vertical analysis of the income statement, each item is generally stated as a percentage of net income.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

18. A ratio can be expressed as a percentage, a rate, or a proportion.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

19. A solvency ratio measures the income or operating success of an enterprise for a given period of time.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

20. The current ratio is a measure of all the ratios calculated for the current year.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

21. Inventory turnover measures the number of times on the average the inventory was sold during the period.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
22. Profitability ratios are frequently used as a basis for evaluating management’s operating effectiveness.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

23. The rate of return on total assets will be greater than the rate of return on common stockholders’ equity if the company has been successful in trading on the equity at a gain.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement

24. From a creditor’s point of view, the higher the total debt to total assets ratio, the lower the risk that the company may be unable to pay its obligations.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Investment Decisions

25. A current ratio of 1.2 to 1 indicates that a company’s current assets exceed its current liabilities.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement

26. Using borrowed money to increase the rate of return on common stockholders’ equity is called “trading on the equity.”

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

27. When the disposal of a significant segment occurs, the income statement should report both income from continuing operations and income (loss) from discontinued operations.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communcations, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

28. An event or transaction should be classified as an extraordinary item if it is unusual in nature or if it occurs infrequently.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

29. Variations among companies in the application of generally accepted accounting principles may reduce quality of earnings.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

30. Pro forma income usually excludes items that the company thinks are unusual or nonrecurring.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communcations, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

31. The three basic tools of analysis are horizontal analysis, vertical analysis, and ratio analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

32. A percentage change can be computed only if the base amount is zero or positive.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

33. In vertical analysis, the base amount in an income statement is usually net sales.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

34. Profitability ratios measure the ability of the enterprise to survive over a long period of time.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
35. The days in inventory is computed by multiplying inventory turnover by 365.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

36. Extraordinary items are reported net of applicable taxes in a separate section of the income statement.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

MULTIPLE CHOICE QUESTIONS
37. Which one of the following is primarily interested in the liquidity of a company?
a. Federal government
b. Stockholders
c. Long-term creditors
d. Short-term creditors

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

38. Which one of the following is not a characteristic generally evaluated in analyzing financial statements?
a. Liquidity
b. Profitability
c. Marketability
d. Solvency

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

39. In analyzing the financial statements of a company, a single item on the financial statements
a. should be reported in bold-face type.
b. is more meaningful if compared to other financial information.
c. is significant only if it is large.
d. should be accompanied by a footnote.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

40. Short-term creditors are usually most interested in evaluating
a. solvency.
b. liquidity.
c. marketability.
d. profitability.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics
41. Long-term creditors are usually most interested in evaluating
a. liquidity and solvency.
b. solvency and marketability.
c. liquidity and profitability.
d. profitability and solvency.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

42. Stockholders are most interested in evaluating
a. liquidity and solvency.
b. profitability and solvency.
c. liquidity and profitability.
d. marketability and solvency.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

43. A stockholder is interested in the ability of a firm to
a. pay consistent dividends.
b. appreciate in share price.
c. survive over a long period.
d. all of these.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

44. Comparisons of financial data made within a company are called
a. intracompany comparisons.
b. interior comparisons.
c. intercompany comparisons.
d. intramural comparisons.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

45. A technique for evaluating financial statements that expresses the relationship among selected items of financial statement data is
a. common size analysis.
b. horizontal analysis.
c. ratio analysis.
d. vertical analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

46. Which one of the following is not a tool in financial statement analysis?
a. Horizontal analysis
b. Circular analysis
c. Vertical analysis
d. Ratio analysis

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

47. In analyzing financial statements, horizontal analysis is a
a. requirement.
b. tool.
c. principle.
d. theory.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

48. Horizontal analysis is also called
a. linear analysis.
b. vertical analysis.
c. trend analysis.
d. common size analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

49. Vertical analysis is also known as
a. perpendicular analysis.
b. common size analysis.
c. trend analysis.
d. straight-line analysis.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

50. In ratio analysis, the ratios are never expressed as a
a. rate.
b. negative figure.
c. percentage.
d. simple proportion.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

51. The formula for horizontal analysis of changes since the base period is the current year amount
a. divided by the base year amount.
b. minus the base year amount divided by the base year amount.
c. minus the base year amount divided by the current year amount.
d. plus the base year amount divided by the base year amount.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

52. Horizontal analysis evaluates a series of financial statement data over a period of time
a. that has been arranged from the highest number to the lowest number.
b. that has been arranged from the lowest number to the highest number.
c. to determine which items are in error.
d. to determine the amount and/or percentage increase or decrease that has taken place.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

53. Horizontal analysis evaluates financial statement data
a. within a period of time.
b. over a period of time.
c. on a certain date.
d. as it may appear in the future.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

54. Assume the following sales data for a company:
2014 $1,050,000
2013 950,000
2012 800,000
2011 550,000
If 2011 is the base year, what is the percentage increase in sales from 2011 to 2013?
a. 100%
b. 90.9%
c. 72.7%
d. 52.4%

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

55. Comparative balance sheets are usually prepared for
a. one year.
b. two years.
c. three years.
d. four years.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

56. Horizontal analysis is appropriately performed
a. only on the income statement.
b. only on the balance sheet.
c. only on the statement of retained earnings.
d. on all three of these statements.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

57. A horizontal analysis performed on a statement of retained earnings would not show a percentage change in
a. dividends paid.
b. net income.
c. expenses.
d. beginning retained earnings.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

58. Under which of the following cases may a percentage change be computed?
a. The trend of the balances is decreasing but all balances are positive.
b. There is no balance in the base year.
c. There is a positive balance in the base year and a negative balance in the subsequent year.
d. There is a negative balance in the base year and a positive balance in the subsequent year.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

59. Assume the following sales data for a company:
2014 $945,000
2013 877,500
2012 650,000
If 2012 is the base year, what is the percentage increase in sales from 2012 to 2013?
a. 24%
b. 35%
c. 76%
d. 135%

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

60. Assume the following cost of goods sold data for a company:
2014 $1,680,000
2013 1,400,000
2012 1,200,000
If 2012 is the base year, what is the percentage increase in cost of goods sold from 2012 to 2014?
a. 140%
b. 40%
c. 23%
d. 17%

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

61. Darius, Inc. has the following income statement (in millions):
DARIUS, INC.
Income Statement
For the Year Ended December 31, 2013
Net Sales $300
Cost of Goods Sold 120
Gross Profit 180
Operating Expenses 44
Net Income $136

MC 61. (Cont.)

Using vertical analysis, what percentage is assigned to Cost of Goods Sold?
a. 30%
b. 40%
c. 100%
d. None of the above

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

62. Darius, Inc. has the following income statement (in millions):
DARIUS, INC.
Income Statement
For the Year Ended December 31, 2013
Net Sales $300
Cost of Goods Sold 120
Gross Profit 180
Operating Expenses 44
Net Income $136

Using vertical analysis, what percentage is assigned to Net Income?
a. 100%
b. 75.6%
c. 45.3%
d. None of the above

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

63. Vertical analysis is also called
a. common size analysis.
b. horizontal analysis.
c. ratio analysis.
d. trend analysis.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

64. Vertical analysis is a technique which expresses each item within a financial statement
a. in dollars and cents.
b. in terms of a percentage of the item in the previous year.
c. in terms of a percent of a base amount.
d. starting with the highest value down to the lowest value.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

65. In common size analysis,
a. a base amount is required.
b. a base amount is optional.
c. the same base is used across all financial statements analyzed.
d. the results of the horizontal analysis are necessary inputs for performing the analysis.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

66. In performing a vertical analysis, the base for prepaid expenses is
a. total current assets.
b. total assets.
c. total liabilities and stockholders’ equity.
d. prepaid expenses.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

67. In performing a vertical analysis, the base for sales revenues on the income statement is
a. net sales.
b. sales.
c. net income.
d. cost of goods available for sale.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

68. In performing a vertical analysis, the base for sales returns and allowances is
a. sales.
b. sales discounts.
c. net sales.
d. total revenues.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

69. In performing a vertical analysis, the base for cost of goods sold is
a. total selling expenses.
b. net sales.
c. total revenues.
d. total expenses.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

70. Each of the following is a liquidity ratio except the
a. acid-test ratio.
b. current ratio.
c. debt to total assets ratio.
d. inventory turnover.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

71. A ratio calculated in the analysis of financial statements
a. expresses a mathematical relationship between two numbers.
b. shows the percentage increase from one year to another.
c. restates all items on a financial statement in terms of dollars of the same purchasing power.
d. is meaningful only if the numerator is greater than the denominator.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

72. A liquidity ratio measures the
a. income or operating success of an enterprise over a period of time.
b. ability of the enterprise to survive over a long period of time.
c. short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash.
d. number of times interest is earned.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

73. The current ratio is
a. calculated by dividing current liabilities by current assets.
b. used to evaluate a company’s liquidity and short-term debt paying ability.
c. used to evaluate a company’s solvency and long-term debt paying ability.
d. calculated by subtracting current liabilities from current assets.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

74. The acid-test (quick) ratio
a. is used to quickly determine a company’s solvency and long-term debt paying ability.
b. relates cash, short-term investments, and net receivables to current liabilities.
c. is calculated by taking one item from the income statement and one item from the balance sheet.
d. is the same as the current ratio except it is rounded to the nearest whole percent.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

75. Harvey Clothing Store had a balance in the Accounts Receivable account of $390,000 at the beginning of the year and a balance of $410,000 at the end of the year. Net credit sales during the year amounted to $3,000,000. The average collection period of the receivables in terms of days was
a. 30 days.
b. 365 days.
c. 274 days.
d. 48.7 days.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

76. Parker Hardware Store had net credit sales of $8,000,000 and cost of goods sold of $5,000,000 for the year. The Accounts Receivable balances at the beginning and end of the year were $600,000 and $700,000, respectively. The receivables turnover was
a. 7.7 times.
b. 4.6 times.
c. 11.4 times.
d. 12.3 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

77. Wagon Department Store had net credit sales of $16,000,000 and cost of goods sold of $15,000,000 for the year. The average inventory for the year amounted to $2,000,000. Inventory turnover for the year is
a. 8 times.
b. 15 times.
c. 7.5 times.
d. 5 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

78. Wagon Department Store had net credit sales of $16,000,000 and cost of goods sold of $15,000,000 for the year. The average inventory for the year amounted to $2,000,000. The average number of days in inventory during the year was
a. 365 days.
b. 48.7 days.
c. 46 days.
d. 30 days.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

79. Each of the following is included in computing the acid-test ratio except
a. cash.
b. inventory.
c. receivables.
d. short-term investments.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

80. Which one of the following would not be considered a liquidity ratio?
a. Current ratio
b. Inventory turnover
c. Acid-test ratio
d. Return on assets

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

81. Asset turnover measures
a. how often a company replaces its assets.
b. how efficiently a company uses its assets to generate sales.
c. the portion of the assets that have been financed by creditors.
d. the overall rate of return on assets.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

82. Profit margin is calculated by dividing
a. sales by cost of goods sold.
b. gross profit by net sales.
c. net income by stockholders’ equity.
d. net income by net sales.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

83. Stout Corporation had net income of $200,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Stout Corporation’s common stock is selling for $75 per share on the New York Stock Exchange. Stout Corporation’s price-earnings ratio is
a. 3.8 times.
b. 15 times.
c. 18.8 times.
d. 12 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

84 Stout Corporation had net income of $200,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Stout Corporation’s common stock is selling for $60 per share on the New York Stock Exchange. Stout Corporation’s payout ratio for 2013 is
a. $4 per share.
b 25%.
c. 20%.
d. 12.5%.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

85 Flake Company reported the following on its income statement:
Income before income taxes $600,000
Income tax expense 150,000
Net income $450,000
An analysis of the income statement revealed that interest expense was $50,000. Flake Company’s times interest earned was
a. 13 times.
b. 12 times.
c. 6 times.
d. 7 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

86. The debt to total assets ratio measures
a. the company’s profitability.
b. whether interest can be paid on debt in the current year.
c. the proportion of interest paid relative to dividends paid.
d. the percentage of the total assets provided by creditors.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

87. Trading on the equity (leverage) refers to the
a. amount of working capital.
b. amount of capital provided by owners.
c. use of borrowed money to increase the return to owners.
d. number of times interest is earned.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

88. The current assets of Margo Company are $300,000. The current liabilities are $100,000. The current ratio expressed as a proportion is
a. 300%.
b. 3.0 : 1
c. .33 : 1
d. $300,000 ÷ $100,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

89. The current ratio may also be referred to as the
a. short run ratio.
b. acid-test ratio.
c. working capital ratio.
d. contemporary ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

90. A weakness of the current ratio is
a. the difficulty of the calculation.
b. that it doesn’t take into account the composition of the current assets.
c. that it is rarely used by sophisticated analysts.
d. that it can be expressed as a percentage, as a rate, or as a proportion.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

91. A supplier to a company would be most interested in the company’s
a. asset turnover.
b. profit margin.
c. current ratio.
d. earnings per share.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

92. Which one of the following ratios would not likely be used by a short-term creditor in evaluating whether to sell on credit to a company?
a. Current ratio
b. Acid-test ratio
c. Asset turnover
d. Receivables turnover

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

93. Ratios are used as tools in financial analysis
a. instead of horizontal and vertical analyses.
b. because they may provide information that is not apparent from inspection of the individual components of the ratio.
c. because even single ratios by themselves are quite meaningful.
d. because they are prescribed by GAAP.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

94. The ratios that are used to determine a company’s short-term debt paying ability are
a. asset turnover, times interest earned, current ratio, and receivables turnover.
b. times interest earned, inventory turnover, current ratio, and receivables turnover.
c. times interest earned, acid-test ratio, current ratio, and inventory turnover.
d. current ratio, acid-test ratio, receivables turnover, and inventory turnover.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

95. A measure of the percentage of each dollar of sales that results in net income is
a. profit margin.
b. return on assets.
c. return on common stockholders’ equity.
d. earnings per share.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

96. West Company had $375,000 of current assets and $150,000 of current liabilities before borrowing $75,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on the amount of West Company’s working capital?
a. No effect
b. $75,000 increase
c. $150,000 increase
d. $75,000 decrease

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

97. West Company had $375,000 of current assets and $150,000 of current liabilities before borrowing $75,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on West Company’s current ratio?
a. The ratio remained unchanged.
b. The change in the current ratio cannot be determined.
c. The ratio decreased.
d. The ratio increased.

Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

98. If equal amounts are added to the numerator and the denominator of the current ratio, the ratio will always
a. increase.
b. decrease.
c. stay the same.
d. equal zero.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

99. The acid-test ratio
a. is a quick calculation of an approximation of the current ratio.
b. does not include all current liabilities in the calculation.
c. does not include inventory as part of the numerator.
d. does include prepaid expenses as part of the numerator.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

100. If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio?
Short-term Borrowing Collection of Receivable
a. Increase No effect
b. Increase Increase
c. Decrease No effect
d. Decrease Decrease

Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

101. A company has a receivables turnover of 10 times. The average receivables during the period are $500,000. What is the amount of net credit sales for the period?
a. $50,000
b. $5,000,000
c. $500,000
d. Cannot be determined from the information given

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

102. If the average collection period is 60 days, what is the receivables turnover?
a. 6.0 times
b. 6.1 times
c. 12.2 times
d. None of these

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

103. A general rule to use in assessing the average collection period is that
a. it should not exceed 30 days.
b. it can be any length as long as the customer continues to buy merchandise.
c. it should not greatly exceed the discount period.
d. it should not greatly exceed the credit term period.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

104. Inventory turnover is calculated by dividing
a. cost of goods sold by the ending inventory.
b. cost of goods sold by the beginning inventory.
c. cost of goods sold by the average inventory.
d. average inventory by cost of goods sold.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

105. A company has an average inventory on hand of $40,000 and the days in inventory is 73 days. What is the cost of goods sold?
a. $200,000
b. $2,920,000
c. $400,000
d. $1,460,000

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

106. A successful grocery store would probably have
a. a low inventory turnover.
b. a high inventory turnover.
c. zero profit margin.
d. low volume.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

107. An aircraft company would most likely have
a. a high inventory turnover.
b. low profit margin.
c. high volume.
d. a low inventory turnover.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

108. Net sales are $6,000,000, beginning total assets are $2,800,000, and the asset turnover is 3.0 times. What is the ending total asset balance?
a. $2,000,000
b. $1,200,000
c. $2,800,000
d. $2,200,000

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

109. Earnings per share is calculated
a. only for common stock.
b. only for preferred stock.
c. for common and preferred stock.
d. only for treasury stock.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

110. Which of the following is not a profitability ratio?
a. Payout ratio
b. Profit margin
c. Times interest earned
d. Return on common stockholders’ equity

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

111. Times interest earned is also called the
a. money multiplier.
b. interest coverage ratio.
c. coupon coverage ratio.
d. premium ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

112. The ratio that uses weighted average common shares outstanding in the denominator is the
a. price-earnings ratio.
b. return on common stockholders’ equity.
c. earnings per share.
d. payout ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

113. Net income does not appear in the numerator of the
a. profit margin.
b. return on assets.
c. return on common stockholders’ equity.
d. payout ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

114. Bria Clothing Store had a balance in the Accounts Receivable account of $920,000 at the beginning of the year and a balance of $980,000 at the end of the year. Net credit sales during the year amounted to $7,600,000. The receivables turnover ratio was
a. 8.0 times.
b. 8.4 times.
c. 7.8 times.
d. 8.3 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

115. Bria Clothing Store had a balance in the Accounts Receivable account of $810,000 at the beginning of the year and a balance of $850,000 at the end of the year. Net credit sales during the year amounted to $6,640,000. The average collection period of the receivables in terms of days was
a. 91.3 days.
b. 45.6 days.
c. 30 days.
d. 46.7 days.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

116. Donner Corporation had net income of $200,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Donner Corporation’s common stock is selling for $35 per share on the New York Stock Exchange. Donner Corporation’s price-earnings ratio is
a. 5 times.
b. 8.75 times.
c. 4 times.
d. 10.9 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

117. Donner Corporation had net income of $400,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Donner Corporation’s common stock is selling for $50 per share on the New York Stock Exchange. Donner Corporation’s payout ratio for 2013 is
a. $8 per share.
b. 10%.
c. 12.5%.
d. 20%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

118. Town Company reported the following on its income statement:
Income before income taxes $750,000
Income tax expense 150,000
Net income $600,000
An analysis of the income statement revealed that interest expense was $100,000. Town Company’s times interest earned was
a. 5 times.
b. 8.5 times.
c. 6 times.
d. 7.5 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

119. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 210,000
Total Assets $300,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $300,000

Income Statement
Sales $ 120,000
Cost of goods sold 66,000
Gross profit 54,000
Operating expenses 30,000
Net income $ 24,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

MC 119. (Cont.)

What is the current ratio for Sampson?
a. 1.80
b. 1.30
c. 1.40
d. .64

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

120. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 35,000
Inventory 20,000
Property, plant and equipment 210,000
Total Assets $310,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $310,000

Income Statement
Sales $ 105,000
Cost of goods sold 66,000
Gross profit 39,000
Operating expenses 30,000
Net income $ 9,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

What is the receivables turnover for Sampson?
a. 1.5 times
b. 1.1 times
c. 3.0 times
d. 12.9 times

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

121. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 11,000
Property, plant and equipment 210,000
Total Assets $291,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 151,000
Total Liabilities and Stockholders’ Equity $291,000

Income Statement
Sales $ 120,000
Cost of goods sold 55,000
Gross profit 65,000
Operating expenses 30,000
Net income $ 35,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

What is the inventory turnover for Sampson?
a. 3.2 times
b. 5 times
c. 10.9 times
d. 0.20 times

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

122. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 210,000
Total Assets $300,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $300,000

MC 122. (Cont.)
Income Statement
Sales $ 120,000
Cost of goods sold 66,000
Gross profit 54,000
Operating expenses 30,000
Net income $ 24,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

What is the return on assets for Sampson?
a. 8.0%
b. 7.0%
c. 18.0%
d. 16.0%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

123. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 310,000
Total Assets $400,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 260,000
Total Liabilities and Stockholders’ Equity $400,000

Income Statement
Sales $ 300,000
Cost of goods sold 66,000
Gross profit 234,000
Operating expenses 30,000
Net income $ 204,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

MC 123. (Cont.)

What is the profit margin for Sampson?
a. 115%
b. 28.2%
c. 68%
d. 51%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

124. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 230,000
Total Assets $320,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 180,000
Total Liabilities and Stockholders’ Equity $320,000

Income Statement
Sales $ 150,000
Cost of goods sold 66,000
Gross profit 84,000
Operating expenses 30,000
Net income $ 54,000

Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50

What is the return on common stockholders’ equity for Sampson?
a. 30%
b. 46.7%
c. 36%
d. 16.9%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

125. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 210,000
Total Assets $300,000

Liabilities and Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $300,000

Income Statement
Sales $ 120,000
Cost of goods sold 66,000
Gross profit 54,000
Operating expenses 18,000
Net income $ 36,000

Number of shares of common stock 6,000
Market price of common stock $33
Dividends per share .50

What is the price-earnings ratio for Sampson?
a. 5.5 times
b. 1.1 times
c. 6 times
d. 6.6 times

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

126. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 25,000
Property, plant and equipment 215,000
Total Assets $310,000
Liabilities and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 175,000
Total Liabilities and Stockholders’ Equity $310,000

MC 126. (Cont.)
Income Statement
Sales $ 90,000
Cost of goods sold 45,000
Gross profit 45,000
Operating expenses 25,000
Net income $ 20,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends per share 1.00

What is the return on assets for Eura?
a. 4.8%
b. 9.7%
c. 6.5%
d. 12.9%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

127. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 25,000
Property, plant and equipment 215,000
Total Assets $310,000
Liabilities and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 175,000
Total Liabilities and Stockholders’ Equity $310,000
Income Statement
Sales $ 135,000
Cost of goods sold 45,000
Gross profit 90,000
Operating expenses 25,000
Net income $ 65,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends per share 1.00

What is the profit margin for Eura?
a. 27.8%
b. 51.9%
c. 72.2%
d. 48.1%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
128. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 45,000
Property, plant and equipment 215,000
Total Assets $330,000
Liabilities and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 195,000
Total Liabilities and Stockholders’ Equity $330,000
Income Statement
Sales $ 90,000
Cost of goods sold 45,000
Gross profit 45,000
Operating expenses 30,000
Net income $ 15,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends per share 1.00

What is the return on common stockholders’ equity for Eura?
a. 4.8%
b. 7.7%
c. 23.1%
d. 46.2%

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

129. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 25,000
Property, plant and equipment 215,000
Total Assets $310,000
Liabilities and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 175,000
Total Liabilities and Stockholders’ Equity $310,000

MC 129. (Cont.)
Income Statement
Sales $ 90,000
Cost of goods sold 45,000
Gross profit 45,000
Operating expenses 25,000
Net income $ 20,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends per share 1.00

What is the price-earnings ratio for Eura?
a. 5 times
b. 4.0 times
c. 7.3 times
d. 5.5 times

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

130. The following information is available for Compton Company:

2013 2012
Accounts receivable $ 460,000 $ 500,000
Inventory 280,000 320,000
Net credit sales 2,470,000 1,400,000
Cost of goods sold 1,860,000 1,060,000
Net income 300,000 170,000

The receivables turnover ratio for 2013 is
a. 1.6 times.
b. 5.4 times.
c. 5.1 times.
d. 3.9 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

131. The following information is available for Compton Company:

2013 2012
Accounts receivable $ 360,000 $ 400,000
Inventory 340,000 420,000
Net credit sales 2,470,000 1,400,000
Cost of goods sold 1,860,000 1,060,000
Net income 300,000 170,000

The inventory turnover ratio for 2013 is
a. 6.2 times.
b. 4.9 times.
c. 5.5 times.
d. 4.4 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

132. The following amounts were taken from the financial statements of Plant Company:
2013 2012
Total assets $800,000 $1,000,000
Net sales 720,000 650,000
Gross profit 352,000 320,000
Net income 126,000 117,000
Weighted average number of common shares outstanding 90,000 90,000
Market price of common stock $35 $39

The return on assets ratio for 2013 is
a. 16%.
b. 14%.
c. 32%.
d. 28%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

133. The following amounts were taken from the financial statements of Plant Company:
2013 2012
Total assets $800,000 $1,000,000
Net sales 840,000 650,000
Gross profit 352,000 320,000
Net income 155,400 117,000
Weighted average number of common shares outstanding 90,000 90,000
Market price of common stock $35 $39

The profit margin ratio for 2013 is
a. 19.4%.
b. 44.1%.
c. 18.5%.
d. 10.7%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

134. The following amounts were taken from the financial statements of Plant Company:
2013 2012
Total assets $800,000 $1,000,000
Net sales 720,000 650,000
Gross profit 352,000 320,000
Net income 150,000 117,000
Weighted average number of common shares outstanding 60,000 90,000
Market price of common stock $67.50 $39

The price-earnings ratio for 2013 is
a. 27 times.
b. 45 times.
c. 11 times.
d. 2.5 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
135. Star Corporation had net income of $300,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Star Corporation’s common stock is selling for $36 per share on the New York Stock Exchange.

Star Corporation’s price-earnings ratio is
a. 5.2 times.
b. 6 times.
c. 18 times.
d. 6.9 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

136. Star Corporation had net income of $320,000 and paid dividends to common stockholders of $80,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Star Corporation’s common stock is selling for $30 per share on the New York Stock Exchange.

Star Corporation’s payout ratio for 2013 is
a. 16%.
b. 25%.
c. 9%.
d. $4 per share.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

137. The following financial statement information is available for Houser Corporation:
2013 2012
Inventory $ 44,000 $ 43,000
Current assets 81,000 106,000
Total assets 432,000 358,000
Current liabilities 30,000 36,000
Total liabilities 102,000 88,000

The current ratio for 2013 is
a. .37:1.
b. 2.7:1.
c. .79:1.
d. 4.24:1.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

138. The following financial statement information is available for Jones Corporation:
2013 2012
Net sales $784,000 $697,000
Cost of goods sold 406,000 377,000
Net income 112,000 80,000
Tax expense 48,000 29,000
Interest expense 14,000 14,000

The profit margin ratio for 2013 is
a. 14.3%.
b. 16.1%.
c. 48.2%.
d. 11.7%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

139. The following financial statement information is available for Henn Corporation:
2013 2012
Stockholders’ equity – common $330,000 $270,000
Net sales 784,000 697,000
Cost of goods sold 406,000 377,000
Net income 112,000 80,000
Inc tax expense 48,000 29,000
Interest expense 14,000 14,000
Dividends paid to preferred
stockholders 22,000 20,000
Dividends paid to common
stockholders 15,000 10,000
The return on common stockholders’ equity for 2013 is
a. 25.0%.
b. 37.3%.
c. 27.3%.
d. 30.0%.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

140. The following financial statement information is available for Bongo Corporation:
2013 2012
Net income $115,000 $ 80,000
Income tax expense 50,000 29,000
Interest expense 15,000 14,000
Dividends paid to preferred
stockholders 22,000 20,000
Dividends paid to preferred
stockholders 15,000 10,000

The times interest earned for 2013 is
a. 8.8 times.
b. 7.7 times.
c. 12 times.
d. 11 times.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

141. Dean Corporation reported net income $48,000, net sales $400,000, and average assets $800,000 for 2013. The 2013 profit margin was:
a. 6%.
b. 12%.
c. 50%.
d. 200%.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

142. Goin Company reports the following amounts for 2013:
Net income $ 150,000
Average stockholders’ equity 2,000,000
Preferred dividends 48,000
Par value preferred stock 200,000

The 2013 rate of return on common stockholders’ equity is:
a. 5.1%.
b. 5.7%.
c. 7.5%.
d. 8.3%.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

143. Gamble Corporation had beginning inventory $100,000, cost of goods purchased $700,000, and ending inventory $140,000. What was Gamble’s inventory turnover?
a. 5 times.
b. 5.5 times.
c. 5.83 times.
d. 6.6 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

144. In 2013 Shum Corporation reported income from operations $180,000, interest expense $50,000, and income tax expense $40,000. Shum’s times interest earned ratio was:
a. 5.4 times.
b. 4.6 times.
c. 4.4 times.
d. 3.6 times.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

145. Reynolds Company has income before taxes of $360,000 and an extraordinary loss of $80,000. If the income tax rate is 30% on all items, the income statement should show income before irregular items and an extraordinary loss, respectively, of:
a. $360,000 and ($80,000)
b. $252,000 and ($24,000)
c. $252,000 and ($56,000)
d. $108,000 and ($24,000)

Ans: LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

146. All of the following statements regarding changes in accounting principles are true except:
a. Most changes in accounting principles are only reported in current periods when the principle change takes place.
b. Changes in accounting principles are allowed when new principles are preferable to old ones.
c. Most changes in accounting principles are retroactively reported.
d. Consistency is one of the biggest concerns when a change in accounting principle is undertaken.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

147. Alpha’s Bunny Barn has experienced a $60,000 loss due to tornado damage to its inventory. Tornados have never before occurred in this area. Assuming that the company’s tax rate is 30%, what amount will be reported for this loss on the income statement?
a. $60,000
b. $42,000
c. $18,000
d. $54,000

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

148. Wing Company reported income before taxes of $900,000 and an extraordinary loss of $250,000. Assume that the company’s tax rate is 30%. What amounts will be reported on the income statement for income before irregular items and extraordinary items, respectively?
a. $630,000 and $250,000
b. $630,000 and $175,000
c. $650,000 and $250,000
d. $650,000 and $175,000

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

149. Krug Corporation has income before taxes of $900,000 and an extraordinary gain of $300,000. If the income tax rate is 25% on all items, the income statement should show income before irregular items and extraordinary items, respectively, of
a. $600,000 and $300,000.
b. $600,000 and $225,000.
c. $675,000 and $300,000.
d. $675,000 and $225,000.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

150. Hook Inc. has an investment in available-for-sale securities of $80,000. This investment experienced an unrealized loss of $5,000 during the current year. Assuming a 35% tax rate, the effect of this loss on comprehensive income will be
a. no effect.
b. $80,000 increase.
c. $28,000 decrease.
d. $5,000 decrease.

Ans: LO: 6, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

151. The disposal of a significant component of a business is called
a. a change in accounting principle.
b. an extraordinary item.
c. an other expense.
d. discontinued operations.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

152. ACME Company reports income before income taxes of $2,400,000 and had an extra-ordinary loss of $800,000. If the tax rate is 30%,
a. the income before the extraordinary item is $1,920,000.
b. the extraordinary loss would be reported on the income statement at $800,000.
c. the income before the extraordinary item is $1,680,000.
d. the extraordinary loss will be reported at $240,000.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

153. Eaton, Inc. disposes of an unprofitable segment of its business. The operation of the segment suffered a $360,000 loss in the year of disposal. The loss on disposal of the segment was $180,000. If the tax rate is 30%, and income before income taxes was $2,250,000,
a. the income tax expense on the income before discontinued operations is $513,000.
b. the income from continuing operations is $1,575,000.
c. net income is $1,710,000.
d. the losses from discontinued operations are reported net of income taxes at $270,000.

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

154. Each of the following is an extraordinary item except the
a. effects of major casualties, if rare in the area.
b. effects of a newly enacted law or regulation.
c. expropriation of property by a foreign government.
d. losses attributable to labor strikes.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

155. The discontinued operations section of the income statement refers to
a. discontinuance of a product line.
b. the income or loss on products that have been completed and sold.
c. obsolete equipment and discontinued inventory items.
d. the disposal of a significant segment of a business.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

156. Which one of the following would be classified as an extraordinary item?
a. Expropriation of property by a foreign government
b. Losses attributed to a labor strike
c. Write-down of inventories
d. Gains or losses from sales of equipment

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

157. A loss on the write down of obsolete inventory should be reported as
a. “other expenses and losses.”
b. part of discontinued operations.
c. an operating expense.
d. an extraordinary item.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

158. If an item meets one (but not both) of the criteria for an extraordinary item, it
a. only needs to be disclosed in the footnotes of the financial statements.
b. may be treated as sales revenue (if it is a gain) and as an operating expense (if it is a loss).
c. is reported as an “other revenue or gain” or “other expense and loss,” net of tax.
d. is reported at its gross amount as an “other revenue or gain” or “other expense or loss.”

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

159. The order of presentation of nontypical items that may appear on the income statement is
a. Extraordinary items, Discontinued operations, Other revenues and expenses.
b. Discontinued operations, Extraordinary items, Other revenues and expenses.
c. Other revenues and expenses, Discontinued operations, Extraordinary items.
d. Other revenues and expenses, Extraordinary items, Discontinued operations.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

160. Each of the following is a factor affecting quality of earnings except
a. alternative accounting methods.
b. improper recognition.
c. pro forma income.
d. extraordinary items.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

161. Comparisons can be made on each of the following bases except
a. industry averages.
b. intercompany basis.
c. intracompany basis.
d. Each of these is a basis for comparison.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

162. Comparisons of data within a company are an example of the following comparative basis:
a. Industry averages
b. Intercompany
c. Intracompany
d. Interregional

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

163. Center Corporation reported net sales of $200,000, $350,000, and $550,000 in the years 2012, 2013, and 2014 respectively. If 2012 is the base year, what is the trend percentage for 2014?
a. 100%
b. 75%
c. 175%
d. 275%

Ans: LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

164. In vertical analysis, the base amount for each income statement item is
a. gross profit.
b. net income.
c. net sales.
d. sales.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

165. When performing vertical analysis, the base amount for administrative expense is generally
a. administrative expense in a previous year.
b. net sales.
c. gross profit.
d. fixed assets.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

166. Ratios that measure the short-term ability of the company to pay its maturing obligations are
a. liquidity ratios.
b. profitability ratios.
c. solvency ratios.
d. trend ratios.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

167. What type of ratios best measure the short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash?
a. Leverage
b. Solvency
c. Profitability
d. Liquidity

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

168. The acid-test ratio is also known as the
a. current ratio.
b. quick ratio.
c. fast ratio.
d. times interest earned ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

169. The debt to total assets ratio
a. is a solvency ratio.
b. is computed by dividing total assets by total debt.
c. measures the total assets provided by stockholders.
d. is a profitability ratio.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

170. An extraordinary item is one that
a. occurs infrequently and is uncontrollable in nature.
b. occurs infrequently and is unusual in nature.
c. is material and is unusual in nature.
d. is material and is uncontrollable in nature.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

171. Parrish, Inc. decided on January 1 to discontinue its telescope manufacturing division. On July 1, the division’s assets with a book value of $1,250,000 are sold for $850,000. Operating income from January 1 to June 30 for the division amounted to $125,000. Ignoring income taxes, what total amount should be reported on Parrish’s income statement for the current year under the caption, Discontinued Operations?
a. $125,000
b. $275,000 loss
c. $400,000 loss
d. $525,000

Ans: LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

172. When there has been a change in accounting principle,
a. the old principle should be used in reporting the results of operations for the current year.
b. the cumulative effect of the change should be reported in the current year’s retained earnings statement.
c. the change should be reported retroactively.
d. the new principle should be used in reporting the results of operations of the current year, but there is no change to prior years.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

ACC 560 Week 5 Quiz – Strayer University NEW

ACC/560 Week 5 Quiz – Strayer NEW

Click On The Link Below to Purchase A+ Graded Material
Instant Download

http://www.hwgala.com/ACC-560-Week-5-Quiz-Strayer-NEW-ACC560W5Q.htm

 

Week 5 Quiz 4: Chapters 5 and 6

Chapter 5

TRUE-FALSE STATEMENTS
1. An activity index identifies the activity that has a causal relationship with a particular cost.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

2. A variable cost remains constant per unit at various levels of activity.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

3. A fixed cost remains constant in total and on a per unit basis at various levels of activity.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

4. If volume increases, all costs will increase.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

5. If the activity index decreases, total variable costs will decrease proportionately.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

6. Changes in the level of activity will cause unit variable and unit fixed costs to change in opposite directions.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

7. For CVP analysis, both variable and fixed costs are assumed to have a linear relationship within the relevant range of activity.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

8. The relevant range of activity is the activity level where the firm will earn income.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

9. Costs will not change in total within the relevant range of activity.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

10. The high-low method is used in classifying a mixed cost into its variable and fixed elements.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

11. A mixed cost has both selling and administrative cost elements.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

12. The fixed cost element of a mixed cost is the cost of having a service available.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

13. For planning purposes, mixed costs are generally grouped with fixed costs.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

14. The difference between the costs at the high and low levels of activity represents the fixed cost element of a mixed cost.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

15. When applying the high-low method, the variable cost element of a mixed cost is calculated before the fixed cost element.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

16. An assumption of CVP analysis is that all costs can be classified as either variable or fixed.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

17. In CVP analysis, the term “cost” includes manufacturing costs, and selling and administrative expenses.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

18. Contribution margin is the amount of revenues remaining after deducting cost of goods sold.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

19. Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to income.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

20. The contribution margin ratio is calculated by multiplying the unit contribution margin by the unit sales price.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

21. Both variable and fixed costs are included in calculating the contribution margin.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

22. A CVP income statement shows contribution margin instead of gross profit.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

23. The break-even point is where total sales equal total variable costs.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

24. The break-even point is where total sales equal total variable costs.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

25. The break-even point is equal to the fixed costs plus net income.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

26. If the unit contribution margin is $1 and unit sales are 10,000 units above the break-even volume, then net income will be $10,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

27. A target net income is calculated by taking actual sales minus the margin of safety.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

28. Target net income is the income objective for an individual product line.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

29. The margin of safety is the difference between sales at breakeven and sales at a determined activity level.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

30. The margin of safety is the difference between contribution margin and fixed costs.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

31. The activity level is represented by an activity index such as direct labor hours, units of output, or sales dollars.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

32. The trend in most companies is to have more variable costs and fewer fixed costs.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

33. For purposes of CVP analysis, mixed costs must be classified into their fixed and variable elements.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

34. The contribution margin ratio of 40% means that 60 cents of each sales dollar is available to cover fixed costs and to produce a profit.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

35. A cost-volume-profit graph shows the amount of net income or loss at each level of sales.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

36. If variable costs per unit are 70% of sales, fixed costs are $290,000 and target net income is $70,000, required sales are $1,200,000.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
37. The margin of safety ratio is equal to the margin of safety in dollars divided by the actual or (expected) sales.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

MULTIPLE CHOICE QUESTIONS
38. For an activity base to be useful in cost behavior analysis,
a. the activity should always be stated in dollars.
b. there should be a correlation between changes in the level of activity and changes in costs.
c. the activity should always be stated in terms of units.
d. the activity level should be constant over a period of time.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

39. A variable cost is a cost that
a. varies per unit at every level of activity.
b. occurs at various times during the year.
c. varies in total in proportion to changes in the level of activity.
d. may or may not be incurred, depending on management’s discretion.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

40. A cost which remains constant per unit at various levels of activity is a
a. variable cost.
b. fixed cost.
c. mixed cost.
d. manufacturing cost.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

41. Two costs at Bradshaw Company appear below for specific months of operation.
Month Amount Units Produced
Delivery costs September $ 40,000 40,000
October 55,000 60,000
Utilities September $ 84,000 40,000
October 126,000 60,000
Which type of costs are these?
a. Delivery costs and utilities are both variable.
b. Delivery costs and utilities are both mixed.
c. Utilities are mixed and delivery costs are variable.
d. Delivery costs are mixed and utilities are variable.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Quantitative Methods

42. An increase in the level of activity will have the following effects on unit costs for variable and fixed costs:
Unit Variable Cost Unit Fixed Cost
a. Increases Decreases
b. Remains constant Remains constant
c. Decreases Remains constant
d. Remains constant Decreases

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

43. A fixed cost is a cost which
a. varies in total with changes in the level of activity.
b. remains constant per unit with changes in the level of activity.
c. varies inversely in total with changes in the level of activity.
d. remains constant in total with changes in the level of activity.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

44. Fixed costs normally will not include
a. property taxes.
b. direct labor.
c. supervisory salaries.
d. depreciation on buildings and equipment.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

45. The increased use of automation and less use of the work force in companies has caused a trend towards an increase in
a. both variable and fixed costs.
b. fixed costs and a decrease in variable costs.
c. variable costs and a decrease in fixed costs.
d. variable costs and no change in fixed costs.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Technology, AICPA BB: Industry/Sector Perspective, AICPA FN: Leverage Technology, AICPA PC: None, IMA: Business Economics

46. Cost behavior analysis is a study of how a firm’s costs
a. relate to competitors’ costs.
b. relate to general price level changes.
c. respond to changes in the level of business activity.
d. respond to changes in the gross national product.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

47. Cost behavior analysis applies to
a. retailers.
b. wholesalers.
c. manufacturers.
d. all entities.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

48. If a firm increases its activity level,
a. costs should remain the same.
b. most costs will rise.
c. no costs will remain the same.
d. some costs will change, others will remain the same.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

49. An activity index might be referred to as a cost
a. driver.
b. multiplier.
c. element.
d. correlation.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

50. Cost activity indexes might help classify costs as
a. temporary.
b. permanent.
c. variable.
d. transient.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

51. Which of the following is not a cost classification?
a. Mixed
b. Multiple
c. Variable
d. Fixed

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

52. If the activity level increases 10%, total variable costs will
a. remain the same.
b. increase by more than 10%.
c. decrease by less than 10%.
d. increase 10%.

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

53. Which of the following costs are variable?
Cost 10,000 Units 30,000 Units
1. $100,000 $300,000
2. 40,000 240,000
3. 90,000 90,000
4. 50,000 150,000
a. 1 and 2
b. 1 and 4
c. only 1
d. only 2

Ans:, LO: 1, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Quantitative Methods

54. Changes in activity have a(n) _________ effect on fixed costs per unit.
a. positive
b. negative
c. inverse
d. neutral

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

55. Which of the following is not a fixed cost?
a. Direct materials
b. Depreciation
c. Lease charge
d. Property taxes

Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

56. Why is identification of a relevant range important?
a. It is required under GAAP.
b. Cost behavior outside of the relevant range is not linear, which distorts CVP analysis.
c. It directly impacts the number of units of product a customer buys.
d. It is a cost that is incurred by a company that must be accounted for.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

57. The relevant range of activity refers to the
a. geographical areas where the company plans to operate.
b. activity level where all costs are curvilinear.
c. levels of activity over which the company expects to operate.
d. level of activity where all costs are constant.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

58. Which of the following is not a plausible explanation of why variable costs often behave in a curvilinear fashion?
a. Labor specialization
b. Overtime wages
c. Total variable costs are constant within the relevant range
d. Availability of quantity discounts

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economics

59. Firms operating at 100% capacity
a. are common.
b. are the exception rather than the rule.
c. have no fixed costs.
d. have no variable costs.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Performance Measurement

60. Which of the following would be the least controllable fixed costs?
a. Property taxes
b. Rent
c. Research and development
d. Management training programs

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

61. Which one of the following is a name for the range over which a company expects to operate?
a. Mixed range
b. Fixed range
c. Variable range
d. Relevant range

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

62. If graphed, fixed costs that behave in a curvilinear fashion resemble a(n)
a. S-curve.
b. inverted S-curve.
c. straight line.
d. stair-step pattern.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

63. The graph of variable costs that behave in a curvilinear fashion will
a. approximate a straight line within the relevant range.
b. be sharply kinked on both sides of the relevant range.
c. be downward sloping.
d. be a stair-step pattern.

Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

64. Frazier Manufacturing Company collected the following production data for the past month:
Units Produced Total Cost
1,600 $44,000
1,300 38,000
1,500 45,000
1,100 33,000
If the high-low method is used, what is the monthly total cost equation?
a. Total cost = $8,800 + $22/unit
b. Total cost = $11,000 + $20/unit
c. Total cost = $0 + $30/unit
d. Total cost = $6,600 + $24/unit

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement

65. A mixed cost contains
a. a variable element and a fixed element.
b. both selling and administrative costs.
c. both retailing and manufacturing costs.
d. both operating and nonoperating costs.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

66. At the high level of activity in November, 7,000 machine hours were run and power costs were $16,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $8,000. Using the high-low method, the estimated fixed cost element of power costs is
a. $16,000.
b. $8,000.
c. $4,800.
d. $11,200.

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement

67. Gribble Company’s high and low level of activity last year was 60,000 units of product produced in May and 20,000 units produced in November. Machine maintenance costs were $104,000 in May and $40,000 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 45,000 units.
a. $90,000
b. $96,000
c. $78,000
d. $80,000

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement

68. Which of the following is not true about the graph of a mixed cost?
a. It is possible to determine the amount of the fixed cost from the graph.
b. There is a total cost line on the graph.
c. The fixed cost portion of the graph is the same amount at all levels of activity.
d. The variable cost portion of the graph is rectangular in shape.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Performance Measurement

69. Which of the following is not a mixed cost?
a. Car rental fee
b. Electricity
c. Depreciation
d. Telephone Expense

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

70. In using the high-low method, the fixed cost
a. is determined by subtracting the total cost at the high level of activity from the total cost at the low activity level.
b. is determined by adding the total variable cost to the total cost at the low activity level.
c. is determined before the total variable cost.
d. may be determined by subtracting the total variable cost from either the total cost at the low or high activity level.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

71. If Qualls Quality Airline cuts its domestic fares by 30%,
a. its fixed costs will decrease.
b. profit will increase by 30%.
c. a profit can only be earned by decreasing the number of flights.
d. a profit can be earned either by increasing the number of passengers or by decreasing variable costs.

Ans:, LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

72. In applying the high-low method, which months are relevant?
Month Miles Total Cost
January 80,000 $144,000
February 50,000 120,000
March 70,000 141,000
April 90,000 195,000

a. January and February
b. January and April
c. February and April
d. February and March

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

73. In applying the high-low method, what is the unit variable cost?

Month Miles Total Cost
January 80,000 $144,000
February 50,000 120,000
March 70,000 141,000
April 90,000 195,000

a. $2.16
b. $1.88
c. $2.40
d. Cannot be determined from the information given.

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

74. In applying the high-low method, what is the fixed cost?

Month Miles Total Cost
January 80,000 $144,000
February 50,000 120,000
March 70,000 141,000
April 90,000 195,000

a. $26,250
b. $54,000
c. $21,000
d. $75,000

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

75. For analysis purposes, the high-low method usually produces a(n)
a. reasonable estimate.
b. precise estimate.
c. overstated estimate.
d. understated estimate.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

76. The high-low method is criticized because it
a. is not a graphical method.
b. is a mathematical method.
c. ignores much of the available data by concentrating on only the extreme points.
d. doesn’t provide reasonable estimates.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

77. The high-low method is often employed in analyzing
a. fixed costs.
b. mixed costs.
c. variable costs.
d. conversion costs.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

78. Portman Company’s activity for the first three months of 2013 are as follows:
Machine Hours Electrical Cost
January 2,100 $3,600
February 2,600 $4,350
March 2,900 $4,800
Using the high-low method, how much is the cost per machine hour?
a. $1.50
b. $2.25
c. $1.69
d. $1.34

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

79. Ponszko Nursery used high-low data from June and July to determine its variable cost of $18 per unit. Additional information follows:
Month Units produced Total costs
June 2,000 $48,000
July 1,000 30,000
If Ponszko’s produces 2,300 units in August, how much is its total cost expected to be?
a. $12,000
b. $59,400
c. $41,400
d. $53,400

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

80. In CVP analysis, the term “cost”
a. includes only manufacturing costs.
b. means cost of goods sold.
c. includes manufacturing costs plus selling and administrative expenses.
d. excludes all fixed manufacturing costs.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

81. Which one of the following is not an assumption of CVP analysis?
a. All units produced are sold.
b. All costs are variable costs.
c. Sales mix remains constant.
d. The behavior of costs and revenues are linear within the relevant range.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

82. CVP analysis does not consider
a. level of activity.
b. fixed cost per unit.
c. variable cost per unit.
d. sales mix.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

83. Which of the following is not an underlying assumption of CVP analysis?
a. Changes in activity are the only factors that affect costs.
b. Cost classifications are reasonably accurate.
c. Beginning inventory is larger than ending inventory.
d. Sales mix is constant.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

84. CVP analysis is not important in
a. calculating depreciation expense.
b. setting selling prices.
c. determining the product mix.
d. utilizing production facilities.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

85. To which function of management is CVP analysis most applicable?
a. Planning
b. Motivating
c. Directing
d. Controlling

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

86. Hollis Industries produces flash drives for computers, which it sells for $20 each. Each flash drive costs $12 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio?
a. 30%
b. 40%
c. 60%
d. 70%

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

87. Contribution margin
a. is always the same as gross profit margin.
b. excludes variable selling costs from its calculation.
c. is calculated by subtracting total manufacturing costs per unit from sales revenue per unit.
d. equals sales revenue minus variable costs.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

88. If a company had a contribution margin of $750,000 and a contribution margin ratio of 40%, total variable costs must have been
a. $1,125,000.
b. $450,000.
c. $1,875,000.
d. $300,000.

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

89. Which of the following would not be an acceptable way to express contribution margin?
a. Sales minus variable costs
b. Sales minus unit costs
c. Unit selling price minus unit variable costs
d. Contribution margin per unit divided by unit selling price

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

90. A company has contribution margin per unit of $90 and a contribution margin ratio of 40%. What is the unit selling price?
a. $150
b. $225
c. $36
d. Cannot be determined.

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

91. Sales are $500,000 and variable costs are $350,000. What is the contribution margin ratio?
a. 43%
b. 30%
c. 70%
d. Cannot be determined because amounts are not expressed per unit.

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

92. Dunbar Manufacturing’s variable costs are 30% of sales. The company is contemplating an advertising campaign that will cost $44,000. If sales are expected to increase $80,000, by how much will the company’s net income increase?
a. $36,000
b. $56,000
c. $24,000
d. $12,000

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

93. Weatherspoon Company has a product with a selling price per unit of $200, the unit variable cost is $90, and the total monthly fixed costs are $300,000. How much is Weatherspoon’s contribution margin ratio?
a. 55%
b. 45%
c. 150%
d. 222%

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

94. Armstrong Industries has a contribution margin of $300,000 and a contribution margin ratio of 30%. How much are total variable costs?
a. $90,000
b. $700,000
c. $210,000
d. $1,000,000

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

95. Zehms, Inc. has a contribution margin per unit of $21 and a contribution margin ratio of 60%. How much is the selling price of each unit?
a. $35.00
b. $52.50
c. $12.60
d. Cannot be determined without more information.

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

96. A division sold 100,000 calculators during 2013:
Sales $2,000,000
Variable costs:
Materials $380,000
Order processing 150,000
Billing labor 110,000
Selling expenses 60,000
Total variable costs 700,000
Fixed costs 1,000,000
How much is the contribution margin per unit?
a. $2
b. $7
c. $17
d. $13

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

97. At the break-even point of 2,000 units, variable costs are $110,000, and fixed costs are $64,000. How much is the selling price per unit?
a. $87
b. $23
c. $32
d. Not enough information

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

98. The following information is available for Wade Corp.:
Sales $550,000 Total fixed expenses $150,000
Cost of goods sold 390,000 Total variable expenses 360,000
A CVP income statement would report
a. gross profit of $160,000.
b. contribution margin of $400,000.
c. gross profit of $190,000.
d. contribution margin of $190,000.

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

99. Which is the true statement?
a. In a CVP income statement, costs and expenses are classified only by function.
b. The CVP income statement is prepared for both internal and external use.
c. The CVP income statement shows contribution margin instead of gross profit.
d. In a traditional income statement, costs and expenses are classified as either variable or fixed.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

100. The equation which reflects a CVP income statement is
a. Sales = Cost of goods sold + Operating expenses + Net income.
b. Sales + Fixed costs = Variable costs + Net income.
c. Sales – Variable costs + Fixed costs = Net income.
d. Sales – Variable costs – Fixed costs = Net income.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

101. The CVP income statement
a. is distributed internally and externally.
b. classifies costs by functions.
c. discloses contribution margin in the body of the statement.
d. will reflect a different net income than the traditional income statement.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

102. O’Malley Company sells 100,000 units for $13 a unit. Fixed costs are $350,000 and net income is $250,000. What should be reported as variable expenses in the CVP income statement?
a. $600,000.
b. $700,000.
c. $950,000.
d. $1,050,000.

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

103. A company has total fixed costs of $200,000 and a contribution margin ratio of 20%. The total sales necessary to break even are
a. $800,000.
b. $1,000,000.
c. $250,000.
d. $240,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

104. A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $180,000. The number of units the company must sell to break even is
a. 90,000 units.
b. 36,000 units.
c. 360,000 units.
d. 60,000 units.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

105. The break-even point is where
a. total sales equal total variable costs.
b. contribution margin equals total fixed costs.
c. total variable costs equal total fixed costs.
d. total sales equal total fixed costs.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

106. The break-even point cannot be determined by
a. computing it from a mathematical equation.
b. computing it using contribution margin.
c. reading the prior year’s financial statements.
d. deriving it from a CVP graph.

Ans:, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

107. Select the correct statement concerning the cost-volume-profit graph at right:
a. The point identified by “B” is the break-even point.
b. Line F is the variable cost line.
c. At point B, profits equal total costs.
d. Line E is the total cost line.

Ans:, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

108. Fixed costs are $600,000 and the variable costs are 75% of the unit selling price. What is the break-even point in dollars?
a. $1,400,000
b. $1,800,000
c. $2,400,000
d. $800,000

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

109. Fixed costs are $2,400,000 and the contribution margin per unit is $150. What is the break-even point?
a. $6,000,000
b. $16,000,000
c. 6,000 units
d. 16,000 units

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

110. Nelson Manufacturing has the following data:
Variable costs are 60% of the unit selling price.
The contribution margin ratio is 40%.
The contribution margin per unit is $500.
The fixed costs are $300,000.
Which of the following does not express the break-even point?
a. $300,000 + .60X = X
b. $300,000 + .40X = X
c. $300,000 ÷ $500 = X
d. $300,000 ÷ .40 = X

Ans:, LO: 6, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

111. A CVP graph does not include a
a. variable cost line.
b. fixed cost line.
c. sales line.
d. total cost line.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

112. Boswell company reported the following information for the current year: Sales (50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000, and fixed costs $270,000. What is Boswell’s contribution margin ratio?
a. 68%.
b. 45%.
c. 32%.
d. 55%.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

113. Boswell company reported the following information for the current year: Sales (50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000, and fixed costs $270,000. What is Boswell’s break-even point in units?
a. 24,546.
b. 30,000.
c. 38,334.
d. 42,188.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

114. Walters Corporation sells radios for $50 per unit. The fixed costs are $420,000 and the variable costs are 60% of the selling price. As a result of new automated equipment, it is anticipated that fixed costs will increase by $100,000 and variable costs will be 50% of the selling price. The new break-even point in units is:
a. 21,000
b. 20,800
c. 20,600
d. 16,800

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

115. Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $90,000. What sales are needed by Cunningham to break even?
a. $120,000.
b. $225,000.
c. $270,000.
d. $360,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

116. Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $90,000. How many MP3 players must Cunningham sell to earn net income of $210,000?
a. 15,000.
b. 5,250.
c. 3,750.
d. 4,500.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

117. Gall Manufacturing sells a product for $50 per unit. The fixed costs are $735,000 and the variable costs are 60% of the selling price. As a result of new automated equipment, it is anticipated that fixed costs will increase by $175,000 and variable costs will be 50% of the selling price. The new break-even point in units is:
a. 36,750.
b. 36,400.
c. 36,050.
d. 29,400.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

118. Pascal, Inc. is planning to sell 800,000 units for $1.50 per unit. The contribution margin ratio is 20%. If Pascal will break even at this level of sales, what are the fixed costs?
a. $240,000.
b. $560,000.
c. $800,000.
d. $960,000.

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

119. April Industries sells a product with a contribution margin of $12 per unit, fixed costs of $148,800, and sales for the current year of $200,000. How much is April’s break-even point?
a. 9,200 units
b. $51,200
c. 12,400 units
d. 4,267 units

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

120. Kaplan, Inc. produces flash drives for computers, which it sells for $20 each. The variable cost to make each flash drive is $13. During April, 700 drives were sold. Fixed costs for April were $2 per unit for a total of $1,400 for the month. How much is the monthly break-even level of sales in dollars for Kaplan?
a. $200
b. $4,000
c. $14,000
d. $8,400

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

121. Vintage Wines has fixed costs of $15,000 per year. Its warehouse sells wine with variable costs of 80% of its unit selling price. How much in sales does Vintage need to break even per year?
a. $12,000
b. $3,000
c. $18,750
d. $75,000

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

122. Bruno & Court is a nonprofit organization that captures stray deer bewildered within residential communities. Fixed costs are $15,000. The variable cost of capturing each deer is $10 each. Bruno & Court is funded by a local philanthropy in the amount of $48,000 for 2013. How many deer can Bruno & Court capture during 2013?
a. 3,300
b. 4,800
c. 6,300
d. 3,000

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

123. At the break-even point of 2,000 units, variable costs are $55,000, and fixed costs are $32,000. How much is the selling price per unit?
a. $43.50
b. $11.50
c. $16.00
d. $27.50

Ans:, LO: 6, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

124. Variable costs for Abbey, Inc. are 25% of sales. Its selling price is $80 per unit. If Abbey sells one unit more than break-even units, how much will profit increase?
a. $60
b. $20
c. $25
d. $320

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

125. A company requires $1,360,000 in sales to meet its net income target. Its contribution margin is 30%, and fixed costs are $240,000. What is the target net income?
a. $408,000
b. $312,000
c. $560,000
d. $168,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

126. Montoya Manufacturing has fixed costs of $2,500,000 and variable costs are 40% of sales. What are the required sales if Montoya desires net income of $250,000?
a. $4,583,333
b. $4,166,667
c. $6,875,000
d. $6,250,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

127. Aero, Inc. requires sales of $2,000,000 to cover its fixed costs of $400,000 and to earn net income of $500,000. What percent are variable costs of sales?
a. 25%
b. 55%
c. 20%
d. 45%

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

128. Lansbury Manufacturing produces hair brushes. The selling price is $20 per unit and the variable costs are $8 per brush. Fixed costs per month are $4,800. If Lansbury sells 25 more units beyond breakeven, how much does profit increase as a result?
a. $300
b. $500
c. $200
d. $1,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

129. Hayduke Corporation reported the following results from the sale of 6,000 units in May: sales $300,000, variable costs $180,000, fixed costs $90,000, and net income $30,000. Assume that Hayduke increases the selling price by 10% on June 1. How many units will have to be sold in June to maintain the same level of net income?
a. 4,800.
b. 5,160.
c. 5,400.
d. 6,000.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

130. Keene, Inc. produces flash drives for computers, which it sells for $20 each. Each flash drive costs $6 of variable costs to make. During March, 1,000 drives were sold. Fixed costs for March were $4.90 per unit for a total of $4,900 for the month. If variable costs decrease by 10%, what happens to the break-even level of units per month for Keene?
a. It is 10% higher than the original break-even point.
b. It decreases about 14 units.
c. It decreases about 35 units.
d. It depends on the number of units the company expects to produce and sell.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

131. Reliable Manufacturing wants to sell a sufficient quantity of products to earn a profit of $80,000. If the unit sales price is $10, unit variable cost is $8, and total fixed costs are $160,000, how many units must be sold to earn income of $80,000?
a. 120,000 units
b. 80,000 units
c. 30,000 units
d. 1,200,000 units

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

132. How much sales are required to earn a target income of $160,000 if total fixed costs are $200,000 and the contribution margin ratio is 40%?
a. $600,000
b. $400,000
c. $900,000
d. $660,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

133. Farmers’ Industries has fixed costs of $400,000 and variable costs are 60% of sales. How much will Farmers report as sales when its net income equals $40,000?
a. $1,100,000
b. $733,333
c. $1,040,000
d. $264,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

134. Murphy Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $8 of variable costs to make. During April, 700 drives were sold. Fixed costs for April were $4 per unit for a total of $2,800 for the month. How much does Murphy’s operating income increase for each $1,000 increase in revenue per month?
a. $600
b. $400
c. $14,000
d. Not enough information to determine the answer.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

135. Greg’s Golf Carts produces two models: Model 24 has sales of 500 units with a contribution margin of $40 each; Model 26 has sales of 350 units with a contribution margin of $50 each. If sales of Model 26 increase by 100 units, how much will profit change?
a. $5,000 increase
b. $17,500 increase
c. $22,500 increase
d. $35,000 increase

Ans:, LO: 7, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

136. Wendy Industries produces only one product. Monthly fixed expenses are $12,000, monthly unit sales are 2,500, and the unit contribution margin is $10. How much is monthly net income?
a. $25,000
b. $37,000
c. $0
d. $13,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

137. A company desires to sell a sufficient quantity of products to earn a profit of $300,000. If the unit sales price is $20, unit variable cost is $12, and total fixed costs are $600,000, how many units must be sold to earn net income of $300,000?
a. 168,750 units
b. 112,500 units
c. 90,000 units
d. 67,500 units

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

138. Stephanie, Inc. sells its product for $40. The variable costs are $18 per unit. Fixed costs are $16,000. The company is considering the purchase of an automated machine that will result in a $2 reduction in unit variable costs and an increase of $5,000 in fixed costs. Which of the following is true about the break-even point in units?
a. It will remain unchanged.
b. It will decrease.
c. It will increase.
d. It cannot be determined from the information provided.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

139. How much sales are required to earn a target net income of $160,000 if total fixed costs are $200,000 and the contribution margin ratio is 40%?
a. $500,000
b. $810,000
c. $900,000
d. $400,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

140. The following monthly data are available for Lumberyard Company. which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $84,000; Actual sales for the month of June, 4,000 units. How much is the margin of safety for the company for June?
a. $84,000
b. $42,000
c. $126,000
d. $1,000

Ans:, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

141. Danny’s Lawn Equipment has actual sales of $800,000 and a break-even point of $600,000. How much is its margin of safety ratio?
a. 25%
b. 33%
c. 67%
d. 75%

Ans:, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

142. The following monthly data are available for Seasons Company which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $84,000; Actual sales for the month of June, 5,000 units. How much is the margin of safety for the company for June?
a. $56,000
b. $84,000
c. $126,000
d. $2,000

Ans:, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

143. The amount by which actual or expected sales exceeds break-even sales is referred to as
a. contribution margin.
b. unanticipated profit.
c. margin of safety.
d. target net income.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

144. In evaluating the margin of safety, the
a. break-even point is not relevant.
b. higher the margin of safety ratio, the greater the margin of safety.
c. higher the dollar amount, the lower the margin of safety.
d. higher the margin of safety ratio, the lower the fixed costs.

Ans:, LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

145. Within the relevant range, the variable cost per unit
a. differs at each activity level.
b. remains constant at each activity level.
c. increases as production increases.
d. decreases as production increases.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

146. An example of a mixed cost is
a. direct materials.
b. supervisory salaries.
c. utility costs.
d. property taxes.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

147. In the Restin Company, maintenance costs are a mixed cost. At the low level of activity (160 direct labor hours), maintenance costs are $600. At the high level of activity (400 direct labor hours), maintenance costs are $1,100. Using the high-low method, what is the variable maintenance cost per unit and the total fixed maintenance cost?
Variable Cost Per Unit Total Fixed Cost
a. $2.08 $268
b. $2.08 $500
c. $2.75 $220
d. $2.75 $400

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

148. Cost-volume-profit analysis includes all of the following assumptions except
a. the behavior of costs is curvilinear throughout the relevant range.
b. costs can be classified accurately as either variable or fixed.
c. changes in activity are the only factors that affect costs.
d. all units produced are sold.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

149. The contribution margin ratio increases when
a. fixed costs increase.
b. fixed costs decrease.
c. variable costs as a percentage of sales decrease.
d. variable costs as a percentage of sales increase.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

150. Contribution margin is
a. the amount of revenue remaining after deducting fixed costs.
b. available to cover fixed costs and contribute to income for the company.
c. sales less fixed costs.
d. unit selling price less unit fixed costs.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

151. Chung, Inc. sells 100,000 wrenches for $18 per unit. Fixed costs are $525,000 and net income is $375,000. What should be reported as variable expenses in the CVP income statement?
a. $810,000
b. $900,000
c. $1,425,000
d. $1,275,000

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

152. Sweet Manufacturing is planning to sell 400,000 hammers for $3 per unit. The contribution margin ratio is 20%. If Sweet will break even at this level of sales, what are the fixed costs?
a. $240,000
b. $560,000
c. $800,000
d. $960,000

Ans:, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

153. At the break-even point,
a. sales equal total variable costs.
b. contribution margin equals total variable costs.
c. contribution margin equals total fixed costs.
d. sales equal total fixed costs.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

154. Wilton Co. reported the following results from the sale of 5,000 hammers in May: sales $200,000, variable costs $120,000, fixed costs $60,000, and net income $20,000. Assume that Wilton increases the selling price of hammers by 10% on June 1. How many hammers will have to be sold in June to maintain the same level of net income?
a. 4,000
b. 4,300
c. 4,500
d. 5,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

155. Required sales in dollars to meet a target net income is computed by dividing
a. fixed costs plus target net income by contribution margin per unit.
b. variable costs plus target net income by contribution margin per unit.
c. fixed costs plus target net income by contribution margin ratio.
d. total costs plus target net income by contribution margin ratio.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

156. Bolton Industries had actual sales of $750,000 when break-even sales were $600,000. What is the margin of safety ratio?
a. 20%
b. 25%
c. 75%
d. 80%

Ans:, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

Chapter 6

TRUE-FALSE STATEMENTS
1. The CVP income statement classifies costs as variable or fixed and computes a contribution margin.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

2. In CVP analysis, cost includes manufacturing costs but not selling and administrative expenses.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Strategic/Critical Thinking, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Cost Management

3. When a company is in its early stages of operation, its primary goal is to generate a target net income.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics

4. The margin of safety tells a company how far sales can drop before it will be operating at a loss.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Risk Analysis, AICPA PC: Project Management, IMA: Business Economics

5. Sales mix is a measure of the percentage increase in sales from period to period.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

6. Sales mix is not important to managers when different products have substantially different contribution margins.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

7. The weighted-average contribution margin of all the products is computed when determining the break-even sales for a multi-product firm.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

8. If Buttercup, Inc. sells two products with a sales mix of 75% : 25%, and the respective contribution margins are $80 and $240, then weighted-average unit contribution margin is $120.

Ans:, LO: 3, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

9. If fixed costs are $100,000 and weighted-average unit contribution margin is $50, then the break-even point in units is 2,000 units.

Ans:, LO: 3, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

10. Net income can be increased or decreased by changing the sales mix.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

11. The break-even point in dollars is variable costs divided by the weighted-average contribution margin ratio.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Marketing/Client Focus, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

12. When a company has limited resources, management must decide which products to make and sell in order to maximize net income.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Marketing/Client Focus, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

13. When a company has limited resources to manufacture products, it should manufacture those products which have the highest contribution margin per unit.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics

14. If a company has limited machine hours available for production, it is generally more profitable to produce and sell the product with the highest contribution margin per machine hour.

Ans:, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics

15. According to the theory of constraints, a company must identify its constraints and find ways to reduce or eliminate them.

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics

16. Cost structure refers to the relative proportion of fixed versus variable costs that a company incurs.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

17. Operating leverage refers to the extent to which a company’s net income reacts to a given change in fixed costs.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

18. The degree of operating leverage provides a measure of a company’s earnings volatility.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

19. If Sprinkle Industries has a margin of safety ratio of .60, it could sustain a 60 percent decline in sales before it would be operating at a loss.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

20. A company with low operating leverage will experience a sharp increase in net income with a given increase in sales.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management, IMA: Business Economics

a21. Variable costing is the approach used for external reporting under generally accepted accounting principles.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a22. The difference between absorption costing and variable costing is the treatment of fixed manufacturing overhead.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a23. Selling and administrative costs are period costs under both absorption and variable costing.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a24. Manufacturing cost per unit will be higher under variable costing than under absorption costing.

Ans:, LO: 7, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

a25. Some fixed manufacturing costs of the current period are deferred to future periods through ending inventory under variable costing.

Ans:, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a26. When units produced exceed units sold, income under absorption costing is higher than income under variable costing.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

a27. When units sold exceed units produced, income under absorption costing is higher than income under variable costing.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

a28. When absorption costing is used for external reporting, variable costing can still be used for internal reporting purposes.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a29. When absorption costing is used, management may be tempted to overproduce in a given period in order to increase net income.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management, IMA: Business Economics

a30. The use of absorption costing facilitates cost-volume-profit analysis.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Strategic/Critical Thinking, AICPA FN: Risk Analysis, AICPA PC: Project Management, IMA: Business Economics

MULTIPLE CHOICE QUESTIONS
31. Cost-volume-profit analysis is the study of the effects of
a. changes in costs and volume on a company’s profit.
b. cost, volume, and profit on the cash budget.
c. cost, volume, and profit on various ratios.
d. changes in costs and volume on a company’s profitability ratios.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management, IMA: Business Economics

32. The CVP income statement classifies costs
a. as variable or fixed and computes contribution margin.
b. by function and computes a contribution margin.
c. as variable or fixed and computes gross margin.
d. by function and computes a gross margin.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

33. Contribution margin is the amount of revenue remaining after deducting
a. cost of goods sold.
b. fixed costs.
c. variable costs.
d. contra-revenue.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

34. Moonwalker’s CVP income statement included sales of 4,000 units, a selling price of $100, variable expenses of $60 per unit, and fixed expenses of $88,000. Contribution margin is
a. $400,000.
b. $240,000.
c. $160,000.
d. $72,000.

Ans:, LO: 1, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

35. Moonwalker’s CVP income statement included sales of 4,000 units, a selling price of $100, variable expenses of $60 per unit, and fixed expenses of $88,000. Net income is
a. $400,000.
b. $160,000.
c. $152,000.
d. $72,000.

Ans:, LO: 1, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

36. For Buffalo Co., at a sales level of 5,000 units, sales is $75,000, variable expenses total $50,000, and fixed expenses are $21,000. What is the contribution margin per unit?
a. $4.20
b. $5.00
c. $10.00
d. $15.00

Ans:, LO: 1, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

37. If contribution margin is $120,000, sales is $300,000, and net income is $40,000, then variable and fixed expenses are
Variable Fixed
a. $180,000 $260,000
b. $180,000 $80,000
c. $80,000 $180,000
d. $420,000 $260,000

Ans:, LO: 1, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

38. In a CVP income statement, cost of goods sold is generally
a. completely a variable cost.
b. completely a fixed cost.
c. neither a variable cost nor a fixed cost.
d. partly a variable cost and partly a fixed cost.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

39. In a CVP income statement, a selling expense is generally
a. completely a variable cost.
b. completely a fixed cost.
c. neither a variable cost nor a fixed cost.
d. partly a variable cost and partly a fixed cost.

Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

40. Hinge Manufacturing’s cost of goods sold is $420,000 variable and $240,000 fixed. The company’s selling and administrative expenses are $300,000 variable and $360,000 fixed. If the company’s sales is $1,480,000, what is its contribution margin?
a. $160,000
b. $760,000
c. $820,000
d. $880,000

Ans:, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: FSA

41. Hinge Manufacturing’s cost of goods sold is $420,000 variable and $240,000 fixed. The company’s selling and administrative expenses are $300,000 variable and $360,000 fixed. If the company’s sales is $1,480,000, what is its net income?
a. $160,000
b. $760,000
c. $820,000
d. $880,000

Ans:, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

42. Woolford’s CVP income statement included sales of 4,000 units, a selling price of $50, variable expenses of $30 per unit, and net income of $25,000. Fixed expenses are
a. $55,000.
b. $80,000.
c. $120,000.
d. $200,000.

Ans:, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

43. The contribution margin ratio is
a. sales divided by contribution margin.
b. sales divided by fixed expenses.
c. sales divided by variable expenses.
d. contribution margin divided by sales.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

44. For Pierce Company, sales is $500,000, variable expenses are $330,000, and fixed expenses are $140,000. Pierce’s contribution margin ratio is
a. 10%.
b. 28%.
c. 34%.
d. 66%.

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

45. For Sanborn Co., sales is $1,000,000, fixed expenses are $300,000, and the contribution margin per unit is $48. What is the break-even point?
a. $2,083,334 sales dollars
b. $625,000 sales dollars
c. 20,834 units
d. 6,250 units

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

46. For Franklin, Inc., sales is $1,500,000, fixed expenses are $450,000, and the contribution margin ratio is 36%. What is net income?
a. $90,000
b. $162,000
c. $378,000
d. $540,000

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

47. For Franklin, Inc., sales is $1,500,000, fixed expenses are $450,000, and the contribution margin ratio is 36%. What are the total variable expenses?
a. $288,000
b. $540,000
c. $960,000
d. $1,500,000

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

48. In 2013, Teller Company sold 3,000 units at $400 each. Variable expenses were $280 per unit, and fixed expenses were $160,000. What was Teller’s 2013 net income?
a. $200,000
b. $360,000
c. $840,000
d. $1,200,000

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

49. In 2012, Teller Company sold 3,000 units at $400 each. Variable expenses were $280 per unit, and fixed expenses were $180,000. The same selling price, variable expenses, and fixed expenses are expected for 2013. What is Teller’s break-even point in sales dollars for 2013?
a. $600,000
b. $1,800,000
c. $1,200,000
d. $1,714,286

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

50. In 2012, Teller Company sold 3,000 units at $400 each. Variable expenses were $280 per unit, and fixed expenses were $180,000. The same selling price, variable expenses, and fixed expenses are expected for 2013. What is Teller’s break-even point in units for 2013?
a. 1,500
b. 3,375
c. 4,500
d. 7,500

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

51. The required sales in units to achieve a target net income is
a. (sales + target net income) divided by contribution margin per unit.
b. (sales + target net income) divided by contribution margin ratio.
c. (fixed cost + target net income) divided by contribution margin per unit.
d. (fixed cost + target net income) divided by contribution margin ratio.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

52. For Wickham Co., sales is $2,000,000, fixed expenses are $600,000, and the contribution margin ratio is 36%. What is required sales in dollars to earn a target net income of $400,000?
a. $1,111,111
b. $1,666,666
c. $2,777,778
d. $5,555,556

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

53. Warner Manufacturing reported sales of $2,000,000 last year (100,000 units at $20 each), when the break-even point was 75,000 units. Warner’s margin of safety ratio is
a. 25%.
b. 33%.
c. 75%.
d. 125%.

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

54. For Wilder Corporation, sales is $1,200,000 (6,000 units), fixed expenses are $360,000, and the contribution margin per unit is $80. What is the margin of safety in dollars?
a. $60,000
b. $300,000
c. $540,000
d. $840,000

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

55. Margin of safety in dollars is
a. expected sales divided by break-even sales.
b. expected sales less break-even sales.
c. actual sales less expected sales.
d. expected sales less actual sales.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

56. The margin of safety ratio is
a. expected sales divided by break-even sales.
b. expected sales less break-even sales.
c. margin of safety in dollars divided by expected sales.
d. margin of safety in dollars divided by break-even sales.

Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

57. In 2012, Hagar Corp. sold 3,000 units at $500 each. Variable expenses were $350 per unit, and fixed expenses were $455,000. The same variable expenses per unit and fixed expenses are expected for 2013. If Hagar cuts selling price by 4%, what is Hagar’s break-even point in units for 2013?
a. 3,033
b. 3,159
c. 3,360
d. 3,500

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

58. In 2012, Carow sold 3,000 units at $500 each. Variable expenses were $250 per unit, and fixed expenses were $250,000. The same selling price is expected for 2013. Carow is tentatively planning to invest in equipment that would increase fixed costs by 20%, while decreasing variable costs per unit by 20%. What is Carow’s break-even point in units for 2013?
a. 1,000
b. 1,200
c. 1,250
d. 1,500

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

59. In 2012, Raleigh sold 1,000 units at $500 each, and earned net income of $50,000. Variable expenses were $300 per unit, and fixed expenses were $150,000. The same selling price is expected for 2013. Raleigh’s variable cost per unit will rise by 10% in 2013 due to increasing material costs, so they are tentatively planning to cut fixed costs by $15,000. How many units must Raleigh sell in 2013 to maintain the same income level as 2012?
a. 794
b. 971
c. 1,176
d. 1,088

Ans:, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

60. Sales mix is
a. the relative percentage in which a company sells its multiple products.
b. the trend of sales over recent periods.
c. the mix of variable and fixed expenses in relation to sales.
d. a measure of leverage used by the company.

Ans:, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

61. In a sales mix situation, at any level of units sold, net income will be higher if
a. more higher contribution margin units are sold than lower contribution margin units.
b. more lower contribution margin units are sold than higher contribution margin units.
c. more fixed expenses are incurred.
d. weighted-average unit contribution margin decreases.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

62. Ramirez Corporation sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $60 and a selling price of $100. Q-Chip Plus has variable costs per unit of $70 and a selling price of $130. The weighted-average unit contribution margin for Ramirez is
a. $46.
b. $50.
c. $54.
d. $100.

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

63. Capitol Manufacturing sells 3,000 units of Product A annually, and 7,000 units of Product B annually. The sales mix for Product A is
a. 30%.
b. 43%.
c. 70%.
d. Cannot determine from information given.

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

64. Ramirez Corporation sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $60 and a selling price of $100. Q-Chip Plus has variable costs per unit of $70 and a selling price of $130. Ramirez’s fixed costs are $540,000. How many units of Q-Chip would be sold at the break-even point?
a. 3,000
b. 3,522
c. 5,000
d. 7,000

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

65. Roosevelt Corporation has a weighted-average unit contribution margin of $40 for its two products, Standard and Supreme. Expected sales for Roosevelt are 40,000 Standard and 60,000 Supreme. Fixed expenses are $1,800,000. How many Standards would Roosevelt sell at the break-even point?
a. 18,000
b. 27,000
c. 30,000
d. 45,000

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

66. Roosevelt Corporation has a weighted-average unit contribution margin of $40 for its two products, Standard and Supreme. Expected sales for Roosevelt are 40,000 Standard and 60,000 Supreme. Fixed expenses are $1,800,000. At the expected sales level, Roosevelt’s net income will be
a. $(200,000).
b. $ – 0 -.
c. $2,200,000.
d. $4,000,000.

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

67. Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $4,440,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. The weighted-average contribution margin ratio is
a. 37%.
b. 40%.
c. 43%.
d. 50%.

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

68. Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $4,440,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. The break-even point in dollars is
a. $1,642,800.
b. $10,325,582.
c. $11,100,000.
d. $12,000,000.

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

69. Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $4,440,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. What will sales be for the Sporting Goods Division at the break-even point?
a. $3,600,000
b. $4,200,000
c. $6,711,628
d. $7,800,000

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

70. Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $4,440,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. What will be the total contribution margin at the break-even point?
a. $3,820,466
b. $4,440,000
c. $4,480,000
d. $5,160,000

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

71. A shift from low-margin sales to high-margin sales
a. may increase net income, even though there is a decline in total units sold.
b. will always increase net income.
c. will always decrease net income.
d. will always decrease units sold.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

72. A shift from high-margin sales to low-margin sales
a. may decrease net income, even though there is an increase in total units sold.
b. will always decrease net income.
c. will always increase net income.
d. will always increase units sold.

Ans:, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

73. MacCloud Industries has two divisions—Standard and Premium. Each division has hundreds of different types of tennis racquets and tennis products. The following information is available:
Standard Division Premium Division Total
Sales $400,000 $600,000 $1,000,000
Variable costs 280,000 360,000
Contribution margin $120,000 $240,000
Total fixed costs $320,000

What is the weighted-average contribution margin ratio?
a. 34%
b. 35%
c. 36%
d. 50%

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

74. MacCloud Industries has two divisions—Standard and Premium. Each division has hundreds of different types of tennis racquets and tennis products. The following information is available:
Standard Division Premium Division Total
Sales $400,000 $600,000 $1,000,000
Variable costs 280,000 360,000
Contribution margin $120,000 $240,000
Total fixed costs $320,000

What is the break-even point in dollars?
a. $115,200
b. $888,889
c. $914,286
d. $941,117

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

75. The sales mix percentages for Novotna’s Boston and Seattle Divisions are 70% and 30%. The contribution margin ratios are: Boston (40%) and Seattle (30%). Fixed costs are $1,110,000. What is Novotna’s break-even point in dollars?
a. $388,500
b. $3,000,000
c. $3,171,428
d. $3,363,636

Ans:, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

76. A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $30 and takes three machine hours to make. If there are 3,000 machine hours available to manufacture a product, income will be
a. $6,000 more if Product A is made.
b. $6,000 less if Product B is made.
c. $6,000 less if Product A is made.
d. the same if either product is made.

Ans:, LO: 4, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

77. Brooks Corporation can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin of $120 and takes two machine hours to make and Fancy has a unit contribution margin of $150 and takes three machine hours to make. There are 2,400 machine hours available to manufacture a product. What should Brooks do?
a. Make Fancy which creates $30 more profit per unit than Plain does.
b. Make Plain which creates $10 more profit per machine hour than Fancy does.
c. Make Plain because more units can be made and sold than Fancy.
d. The same total profits exist regardless of which product is made.

Ans:, LO: 4, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

78. What is the key factor in determining sales mix if a company has limited resources?
a. Contribution margin per unit of limited resource
b. The amount of fixed costs per unit
c. Total contribution margin
d. The cost of limited resources

Ans:, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management, IMA: Business Economics

79. Greg’s Breads can produce and sell only one of the following two products:
Oven Contribution
Hours Required Margin Per Unit
Muffins 0.2 $3
Coffee Cakes 0.3 $4
The company has oven capacity of 1,200 hours. How much will contribution margin be if it produces only the most profitable product?
a. $12,000
b. $16,000
c. $18,000
d. $24,000

Ans:, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

80. Curtis Corporation’s contribution margin is $20 per unit for Product A and $24 for Product B. Product A requires 2 machine hours and Product B requires 4 machine hours. How much is the contribution margin per unit of limited resource for each product?
A B
a. $10.00 $6.00
b. $10.00 $6.66
c. $8.00 $6.00
d. $8.00 $6.66

Ans:, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

81. Cost structure
a. refers to the relative proportion of fixed versus variable costs that a company incurs.
b. generally has little impact on profitability.
c. cannot be significantly changed by companies.
d. refers to the relative proportion of operating versus nonoperating costs that a company incurs.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Cost Management

82. Outsourcing production will
a. reduce fixed costs and increase variable costs.
b. reduce variable costs and increase fixed costs.
c. have no effect on the relative proportion of fixed and variable costs.
d. make the company more susceptible to economic swings.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management, IMA: Business Economics

83. Reducing reliance on human workers and instead investing heavily in computers and online technology will
a. reduce fixed costs and increase variable costs.
b. reduce variable costs and increase fixed costs.
c. have no effect on the relative proportion of fixed and variable costs.
d. make the company less susceptible to economic swings.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management, IMA: Business Economics

84. Cost structure refers to the relative proportion of
a. selling expenses versus administrative expenses.
b. selling and administrative expenses versus cost of goods sold.
c. contribution margin versus sales.
d. none of the above.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Cost Management

85. Mercantile Corporation has sales of $2,000,000, variable costs of $1,100,000, and fixed costs of $750,000. Mercantile’s degree of operating leverage is
a. 1.22.
b. 1.47.
c. 1.20.
d. 6.00.

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

86. Mercantile Corporation has sales of $2,000,000, variable costs of $1,100,000, and fixed costs of $750,000. Mercantile’s margin of safety ratio is
a. .08.
b. .17.
c. .20.
d. .83.

Ans:, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

87. Which of the following statements is not true?
a. Operating leverage refers to the extent to which a company’s net income reacts to a given change in sales.
b. Companies that have higher fixed costs relative to variable costs have higher operating leverage.
c. When a company’s sales revenue is increasing, high operating leverage is good because it means that profits will increase rapidly.
d. When a company’s sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease.

Ans:, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

88. Miller Manufacturing’s degree of operating leverage is 1.5. Warren Corporation’s degree of operating leverage is 6. Warren’s earnings would go up (or down) by ________ as much as Miller’s with an equal increase (or decrease) in sales.
a. 1/4
b. 4.5 times
c. 4 times
d. 7.5 times

Ans:, LO: 5, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

89. The margin of safety ratio
a. is computed as actual sales divided by break-even sales.
b. indicates what percent decline in sales could be sustained before the company would operate at a loss.
c. measures the ratio of fixed costs to variable costs.
d. is used to determine the break-even point.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

90. A cost structure which relies more heavily on fixed costs makes the company
a. more sensitive to changes in sales revenue.
b. less sensitive to changes in sales revenue.
c. either more or less sensitive to changes in sales revenue, depending on other factors.
d. have a lower break-even point.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management, IMA: Business Economics

91. A company with a higher contribution margin ratio is
a. more sensitive to changes in sales revenue.
b. less sensitive to changes in sales revenue.
c. either more or less sensitive to changes in sales revenue, depending on other factors.
d. likely to have a lower breakeven point.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Project Management, IMA: Business Economics

92. The degree of operating leverage
a. does not provide a reliable measure of a company’s earnings volatility.
b. cannot be used to compare companies.
c. is computed by dividing total contribution margin by net income.
d. measures how much of each sales dollar is available to cover fixed expenses.

Ans:, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

a93. Only direct materials, direct labor, and variable manufacturing overhead costs are considered product costs when using
a. full costing.
b. absorption costing.
c. variable costing.
d. product costing.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

a94. When a company assigns the costs of direct materials, direct labor, and both variable and fixed manufacturing overhead to products, that company is using
a. operations costing.
b. absorption costing.
c. variable costing.
d. product costing.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a95. Companies recognize fixed manufacturing overhead costs as period costs (expenses) when incurred when using
a. full costing.
b. absorption costing.
c. product costing.
d. variable costing.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a96. Under absorption costing and variable costing, how are fixed manufacturing costs treated?
Absorption Variable
a. Product Cost Product Cost
b. Product Cost Period Cost
c. Period Cost Product Cost
d. Period Cost Period Cost

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

a97. Under absorption costing and variable costing, how are variable manufacturing costs treated?
Absorption Variable
a. Product Cost Product Cost
b. Product Cost Period Cost
c. Period Cost Product Cost
d. Period Cost Period Cost

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

a98. Under absorption costing and variable costing, how are direct labor costs treated?
Absorption Variable
a. Product Cost Product Cost
b. Product Cost Period Cost
c. Period Cost Product Cost
d. Period Cost Period Cost

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

a99. Fixed selling expenses are period costs
a. under both absorption and variable costing.
b. under neither absorption nor variable costing.
c. under absorption costing, but not under variable costing.
d. under variable costing, but not under absorption costing.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a100. Which cost is not charged to the product under variable costing?
a. Direct materials
b. Direct labor
c. Variable manufacturing overhead
d. Fixed manufacturing overhead

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a101. Which cost is charged to the product under variable costing?
a. Variable manufacturing overhead
b. Fixed manufacturing overhead
c. Variable administrative expenses
d. Fixed administrative expenses

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a102. Variable costing
a. is used for external reporting purposes.
b. is required under GAAP.
c. treats fixed manufacturing overhead as a period cost.
d. is also known as full costing.

Ans:, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a103. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. The per unit manufacturing cost under absorption costing is
a. $8.
b. $9.
c. $13.
d. $14.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Cost Management

a104. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. The per unit manufacturing cost under variable costing is
a. $8.
b. $9.
c. $13.
d. $14.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Cost Management

a105. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. Cost of goods sold under absorption costing is
a. $450,000.
b. $540,000.
c. $650,000.
d. $520,000.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

a106. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. Ending inventory under variable costing is
a. $90,000.
b. $130,000.
c. $200,000.
d. $450,000.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

a107. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. Under absorption costing, what amount of fixed overhead is deferred to a future period?
a. $10,000
b. $40,000
c. $50,000
d. $240,000

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

a108. Net income under absorption costing is gross profit less
a. cost of goods sold.
b. fixed manufacturing overhead and fixed selling and administrative expenses.
c. fixed manufacturing overhead and variable manufacturing overhead.
d. variable selling and administrative expenses and fixed selling and administrative expenses.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Business Economics

a109. Net income under variable costing is contribution margin less
a. cost of goods sold.
b. fixed manufacturing overhead and fixed selling and administrative expenses.
c. fixed manufacturing overhead and variable manufacturing overhead.
d. variable selling and administrative expenses and fixed selling and administrative expenses.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Business Economics

a110. The manufacturing cost per unit for absorption costing is
a. usually, but not always, higher than manufacturing cost per unit for variable costing.
b. usually, but not always, lower than manufacturing cost per unit for variable costing.
c. always higher than manufacturing cost per unit for variable costing.
d. always lower than manufacturing cost per unit for variable costing.

Ans:, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

a111. The one primary difference between variable and absorption costing is that under
a. variable costing, companies charge the fixed manufacturing overhead as an expense in the current period.
b. absorption costing, companies charge the fixed manufacturing overhead as an expense in the current period.
c. variable costing, companies charge the variable manufacturing overhead as an expense in the current period.
d. absorption costing, companies charge the variable manufacturing overhead as an expense in the current period.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Project Management, IMA: Business Economics

a112. Net income under absorption costing is higher than net income under variable costing
a. when units produced exceed units sold.
b. when units produced equal units sold.
c. when units produced are less than units sold.
d. regardless of the relationship between units produced and units sold.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a113. Some fixed manufacturing overhead costs of the current period are deferred to future periods under
a. absorption costing.
b. variable costing.
c. both absorption and variable costing.
d. neither absorption nor variable costing.

Ans:, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a114. Nielson Corp. sells its product for $8,800 per unit. Variable costs per unit are: manufacturing, $4,800, and selling and administrative, $100. Fixed costs are: $24,000 manufacturing overhead, and $32,000 selling and administrative. There was no beginning inventory at 1/1/12. Production was 20 units per year in 2012 –2014. Sales was 20 units in 2012, 16 units in 2013, and 24 units in 2014. Income under absorption costing for 2013 is
a. $6,400.
b. $11,200.
c. $12,800.
d. $17,600.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

a115. Nielson Corp. sells its product for $8,800 per unit. Variable costs per unit are: manufacturing, $4,800, and selling and administrative, $100. Fixed costs are: $24,000 manufacturing overhead, and $32,000 selling and administrative. There was no beginning inventory at 1/1/12. Production was 20 units per year in 2012 –2014. Sales was 20 units in 2012, 16 units in 2013, and 24 units in 2014. Income under absorption costing for 2014 is
a. $26,400.
b. $31,200.
c. $32,800.
d. $37,600.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

a116. Nielson Corp. sells its product for $8,800 per unit. Variable costs per unit are: manufacturing, $4,800, and selling and administrative, $100. Fixed costs are: $24,000 manufacturing overhead, and $32,000 selling and administrative. There was no beginning inventory at 1/1/12. Production was 20 units per year in 2012 –2014. Sales was 20 units in 2012, 16 units in 2013, and 24 units in 2014. Income under variable costing for 2013 is
a. $6,400.
b. $11,200.
c. $12,800.
d. $17,600.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

a 117. Nielson Corp. sells its product for $8,800 per unit. Variable costs per unit are: manufacturing, $4,800, and selling and administrative, $100. Fixed costs are: $24,000 manufacturing overhead, and $32,000 selling and administrative. There was no beginning inventory at 1/1/12. Production was 20 units per year in 2012 –2014. Sales was 20 units in 2012, 16 units in 2013, and 24 units in 2014. Income under variable costing for 2014 is
a. $26,400.
b. $31,200.
c. $32,800.
d. $37,600.

Ans:, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

a118. Nielson Corp. sells its product for $8,800 per unit. Variable costs per unit are: manufacturing, $4,800, and selling and administrative, $100. Fixed costs are: $24,000 manufacturing overhead, and $32,000 selling and administrative. There was no beginning inventory at 1/1/12. Production was 20 units per year in 2012 –2014. Sales was 20 units in 2012, 16 units in 2013, and 24 units in 2014. For the three years 2012–2014,
a. absorption costing income exceeds variable costing income by $8,000.
b. absorption costing income equals variable costing income.
c. variable costing income exceeds absorption costing income by $8,000.
d. absorption costing income may be greater than, equal to, or less than variable costing income, depending on the situation.

Ans:, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a119. When production exceeds sales,
a. some fixed manufacturing overhead costs are deferred until a future period under absorption costing.
b. some fixed manufacturing overhead costs are deferred until a future period under variable costing.
c. variable and fixed manufacturing overhead costs are deferred until a future period under absorption costing.
b. variable and fixed manufacturing overhead costs are deferred until a future period under variable costing.

Ans:, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a120. When production exceeds sales,
a. ending inventory under variable costing will exceed ending inventory under absorption costing.
b. ending inventory under absorption costing will exceed ending inventory under variable costing.
c. ending inventory under absorption costing will be equal to ending inventory under variable costing.
d. ending inventory under absorption costing may exceed, be equal to, or be less than ending inventory under variable costing.

Ans:, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Project Management, IMA: Reporting

a121. Management may be tempted to overproduce when using
a. variable costing, in order to increase net income.
b. variable costing, in order to decrease net income.
c. absorption costing, in order to increase net income.
d. absorption costing, in order to decrease net income.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

a122. If a division manager’s compensation is based upon the division’s net income, the manager may decide to meet the net income targets by increasing production when using
a. variable costing, in order to increase net income.
b. variable costing, in order to decrease net income.
c. absorption costing, in order to increase net income.
d. absorption costing, in order to decrease net income.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

a123. Expected sales for next year for the Beresford Company is 150,000 units. Curt Planters, manager of the Beresford Division, is under pressure to improve the performance of the Division. As he plans for next year, he has to decide whether to produce 150,000 units or 180,000 units. The Beresford Company will have higher net income if Curt Planters decides to produce
a. 180,000 units if income is measured under absorption costing.
b. 180,000 units if income is measured under variable costing.
c. 150,000 units if income is measured under absorption costing.
d. 150,000 units if income is measured under variable costing.

Ans:, LO: 8, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Ethics, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

a124. Which of the following is a potential advantage of variable costing relative to absorption costing?
a. Net income is affected by changes in production levels.
b. The use of variable costing is consistent with cost-volume-profit analysis.
c. Net income computed under variable costing is not closely tied to changes in sales levels.
d. More than one of the above.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics

a125. Companies that use just-in-time processing techniques will
a. have greater differences between absorption and variable costing net income.
b. have smaller differences between absorption and variable costing net income.
c. not be able to use absorption costing.
d. not be able to use variable costing.

Ans:, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Leverage Technology, AICPA FN: Leverage Technology, AICPA PC: Project Management, IMA: Business Applications