Which of the following is the correct formula for profit margin ratio?

Select one:
a. Net profit ÷ Sales 
b. Net profit × Capital invested
c. Net sales ÷ Average total assets
d. Operating income ÷ Net sales
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The correct answer is: Operating income ÷ Net sales

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Huntswell Corporation has two major divisions: Agricultural Products and Industrial Products. It
provides the following information for the year 2014.

Agriculture Division Industrial Division

Sales revenue $140,000 $1,040,000
Operating income $16,400 $218,400
Average assets $300,000 $5,540,000

Calculate the profit margin ratio for the Industrial Division of the company.
Select one:
a. 21.0%
b. 11.7%
c. 11.1%
d. 10.5%
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The correct answer is: 21.0%

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Question text

Golden Oak Antique Shop had the following account balances at the end of the current
accounting period:

Beginning inventory $73,000

Net purchases 58,250
Net sales revenue 87,500
The normal gross profit for the company is $45%. What was the company's estimated cost of
goods sold for the accounting period?
Select one:
a. $40,150
b. $48,125
c. $32,038
d. $39,375
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The correct answer is: $48,125

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Which of the following is a capital budgeting method that ignores the time value of money?
Select one:
a. payback
b. internal rate of return
c. net present value
d. return on assets
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The correct answer is: payback

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Williams Company had the following balances and transactions during 2014.

Beginning Inventory 10 units at $70

June 10 Purchased 20 units at $80
December 30 Sold 15 units
December 31 Replacement cost $68
Williams maintains its records of inventory on a perpetual basis using the last-in, first-out
method. Calculate the amount of ending Merchandise Inventory at December 31, 2014 using the
lower-of-cost-or-market rule.
Select one:
a. $2,040
b. $1,020
c. $1,200
d. $1,360
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The correct answer is: $1,020

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Grand Products is a price-setter, and they use cost-plus pricing methodology for pricing their
products which are unique, artistically designed architectural decorations. They produce and sell
6,000 units per year, at their maximum capacity. Variable costs are $330 per unit. Total fixed
costs are $900,000 per year. The CEO has a target of $50,000 operating income which he wants
to hit by year-end. Using the cost-plus pricing method, what price should Grand use? (Round to
nearest whole dollar.)
Select one:
a. $378 per unit
b. $338 per unit
c. $480 per unit
d. $488 per unit
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The correct answer is: $488 per unit

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Anything for which managers want a separate measurement of cost is called:

Select one:
a. a cost object.
b. a conversion cost.
c. a profit object.
d. a responsibility center.
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The correct answer is: a cost object.

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Anthony Company has fixed costs of $30,000 per month. Highest production volume during the
year was in January when 100,000 units were produced, 75,000 units were sold, and total costs of
$630,000 were incurred. In June, the company produced only 55,000 units. What was the total
cost incurred in June?
Select one:
a. $360,000
b. $480,000
c. $830,000
d. $630,000
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The correct answer is: $360,000

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A company is considering an iron ore extraction project which requires an initial investment of
$1,000,000 and will yield annual cash flows of $350,263 for 4 years. The company's hurdle rate
is 9%. Calculate IRR.
Select one:
a. 12%
b. 10%
c. 15%
d. 18%
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The correct answer is: 15%

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Landmark Company is considering an investment in new equipment costing $500,000. The

equipment will be depreciated on a straight-line basis over a five-year life and is expected to
generate net cash inflows of $120,000 the first year, $140,000 the second year, and $150,000
every year thereafter until the fifth year. What is the payback period for this investment? The
residual value is zero.
Select one:
a. 4.5 years
b. 3.6 years
c. 2.9 years
d. 3.2 years
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The correct answer is: 3.6 years

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Macaulay Company has three product lines-D, E, and F. The following information is available:

D E F
Sales $70,000 $40,000 $30,000
Variable costs (40,000) (20,000) (10,000)
Contribution margin 30,000 20,000 20,000
Fixed expenses (15,000) (15,000) (25,000)
Operating income (loss) $15,000 $5,000 ($5,000)

Macaulay Company is thinking of dropping product line F because it is reporting an operating

loss. Assume that $25,000 of total fixed costs could be eliminated by dropping F. What effect
would this decision have on operating income?
Select one:
a. Operating income will increase by $25,000.
b. Operating income will increase by $5,000.
c. Operating income will decrease by $25,000.
d. Operating income will decrease by $5,000.
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The correct answer is: Operating income will increase by $5,000.

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Fantabulous Products sells 2,000 kayaks per year at a price of $450 per unit. Fantabulous sells in
a highly competitive market and uses target pricing. The company has $1,000,000 of assets and
the shareholders wish to make a profit of 18% on assets. Variable cost is $200 per unit and cannot
be reduced. How much is the target fixed costs?
 Select one:
a. $720,000
b. $320,000
c. $180,000
d. $265,000
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The correct answer is: $320,000

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The following data is available:

Net sales $13,000

Normal gross profit 45%
Beginning inventory 8,000
Net purchases 7,000
Using the gross profit method, the amount of gross profit would be:
Select one:
a. $15,000
b. $3,600
c. $5,850
d. $6,750
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The correct answer is: $5,850

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Valuable Electronics uses a standard part in the manufacture of different types of radios
manufactured by it. The total cost of producing 25,000 parts is $95,000, which includes fixed
costs of $40,000 and variable costs of $55,000. The company can buy the part from an outside
supplier for $3 per unit, and avoid 20% of the fixed costs.
If Valuable Electronics decides to outsource the production of the part, how will it impact its
operating income?
Select one:
a. decrease of $12,000
b. increase of $12,000
c. decrease of $20,000
d. increase of $20,000
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The correct answer is: decrease of $12,000

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Gould Enterprises sells computer disks for $1.50 per disk. Unit variable expenses total $0.90. The
breakeven point in units is 3,000 and expected sales in units are 4,300. What is the margin of
safety in dollars?
Select one:
a. $6,450
b. $4,500
c. $1,950
d. $3,870
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The correct answer is: $1,950

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Healthier Cook Company manufactures two products: toaster ovens and bread machines. The
following data are available:

Toaster Ovens Bread Machines

Sale price $80 $150
Variable costs $40 $70
Healthier Cook can manufacture six toaster ovens per machine hour and four bread machines per
machine hour. Healthier Cook's production capacity is 1,800 machine hours per month.
Marketing limitations indicate that Healthier Cook can sell a maximum of 5,000 toasters a month,
and 4,000 bread machines per month. What product and how many units should the company
produce in a month to maximize profits?
Select one:
a. 4,800 toaster ovens and 4,000 bread machines
b. 10,800 toaster ovens
c. 7,200 bread machines
d. 5,400 toaster ovens and 3,600 bread machines
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The correct answer is: 4,800 toaster ovens and 4,000 bread machines

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Dong Fang Company fabricates inexpensive automobiles for sale to 3 rd world countries. Each
auto includes one wiring harness, which is currently made in-house. Details of the harness
fabrication are as follows:

Volume 900units per month

Variable cost per unit $8per unit
Fixed costs $14,000per month
A factory in Indonesia has offered to supply Dong Fang with ready-made units for a price of $14
each.
Assume that Dong Fang's fixed costs could be reduced by $5,000 if they outsource, and that
Dong Fang will not be able to use the excess capacity in any profitable manner. What will be the
impact on Dong Fang's monthly operating income, if Dong Fang decides to outsource?
Select one:
a. It will go up by $8,600.
b. It will go down by $14,000.
c. It will go up by $2,600.
d. It will go down by $400.
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The correct answer is: It will go down by $400.

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Which of the following statements describes a scenario when management should consider
dropping a business division?
Select one:
a. The division's unavoidable fixed costs are greater than its operating loss.
b. The division's avoidable fixed costs are greater than its contribution margin.
c. The division's avoidable fixed costs are less than its contribution margin.
d. The division has been reporting an operating loss consistently.
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The correct answer is: The division's avoidable fixed costs are greater than its contribution
margin.

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Macaulay Company has three product lines-D, E, and F. The following information is available:

D E F
Sales $70,000 $40,000 $30,000
Variable costs (40,000) (20,000) (10,000)
Contribution margin 30,000 20,000 20,000
Fixed expenses (15,000) (15,000) (25,000)
Operating income (loss) $15,000 $5,000 ($5,000)

Macaulay Company is thinking of dropping product line F because it is reporting an operating

loss. Assume that $15,000 of total fixed costs could be eliminated by dropping F. What effect
would this decision have on operating income?
Select one:
a. Operating income will decrease by $5,000.
b. Operating income will increase by $20,000.
c. Operating income will decrease by $15,000.
d. Operating income will increase by $25,000.
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The correct answer is: Operating income will decrease by $5,000.

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A small business produces a single product and reports the following data:

Price $8.00 per unit

Variable cost $5.00 per unit
Fixed cost $21,000 per month
Volume 10,000 per month
If the company reduces its price to $7.50, it believes that the volume will go up to 11,000 units.
How would this change affect operating income?
Select one:
a. It will go up by $2,500.
b. It will go up by $9,000.
c. It will go down by $2,500.
d. It will go down by $9,000.
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The correct answer is: It will go down by $2,500.

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Which of the following most accurately describes the discount rate used in NPV analysis?
Select one:
a. the rate of interest earned on a savings account
b. the rate of inflation
c. the required rate of return or the hurdle rate
d. the rate of interest charged for debt financing of an investment
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The correct answer is: the required rate of return or the hurdle rate

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Which of the following is included in the numerator of the acid-test ratio?

Select one:
a. Accounts receivable and inventory
b. Total current assets
c. Cash including cash equivalents, short-term investments, net current receivables
d. Cash including cash equivalents, inventory, short-term investments, net current receivables
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The correct answer is: Cash including cash equivalents, short-term investments, net current
receivables

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Which of the following is an expanded form of calculating return on investment?

Select one:
a. Net profit ratio × Inventory turnover ratio
b. Asset turnover ratio × inventory turnover ratio
c. Profit margin ratio × Asset turnover ratio
d. Gross profit ratio × EVA
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The correct answer is: Profit margin ratio × Asset turnover ratio

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Which of the following is the primary objective of managerial accounting?

Select one:
a. providing information that managers need to make operational decisions
b. providing summarized results of operations
c. providing historical data to investors and creditors
d. providing information to comply with laws and regulations of government bodies
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The correct answer is: providing information that managers need to make operational decisions

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Which of the following is true of just-in-time (JIT) inventory management?

Select one:
a. It promotes surplus inventory to prevent production shut-down in case of supply interruptions.
b. It is a system in which the company produces product only after receiving an order.
c. It requires a surplus inventory of finished goods to ensure timely, or just-in-time, delivery to
customers.
d. It results in more storage and insurance cost.
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The correct answer is: It is a system in which the company produces product only after receiving
an order.

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Kentucky purchases and sells widgets. The following information summarizes Kentucky's
operating activities for 2015:

Selling and Administrative Expenses $4,500

Purchases 157,000
Sales Revenue 785,000
Merchandise Inventory, January 1, 2015 38,250
Merchandise Inventory, December 31,
2015 79,000
If Kentucky sold 7,500 units of widgets during 2015, how much is the cost for one widget?
Select one:
a. $26.36
b. $16.10
c. $15.50
d. $50.00
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The correct answer is: $15.50

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The benefit foregone by not choosing an alternative course of action is referred to as a(n):
Select one:
a. variable cost.
b. opportunity cost.
c. incremental cost
d. sunk cost.
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The correct answer is: opportunity cost.

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On October 1, 2015, Android Inc. made a loan to one of its customers. The customer signed a 4-
month note for $100,000 at 15%. Calculate the maturity value of the note.
Select one:
a. $95,000
b. $75,000
c. $25,000
d. $105,000
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The correct answer is: $105,000

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Colin was a professional classical guitar player until his motorcycle accident that left him
disabled. After long months of therapy, he hired an experienced luthier (maker of stringed
instruments) and started a small shop to make and sell Spanish guitars. The guitars sell for $700
and the fixed monthly operating costs are as follows:

Rent and utilities $1,210

Wages and benefits to luthier 2,500
Other expenses 481
Colin's accountant told him about contribution margin ratios and he understood clearly that for
every dollar of sales, $0.75 went to cover his fixed costs, and that anything past that point was
pure profit.

Colin wishes to earn $5,100 of operating profit each month. Calculate the amount of sales
revenue required to achieve the target profit.
Select one:
a. $10,133
b. $9,054
c. $12,388
d. $37,164
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The correct answer is: $12,388

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A company sells two products with information as follows:

A B
Price per unit $12 $20
Variable cost per unit $10 $12
Products are made by machine. 4 units of Product A can be made with one machine hour and 2
units of Product B can be made with one machine hour. The company has a maximum of 3,000
machine hours available per month. The company can sell up to 7,000 units of Product A per
month, and up to 3,000 units of Product B for the month. What is the optimum product mix to
maximize company's operating income?
Select one:
a. 12,000 units of A; zero units of B
b. 6,000 units of A; 3,000 units of B
c. zero units of A; 3,000 units of B
d. 2,000 units of A; 4,000 units of B
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The correct answer is: 6,000 units of A; 3,000 units of B

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Which of the following is both a prime cost and a conversion cost?

Select one:
a. Direct materials
b. Selling expenses
c. Direct labor
d. Manufacturing overhead
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The correct answer is: Direct labor

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Meson Production is a price-taker. It produces large spools of electrical wire in a highly

competitive market, so it practices target pricing. The current market price of the electric wire is
$780 per unit. The company has $3,000,000 in assets and its shareholders expect a return of 6%
on assets. The company provides the following information:

Sales volume 100,000units per year

Variable costs $700per unit
Fixed costs $12,000,000per year
If variable costs cannot be reduced, how much reduction in fixed costs will be needed to achieve
the profit target?
Select one:
a. $12,000,000
b. $4,180,000
c. $4,200,000
d. $7,820,000
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The correct answer is: $4,180,000

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Costs that have both variable and fixed components are called:
Select one:
a. contribution cost.
b. variable cost.
c. mixed cost.
d. fixed cost.
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The correct answer is: mixed cost.

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On October 1, 2015, Ealys Jewellers accepted a 4-month, 12% note for $6,000 in settlement of an
overdue account receivable. The company closes its accounts at the year end. Calculate and
record the accrued interest on the note at December 31, 2015.
Select one:
a. $140
b. $180
c. $160
d. $240
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The correct answer is: $180

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Gotham Products is a price-taker and uses target pricing. Gotham has just done an analysis of
their revenues, costs and desired profits, and has calculated its target full product cost. Refer to
the following information:

Target full product cost $500,000per year

Actual fixed cost $280,000per year
Actual variable cost $2per unit
Production volume 150,000units per year
Actual costs are currently higher than target full product cost. Assuming that fixed costs cannot
be reduced, how much is the target variable cost per unit?
Select one:
a. $3.33
b. $1.20
c. $1.33
d. $1.47
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The correct answer is: $1.47

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At the beginning of 2015, Peter Dots has the following ledger balances:

During the year, credit sales amounted to $800,000. Cash collected on credit sales amounted to
$760,000 and $18,000 has been written off. At the end of the year, company adjusted for bad
debts expense using the percent-of-sales method and applied a rate, based on past history, of
2.5%. The ending balance in the Allowance for Bad Debts would be:
 Select one:
a. $6,400.
b. $6,500.
c. $7,000.
d. $5,000.
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The correct answer is: $7,000.

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James Company earned revenue of $500,000 and incurred cost of goods sold of $100,000. How
much is the gross profit percent?
Select one:
a. 80%
b. 40%
c. 100%
d. 20%
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The correct answer is: 80%

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Capital budgeting is:

Select one:
a. the process of evaluating the profitability of a business.
b. the process of making pricing decisions for products.
c. the process of planning the investment in long-term assets.
d. preparing the budget for operating expenses.
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The correct answer is: the process of planning the investment in long-term assets.

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A company that uses the perpetual inventory system sold goods to a customer on account for
$2,000. The cost of the goods sold was $1,000. Which of the following journal entries correctly
records this transaction?
Select one:
a.
Merchandise Inventory 2,000
  Cost of Goods Sold 2,000
b.
Cost of Goods Sold 2,000
  Sales Revenue 2,000
c.
Accounts Receivable 2,000
  Sales Revenue 2,000
Cost of Goods Sold 1,000
  Merchandise Inventory 1,000
d.
Accounts Receivable 2,000
  Cash 2,000
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The correct answer is:

Accounts Receivable 2,000
  Sales Revenue 2,000
Cost of Goods Sold 1,000
  Merchandise Inventory 1,000
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The following information is from the records of Armadillo Camera Shop:

Accounts receivable, December 31, 2015 $20,000 (debit)

Allowance for Bad Debts, December 31, 2015
prior to adjustment 600 (debit)
Net credit sales for 2015 95,000
Accounts written off as uncollectible during 2015 350
Bad debts expense is estimated by the aging-of-accounts-receivables method. Management
estimates that $2,850 of accounts receivable will be uncollectible. Calculate the amount of net
accounts receivable after the adjustment for bad debts.
Select one:
a. $13,000
b. $17,150
c. $17,750
d. $16,550
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The correct answer is: $17,150

Gladeer Company is evaluating an investment that will cost $520,000 and will yield cash flows of
$300,000 in the first year, $200,000 in the second year, and $100,000 in the third and final year.
Use the tables below and determine the internal rate of return.
Present value of $1:

8% 9% 10% 11%
1 0.926 0.917 0.909 0.901
2 0.857 0.842 0.826 0.812
3 0.794 0.772 0.751 0.731
4 0.735 0.708 0.683 0.659
5 0.681 0.65 0.621 0.593
The IRR of the project will be:
Select one:
a. between 9% and 10%.
b. more than 10%
c. less than 9%, more than 8% 
d. less than 8%
Feedback

The correct answer is: between 9% and 10%.

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Carlo Company makes bulk quantities of cleaning fluids. They currently sell 1,000 containers a
month at a price of $22 per unit. If they added a newer scent, they could charge $22.75 per unit
for the improved product. It would cost them a total of $700 per month to make that alteration.
What would be the effect on operating income?
Select one:
a. It would increase by $50.
b. It would decline by $120.
c. It would decline by $800.
d. It would increase by $300. 
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The correct answer is: It would increase by $50.

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Young Company has provided the following information:

Price per unit $40

Variable cost per unit 12
Fixed costs per month $10,000
What is the amount of sales in dollars required for Young to break even?
Select one:
a. $12,600 
b. $1,050
c. $5,400
d. $18,000
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The correct answer is: $18,000

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Clay Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp. The
following per unit data are available:

Bedford
Lamp Lowell Lamp
Sale price $25 $35
Variable costs $17 $23
Machine hours required for 1 lamp 2 4
Total fixed costs are $30,000. Machine hour capacity is 25,000 hours per year. Assuming that the
company can sell as many products as it can make, which product mix would deliver the highest
operating income?
Select one:
a. 12,500 Bedford lamps, 12,500 Lowell lamps
b. 10,000 Bedford lamps, 1,250 Lowell lamps
c. 12,500 Bedford lamps, zero Lowell lamps
d. Zero Bedford lamps, 6,250 Lowell lamps
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The correct answer is: 12,500 Bedford lamps, zero Lowell lamps

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In which of the following ways is the management of a company accountable to its communities?
Select one:
a. ensuring the company's environmental impact is not harmful to its area of operations
b. providing a capital return on the shareholders' investment
c. making timely interest payments to creditors and dividend payments to investors
d. repaying principal and interest to the suppliers
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The correct answer is: ensuring the company's environmental impact is not harmful to its area of
operations

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________ refer to the value forgone in order to make one particular investment instead of
another.
Select one:
a. Relevant costs
b. Irrelevant costs
c. Opportunity costs
d. Sunk costs
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The correct answer is: Opportunity costs

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Meson Production is a price-taker. It produces large spools of electrical wire in a highly

competitive market, so it practices target pricing. The current market price of the electric wire is
$800 per unit. The company has $3,000,000 in assets and its shareholders expect a return of 6%
on assets. The company provides the following information:

Sales volume 100,000units per year

Variable costs $700per unit
Fixed costs $12,000,000per year
If fixed costs cannot be reduced, how much reduction in variable costs will be needed to achieve
the profit target?
Select one:
a. $2,180,000
b. $12,000,000
c. $180,000
d. $4,200,000
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The correct answer is: $2,180,000

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Ronald Company had the following balances and transactions during 2014.

Beginning merchandise inventory 10 units at $95

March 10 Sold 8 units
June 10 Purchased 20 units at $92
October 30 Sold 15 units
What is the amount of the company's Merchandise Inventory, as disclosed in the December 31,
2014 balance sheet as per the periodic weighted-average costing method?
Select one:
a. $651
b. $140
c. $186
d. $398
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The correct answer is: $651

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Which of the following is the correct formula for calculating residual income?
Select one:
a. Weighted Average Cost of Capital - Net Operating Profit After Tax
b. Operating income - Minimum acceptable operating income
c. Historical cost of assets - Accumulated depreciation
d. Operating income ÷ Average assets
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The correct answer is: Operating income - Minimum acceptable operating income

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Best Deals has six CD players in ending merchandise inventory on December 31. The players
were purchased in November for $170. The price lists from suppliers indicate the current
replacement cost of a CD player to be $168. Which of the following statements is true of the
effects of the adjustments to ending merchandise inventory on the cost of goods sold?
Select one:
a. The cost of goods sold would increase by $12.
b. The cost of goods sold would increase by $2.
c. The cost of goods sold would not be affected.
d. The cost of goods sold would decrease by $12.
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The correct answer is: The cost of goods sold would increase by $12.

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Which of the following statements is true of the direct write-off method?

Select one:
a. It is only suitable for small companies that have very few uncollectible receivables.
b. It provides better matching of revenues with expenses.
c. It results in more accurate net income than any other method.
d. GAAP requires public companies to follow the direct write-off method.
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The correct answer is: It is only suitable for small companies that have very few uncollectible
receivables.

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Inventory turnover measures:

Select one:
a. the time period for inventory become obsolete (worthless).
b. how rapidly merchandise inventory is purchased.
c. how rapidly merchandise inventory is sold.
d. the days' sales in inventory ratio.
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The correct answer is: how rapidly merchandise inventory is sold.

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Fine Arts Inc. produces a special kind of light weight, recreational vehicle that has a unique
design. It allows the company to follow a cost-plus pricing strategy. It has $9,000,000 of assets
and shareholders expect a 10% return on assets. Additional data are as follows:

Sales volume 4,000units per year

Variable costs $2,000per unit
Fixed cost $3,500,000per year
Using the cost-plus pricing approach, what should be the price per unit?
Select one:
a. $3,100
b. $3,015
c. $2,225
d. $2,875
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The correct answer is: $3,100

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How is the management of a company accountable to its employees?

Select one:
a. The management must ensure that it earns a net positive return on its investments.
b. The management must provide products that are safe and free of defects.
c. The management must provide a safe workplace.
d. The management must ensure the business is environmentally responsible to its community.
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The correct answer is: The management must provide a safe workplace.

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The entry to write off an account receivable under the allowance method will:
Select one:
a. have no effect on net income.
b. increase net income.
c. reduce net income.
d. increase total assets.
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The correct answer is: have no effect on net income.

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Healthier Cook Company manufactures two products: toaster ovens and bread machines. The
following data are available:

Toaster Ovens Bread Machines

Sale price $80 $150
Variable costs $40 $70
Healthier Cook can manufacture six toaster ovens per machine hour and four bread machines per
machine hour. Healthier Cook's production capacity is 1,800 machine hours per month. What is
the contribution margin per machine hour for bread machines?
Select one:
a. $7
b. $320
c. $240
d. $20
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The correct answer is: $320

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A company is evaluating three possible investments. Each uses straight-line method of

depreciation. Following information is provided by the company.

Project A Project B Project C

Investment $200,000 $50,000 $200,000
Salvage value 0 5,000 10,000
Net cash flows:
Year 1 50,000 25,000 80,000
Year 2 50,000 16,000 50,000
Year 3 50,000 12,000 60,000
Year 4 50,000 9,000 20,000
Year 5 50,000 0 0

What is the accounting rate of return for Project B?

Select one:
a. 14.54%
b. 15.08%
c. 10.214%
d. 15.45%
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The correct answer is: 15.45%

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On January 1st, 2015, Everlight Corp. has the following balances:

During the year, Everlight has $150,000 of credit sales, collections of credit sales of $140,000,
and write-offs of $3,000. It records bad debts expense at the end of the year using the aging-of-
receivables method. At the end of the year, aging analysis produces a figure of $1,900, being the
estimate of uncollectible accounts. Before the year-end entry to adjust the bad debts expense is
made, the balance in the Allowance for Bad Debts expense would be:
Select one:
a. debit of $3,000.
b. zero balance.
c. credit of $4,200.
d. debit of $1,800.
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The correct answer is: debit of $1,800.

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McDaniel Company sells two products-J and B. McDaniel predicts that it will sell 7,200 units of
J and 5,600 units of B in the next period. The unit contribution margins are $2.85 and $6.30,
respectively. What is the weighted-average unit contribution margin?
Select one:
a. $9.96 per product
b. $4.58 per product
c. $7.75 per product
d. $4.36 per product
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The correct answer is: $4.36 per product

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Which of the following inventory costing methods uses the costs of the oldest purchases to
calculate the value of the ending inventory?
Select one:
a. First-in, first-out
b. Specific identification
c. Last-in, first-out
d. Weighted-average
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The correct answer is: Last-in, first-out

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Which of the following is a product cost?

Select one:
a. Delivery van depreciation
b. Sales commissions
c. Depreciation on production equipment
d. CEO's salary
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The correct answer is: Depreciation on production equipment

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The term net present value means the difference between:

Select one:
a. the present value of the net cash inflows and the investment's cost.
b. the total net income of the project and the initial investment.
c. the initial investment and the residual value.
d. the future value of the cash flows and the present value of the cash flows.
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The correct answer is: the present value of the net cash inflows and the investment's cost.

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Fantabulous Products sells 2,000 kayaks per year at a price of $450 per unit. Fantabulous sells in
a highly competitive market and uses target pricing. The company has calculated its target full
product cost at $720,000 per year. Total variable costs are $330,000 per year and cannot be
reduced. How much are the target fixed costs?
Select one:
a. $330,000
b. $180,000
c. $570,000
d. $390,000
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The correct answer is: $390,000

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Faros Hats, Etc. has two product lines-baseball helmets and football helmets. Income statement
data for the most recent year follow:

Total Baseball Helmets Football Helmets

Sales revenue $850,000 $500,000 $350,000
Variable expenses (530,000) (250,000) (280,000)
Contribution margin $320,000 $250,000 $70,000
Fixed expenses (180,000) (90,000) (90,000)
Operating income (loss) $140,000 $160,000 $(20,000)

Assuming fixed costs remain unchanged, and that there would be no adverse effect on other sales.
What will be the effect of dropping Football Helmets line on the operating income of the
company?
Select one:
a. Operating income will decrease by $70,000.
b. Operating income will decrease by $350,000.
c. Operating income will increase by $20,000.
d. Operating income will increase by $90,000.
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The correct answer is: Operating income will decrease by $70,000.

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Which of the following statements most accurately describes residual income?

Select one:
a. how much return a division generates on average assets
b. how much operating income the division earns on every dollar of sales
c. how much extra income a division generates above the minimum acceptable level
d. how efficiently a division uses its average assets to generate sales there by profits
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The correct answer is: how much extra income a division generates above the minimum
acceptable level

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Lightening Semiconductors produces 400,000 hi-tech computer chips per month. Each chip uses
a component which Lightening makes in-house. The variable costs to make the component are
$1.20 per unit, and the fixed costs run $1,200,000 per month. The company has been approached
by a foreign producer who can supply the component, ready-made and with acceptable quality
standards for $1.10 each. If the company chooses to outsource, it could reduce the fixed costs by
40%. The company does not have any other use for the facilities currently employed in making
the component. What is the effect on operating income, if the company decides to outsource?
Select one:
a. Operating income would go up by $440,000.
b. Operating income would go down by $80,000.
c. Operating income would go up by $520,000.
d. There would be no effect on operating income.
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The correct answer is: Operating income would go up by $520,000.

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Which of the following describes the word "capital budgeting"?

Select one:
a. It involves preparing the sales budget for the coming year.
b. It involves deciding among various long-term investment decisions.
c. It involves budgeting for yearly operational expenses.
d. It involves analyzing various alternatives of financing available to a company.
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The correct answer is: It involves deciding among various long-term investment decisions.

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Williams Company has variable costs of $0.60 per unit of product. In August, the volume of
production was 24,000 units and units sold were 20,000. The total production costs incurred were
$31,900. What are the fixed costs per month?
Select one:
a. $17,500
b. $14,400
c. $9,600
d. $19,900
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The correct answer is: $17,500

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Sandra Company had 200 units of inventory on hand at the end of the year. These were recorded
at a cost of $12 each using the last-in, first-out (LIFO) method. The current replacement cost is
$10 per unit. The selling price charged by Sandra Company for each finished product is $15. In
order to record the adjusting entry needed under the lower-of-cost-or-market rule, the Cost of
Goods Sold will be:
Select one:
a. debited by $2,000.
b. credited by $2,000.
c. credited by $400.
d. debited by $400.
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The correct answer is: debited by $400.

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Pluto Company sold 2,000 units in October at a price of $35 per unit. The variable cost is $20 per
unit. Calculate the total contribution margin.
Select one:
a. $40,000
b. $30,000
c. $70,000
d. $20,000
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The correct answer is: $30,000

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Reed Production has provided the following information for the year 2015:

Direct Labor $153,000

Beginning Work-in-Process Inventory 62,500
Direct Materials Used 271,000
Ending Work-in-Process Inventory 53,850
Manufacturing Overhead 135,500
During the year, Reed produced 71,020 units of product. Calculate the unit product cost.
Select one:
a. $10.00
b. $7.88
c. $9.52
d. $8.00
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The correct answer is: $8.00

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Shasta Company is trying to decide whether to continue to manufacture a particular component or

to buy the component from an outside supplier. Which of the following is irrelevant with respect
to this decision?
Select one:
a. the quality of the component purchased from the outside supplier
b. the outside supplier's ability to deliver the component on a timely basis
c. the unavoidable fixed manufacturing costs associated with the manufacture of the component
d. the alternative uses of the facilities being used to currently manufacture the component
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The correct answer is: the unavoidable fixed manufacturing costs associated with the manufacture
of the component

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The Allowance for Bad Debts has a credit balance of $9,000 before the adjusting entry for bad
debt expense. After analyzing the accounts in the accounts receivable subsidiary ledger using the
aging method, the company's management estimates that uncollectible accounts will be $15,000.
What will be the amount of bad debts expense reported on the income statement?
Select one:
a. $9,000
b. $6,000
c. $24,000
d. $15,000
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The correct answer is: $6,000

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The relevant range of Orleans Company is between 100,000 units and 180,000 units per month. If
the company produces beyond 180,000 units per month:
Select one:
a. the fixed costs may change, but the variable cost per unit will remain the same.
b. the fixed costs will remain the same, but the variable cost per unit may change.
c. both the fixed costs and the variable cost per unit may change.
d. the fixed costs and the variable cost per unit will not change.
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The correct answer is: both the fixed costs and the variable cost per unit may change.

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Recreation Equipment Company has several divisions which are investment centers. Data for the
Boat Division and the Trailer Division are shown here:

Boat Division Trailer Division

Operating income $90,000 $36,000
Total assets at Jan 1 $670,000 $230,000
Total assets at Dec 31 $710,000 $220,000

Which of the following statements would be the most meaningful interpretation of this data?
Select one:
a. Trailer Division uses its assets more efficiently than Boat Division because it has higher ROI.
b. Boat Division is more financially successful than Trailer Division because it shows an increase
in assets
c. Performance of Boat Division is better than that of Trailer Division because Boat Division has
higher assets.
d. Boat Division shows more efficient use of assets than Trailer Division because it has higher
operating income.
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The correct answer is: Trailer Division uses its assets more efficiently than Boat Division because
it has higher ROI.

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Lightening Semiconductors produces 400,000 hi-tech computer chips per month. Each chip uses
a component which Lightening makes in-house. The variable costs to make the component are
$1.20 per unit, and the fixed costs run $1,200,000 per month. The company has been approached
by a foreign producer who can supply the component, ready-made and with acceptable quality
standards for $1.10 each. The fixed costs are unavoidable, and Lightening would have no other
use for the facilities currently employed in making the component. What is the effect on
operating income, if the company decides to outsource?
Select one:
a. Lightening Semiconductors could save $40,000 per month in costs.
b. Lightening Semiconductors could save $1,200,000 per month in costs.
c. Lightening Semiconductor's costs would go up by $10,000 per month.
d. There would be no effect on operating income.
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The correct answer is: Lightening Semiconductors could save $40,000 per month in costs.

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Which of the following is an example of direct labor cost in a factory?

Select one:
a. Salary of production manager
b. Salary of vice president of production
c. Wages of assembly line personnel
d. Wages of factory security guard
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The correct answer is: Wages of assembly line personnel

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The maturity value of a note is the:

Select one:
a. face amount of the note.
b. principal amount minus interest due.
c. principal amount plus interest due.
d. principal amount times the interest rate.
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The correct answer is: principal amount plus interest due.

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Which of the following is true of discounted cash flow methods like NPV and IRR?
Select one:
a. They assume that cash flows will be reinvested when received.
b. They use simple interest calculations.
c. They focus on the payback period.
d. They comply with the requirements of GAAP.
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The correct answer is: They assume that cash flows will be reinvested when received.
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Felix Time Company manufactures and sells watches for $40 each. Times Products Company has
offered Felix Time $25 per watch for a one-time order of 6,000 watches. The total manufacturing
cost per watch is $30 per unit, and consists of variable costs of $22 per watch and fixed overhead
costs of $8 per watch. Assume that Felix Time has excess capacity and that the special order
would not adversely affect regular sales. What is the change in operating income that would
result from accepting the special sales order?
Select one:
a. increase of $18,000
b. decrease of $150,000
c. increase of $150,000
d. decrease of $18,000
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The correct answer is: increase of $18,000

following per unit data are available:

Bedford Lamp Lowell Lamp

Sale price $25 $35

Variable costs $17 $23

Machine hours required for 1 lamp 2 4

Total fixed costs are $30,000. Machine hour capacity is 25,000 hours per year. Assuming that the
company can sell as many products as it can make, which product mix would deliver the highest
operating income?

Select one:

a. 12,500 Bedford lamps, zero Lowell lamps 

Which of the following is true of variable costing?

d. only variable manufacturing costs are assigned to products 

Which of the following is included in the category of other receivables?

 a. interest receivable

Which of the following is the correct formula for asset turnover ratio?

Select one:

b. Net sales ÷ Average total assets

Which of the following is true of projecting future cash flows of an investment?

Select one:

c. The initial investment is always treated separately from all other cash flows.

Rica Company is a price-taker and uses a target-pricing approach. Refer to the following information:

Production volume 600,000 units per year

Market price $30 per unit

Desired operating income 15% of total assets

Total assets $13,900,000

How much is the desired profit for the year?

d. $2,085,000

Rica Company is a price-taker and uses a target-pricing approach. Refer to the following information:

Production volume 600,000 units per year

Market price $30 per unit

Desired operating income 15% of total assets

Total assets $13,900,000

How much is the target full product cost in total for the year? Assume all units produced are sold.

$15,915,000

During the year, Everlight has $150,000 of credit sales, collections of credit sales of $140,000, and
write-offs of $3,000. It records bad debts expense at the end of the year using the aging-of-
receivables method. At the end of the year, aging analysis produces a figure of $1,900, being the
estimate of uncollectible accounts. Before the year-end entry to adjust the bad debts expense is
made, the balance in the Allowance for Bad Debts expense would be:

Select one:

a. debit of $1,800.

For a manufacturing business, which of the following would be included as manufacturing overhead?

Select one:
 b. Indirect materials cost

Which of the following statements most accurately describes residual income?

a. how much extra income a division generates above the minimum acceptable level

Which of the following is true of just-in-time (JIT) inventory management?

d. It is a system in which the company produces product only after receiving an order. 

Products are made by machine. 4 units of Product A can be made with one machine hour and 2 units
of Product B can be made with one machine hour. The company has a maximum of 3,000 machine
hours available per month. The company can sell up to 7,000 units of Product A per month, and up
to 3,000 units of Product B for the month. What is the optimum product mix to maximize company's
operating income?

 6,000 units of A; 3,000 units of B 

Pluto Company sold 2,000 units in October at a price of $35 per unit. The variable cost is $20 per
unit. Calculate the total contribution margin.

$30,000 

Sandra Company had 200 units of inventory on hand at the end of the year. These were recorded at
a cost of $12 each using the last-in, first-out (LIFO) method. The current replacement cost is $10 per
unit. The selling price charged by Sandra Company for each finished product is $15. In order to
record the adjusting entry needed under the lower-of-cost-or-market rule, the Cost of Goods Sold
will be

debited by $400. 

Perfect Fit Company sells hand-sewn shirts for $40 per shirt. It incurs monthly fixed costs of $5,000.
The contribution margin ratio is calculated to be 20%. What is the breakeven point in units?

625 units

Fine Arts Inc. produces a special kind of light weight, recreational vehicle that has a unique design. It
allows the company to follow a cost-plus pricing strategy. It has $9,000,000 of assets and
shareholders expect a 10% return on assets. Additional data are as follows:

$3,100 

Cortes Company is considering three investment opportunities with the following payback periods:

Project X Project Y Project Z

Payback period 3 years 2.5 years 2.8 years

Use the decision rule for payback to rank the projects from most desirable to least desirable, all else
being equal.

Y,Z,X

Fixed costs that do not differ between two alternatives are:

Irrelevant to decision

Which of the following best describes a post-audit in capital budgeting?

c. a comparison of actual results of capital investments with projected results

A foreign company has offered to buy 80 units for a reduced price of $300 per unit. The marketing
manager says the sale will not negatively affect the company's regular sales. The sales manager says
that this sale will require incremental selling & administrative costs, as it is a one-time deal. The
production manager reports that it would require an additional $30,000 of fixed manufacturing costs
to accommodate the specifications of the buyer. If Sprint accepts the deal, how will this impact
operating income?

operating income will decrease by $14,960

Felix Time Company manufactures and sells watches for $40 each. Times Products Company has
offered Felix Time $25 per watch for a one-time order of 6,000 watches. The total manufacturing
cost per watch is $30 per unit, and consists of variable costs of $22 per watch and fixed overhead
costs of $8 per watch. Assume that Felix Time has excess capacity and that the special order would
not adversely affect regular sales. What is the change in operating income that would result from
accepting the special sales order?

Increase by 18,000

What is the acid-test ratio for a merchandiser having the following balances? (Round to two decimal
places.)

0.40

Which of the following is an expanded form of calculating return on investment?

Profit margin ratio × Asset turnover ratio 

When comparing several investments with the same initial outlay, the decision should be made on
the basis of:

Highest NPV

Reed Production has provided the following information for the year 2015:

Direct Labor $153,000

Beginning Work-in-Process Inventory 62,500

Direct Materials Used 271,000

Ending Work-in-Process Inventory 53,850

Manufacturing Overhead 135,500

During the year, Reed produced 71,020 units of product. Calculate the unit product cost.

$8.00

Williams Company had the following balances and transactions during 2014.
Beginning Inventory 10 units at $70

June 10 Purchased 20 units at $80

December 30 Sold 15 units

December 31 Replacement cost $68

Williams maintains its records of inventory on a perpetual basis using the last-in, first-out method.
Calculate the amount of ending Merchandise Inventory at December 31, 2014 using the lower-of-
cost-or-market rule.

1020

Custom Furniture manufactures a small table and a large table. The small table sells for $900, has
variable costs of $560 per table, and takes ten direct labor hours to manufacture. The large table
sells for $1,500, has variable costs of $980, and takes eight direct labor hours to manufacture.
Calculate the contribution margin per direct labor hour for the small table.

34 per direct labor

Fantabulous Products sells 2,000 kayaks per year at a price of $450 per unit. Fantabulous sells in a
highly competitive market and uses target pricing. The company has $1,000,000 of assets and the
shareholders wish to make a profit of 18% on assets. Variable cost is $200 per unit and cannot be
reduced. How much is the target fixed costs?

320,000

Grand Products is a price-setter, and they use cost-plus pricing methodology for pricing their
products which are unique, artistically designed architectural decorations. They produce and sell
6,000 units per year, at their maximum capacity. Variable costs are $330 per unit. Total fixed costs
are $900,000 per year. The CEO has a target of $50,000 operating income which he wants to hit by
year-end. Using the cost-plus pricing method, what price should Grand use? (Round to nearest
whole dollar.)

. $488 per unit

Macaulay Company is thinking of dropping product line F because it is reporting an operating loss.
Assume that $15,000 of total fixed costs could be eliminated by dropping F. What effect would this
decision have on operating income?

Operating income will decrease by $5,000.

Gamma Company is considering an investment proposal that would require an initial outlay of
$800,000, and would yield yearly cash flows of $200,000 for 9 years. The company uses a discount
rate of 10%. What is the NPV of the investment?

Present value of annuity of $1:

8% 9% 10%

1 0.926 0.917 0.909

2 1.783 1.759 1.736

3 2.577 2.531 2.487

4 3.312 3.24 3.17

5 3.993 3.89 3.791

6 4.623 4.486 4.355

7 5.206 5.033 4.868

8 5.747 5.535 5.335

9 6.247 5.995 5.759

. $351,800

Which of the following exists if the maker of a promissory note fails to pay the note on the due date?

dishonored note

A company reports net accounts receivable of $150,000 on its December 31, 2015 balance sheet.
The Allowance for Bad Debts has a credit balance of $15,000. What is the balance in Accounts
Receivable?

$165,000

Best Deals has six CD players in ending merchandise inventory on December 31. The players were
purchased in November for $165. The price lists from suppliers indicate the current replacement
cost of a CD player to be $162. What would be the amount reported as Inventory on the balance
sheet?

. $972

Which of the following best describes the profitability index?

the ratio of present value of net cash inflows to initial investment

Mist Company sells two products-A and B. Mist predicts that it will sell 2,500 units of A and 1,500
units of B during the next period. The unit contribution margins are $3.50 and $4.80, respectively.
What is the weighted-average unit contribution margin?

. $3.99 per product

On October 1, 2015, Ealys Jewellers accepted a 4-month, 12% note for $6,000 in settlement of an
overdue account receivable. The company closes its accounts at the year end. Calculate and record
the accrued interest on the note at December 31, 2015.

$180 

 The maturity date for a six-month note issued on January 15 would be:

July 15.

Which of the following is a philosophy designed to integrate all organizational areas in order to
provide customers with superior products and services, while meeting organizational goals
throughout the value chain?

Total quality management (TQM)

Hilltop Golf Course is planning for the coming season. Investors would like to earn a 15% return on
the company's $60,000,000 of assets. The company primarily incurs fixed costs to groom the greens
and fairways. Fixed costs are projected to be $30,000,000 for the golfing season. About 600,000
rounds of golf are expected to be played each year. Variable costs are about $15 per round of golf.
Hilltop golf course has a favorable reputation in the area and therefore, has some control over the
price of a round of golf. Using a cost-plus pricing approach, what price should Hilltop charge for a
round of golf to achieve the desired profit?

$80

enterprise resource planning system (ERP):

integrates all worldwide functions, departments and data of a company into a single system.

Fantabulous Products sells 2,000 kayaks per year at a price of $450 per unit. Fantabulous sells in a
highly competitive market and uses target pricing. The company has calculated its target full product
cost at $720,000 per year. Total variable costs are $330,000 per year and cannot be reduced. How
much are the target fixed costs?

$390,000

Meson Production is a price-taker. It produces large spools of electrical wire in a highly competitive
market, so it practices target pricing. The current market price of the electric wire is $780 per unit.
The company has $3,000,000 in assets and its shareholders expect a return of 6% on assets. The
company provides the following information:

Sales volume 100,000 units per year

Variable costs $700 per unit

Fixed costs $12,000,000 per year

If variable costs cannot be reduced, how much reduction in fixed costs will be needed to achieve the
profit target?

. $4,180,000

 Nancy was reviewing the water bill for her dog day care and spa and determined that her highest
bill, $3,800, occurred in May when she washed 400 dogs and her lowest bill, $2,400, occurred in
November when she washed 200 dogs. What was the variable cost per dog associated with Nancy's
water bill?

$7.00

Carlo Company makes bulk quantities of cleaning fluids. They currently sell 1,000 containers a month
at a price of $22 per unit. If they added a disinfectant, they could charge $25 per unit for the
improved product. It would cost them a total of $3,800 per month to make that alteration. What
would be the effect on operating income?

It would decline by $800.

Shasta Company is trying to decide whether to continue to manufacture a particular component or

to buy the component from an outside supplier. Which of the following is irrelevant with respect to
this decision?
. the unavoidable fixed manufacturing costs associated with the manufacture of the component

Which of the following statements is true of the direct write-off method?

It is only suitable for small companies that have very few uncollectible receivables.

Which of the following is the primary objective of managerial accounting?

providing information that managers need to make operational decisions

Which of the following describes the term time value of money?

. Value of a dollar received today will be higher than that received after some time.

The cost of goods available for sale is equal to the:

cost of goods sold plus the ending inventory.

Companies are price-takers when:

. it is operating in a highly competitive market.

Recreation Equipment Company has several divisions which are investment centers. Data for the
Boat Division and the Trailer Division are shown here:

Boat Division Trailer Division

Operating income $90,000 $36,000

Total assets at Jan 1 $670,000 $230,000

Total assets at Dec 31 $710,000 $220,000

Which of the following statements would be the most meaningful interpretation of this data?

Trailer Division uses its assets more efficiently than Boat Division because it has higher ROI.

The ending merchandise inventory for the current accounting period is overstated by $3,500. What
will be the effect of this error?

Net income for the current accounting period will be overstated by $3,500.

Which of the following statements describes a scenario when management should consider
dropping a business division?

The division's avoidable fixed costs are greater than its contribution margin.

Amoeba Manufacturing Company provided the following information for the year 2015:

Purchases-Raw Materials $90,000

Plant Utilities & Insurance 67,500

Indirect Materials 11,750

Indirect Labor 4,750

Direct Materials Used in Production 96,000

Direct Labor 117,500

Depreciation on Factory Plant & Equipment 6,000

The inventory account balances as of January 1st 2015 are given below.

Raw Materials Inventory $42,000

Work-in-Process Inventory 12,000

Finished Goods Inventory 49,500

What is the ending balance in the Raw Materials Inventory account?

. $24,250

Paramount Company is considering purchasing new equipment costing $700,000. Company's

management has estimated that the equipment will generate cash flows as follows:

Year 1 $200,000

2 200,000

3 250,000

4 250,000

5 150,000

Present value of $1:

6% 7% 8% 9% 10%

1 0.943 0.935 0.926 0.917 0.909

2 0.89 0.873 0.857 0.842 0.826

3 0.84 0.816 0.794 0.772 0.751

4 0.792 0.763 0.735 0.708 0.683

5 0.747 0.713 0.681 0.65 0.621

The company's required rate of return is 9%. Using the factors in the table, calculate the present
value of the cash flows.

$819,300

Which of the following are two methods of estimating uncollectible receivables?

aging-of-accounts-receivable method and percent-of-sales method

Harris Company had the following balances and transactions during 2014:

Beginning Merchandise Inventory 100 units at $75

March 10 Sold 50 units

June 10 Purchased 200 units at $80

October 30 Sold 150 units

What would the Cost of Goods Sold be as reported on the income statement for the year ending
December 31, 2014 if the perpetual, last-in, first-out costing method is used? Round your answer to
two decimal places.

. $15,750

Which of the following is the correct formula for calculating residual income?

Operating income - Minimum acceptable operating income

Anthony Company has fixed costs of $30,000 per month. Highest production volume during the year
was in January when 100,000 units were produced, 75,000 units were sold, and total costs of
$630,000 were incurred. In June, the company produced only 55,000 units. What was the total cost
incurred in June?

. $360,000

Which of the following is the correct formula to calculate average merchandise inventory?

Average merchandise inventory = (Beginning merchandise inventory + Ending merchandise

inventory) ÷ 2

Fox Inc. manufactures and sells pens for $5 each. Wolf Corp. has offered Fox Inc. $3 per pen for a
one-time order of 3,500 pens. The total manufacturing cost per pen, using traditional costing, is $1
per unit, and consists of variable costs of $0.85 per pen and fixed overhead costs of $0.15 per watch.
Assume that Fox Inc. has excess capacity and that the special order would not adversely affect
regular sales. What is the change in operating income that would result from accepting the special
sales order?

increase of $7,525

Which of the following is a capital budgeting method that ignores the time value of money?

Payback

A company sells two products with information as follows:

A B

Price per unit $12 $20

Variable cost per unit $10 $12

Products are made by machine. 4 units of Product A can be made with one machine hour and 2 units
of Product B can be made with one machine hour. The company has a maximum of 3,000 machine
hours available per month. The company can sell up to 7,000 units of Product A per month, and up
to 3,000 units of Product B for the month. What is the maximum amount of contribution margin that
the company could earn in a month given the stated constraints?
$36,000

Faros Hats, Etc. has two product lines-baseball helmets and football helmets. Income statement data
for the most recent year follow:

Total Baseball Helmets Football Helmets

Sales revenue $850,000 $500,000 $350,000

Variable expenses (530,000) (250,000) (280,000)

Contribution margin $320,000 $250,000 $70,000

Fixed expenses (180,000) (90,000) (90,000)

Operating income (loss) $140,000 $160,000 $(20,000)

Assuming fixed costs remain unchanged, and that there would be no adverse effect on other sales.
What will be the effect of dropping Football Helmets line on the operating income of the company?

Operating income will decrease by $70,000.

Which of the following is included in the numerator of the acid-test ratio?

Cash including cash equivalents, short-term investments, net current receivables

How is the management of a company accountable to its employees?

The management must provide a safe workplace.

Which of the following costs changes in total in direct proportion to a change in volume?

Variable Cost

Which of the following methods of inventory valuation requires the calculation of a new average
cost after each purchase?

Weighted-average

The degree of operating leverage can be measured by:

dividing the contribution margin by operating income.

Which of the following is a product cost?

Depreciation on production equipment

Allston Products sells a special kind of effects pedal for musical performers. Each unit sells for
$20.00. Additional data for the month of April, 2011, are as follows:

Direct materials$4.00 per unit

Direct labor $8.00 per unit

Variable manufacturing overhead $20,000 per month

Fixed manufacturing overhead $14,000 per month

Operating expenses $21,000 per month

Beginning inventory 0 units

Units produced 8,000 units

Units sold 7,500 units

Ending inventory 500 units

Which of the following statements is true?

Absorption costing produces operating income that is $875 higher than variable costing.

Jasper Corporation reports the following cost information for March:

Cost of Goods Manufactured $75,000

Manufacturing Overhead 18,250

Finished Goods Inventory, March 1 4,500

Finished Goods Inventory, March 31 2,650

Work-in-Process Inventory, March 1 9,670

Work-in-Process Inventory, March 31 1,250

Direct Labor 36,300

What is the amount of direct materials used by Jasper in March?

$12,030

Sandra Company had 200 units of inventory on hand at the end of the year. These were recorded at
a cost of $12 each using the last-in, first-out (LIFO) method. The current replacement cost is $10 per
unit. The selling price charged by Sandra Company for each finished product is $15. In order to
record the adjusting entry needed under the lower-of-cost-or-market rule, the Merchandise
Inventory will be:

credited by $400.

The income statement for Sweet Dreams Company is divided by its two product lines, blankets and
pillows, as follows:

Blankets Pillows Total

Sales revenue $620,000 $300,000 $920,000

Variable expenses (465,000) (240,000) (705,000)

Contribution margin $155,000 $60,000 $215,000

Fixed expenses (76,000) (76,000) (152,000)

Operating income (loss) $79,000 $(16,000) $63,000

Sweet Dreams is considering eliminating the pillows product line. If they do so, they will be able to
eliminate $76,000 of total fixed costs. How would that business decision impact operating income?
increase of $16,000 in operating income

Which of the following correctly describes the accounting for administrative expenses of a
manufacturing company?

Administrative expenses are period costs and are expensed as incurred.

Parkinson Company provides the following financial information:

Income from operations $200,000

Interest expense 45,000

Gains/(losses) on sale of equipment (2,500)

Net income 152,500

Total assets at Jan 1 2,600,000

Total assets at Dec 31 3,200,000

Calculate return on investment based on the information given above.

6.9%

A company has two different products that are sold in different markets. Financial data are as
follows:

Product A Product B Total

Revenue $15,000 $9,500 $24,500

Variable cost (9,000) (9,800) (18,800)

Fixed cost (allocated) (3,000) (2,000) (5,000)

Operating income $3,000 ($2,300) $700

Assume that fixed costs are all unavoidable and that dropping one product would not impact sales of
the other. If Product B is dropped, what would be the impact on total operating income of the
company?

increase $300

The Allowance for Bad Debts has a credit balance of $9,000 before the adjusting entry for bad debt
expense. After analyzing the accounts in the accounts receivable subsidiary ledger using the aging
method, the company's management estimates that uncollectible accounts will be $15,000. What
will be the amount of bad debts expense reported on the income statement?

$6,000

A company purchased 100 units for $30 each on January 31. It purchased 150 units for $25 on
February 28. It sold 150 units for $50 each from March 1 through December 31. If the company uses
the first-in, first-out inventory costing method, what is the amount of Cost of Goods Sold on the
income statement for the year ending December 31? (Assume that the company uses a perpetual
inventory system.)

$4,250
Which of the following most accurately describes the discount rate used in NPV analysis?

the required rate of return or the hurdle rate

James Company sells glass vases at a wholesale price of $2.50 per unit. The variable cost of
manufacture is $1.75 per unit. The monthly fixed costs are $7,500. James's current sales are 25,000
units per month. If James wants to increase operating income by 20%, how many additional units,
must James sell? (Round your intermediate calculations to two decimal places)

3,000 glass vases

 If $15,000 is invested annually in an account with 9% interest compounding yearly, what will the
balance of the account be after five years? Refer to the following Future Value table:

Future value of annuity of $1:

7% 8% 9%

1 0.935 0.926 0.917

2 1.808 1.783 1.759

3 2.624 2.577 2.531

4 3.387 3.312 3.24

5 4.1 3.993 3.89

6 4.767 4.623 4.486

7 5.389 5.206 5.033

$58,350

Which of the following is a part of manufacturing overhead?

Factory insurance

Gotham Products is a price-taker and uses target pricing. Gotham has just done an analysis of their
revenues, costs and desired profits, and has calculated its target full product cost. Refer to the
following information:

Target full product cost $500,000 per year

Actual fixed cost $280,000 per year

Actual variable cost $2 per unit

Production volume 150,000 units per year

Actual costs are currently higher than target full product cost. Assuming that fixed costs cannot be
reduced, how much is the target variable cost per unit?

$1.47

A company is evaluating three possible investments. Each uses straight-line method of depreciation.
Following information is provided by the company.
 Project A Project B Project C

Investment $200,000 $50,000 $200,000

Salvage value 0 5,000 10,000

Net cash flows:

Year 1 50,000 25,000 80,000

Year 2 50,000 16,000 50,000

Year 3 50,000 12,000 60,000

Year 4 50,000 9,000 20,000

Year 5 50,000 0 0

What is the accounting rate of return for Project B?

15.45%

Carlo Company makes bulk quantities of cleaning fluids. They currently sell 1,000 containers a month
at a price of $22 per unit. If they added a newer scent, they could charge $22.75 per unit for the
improved product. It would cost them a total of $700 per month to make that alteration. What
would be the effect on operating income?

It would increase by $50.

Huntswell Corporation has two major divisions: Agricultural Products and Industrial Products. It
provides the following information for the year 2014

Agriculture Division Industrial Division

Sales revenue $140,000 $1,040,000

Operating income $46,400 $220,000

Average total assets $300,000 $5,540,000

Target rate of return 14.0% 14.0%

Calculate the residual income for the Agriculture division.

$4,400

A company used $35,000 of direct materials, incurred $73,000 in direct labor cost, and $114,000 in
manufacturing overhead costs during the period. If beginning and ending Work-in-Process
Inventories were $28,000 and $21,000 respectively, what is the cost of goods manufactured?

$229,000

Golden Oak Antique Shop had the following account balances at the end of the current accounting
period:

Beginning inventory $73,000

Net purchases 58,250

Net sales revenue 87,500

The normal gross profit for the company is $45%. What was the company's estimated cost of goods
sold for the accounting period?

$48,125

On October 1, 2015, Android Inc. made a loan to one of its customers. The customer signed a 4-
month note for $100,000 at 15%. How much interest revenue did the company record in the year
2015?

$3,750

A company is considering an iron ore extraction project which requires an initial investment of
$1,000,000 and will yield annual cash flows of $350,263 for 4 years. The company's hurdle rate is 9%.
Calculate IRR.

15%

Lightening Semiconductors produces 400,000 hi-tech computer chips per month. Each chip uses a
component which Lightening makes in-house. The variable costs to make the component are $1.20
per unit, and the fixed costs run $1,200,000 per month. The company has been approached by a
foreign producer who can supply the component, ready-made and with acceptable quality standards
for $1.10 each. The fixed costs are unavoidable, and Lightening would have no other use for the
facilities currently employed in making the component. What is the effect on operating income, if
the company decides to outsource?

Lightening Semiconductors could save $40,000 per month in costs.

Gould Enterprises sells computer disks for $1.50 per disk. Unit variable expenses total $0.90. The
breakeven point in units is 3,000 and expected sales in units are 4,300. What is the margin of safety
in dollars?

$1,950

Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and
collections of credit sales of $36,000. One account for $650 was written off. The company decided to
use the percent-of-sales method to account for bad debts expense, and decided to use a factor of
2% for their year-end adjustment of bad debts expense. The ending balance in Allowance for Bad
Debts account would be:

$150.

Fantabulous Products sells 2,000 kayaks per year at a price of $450 per unit. Fantabulous sells in a
highly competitive market and uses target pricing. The company has $1,000,000 of assets and the
shareholders wish to make a profit of 18% on assets. Fixed costs are $500,000 per year and cannot
be reduced. How much is the target variable costs?

$220,000

A company may prefer to use residual income over return on investment for performance evaluation
because:

residual income is more likely to lead to goal congruence than return on investment.
Gladeer Company is evaluating an investment that will cost $520,000 and will yield cash flows of
$300,000 in the first year, $200,000 in the second year, and $100,000 in the third and final year. Use
the tables below and determine the internal rate of return.

Present value of $1:

8% 9% 10% 11%

1 0.926 0.917 0.909 0.901

2 0.857 0.842 0.826 0.812

3 0.794 0.772 0.751 0.731

4 0.735 0.708 0.683 0.659

5 0.681 0.65 0.621 0.593

between 9% and 10%.

Valuable Electronics uses a standard part in the manufacture of different types of radios
manufactured by it. The total cost of producing 25,000 parts is $95,000, which includes fixed costs of
$40,000 and variable costs of $55,000. The company can buy the part from an outside supplier for
$3 per unit, and avoid 20% of the fixed costs. If Valuable Electronics decides to outsource the
production of the part, how will it impact its operating income?

decrease of $12,000

On December 1, 2015, Parsons Inc. sold machinery to a customer for $20,000. The customer could
not pay at the time of sale, but agreed to pay 9 months later, and signed a 9-month note at 9%
interest. What was the total amount of cash collected by Parsons on the maturity of the note?

$21,350

Which of the following is true of the proper balance sheet treatment of the Allowance for Bad Debts
with a credit balance?

It is shown as a contra account related to accounts receivable.

What is total quality management (TQM)?

a philosophy of supplying customers with superior products and services

Macaulay Company has three product lines-D, E, and F. The following information is available:

D E F

Sales $70,000 $40,000 $30,000

Variable costs (40,000) (20,000) (10,000)

Contribution margin 30,000 20,000 20,000

Fixed expenses (15,000) (15,000) (25,000)

Operating income (loss) $15,000 $5,000 ($5,000)

Macaulay Company is thinking of dropping product line F because it is reporting an operating loss.
Assume that $25,000 of total fixed costs could be eliminated by dropping F. What effect would this
decision have on operating income?

Operating income will increase by $5,000.

A small business produces a single product and reports the following data:

Price $8.00 per unit

Variable cost $5.00 per unit

Fixed cost $21,000 per month

Volume 10,000 per month

If the company reduces its price to $7.50, it believes that the volume will go up to 11,000 units.

How would this change affect operating income?

It will go down by $2,500.

The relevant range of Orleans Company is between 100,000 units and 180,000 units per month. If
the company produces beyond 180,000 units per month:

both the fixed costs and the variable cost per unit may change.

Which of the following is the most important key to short-term business decision making?

focus on relevant costs and use the contribution margin approach

________ refer to the value forgone in order to make one particular investment instead of another.

Opportunity costs

If a company wishes to be a price-setter, which of the following strategies should they take?

produce a unique product

Which of the following formulae is the right formula for calculating contribution margin ratio?

Contribution margin ratio = Contribution margin ÷ Net sales revenue

The following data is available:

Net sales $13,000

Normal gross profit 45%

Beginning inventory 8,000

Net purchases 7,000

Using the gross profit method, the amount of gross profit would be:
$5,850

Which of the following inventory costing methods is based on the actual cost of each particular unit
of inventory?

Specific identification

Gotham Products is a price-taker and uses target pricing. Gotham has just done an analysis of their
revenues, costs and desired profits, and has calculated its target full product cost. Please refer to the
following information:

Target full product cost $500,000 per year

Actual fixed cost $280,000 per year

Actual variable cost $2 per unit

Production volume 150,000 units per year

Actual costs are currently higher than target full product cost. Assuming that fixed costs cannot be
reduced, how much is the target variable cost?

$220,000

Which of the following inventory costing methods uses the costs of the oldest purchases to calculate
the value of the ending inventory?

Last-in, first-out

On October 1, 2015, Android Inc. made a loan to one of its customers. The customer signed a 4-
month note for $100,000 at 15%. Calculate the total interest earned on the note.

$5,000

From the following details, calculate the acid-test ratio. (Round to two decimal places.)

Cash $120,000

Short-term investments 150,000

Net current receivables 280,000

Inventory 290,000

Total current liabilities 790,000

0.70

Williams Company has variable costs of $0.60 per unit of product. In August, the volume of
production was 24,000 units and units sold were 20,000. The total production costs incurred were
$31,900. What are the fixed costs per month?

$17,500

Custom Furniture manufactures a small table and a large table. The small table sells for $900, has
variable costs of $560 per table, and takes ten direct labor hours to manufacture. The large table
sells for $1,500, has variable costs of $980, and takes eight direct labor hours to manufacture. The
company has a maximum of 5,000 direct labor hours per month when operating at full capacity. If
there are no constraints on sales of either of the products, and the company could choose any
proportions of product mix that they wanted, the :

$325,000

Colin was a professional classical guitar player until his motorcycle accident that left him disabled.
After long months of therapy, he hired an experienced luthier (maker of stringed instruments) and
started a small shop to make and sell Spanish guitars. The guitars sell for $700 and the fixed monthly
operating costs are as follows:

Rent and utilities $1,210

Wages and benefits to luthier 2,500

Other expenses 481

Colin's accountant told him about contribution margin ratios and he understood clearly that for
every dollar of sales, $0.75 went to cover his fixed costs, and that anything past that point was pure
profit.

Colin wishes to earn $5,100 of operating profit each month. Calculate the amount of sales revenue
required to achieve the target profit.

$12,388

Lara is going to receive $10,000 a year at the end of each of the next five years from her insurer to
meet her education cost. Using a discount rate of 14%, the present value of the receipts can be
stated as:

PV = $10,000 (Annuity PV factor, i = 14%, n = 5).

Huntswell Corporation has two major divisions: Agricultural Products and Industrial Products. It
provides the following information for the year 2014.

Agriculture Division Industrial Division

Sales revenue $140,000 $1,040,000

Operating income $16,400 $218,400

Average assets $300,000 $5,540,000

Calculate the profit margin ratio for the Industrial Division of the company.

21.0%

Hilltop Golf Course is planning for the coming season. Investors would like to earn a 15% return on
the company's $60,000,000 of assets. The company primarily incurs fixed costs to groom the greens
and fairways. Fixed costs are projected to be $30,000,000 for the golfing season. About 600,000
rounds of golf are expected to be played each year. Variable costs are about $15 per round of golf.
Hilltop golf course is a price-taker and will not be able to charge more than its competitors, who
charge $75 per round of golf. What profit will it earn in terms of dollars?

$6,000,000

At the beginning of 2015, Swift Company's Work-in-Process Inventory account had a balance of
$120,000. During 2015, $250,000 of direct materials were used in production, and $75,000 of direct
labor costs were incurred. Manufacturing overhead amounted to $850,000. The cost of goods
manufactured was $675,000. What is the balance in the Work-in-Process Inventory account on
December 31, 2015?

$620,000

Meson Production is a price-taker. It produces large spools of electrical wire in a highly competitive
market, so it practices target pricing. The current market price of the electric wire is $800 per unit.
The company has $3,000,000 in assets and its shareholders expect a return of 6% on assets. The
company provides the following information:

Sales volume 100,000 units per year

Variable costs $700 per unit

Fixed costs $12,000,000 per year

If fixed costs cannot be reduced, how much reduction in variable costs will be needed to achieve the
profit target?

$2,180,000

One of the assumptions of cost-volume-profit (CVP) analysis is that there are no changes in the:

inventory levels.

Capital budgeting is:

the process of planning the investment in long-term assets.

The following details are provided by Dopler Company:

Project A Project B Project C Project D

Initial investment $420,000 $200,000 $550,000 $500,000

PV of cash inflows $570,000 $380,000 $800,000 $390,000

Payback period (years) 3.6 3.2 4.0 2.0

NPV of project $150,000 $180,000 $250,000 ($110,000)

What is the profitability index for Project B?

1.90

Ronald Company had the following balances and transactions during 2014.

Beginning merchandise inventory 10 units at $95

March 10 Sold 8 units

June 10 Purchased 20 units at $92

October 30 Sold 15 units

What is the amount of the company's Merchandise Inventory, as disclosed in the December 31, 2014
balance sheet as per the periodic weighted-average costing method?

$651

Clay Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp. The
following per unit data are available:

Bedford Lamp Lowell Lamp

Sale price $25 $35

Variable costs $17 $23

Machine hours required for 1 lamp 2 4

Total fixed costs are $30,000. Machine hour capacity is 25,000 hours per year. Assuming that the
company can sell as many products as it can make, which product mix would deliver the highest
operating income?

12,500 Bedford lamps, zero Lowell lamps

For a manufacturing business, which of the following would be considered a product cost?

Salary of the production manager

Healthier Cook Company manufactures two products: toaster ovens and bread machines. The
following data are available:

Toaster Ovens Bread Machines

Sale price $80 $150

Variable costs $40 $70

Healthier Cook can manufacture six toaster ovens per machine hour and four bread machines per
machine hour. Healthier Cook's production capacity is 1,800 machine hours per month. Marketing
limitations indicate that Healthier Cook can sell a maximum of 5,000 toasters a month, and 4,000
bread machines per month. What product and how many units should the company produce in a
month to maximize profits?

4,800 toaster ovens and 4,000 bread machines

Which of the following would be included in the entry by the payee to record a dishonored note
receivable?

debit to Accounts Receivable

Which of the following is the correct formula for calculating return on investment?

Operating profit ÷ Average total assets

At the beginning of 2015, Peter Dots has the following ledger balances:

A/R=40,000

Alowance for bad debt=5,000

During the year, credit sales amounted to $800,000. Cash collected on credit sales amounted to
$760,000 and $18,000 has been written off. At the end of the year, company adjusted for bad debts
expense using the percent-of-sales method and applied a rate, based on past history, of 2.5%. The
ending balance in the Allowance for Bad Debts would be:

$7,000.

James Company earned revenue of $500,000 and incurred cost of goods sold of $100,000. How
much is the gross profit percent?

80%

First Buy Company provided the following manufacturing costs for the month of June.

Direct labor cost $136,000

Direct materials cost 80,000

Equipment depreciation (straight-line) 24,000

Factory insurance 19,000

Factory manager's salary 12,800

Janitor's salary 5,000

Packaging costs 18,800

Property taxes 16,000

From the above information, calculate First Buy's total fixed costs.

$76,800

Jasper Corporation reports the following cost information for March:

Cost of Goods Manufactured $75,000

Direct Materials Used 16,850

Finished Goods Inventory, March 1 4,500

Finished Goods Inventory, March 31 2,650

Work-in-Process Inventory, March 1 9,670

Work-in-Process Inventory, March 31 1,250

Direct Labor 36,300

What is the amount of manufacturing overhead incurred by Jasper in March?

$13,430

John wins the lottery and has the following three payout options for after-tax prize money:
1. $150,000 per year at the end of each of the next six years

2. $300,000 (lump sum) now

3. $500,000 (lump sum) six years from now

The required rate of return is 9%. What is the present value if he selects the second option? Round
to nearest whole dollar.

Present value of $1:

8% 9% 10%

1 0.926 0.917 0.909

2 0.857 0.842 0.826

3 0.794 0.772 0.751

4 0.735 0.708 0.683

5 0.681 0.65 0.621

6 0.63 0.596 0.564

7 0.583 0.547 0.513

$300,000

A company with significant amounts of accounts receivable, experiences uncollectible accounts from
time to time. If the company uses the direct write-off method, the effect of writing off of an
uncollectible receivable will be a(n):

reduction in net income.

A company that uses the perpetual inventory system sold goods to a customer on account for
$2,000. The cost of the goods sold was $1,000. Which of the following journal entries correctly
records this transaction?

Accounts Receivable 2,000

Sales Revenue 2,000

Cost of Goods Sold 1,000

Merchandise Inventory 1,000

Healthier Cook Company manufactures two products: toaster ovens and bread machines. The
following data are available:

Toaster Ovens Bread Machines

Sale price $80 $150

Variable costs $40 $70

Healthier Cook can manufacture six toaster ovens per machine hour and four bread machines per
machine hour. Healthier Cook's production capacity is 1,800 machine hours per month. What is the
contribution margin per machine hour for bread machines?

$320

Arturo Manufacturing Company provided the following information for the year 2015:

Beginning Balance-Work-in-Process Inventory $12,000

Ending Balance-Work-in-Process Inventory 28,000

Beginning Balance-Raw Materials Inventory 42,000

Ending Balance-Raw Materials Inventory 30,000

Purchases-Raw Materials 180,000

Direct Labor 235,000

Indirect Materials 23,500

Indirect Labor 9,500

Depreciation on Factory Plant & Equipment 12,000

Plant Utilities & Insurance 135,000

How much is the cost of goods manufactured?

$591,000

Nylan Company is considering an investment in new equipment costing $850,000. The equipment
will be depreciated on a straight-line basis over a five-year life and is expected to have a salvage
value of $50,000. The equipment is expected to generate net cash inflows of $1,000,000 in total
during the five years life. What is the accounting rate of return associated with the equipment
investment?8.89%

Kentucky purchases and sells widgets. The following information summarizes Kentucky's operating
activities for 2015:

Selling and Administrative Expenses $4,500

Purchases 157,000

Sales Revenue 785,000

Merchandise Inventory, January 1, 2015 38,250

Merchandise Inventory, December 31, 2015 79,000

If Kentucky sold 7,500 units of widgets during 2015, how much is the cost for one widget?

$15.50

When a company is considering the option of processing their product further to achieve higher
sales revenues, they must ignore:

how much cost is required to produce the basic product, before processing further.
Under the retail method, the amount of ending merchandise inventory is estimated by using the
ratio of the:

goods available for sale at cost to the goods available for sale at retail.

To evaluate the performance of an investment center, a business needs key performance indicators
that measure:

operating income and efficient use of assets.

The following information is from the records of Armadillo Camera Shop:

Accounts receivable, December 31, 2015 $20,000 (debit)

Allowance for Bad Debts, December 31, 2015

prior to adjustment 600 (debit)

Net credit sales for 2015 95,000

Accounts written off as uncollectible during 2015 350

Bad debts expense is estimated by the aging-of-accounts-receivables method. Management

estimates that $2,850 of accounts receivable will be uncollectible. Calculate the amount of net
accounts receivable after the adjustment for bad debts.

17,150

At the beginning of 2015, Peter Dots has the following ledger balances:During the year, credit sales
amounted to $800,000. Cash collected on credit sales amounted to $760,000 and $18,000 has been
written off. At the end of the year, company adjusted for bad debts expense using the aging method.
The amount estimated as uncollectible was $25,000. The ending balance in the Allowance for Bad
Debts would be:

$25,000.

Best Deals has six CD players in ending merchandise inventory on December 31. The players were
purchased in November for $170. The price lists from suppliers indicate the current replacement
cost of a CD player to be $168. Which of the following statements is true of the effects of the
adjustments to ending merchandise inventory on the cost of goods sold?

The cost of goods sold would increase by $12.

Thomas Company provided the following particulars for year 2015:

Cost of Goods Sold (Cost of sales) $1,800,000

Beginning Merchandise Inventory 325,000

Ending Merchandise Inventory 650,000

Calculate Thomas's inventory turnover ratio for the year. (Round your answer to two decimal
places.)

3.69 times per year

Selected data for Lemon Grass Company for 2015 is provided below:
Factory Utilities $ 1,500

Indirect Materials Used 37,500

Direct Materials Used 300,000

Property Taxes on Factory Building 6,900

Sales Commissions 85,000

Indirect Labor Incurred 25,000

Direct Labor Incurred 150,000

Depreciation on Factory Equipment 6,500

What is the total factory overhead?

$77,400

The maturity value of a note is the:

principal amount plus interest due.

Garcia Company provides the following information about its product:

Targeted operating income $50,000

Selling price per unit 6.00

Variable cost per unit 1.50

Total fixed costs 125,000

What is the contribution margin ratio?75%

Flip Flop company is considering investing in production-management software that costs $600,000,
has $60,000 residual value, and should lead to cost savings of $150,000 per year for its five-year life.
Calculate the average amount invested in the asset that should be used for calculating the
accounting rate of return?

$330,000

Which of the following is both a prime cost and a conversion cost?

Direct labor

Dartis Company is considering investing in a specialized equipment costing $600,000. The equipment
has a useful life of 5 years and a residual value of $60,000. Depreciation is calculated using the
straight-line method. The expected net cash inflows from the investment are given below.

Year 1 $200,000

2 150,000

3 160,000

4 95,000
 5 75,000

$680,000

What is the accounting rate of return on the investment?

8.48%

Which of the following inventory costing methods results in the highest value of ending inventory
during a period of rising inventory costs?

First-in, first-out

Carlo Company makes bulk quantities of cleaning fluids. They currently sell 1,000 containers a month
at a price of $22 per unit. If they added a newer scent, they could charge $22.75 per unit for the
improved product. It would cost them a total of $700 per month to make that alteration. What
would be the effect on operating income?

It would increase by $50.

On October 1, 2015, Android Inc. made a loan to one of its customers. The customer signed a 4-
month note for $100,000 at 15%. Calculate the maturity value of the note.

$105,000

Companies are price-takers when:

it is operating in a highly competitive market.

Young Company has provided the following information:

Price per unit $40

Variable cost per unit 12

Fixed costs per month $10,000

What is the amount of sales in dollars required for Young to break even?

$18,000

The entry to write off an account receivable under the allowance method will:

have no effect on net income.

Inventory turnover measures:

how rapidly merchandise inventory is sold.

Barricades Corporation provided the following information for the year 2015:

Beginning Balance-Work-in-Process Inventory $24,000

Ending Balance-Work-in-Process Inventory 56,000

Beginning Balance-Raw Materials Inventory 84,000

Ending Balance-Raw Materials Inventory 60,000

Purchases-Raw Materials 360,000

Direct Labor 470,000

Indirect Materials 47,000

Indirect Labor 19,000

Depreciation on Factory Plant & Equipment 24,000

Plant Utilities & Insurance 270,000

What was the total manufacturing cost incurred during the year 2015?

$1,214,000

Which of the following statements describes a scenario when management should consider
dropping a business division?

The division's avoidable fixed costs are greater than its contribution margin.

Moylan Company has provided the following information:

Sales $777,000

Variable expenses 504,000

Fixed expenses 212,000

Which of the following statements is true, if the sales volume increases by 10%?

Operating income will increase by $27,300.

Samson Company had the following balances and transactions during 2014:

Beginning Merchandise Inventory 10 units at $95

March 10 Sold 8 units

June 10 Purchased 20 units at $100

October 30 Sold 15 units

What is the amount of the company's Merchandise Inventory, as disclosed in the December 31, 2014
balance sheet as per the periodic first-in, first-out (FIFO) costing method?

$700

McDaniel Company sells two products-J and B. McDaniel predicts that it will sell 7,200 units of J and
5,600 units of B in the next period. The unit contribution margins are $2.85 and $6.30, respectively.
What is the weighted-average unit contribution margin?

$4.36 per product

Dong Fang Company fabricates inexpensive automobiles for sale to 3rd world countries. Each auto
includes one wiring harness, which is currently made in-house. Details of the harness fabrication are
as follows:
Volume 900 units per month

Variable cost per unit $8 per unit

Fixed costs $14,000 per month

A factory in Indonesia has offered to supply Dong Fang with ready-made units for a price of $14
each.

Assume that Dong Fang's fixed costs could be reduced by $5,000 if they outsource, and that Dong
Fang will not be able to use the excess capacity in any profitable manner. What will be the impact on
Dong Fang's monthly operating income, if Dong Fang decides to outsource?

It will go down by $400.

Which of the following is the correct formula for profit margin ratio?

Operating income ÷ Net sales

The following data is available:

Net sales $20,000

Normal gross profit 45%

Beginning inventory 8,000

Net purchases 7,000

Using the gross profit method, the cost of goods sold would be:

$11,000

Lightfoot Company sells its product for $55 and has variable costs of $30 per unit. The total fixed
costs are $25,000. What will be the effect on the breakeven point in units if variable costs increase
by $5 due to an increase in the cost of direct materials?

It will increase by 250 units.

The following information has been provided by Nugget Company:

Direct Labor $25,000

Direct Materials Used 10,000

Raw Materials Purchased 16,750

Cost of Goods Manufactured 49,750

Ending Work-in-Process Inventory 11,500

Corporate Headquarters' Property Taxes 1,500

Manufacturing Overhead 19,750

Calculate the beginning balance of the Work-in-Process Inventory account.

$6,500
Fuchsia Inc. provides automobile services in the local community. The company provides the
following information for the month of March:

Building Rent Expense $5,000

Depreciation Expense-Equipment 1,700

Supplies Expense 8,500

Utilities Expense 2,450

Fuchsia provided services to 1,500 clients in the month of March and generated $20,500 as revenue.

How much is the cost per service?

$11.77

Lightening Semiconductors produces 400,000 hi-tech computer chips per month. Each chip uses a
component which Lightening makes in-house. The variable costs to make the component are $1.20
per unit, and the fixed costs run $1,200,000 per month. The company has been approached by a
foreign producer who can supply the component, ready-made and with acceptable quality standards
for $1.10 each. If the company chooses to outsource, it could reduce the fixed costs by 40%. The
company does not have any other use for the facilities currently employed in making the
component. What is the effect on operating income, if the company decides to outsource?

Operating income would go up by $520,000.

Collins Computers stored its inventory in a warehouse which suffered a fire in late November, 2014.
Their sales office was at a different location. In order to file a claim with the insurance company, the
owners ask you to estimate the inventory in the warehouse. The following information is available:

Beginning inventory for November $375,500

Purchases through November 30 470,250

Net sales revenue through November 31 793,000

The company's gross profit has historically been 40% of Net sales revenue. Estimate the value of the
inventory destroyed in the fire using the gross profit method.

$369,950

When the total fixed costs increases, the contribution margin per unit:
Select one:
a. decreases.
b. increases proportionately.
c. remains the same.
d. increases.
Following details are provided by Dopler Company.

Initial investment $2,000,000

Discount rate 12%
Yearly cash flows
1 $200,000
2 $400,000
3 $400,000
4 $400,000
5 $200,000
Refer to the following table for PV factors:

10% 11% 12% 13%

1 0.909 0.901 0.893 0.885
2 0.826 0.812 0.797 0.783
3 0.751 0.731 0.712 0.693
4 0.683 0.659 0.636 0.613
5 0.621 0.593 0.567 0.543
Calculate the NPV of the project.
Select one:
a. $950,000 negative
b. $850,000 negative
c. $250,000 positive
d. $1,005,000 positive

Paramount Company is considering purchasing new equipment costing $700,000. The

management has estimated that the equipment will generate cash flows as follows:

Year 1 $200,000
 2 200,000
 3 250,000
 4 250,000
 5 150,000
Present value of $1:

6% 7% 8% 9% 10%
1 0.943 0.935 0.926 0.917 0.909
2 0.89 0.873 0.857 0.842 0.826
3 0.84 0.816 0.794 0.772 0.751
4 0.792 0.763 0.735 0.708 0.683
5 0.747 0.713 0.681 0.65 0.621
The company's required rate of return is 8%. Using the factors in the table, calculate the present
value of the cash inflows. (Round all calculations to the nearest whole dollar)
 Select one:
a. $841,000
b. $890,000
c. $750,000
d. $850,000

A company that uses labor, equipment, supplies, and facilities to convert raw materials into
finished products is a:
Select one:
a. trading company.
b. merchandising company.
c. service company.
d. manufacturing company.

Susan Florists had the following account balances at the end of the current accounting period:

Beginning inventory $53,500

Net purchases 75,500
Net sales revenue 93,700
A normal gross profit percent is 30%. What is the estimated ending inventory as per the gross
profit method?
Select one:
a. $28,110
b. $65,590
c. $100,890
d. $63,410

The following details are provided by a manufacturing company.

Product line
Investment $1,000,000
Useful life 12 years
Estimated annual net cash inflows for first year $400,000
Estimated annual net cash inflows for second year $350,000
Estimated annual net cash inflows for next ten years $300,000
Residual value $50,000
Depreciation method Straight-line
Required rate of return 12%
Calculate the payback period for the investment.
Select one:
a. 3.5 years
b. 2.83 year
c. 3.0 years
d. 2.5 years

A company that uses the perpetual inventory system sold goods for $1,000 to a customer on
account. The company had purchased the inventory for $400. Which of the following journal
entries correctly records the cost of goods sold?
Select one:
a.
Cost of Goods Sold 400
  Merchandise Inventory 400
b.
Accounts Receivable 400
  Sales Revenue 400
c.
Cost of Goods Sold 400
  Sales Revenue 400
d.
Merchandise Inventory 400
  Cost of Goods Sold 400

A 15% increase in production volume will result in a:

Select one:
a. 15% increase in total administration costs.
b. 15% increase in total mixed costs.
c. 15% increase in the variable cost per unit.
d. 15% increase in total variable costs.

Sprint Company makes special equipment used in cell towers. Each unit sells for $400. Sprint
produces and sells 12,500 units per year. They have provided the following income statement
data:

Traditional Costing Contribution Margin

Revenue $5,000,000 Revenue $5,000,000
Cost of goods sold 3,000,000 Variable Expenses
Gross Profit 2,000,000 Manufacturing 1,000,000
Selling & admin expenses 650,000 Selling & admin 400,000
Contributio
3,600,000
n Margin
 Fixed Expenses
Manufacturing 2,000,000
Selling
& 250,000
admin
Operating
Operating income $1,350,000 $1,350,000
income

A foreign company has offered to buy 80 units for a reduced price of $300 per unit. The
marketing manager says the sale will not negatively affect the company's regular sales. The sales
manager says that this sale will require incremental selling & administrative costs, as it is a one-
time deal. The production manager reports that it would require an additional $30,000 of fixed
manufacturing costs to accommodate the specifications of the buyer. If Sprint accepts the deal,
how will this impact operating income?
Select one:
a. operating income will decrease by $800
b. operating income will decrease by $14,960
c. operating income will increase by $5,440
d. operating income will increase by $24,000

Evans Company had the following balances and transactions during 2014.

Beginning Merchandise Inventory 10 units at $70

March 10 Sold 8 units
June 10 Purchased 20 units at $80
October 30 Sold 15 units
What is the amount of the company's Merchandise Inventory, as disclosed in the December 31,
2014 balance sheet as per the periodic last-in, first-out (LIFO) costing method?
Select one:
a. $400
b. $490
c. $540
d. $560

Which of the following is a variable cost?

Select one:
a. Salary of plant manager
b. Direct materials cost
c. Property taxes
d. Straight-line depreciation expense

Crystal Inc. is a merchandiser of stone ornaments. It sold 15,000 units in 2015. The company has
provided the following information:

Sales Revenue $557,000

Purchases (excluding freight in) 300,000
Selling and Administrative Expenses 69,000
Freight In 15,000
Beginning Merchandise Inventory 45,000
Ending Merchandise Inventory 55,700
How much is the gross profit for 2015?
Select one:
a. $183,700
b. $304,300
c. $252,700
d. $257,000

Gamma Company is considering an investment of $500,000 in a land development project. It will

yield cash flows of $200,000 for 5 years. The company uses a discount rate of 9%. What is the
net present value of the investment?
Present value of annuity of $1:

8% 9% 10%
1 0.926 0.917 0.909
2 1.783 1.759 1.736
3 2.577 2.531 2.487
4 3.312 3.24 3.17
5 3.993 3.89 3.791
Select one:
a. $330,000
b. $230,000
c. $278,000
d. $200,000

Fixed costs that do not differ between two alternatives are:

Select one:
a. relevant to the decision.
b. considered opportunity costs.
c. considered irrelevant to the decision.
d. important only if they represent a material dollar amount.

At the internal rate of return (IRR), the present value of cash inflows will be equal to:
Select one:
a. profit from the project.
b. average operating income.
c. initial investment.
d. residual value.

The last step in the capital budgeting process is control which compares the actual results with the
projected results. These comparisons are known as:
Select one:
a. ranks.
b. post-audits.
c. cash outflows
d. cash inflows.

An enterprise resource planning system (ERP):

Select one:
a. cannot be implemented in service companies.
b. is a cost management system in which a company produces products just in time to satisfy
needs.
c. requires the implementation of total quality management.
d. integrates all worldwide functions, departments and data of a company into a single system.

Which of the following inventory costing methods yields the lowest net income during a period
of rising inventory costs?
Select one:
a. Specific identification
b. First-in, first-out
c. Last-in, first-out
d. Weighted-average

Paramount Company is considering purchasing new equipment costing $700,000. The company's
management has estimated that the equipment will generate cash flows as follows:
Year 1 $200,000
 2 200,000
 3 250,000
 4 250,000
 5 150,000

Residual value is zero. What is the payback period?

Select one:
a. 3.2 years
b. 3.5 years
c. 4.5 years
d. 3.8 years

Gamma Company is considering an investment opportunity with the following expected net cash
inflows: Year 1, $250,000; Year 2, $350,000; Year 3, $395,000. The company uses a discount
rate of 12% and the initial investment is $750,000.

The following table is available:

Present Value of $1:
 
10% 12% 14% 15%
1 0.909 0.893 0.877 0.870
2 0.826 0.797 0.769 0.756
3 0.751 0.712 0.675 0.658
4 0.683 0.636 0.592 0.572
5 0.621 0.567 0.519 0.497

The IRR of the project will be:

Select one:
a. less than 12%.
b. between 14% and 15%.
c. between 12% and 13%.
d. more than 12%.

On October 1, 2015, Android Inc. made a loan to one of its customers. The customer signed a 4-
month note for $100,000 at 15%. How much interest revenue did the company record in the year
2015?
Select one:
a. $5,000
b. $3,750
c. $1,250
d. $1,500

Which of the following would be classified as a prime cost?

Select one:
a. Cost of raw materials
b. Depreciation on office furniture
c. Salary of sales personnel
d. Depreciation on factory equipment

Which of the following assets must be reported at the lower-of-cost-or-market value?

Select one:
a. Notes Receivable
b. Prepaid Insurance
c. Merchandise Inventory
d. Accounts Receivable

Which of the following principles states that a business's financial statements must report enough
information for outsiders to make knowledgeable decisions about the company?
Select one:
a. accounting conservatism
b. disclosure principle
c. consistency principle
d. materiality concept

following per unit data are available:

Bedford Lamp Lowell Lamp

Sale price $25 $35

Variable costs $17 $23

Machine hours required for 1 lamp 2 4

Total fixed costs are $30,000. Machine hour capacity is 25,000 hours per year. Assuming that the
company can sell as many products as it can make, which product mix would deliver the highest
operating income?

Select one:
 a. 12,500 Bedford lamps, zero Lowell lamps 

Which of the following is true of variable costing?

d. only variable manufacturing costs are assigned to products 

Which of the following is included in the category of other receivables?

e. interest receivable

Which of the following is the correct formula for asset turnover ratio?

Select one:

f. Net sales ÷ Average total assets

Which of the following is true of projecting future cash flows of an investment?

Select one:

g. The initial investment is always treated separately from all other cash flows.

Rica Company is a price-taker and uses a target-pricing approach. Refer to the following information:

Production volume 600,000 units per year

Market price $30 per unit

Desired operating income 15% of total assets

Total assets $13,900,000

How much is the desired profit for the year?

h. $2,085,000

During the year, Everlight has $150,000 of credit sales, collections of credit sales of $140,000, and
write-offs of $3,000. It records bad debts expense at the end of the year using the aging-of-
receivables method. At the end of the year, aging analysis produces a figure of $1,900, being the
estimate of uncollectible accounts. Before the year-end entry to adjust the bad debts expense is
made, the balance in the Allowance for Bad Debts expense would be:

Select one:

d. debit of $1,800.

For a manufacturing business, which of the following would be included as manufacturing overhead?

Select one:

e. Indirect materials cost

Which of the following statements most accurately describes residual income?

b. how much extra income a division generates above the minimum acceptable level

Which of the following is true of just-in-time (JIT) inventory management?

 d. It is a system in which the company produces product only after receiving an order. 

Products are made by machine. 4 units of Product A can be made with one machine hour and 2 units
of Product B can be made with one machine hour. The company has a maximum of 3,000 machine
hours available per month. The company can sell up to 7,000 units of Product A per month, and up
to 3,000 units of Product B for the month. What is the optimum product mix to maximize company's
operating income?

 6,000 units of A; 3,000 units of B 

Pluto Company sold 2,000 units in October at a price of $35 per unit. The variable cost is $20 per
unit. Calculate the total contribution margin.

$30,000 

Sandra Company had 200 units of inventory on hand at the end of the year. These were recorded at
a cost of $12 each using the last-in, first-out (LIFO) method. The current replacement cost is $10 per
unit. The selling price charged by Sandra Company for each finished product is $15. In order to
record the adjusting entry needed under the lower-of-cost-or-market rule, the Cost of Goods Sold
will be

debited by $400. 

Perfect Fit Company sells hand-sewn shirts for $40 per shirt. It incurs monthly fixed costs of $5,000.
The contribution margin ratio is calculated to be 20%. What is the breakeven point in units?

625 units

Fine Arts Inc. produces a special kind of light weight, recreational vehicle that has a unique design. It
allows the company to follow a cost-plus pricing strategy. It has $9,000,000 of assets and
shareholders expect a 10% return on assets. Additional data are as follows:

$3,100 

Cortes Company is considering three investment opportunities with the following payback periods:

Project X Project Y Project Z

Payback period 3 years 2.5 years 2.8 years

Use the decision rule for payback to rank the projects from most desirable to least desirable, all else
being equal.

Y,Z,X

Fixed costs that do not differ between two alternatives are:

Irrelevant to decision

Which of the following best describes a post-audit in capital budgeting?

f. a comparison of actual results of capital investments with projected results

A foreign company has offered to buy 80 units for a reduced price of $300 per unit. The marketing
manager says the sale will not negatively affect the company's regular sales. The sales manager says
that this sale will require incremental selling & administrative costs, as it is a one-time deal. The
production manager reports that it would require an additional $30,000 of fixed manufacturing costs
to accommodate the specifications of the buyer. If Sprint accepts the deal, how will this impact
operating income?

operating income will decrease by $14,960

Felix Time Company manufactures and sells watches for $40 each. Times Products Company has
offered Felix Time $25 per watch for a one-time order of 6,000 watches. The total manufacturing
cost per watch is $30 per unit, and consists of variable costs of $22 per watch and fixed overhead
costs of $8 per watch. Assume that Felix Time has excess capacity and that the special order would
not adversely affect regular sales. What is the change in operating income that would result from
accepting the special sales order?

Increase by 18,000

What is the acid-test ratio for a merchandiser having the following balances? (Round to two decimal
places.)

0.40

Which of the following is an expanded form of calculating return on investment?

Profit margin ratio × Asset turnover ratio 

When comparing several investments with the same initial outlay, the decision should be made on
the basis of:

Highest NPV

Reed Production has provided the following information for the year 2015:

Direct Labor $153,000

Beginning Work-in-Process Inventory 62,500

Direct Materials Used 271,000

Ending Work-in-Process Inventory 53,850

Manufacturing Overhead 135,500

During the year, Reed produced 71,020 units of product. Calculate the unit product cost.

$8.00

Williams Company had the following balances and transactions during 2014.

Beginning Inventory 10 units at $70

June 10 Purchased 20 units at $80

December 30 Sold 15 units

December 31 Replacement cost $68

Williams maintains its records of inventory on a perpetual basis using the last-in, first-out method.
Calculate the amount of ending Merchandise Inventory at December 31, 2014 using the lower-of-
cost-or-market rule.

1020

Custom Furniture manufactures a small table and a large table. The small table sells for $900, has
variable costs of $560 per table, and takes ten direct labor hours to manufacture. The large table
sells for $1,500, has variable costs of $980, and takes eight direct labor hours to manufacture.
Calculate the contribution margin per direct labor hour for the small table.

34 per direct labor

Fantabulous Products sells 2,000 kayaks per year at a price of $450 per unit. Fantabulous sells in a
highly competitive market and uses target pricing. The company has $1,000,000 of assets and the
shareholders wish to make a profit of 18% on assets. Variable cost is $200 per unit and cannot be
reduced. How much is the target fixed costs?

320,000

Grand Products is a price-setter, and they use cost-plus pricing methodology for pricing their
products which are unique, artistically designed architectural decorations. They produce and sell
6,000 units per year, at their maximum capacity. Variable costs are $330 per unit. Total fixed costs
are $900,000 per year. The CEO has a target of $50,000 operating income which he wants to hit by
year-end. Using the cost-plus pricing method, what price should Grand use? (Round to nearest
whole dollar.)

. $488 per unit

Macaulay Company is thinking of dropping product line F because it is reporting an operating loss.
Assume that $15,000 of total fixed costs could be eliminated by dropping F. What effect would this
decision have on operating income?

Operating income will decrease by $5,000.

Gamma Company is considering an investment proposal that would require an initial outlay of
$800,000, and would yield yearly cash flows of $200,000 for 9 years. The company uses a discount
rate of 10%. What is the NPV of the investment?

Present value of annuity of $1:

8% 9% 10%

1 0.926 0.917 0.909

2 1.783 1.759 1.736

3 2.577 2.531 2.487

4 3.312 3.24 3.17

5 3.993 3.89 3.791

6 4.623 4.486 4.355

7 5.206 5.033 4.868

8 5.747 5.535 5.335

9 6.247 5.995 5.759

. $351,800

Which of the following exists if the maker of a promissory note fails to pay the note on the due date?

dishonored note

A company reports net accounts receivable of $150,000 on its December 31, 2015 balance sheet.
The Allowance for Bad Debts has a credit balance of $15,000. What is the balance in Accounts
Receivable?

$165,000

Best Deals has six CD players in ending merchandise inventory on December 31. The players were
purchased in November for $165. The price lists from suppliers indicate the current replacement
cost of a CD player to be $162. What would be the amount reported as Inventory on the balance
sheet?

. $972

Which of the following best describes the profitability index?

the ratio of present value of net cash inflows to initial investment

Mist Company sells two products-A and B. Mist predicts that it will sell 2,500 units of A and 1,500
units of B during the next period. The unit contribution margins are $3.50 and $4.80, respectively.
What is the weighted-average unit contribution margin?

. $3.99 per product

On October 1, 2015, Ealys Jewellers accepted a 4-month, 12% note for $6,000 in settlement of an
overdue account receivable. The company closes its accounts at the year end. Calculate and record
the accrued interest on the note at December 31, 2015.

$180 

 :

July 15.

Which of the following is a philosophy designed to integrate all organizational areas in order to
provide customers with superior products and services, while meeting organizational goals
throughout the value chain?

Total quality management (TQM)

Hilltop Golf Course is planning for the coming season. Investors would like to earn a 15% return on
the company's $60,000,000 of assets. The company primarily incurs fixed costs to groom the greens
and fairways. Fixed costs are projected to be $30,000,000 for the golfing season. About 600,000
rounds of golf are expected to be played each year. Variable costs are about $15 per round of golf.
Hilltop golf course has a favorable reputation in the area and therefore, has some control over the
price of a round of golf. Using a cost-plus pricing approach, what price should Hilltop charge for a
round of golf to achieve the desired profit?

$80

enterprise resource planning system (ERP):

integrates all worldwide functions, departments and data of a company into a single system.

Fantabulous Products sells 2,000 kayaks per year at a price of $450 per unit. Fantabulous sells in a
highly competitive market and uses target pricing. The company has calculated its target full product
cost at $720,000 per year. Total variable costs are $330,000 per year and cannot be reduced. How
much are the target fixed costs?

$390,000

Meson Production is a price-taker. It produces large spools of electrical wire in a highly competitive
market, so it practices target pricing. The current market price of the electric wire is $780 per unit.
The company has $3,000,000 in assets and its shareholders expect a return of 6% on assets. The
company provides the following information:

Sales volume 100,000 units per year

Variable costs $700 per unit

Fixed costs $12,000,000 per year

If variable costs cannot be reduced, how much reduction in fixed costs will be needed to achieve the
profit target?

. $4,180,000

 Nancy was reviewing the water bill for her dog day care and spa and determined that her highest
bill, $3,800, occurred in May when she washed 400 dogs and her lowest bill, $2,400, occurred in
November when she washed 200 dogs. What was the variable cost per dog associated with Nancy's
water bill?

$7.00

Carlo Company makes bulk quantities of cleaning fluids. They currently sell 1,000 containers a month
at a price of $22 per unit. If they added a disinfectant, they could charge $25 per unit for the
improved product. It would cost them a total of $3,800 per month to make that alteration. What
would be the effect on operating income?

It would decline by $800.

Shasta Company is trying to decide whether to continue to manufacture a particular component or

to buy the component from an outside supplier. Which of the following is irrelevant with respect to
this decision?

. the unavoidable fixed manufacturing costs associated with the manufacture of the component

Which of the following statements is true of the direct write-off method?

It is only suitable for small companies that have very few uncollectible receivables.
Which of the following is the primary objective of managerial accounting?

providing information that managers need to make operational decisions

Which of the following describes the term time value of money?

. Value of a dollar received today will be higher than that received after some time.

The cost of goods available for sale is equal to the:

cost of goods sold plus the ending inventory.

Companies are price-takers when:

. it is operating in a highly competitive market.

Recreation Equipment Company has several divisions which are investment centers. Data for the
Boat Division and the Trailer Division are shown here:

Boat Division Trailer Division

Operating income $90,000 $36,000

Total assets at Jan 1 $670,000 $230,000

Total assets at Dec 31 $710,000 $220,000

Which of the following statements would be the most meaningful interpretation of this data?

Trailer Division uses its assets more efficiently than Boat Division because it has higher ROI.

The ending merchandise inventory for the current accounting period is overstated by $3,500. What
will be the effect of this error?

Net income for the current accounting period will be overstated by $3,500.

Which of the following statements describes a scenario when management should consider
dropping a business division?

The division's avoidable fixed costs are greater than its contribution margin.

Amoeba Manufacturing Company provided the following information for the year 2015:

Purchases-Raw Materials $90,000

Plant Utilities & Insurance 67,500

Indirect Materials 11,750

Indirect Labor 4,750

Direct Materials Used in Production 96,000

Direct Labor 117,500

Depreciation on Factory Plant & Equipment 6,000

The inventory account balances as of January 1st 2015 are given below.

Raw Materials Inventory $42,000

Work-in-Process Inventory 12,000

Finished Goods Inventory 49,500

What is the ending balance in the Raw Materials Inventory account?

. $24,250

Paramount Company is considering purchasing new equipment costing $700,000. Company's

management has estimated that the equipment will generate cash flows as follows:

Year 1 $200,000

2 200,000

3 250,000

4 250,000

5 150,000

Present value of $1:

6% 7% 8% 9% 10%

1 0.943 0.935 0.926 0.917 0.909

2 0.89 0.873 0.857 0.842 0.826

3 0.84 0.816 0.794 0.772 0.751

4 0.792 0.763 0.735 0.708 0.683

5 0.747 0.713 0.681 0.65 0.621

The company's required rate of return is 9%. Using the factors in the table, calculate the present
value of the cash flows.

$819,300

Which of the following are two methods of estimating uncollectible receivables?

aging-of-accounts-receivable method and percent-of-sales method

Harris Company had the following balances and transactions during 2014:

Beginning Merchandise Inventory 100 units at $75

March 10 Sold 50 units

June 10 Purchased 200 units at $80

October 30 Sold 150 units

What would the Cost of Goods Sold be as reported on the income statement for the year ending
December 31, 2014 if the perpetual, last-in, first-out costing method is used? Round your answer to
two decimal places.

. $15,750

Which of the following is the correct formula for calculating residual income?

Operating income - Minimum acceptable operating income

Anthony Company has fixed costs of $30,000 per month. Highest production volume during the year
was in January when 100,000 units were produced, 75,000 units were sold, and total costs of
$630,000 were incurred. In June, the company produced only 55,000 units. What was the total cost
incurred in June?

. $360,000

Which of the following is the correct formula to calculate average merchandise inventory?

Average merchandise inventory = (Beginning merchandise inventory + Ending merchandise

inventory) ÷ 2

Fox Inc. manufactures and sells pens for $5 each. Wolf Corp. has offered Fox Inc. $3 per pen for a
one-time order of 3,500 pens. The total manufacturing cost per pen, using traditional costing, is $1
per unit, and consists of variable costs of $0.85 per pen and fixed overhead costs of $0.15 per watch.
Assume that Fox Inc. has excess capacity and that the special order would not adversely affect
regular sales. What is the change in operating income that would result from accepting the special
sales order?

increase of $7,525

Which of the following is a capital budgeting method that ignores the time value of money?

Payback

A company sells two products with information as follows:

A B

Price per unit $12 $20

Variable cost per unit $10 $12

Products are made by machine. 4 units of Product A can be made with one machine hour and 2 units
of Product B can be made with one machine hour. The company has a maximum of 3,000 machine
hours available per month. The company can sell up to 7,000 units of Product A per month, and up
to 3,000 units of Product B for the month. What is the maximum amount of contribution margin that
the company could earn in a month given the stated constraints?

$36,000

Faros Hats, Etc. has two product lines-baseball helmets and football helmets. Income statement data
for the most recent year follow:

Total Baseball Helmets Football Helmets

Sales revenue $850,000 $500,000 $350,000

Variable expenses (530,000) (250,000) (280,000)

Contribution margin $320,000 $250,000 $70,000

Fixed expenses (180,000) (90,000) (90,000)

Operating income (loss) $140,000 $160,000 $(20,000)

Assuming fixed costs remain unchanged, and that there would be no adverse effect on other sales.
What will be the effect of dropping Football Helmets line on the operating income of the company?

Operating income will decrease by $70,000.

Which of the following is included in the numerator of the acid-test ratio?

Cash including cash equivalents, short-term investments, net current receivables

How is the management of a company accountable to its employees?

The management must provide a safe workplace.

Which of the following costs changes in total in direct proportion to a change in volume?

Variable Cost

Which of the following methods of inventory valuation requires the calculation of a new average
cost after each purchase?

Weighted-average

The degree of operating leverage can be measured by:

dividing the fixed costs by the sales price per unit

Which of the following is a product cost?

Depreciation on production equipment

Allston Products sells a special kind of effects pedal for musical performers. Each unit sells for
$20.00. Additional data for the month of April, 2011, are as follows:

Direct materials$4.00 per unit

Direct labor $8.00 per unit

Variable manufacturing overhead $20,000 per month

Fixed manufacturing overhead $14,000 per month

Operating expenses $21,000 per month

Beginning inventory 0 units

Units produced 8,000 units

Units sold 7,500 units

Ending inventory 500 units

Which of the following statements is true?

Absorption costing produces operating income that is $875 higher than variable costing.

Jasper Corporation reports the following cost information for March:

Cost of Goods Manufactured $75,000

Manufacturing Overhead 18,250

Finished Goods Inventory, March 1 4,500

Finished Goods Inventory, March 31 2,650

Work-in-Process Inventory, March 1 9,670

Work-in-Process Inventory, March 31 1,250

Direct Labor 36,300

What is the amount of direct materials used by Jasper in March?

$12,030

Sandra Company had 200 units of inventory on hand at the end of the year. These were recorded at
a cost of $12 each using the last-in, first-out (LIFO) method. The current replacement cost is $10 per
unit. The selling price charged by Sandra Company for each finished product is $15. In order to
record the adjusting entry needed under the lower-of-cost-or-market rule, the Merchandise
Inventory will be:

credited by $400.

The income statement for Sweet Dreams Company is divided by its two product lines, blankets and
pillows, as follows:

Blankets Pillows Total

Sales revenue $620,000 $300,000 $920,000

Variable expenses (465,000) (240,000) (705,000)

Contribution margin $155,000 $60,000 $215,000

Fixed expenses (76,000) (76,000) (152,000)

Operating income (loss) $79,000 $(16,000) $63,000

Sweet Dreams is considering eliminating the pillows product line. If they do so, they will be able to
eliminate $76,000 of total fixed costs. How would that business decision impact operating income?

increase of $16,000 in operating income

Which of the following correctly describes the accounting for administrative expenses of a
manufacturing company?

Administrative expenses are period costs and are expensed as incurred.

Parkinson Company provides the following financial information:

Income from operations $200,000

Interest expense 45,000

Gains/(losses) on sale of equipment (2,500)

Net income 152,500

Total assets at Jan 1 2,600,000

Total assets at Dec 31 3,200,000

Calculate return on investment based on the information given above.

6.9%

A company has two different products that are sold in different markets. Financial data are as
follows:

Product A Product B Total

Revenue $15,000 $9,500 $24,500

Variable cost (9,000) (9,800) (18,800)

Fixed cost (allocated) (3,000) (2,000) (5,000)

Operating income $3,000 ($2,300) $700

Assume that fixed costs are all unavoidable and that dropping one product would not impact sales of
the other. If Product B is dropped, what would be the impact on total operating income of the
company?

increase $300

The Allowance for Bad Debts has a credit balance of $9,000 before the adjusting entry for bad debt
expense. After analyzing the accounts in the accounts receivable subsidiary ledger using the aging
method, the company's management estimates that uncollectible accounts will be $15,000. What
will be the amount of bad debts expense reported on the income statement?

$6,000

A company purchased 100 units for $30 each on January 31. It purchased 150 units for $25 on
February 28. It sold 150 units for $50 each from March 1 through December 31. If the company uses
the first-in, first-out inventory costing method, what is the amount of Cost of Goods Sold on the
income statement for the year ending December 31? (Assume that the company uses a perpetual
inventory system.)

$4,250

Which of the following most accurately describes the discount rate used in NPV analysis?

the required rate of return or the hurdle rate

James Company sells glass vases at a wholesale price of $2.50 per unit. The variable cost of
manufacture is $1.75 per unit. The monthly fixed costs are $7,500. James's current sales are 25,000
units per month. If James wants to increase operating income by 20%, how many additional units,
must James sell? (Round your intermediate calculations to two decimal places)

3,000 glass vases

 If $15,000 is invested annually in an account with 9% interest compounding yearly, what will the
balance of the account be after five years? Refer to the following Future Value table:

Future value of annuity of $1:

7% 8% 9%

1 0.935 0.926 0.917

2 1.808 1.783 1.759

3 2.624 2.577 2.531

4 3.387 3.312 3.24

5 4.1 3.993 3.89

6 4.767 4.623 4.486

7 5.389 5.206 5.033

$58,350

Which of the following is a part of manufacturing overhead?

Factory insurance

Gotham Products is a price-taker and uses target pricing. Gotham has just done an analysis of their
revenues, costs and desired profits, and has calculated its target full product cost. Refer to the
following information:

Target full product cost $500,000 per year

Actual fixed cost $280,000 per year

Actual variable cost $2 per unit

Production volume 150,000 units per year

Actual costs are currently higher than target full product cost. Assuming that fixed costs cannot be
reduced, how much is the target variable cost per unit?

$1.47

A company is evaluating three possible investments. Each uses straight-line method of depreciation.
Following information is provided by the company.

Project A Project B Project C

Investment $200,000 $50,000 $200,000

Salvage value 0 5,000 10,000

Net cash flows:

Year 1 50,000 25,000 80,000

Year 2 50,000 16,000 50,000

Year 3 50,000 12,000 60,000

Year 4 50,000 9,000 20,000

Year 5 50,000 0 0

What is the accounting rate of return for Project B?

15.45%

Carlo Company makes bulk quantities of cleaning fluids. They currently sell 1,000 containers a month
at a price of $22 per unit. If they added a newer scent, they could charge $22.75 per unit for the
improved product. It would cost them a total of $700 per month to make that alteration. What
would be the effect on operating income?

It would increase by $50.

Huntswell Corporation has two major divisions: Agricultural Products and Industrial Products. It
provides the following information for the year 2014

Agriculture Division Industrial Division

Sales revenue $140,000 $1,040,000

Operating income $46,400 $220,000

Average total assets $300,000 $5,540,000

Target rate of return 14.0% 14.0%

Calculate the residual income for the Agriculture division.

$4,400

A company used $35,000 of direct materials, incurred $73,000 in direct labor cost, and $114,000 in
manufacturing overhead costs during the period. If beginning and ending Work-in-Process
Inventories were $28,000 and $21,000 respectively, what is the cost of goods manufactured?

$229,000

Golden Oak Antique Shop had the following account balances at the end of the current accounting
period:

Beginning inventory $73,000

Net purchases 58,250

Net sales revenue 87,500

The normal gross profit for the company is $45%. What was the company's estimated cost of goods
sold for the accounting period?

$48,125
On October 1, 2015, Android Inc. made a loan to one of its customers. The customer signed a 4-
month note for $100,000 at 15%. How much interest revenue did the company record in the year
2015?

$3,750

A company is considering an iron ore extraction project which requires an initial investment of
$1,000,000 and will yield annual cash flows of $350,263 for 4 years. The company's hurdle rate is 9%.
Calculate IRR.

15%

Lightening Semiconductors produces 400,000 hi-tech computer chips per month. Each chip uses a
component which Lightening makes in-house. The variable costs to make the component are $1.20
per unit, and the fixed costs run $1,200,000 per month. The company has been approached by a
foreign producer who can supply the component, ready-made and with acceptable quality standards
for $1.10 each. The fixed costs are unavoidable, and Lightening would have no other use for the
facilities currently employed in making the component. What is the effect on operating income, if
the company decides to outsource?

Lightening Semiconductors could save $40,000 per month in costs.

Gould Enterprises sells computer disks for $1.50 per disk. Unit variable expenses total $0.90. The
breakeven point in units is 3,000 and expected sales in units are 4,300. What is the margin of safety
in dollars?

$1,950

Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and
collections of credit sales of $36,000. One account for $650 was written off. The company decided to
use the percent-of-sales method to account for bad debts expense, and decided to use a factor of
2% for their year-end adjustment of bad debts expense. The ending balance in Allowance for Bad
Debts account would be:

$150.

Fantabulous Products sells 2,000 kayaks per year at a price of $450 per unit. Fantabulous sells in a
highly competitive market and uses target pricing. The company has $1,000,000 of assets and the
shareholders wish to make a profit of 18% on assets. Fixed costs are $500,000 per year and cannot
be reduced. How much is the target variable costs?

$220,000

A company may prefer to use residual income over return on investment for performance evaluation
because:

residual income is more likely to lead to goal congruence than return on investment.

Gladeer Company is evaluating an investment that will cost $520,000 and will yield cash flows of
$300,000 in the first year, $200,000 in the second year, and $100,000 in the third and final year. Use
the tables below and determine the internal rate of return.

Present value of $1:

8% 9% 10% 11%
1 0.926 0.917 0.909 0.901

2 0.857 0.842 0.826 0.812

3 0.794 0.772 0.751 0.731

4 0.735 0.708 0.683 0.659

5 0.681 0.65 0.621 0.593

between 9% and 10%.

Valuable Electronics uses a standard part in the manufacture of different types of radios
manufactured by it. The total cost of producing 25,000 parts is $95,000, which includes fixed costs of
$40,000 and variable costs of $55,000. The company can buy the part from an outside supplier for
$3 per unit, and avoid 20% of the fixed costs. If Valuable Electronics decides to outsource the
production of the part, how will it impact its operating income?

decrease of $12,000

On December 1, 2015, Parsons Inc. sold machinery to a customer for $20,000. The customer could
not pay at the time of sale, but agreed to pay 9 months later, and signed a 9-month note at 9%
interest. What was the total amount of cash collected by Parsons on the maturity of the note?

$21,350

Which of the following is true of the proper balance sheet treatment of the Allowance for Bad Debts
with a credit balance?

It is shown as a contra account related to accounts receivable.

What is total quality management (TQM)?

a philosophy of supplying customers with superior products and services

Macaulay Company has three product lines-D, E, and F. The following information is available:

D E F

Sales $70,000 $40,000 $30,000

Variable costs (40,000) (20,000) (10,000)

Contribution margin 30,000 20,000 20,000

Fixed expenses (15,000) (15,000) (25,000)

Operating income (loss) $15,000 $5,000 ($5,000)

Macaulay Company is thinking of dropping product line F because it is reporting an operating loss.
Assume that $25,000 of total fixed costs could be eliminated by dropping F. What effect would this
decision have on operating income?

Operating income will increase by $5,000.

A small business produces a single product and reports the following data:

Price $8.00 per unit

Variable cost $5.00 per unit

Fixed cost $21,000 per month

Volume 10,000 per month

If the company reduces its price to $7.50, it believes that the volume will go up to 11,000 units.

How would this change affect operating income?

It will go down by $2,500.

The relevant range of Orleans Company is between 100,000 units and 180,000 units per month. If
the company produces beyond 180,000 units per month:

both the fixed costs and the variable cost per unit may change.

Which of the following is the most important key to short-term business decision making?

focus on relevant costs and use the contribution margin approach

________ refer to the value forgone in order to make one particular investment instead of another.

Opportunity costs

If a company wishes to be a price-setter, which of the following strategies should they take?

produce a unique product

Which of the following formulae is the right formula for calculating contribution margin ratio?

Contribution margin ratio = Contribution margin ÷ Net sales revenue

The following data is available:

Net sales $13,000

Normal gross profit 45%

Beginning inventory 8,000

Net purchases 7,000

Using the gross profit method, the amount of gross profit would be:

$5,850

Which of the following inventory costing methods is based on the actual cost of each particular unit
of inventory?

Specific identification
Gotham Products is a price-taker and uses target pricing. Gotham has just done an analysis of their
revenues, costs and desired profits, and has calculated its target full product cost. Please refer to the
following information:

Target full product cost $500,000 per year

Actual fixed cost $280,000 per year

Actual variable cost $2 per unit

Production volume 150,000 units per year

Actual costs are currently higher than target full product cost. Assuming that fixed costs cannot be
reduced, how much is the target variable cost?

$220,000

Which of the following inventory costing methods uses the costs of the oldest purchases to calculate
the value of the ending inventory?

Last-in, first-out

Dong Fang Company fabricates inexpensive automobiles for sale to 3 rd world countries. Each
auto includes one wiring harness, which is currently made in-house. Details of the harness
fabrication are as follows:

Volume 900units per month

Variable cost per unit $8per unit

Fixed costs $14,000per month

A factory in Indonesia has offered to supply Dong Fang with ready-made units for a price of $14
each.
Assume that Dong Fang's fixed costs could be reduced by $5,000 if they outsource, and that
Dong Fang will not be able to use the excess capacity in any profitable manner. What will be the
impact on Dong Fang's monthly operating income, if Dong Fang decides to outsource?
Select one:

a. It will go down by $14,000.

b. It will go up by $8,600.

c. It will go up by $2,600.

d. It will go down by $400. 

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The correct answer is: It will go down by $400.

Question 2
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Meson Production is a price-taker. It produces large spools of electrical wire in a highly

competitive market, so it practices target pricing. The current market price of the electric wire is
$800 per unit. The company has $3,000,000 in assets and its shareholders expect a return of 6%
on assets. The company provides the following information:

Sales volume 100,000units per year

Variable costs $700per unit

Fixed costs $12,000,000per year

If fixed costs cannot be reduced, how much reduction in variable costs will be needed to achieve
the profit target?
Select one:

a. $180,000

b. $12,000,000

c. $4,200,000

d. $2,180,000 
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The correct answer is: $2,180,000

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Which of the following is true of projecting future cash flows of an investment?

Select one:

a. Information on cash flow will also include non-cash transactions like depreciation.

b. Cash inflows and cash outflows are treated separately, rather than being netted together.

c. The initial investment is always treated separately from all other cash flows. 

d. Cash flows are projected by accounting personnel without considering input from other
business functions.
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The correct answer is: The initial investment is always treated separately from all other cash
flows.

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Moylan Company has provided the following information:

Sales $777,000

Variable expenses 504,000

Fixed expenses 212,000

Which of the following statements is true, if the sales volume increases by 10%?
Select one:

a. Fixed expenses will increase by $21,200.

b. Operating income will increase by $27,300. 

c. Contribution margin will increase by $77,700.

d. Operating income will increase by $6,100.

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The correct answer is: Operating income will increase by $27,300.

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Which of the following statements most accurately describes residual income?

Select one:

a. how much operating income the division earns on every dollar of sales

b. how much extra income a division generates above the minimum acceptable level 

c. how much return a division generates on average assets

d. how efficiently a division uses its average assets to generate sales there by profits
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At the beginning of 2015, Peter Dots has the following ledger balances:

During the year, credit sales amounted to $800,000. Cash collected on credit sales amounted to
$760,000 and $18,000 has been written off. At the end of the year, company adjusted for bad
debts expense using the percent-of-sales method and applied a rate, based on past history, of
2.5%. The ending balance in the Allowance for Bad Debts would be:
Select one:
a. $6,400.

b. $5,000.

c. $7,000. 

d. $6,500.
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The correct answer is: $7,000.

Question 7
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Which of the following would be classified as a prime cost?

Select one:

a. Cost of raw materials 

b. Depreciation on office furniture

c. Salary of sales personnel

d. Depreciation on factory equipment

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The correct answer is: Cost of raw materials

Question 8
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Williams Company has variable costs of $0.60 per unit of product. In August, the volume of
production was 24,000 units and units sold were 20,000. The total production costs incurred were
$31,900. What are the fixed costs per month?
Select one:

a. $17,500 

b. $9,600

c. $19,900

d. $14,400
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The correct answer is: $17,500

Question 9
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If a company wishes to be a price-setter, which of the following strategies should they take?
Select one:

a. produce a unique product 

b. produce a generic mass-market product

c. produce a commodity and outsource the manufacturing operations

d. enter a competitive market and boost profits by cost cutting

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The correct answer is: produce a unique product

Question 10
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Fuchsia Inc. provides automobile services in the local community. The company provides the
following information for the month of March:

Building Rent Expense $5,000

Depreciation Expense-Equipment 1,700

Supplies Expense 8,500

Utilities Expense 2,450

Fuchsia provided services to 1,500 clients in the month of March and generated $20,500 as
revenue.
How much is the cost per service?
Select one:

a. $11.77 

b. $13.67

c. $5.18

d. $10.63
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The correct answer is: $11.77

Question 11
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Which of the following is a philosophy designed to integrate all organizational areas in order to
provide customers with superior products and services, while meeting organizational goals
throughout the value chain?
Select one:

a. Just-in-time (JIT) management

b. Supply chain management

c. Enterprise resource planning (ERP)

d. Total quality management (TQM) 

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The correct answer is: Total quality management (TQM)

Question 12
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Valuable Electronics uses a standard part in the manufacture of different types of radios
manufactured by it. The total cost of producing 25,000 parts is $95,000, which includes fixed
costs of $40,000 and variable costs of $55,000. The company can buy the part from an outside
supplier for $3 per unit, and avoid 20% of the fixed costs.
If Valuable Electronics decides to outsource the production of the part, how will it impact its
operating income?
Select one:

a. increase of $12,000

b. increase of $20,000

c. decrease of $20,000

d. decrease of $12,000 
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The correct answer is: decrease of $12,000

Question 13
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On October 1, 2015, Ealys Jewellers accepted a 4-month, 12% note for $6,000 in settlement of an
overdue account receivable. The company closes its accounts at the year end. Calculate and
record the accrued interest on the note at December 31, 2015.
Select one:

a. $140

b. $160

c. $240

d. $180 
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The correct answer is: $180

Question 14
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Which of the following is true of discounted cash flow methods like NPV and IRR?
Select one:

a. They comply with the requirements of GAAP.

b. They assume that cash flows will be reinvested when received. 

c. They focus on the payback period.

d. They use simple interest calculations.

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The correct answer is: They assume that cash flows will be reinvested when received.
Question 15
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Paramount Company is considering purchasing new equipment costing $700,000. The

management has estimated that the equipment will generate cash flows as follows:

Year 1 $200,000

 2 200,000

 3 250,000

 4 250,000

 5 150,000

Present value of $1:

6% 7% 8% 9% 10%

1 0.943 0.935 0.926 0.917 0.909

2 0.89 0.873 0.857 0.842 0.826

3 0.84 0.816 0.794 0.772 0.751

4 0.792 0.763 0.735 0.708 0.683

5 0.747 0.713 0.681 0.65 0.621

The company's required rate of return is 8%. Using the factors in the table, calculate the present
value of the cash inflows. (Round all calculations to the nearest whole dollar)
Select one:

a. $750,000

b. $850,000

c. $890,000

d. $841,000 
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The correct answer is: $841,000

Question 16
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Fantabulous Products sells 2,000 kayaks per year at a price of $450 per unit. Fantabulous sells in
a highly competitive market and uses target pricing. The company has $1,000,000 of assets and
the shareholders wish to make a profit of 18% on assets. Fixed costs are $500,000 per year and
cannot be reduced. How much is the target variable costs?
Select one:

a. $220,000 

b. $265,000

c. $500,000

d. $720,000
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The correct answer is: $220,000

Question 17
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Answer: 
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The correct answer is: 15

Question 18
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Inventory turnover measures:

Select one:

a. how rapidly merchandise inventory is sold. 

b. the days' sales in inventory ratio.

c. the time period for inventory become obsolete (worthless).

d. how rapidly merchandise inventory is purchased.

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The correct answer is: how rapidly merchandise inventory is sold.

Question 19
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Faros Hats, Etc. has two product lines-baseball helmets and football helmets. Income statement
data for the most recent year follow:

Total Baseball Helmets Football Helmets

Sales revenue $850,000 $500,000 $350,000

Variable expenses (530,000) (250,000) (280,000)

Contribution margin $320,000 $250,000 $70,000

Fixed expenses (180,000) (90,000) (90,000)

Operating income (loss) $140,000 $160,000 $(20,000)

Assuming fixed costs remain unchanged, and that there would be no adverse effect on other sales.
What will be the effect of dropping Football Helmets line on the operating income of the
company?
Select one:

a. Operating income will increase by $90,000.

b. Operating income will decrease by $70,000. 

c. Operating income will decrease by $350,000.

d. Operating income will increase by $20,000.

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The correct answer is: Operating income will decrease by $70,000.

Question 20
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Golden Oak Antique Shop had the following account balances at the end of the current
accounting period:

Beginning inventory $73,000

Net purchases 58,250

Net sales revenue 87,500

The normal gross profit for the company is $45%. What was the company's estimated cost of
goods sold for the accounting period?
Select one:

a. $39,375

b. $48,125 
c. $32,038

d. $40,150
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The correct answer is: $48,125

Question 21
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Gotham Products is a price-taker and uses target pricing. Gotham has just done an analysis of
their revenues, costs and desired profits, and has calculated its target full product cost. Please
refer to the following information:

Target full product cost $500,000per year

Actual fixed cost $280,000per year

Actual variable cost $2per unit

Production volume 150,000units per year

Actual costs are currently higher than target full product cost. Assuming that fixed costs cannot
be reduced, how much is the target variable cost?
Select one:

a. $300,000

b. $220,000 

c. $180,000

d. $500,000
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The correct answer is: $220,000

Question 22
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Fixed costs that do not differ between two alternatives are:

Select one:

a. important only if they represent a material dollar amount.

b. considered opportunity costs.

c. considered irrelevant to the decision. 

d. relevant to the decision.

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The correct answer is: considered irrelevant to the decision.

Question 23
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Which of the following statements describes a scenario when management should consider
dropping a business division?
Select one:

a. The division's avoidable fixed costs are greater than its contribution margin. 

b. The division's unavoidable fixed costs are greater than its operating loss.

c. The division's avoidable fixed costs are less than its contribution margin.

d. The division has been reporting an operating loss consistently.

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The correct answer is: The division's avoidable fixed costs are greater than its contribution
margin.
Question 24
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Felix Time Company manufactures and sells watches for $40 each. Times Products Company has
offered Felix Time $25 per watch for a one-time order of 6,000 watches. The total manufacturing
cost per watch is $30 per unit, and consists of variable costs of $22 per watch and fixed overhead
costs of $8 per watch. Assume that Felix Time has excess capacity and that the special order
would not adversely affect regular sales. What is the change in operating income that would
result from accepting the special sales order?
Select one:

a. increase of $150,000

b. decrease of $18,000

c. decrease of $150,000

d. increase of $18,000 
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The correct answer is: increase of $18,000

Question 25
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Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and
collections of credit sales of $36,000. One account for $650 was written off. The company
decided to use the percent-of-sales method to account for bad debts expense, and decided to use a
factor of 2% for their year-end adjustment of bad debts expense. The ending balance in
Allowance for Bad Debts account would be:
Select one:
a. $1,450.

b. $800.

c. $150. 

d. $250.
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The correct answer is: $150.

Question 26
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Lightening Semiconductors produces 400,000 hi-tech computer chips per month. Each chip uses
a component which Lightening makes in-house. The variable costs to make the component are
$1.20 per unit, and the fixed costs run $1,200,000 per month. The company has been approached
by a foreign producer who can supply the component, ready-made and with acceptable quality
standards for $1.10 each. The fixed costs are unavoidable, and Lightening would have no other
use for the facilities currently employed in making the component. What is the effect on
operating income, if the company decides to outsource?
Select one:

a. Lightening Semiconductors could save $1,200,000 per month in costs.

b. There would be no effect on operating income.

c. Lightening Semiconductors could save $40,000 per month in costs. 

d. Lightening Semiconductor's costs would go up by $10,000 per month.

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The correct answer is: Lightening Semiconductors could save $40,000 per month in costs.

Question 27
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Which of the following principles states that a business's financial statements must report enough
information for outsiders to make knowledgeable decisions about the company?
Select one:

a. accounting conservatism

b. consistency principle

c. disclosure principle 

d. materiality concept
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The correct answer is: disclosure principle

Question 28
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First Buy Company provided the following manufacturing costs for the month of June.

Direct labor cost $136,000

Direct materials cost 80,000

Equipment depreciation (straight-line) 24,000

Factory insurance 19,000

Factory manager's salary 12,800

Janitor's salary 5,000

Packaging costs 18,800

Property taxes 16,000

From the above information, calculate First Buy's total fixed costs.
Select one:

a. $76,800 

b. $71,600

c. $52,800

d. $311,600
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The correct answer is: $76,800

Question 29
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Shasta Company is trying to decide whether to continue to manufacture a particular component or

to buy the component from an outside supplier. Which of the following is irrelevant with respect
to this decision?
Select one:

a. the alternative uses of the facilities being used to currently manufacture the component

b. the unavoidable fixed manufacturing costs associated with the manufacture of the component 

c. the outside supplier's ability to deliver the component on a timely basis

d. the quality of the component purchased from the outside supplier

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The correct answer is: the unavoidable fixed manufacturing costs associated with the manufacture
of the component

Question 30
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Best Deals has six CD players in ending merchandise inventory on December 31. The players
were purchased in November for $170. The price lists from suppliers indicate the current
replacement cost of a CD player to be $168. Which of the following statements is true of the
effects of the adjustments to ending merchandise inventory on the cost of goods sold?
Select one:

a. The cost of goods sold would not be affected.

b. The cost of goods sold would increase by $2.

c. The cost of goods sold would increase by $12. 

d. The cost of goods sold would decrease by $12.

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The correct answer is: The cost of goods sold would increase by $12.

Question 31
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The degree of operating leverage can be measured by:

Select one:

a. dividing the contribution margin by operating income. 

b. dividing the fixed costs by the sales price per unit.

c. dividing the fixed costs by contribution margin.

d. multiplying the contribution margin to sales revenue.

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The correct answer is: dividing the contribution margin by operating income.

Question 32
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Which of the following are two methods of estimating uncollectible receivables?

Select one:

a. direct write-off method and percent-of-completion method

b. aging-of-accounts-receivable method and percent-of-sales method 

c. gross-up method and direct write-off method

d. allowance method and amortization method

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The correct answer is: aging-of-accounts-receivable method and percent-of-sales method

Question 33
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Pluto Company sold 2,000 units in October at a price of $35 per unit. The variable cost is $20 per
unit. Calculate the total contribution margin.
Select one:

a. $40,000

b. $30,000 

c. $20,000
d. $70,000
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The correct answer is: $30,000

Question 34
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Amoeba Manufacturing Company provided the following information for the year 2015:

Purchases-Raw Materials $90,000

Plant Utilities & Insurance 67,500

Indirect Materials 11,750

Indirect Labor 4,750

Direct Materials Used in Production 96,000

Direct Labor 117,500

Depreciation on Factory Plant & Equipment 6,000

The inventory account balances as of January 1 st 2015 are given below.

Raw Materials Inventory $42,000

Work-in-Process Inventory 12,000

Finished Goods Inventory 49,500

What is the ending balance in the Raw Materials Inventory account?

Select one:

a. $111,000

b. $54,000

c. $6,000

d. $24,250 
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The correct answer is: $24,250

Question 35
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Which of the following is the correct formula for calculating return on investment?
Select one:

a. Net profit ÷ Sales

b. Earnings available to stockholders ÷ Number of outstanding stock.

c. Gross profit ÷ Sales

d. Operating profit ÷ Average total assets 

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The correct answer is: Operating profit ÷ Average total assets

Question 36
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From the following details, calculate the acid-test ratio. (Round to two decimal places.)

Cash $120,000

Short-term investments 150,000

Net current receivables 280,000

Inventory 290,000
Total current liabilities 790,000

Select one:

a. 0.70 

b. 1.06

c. 0.91

d. 0.94
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The correct answer is: 0.70

Question 37
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Nylan Company is considering an investment in new equipment costing $850,000. The

equipment will be depreciated on a straight-line basis over a five-year life and is expected to have
a salvage value of $50,000. The equipment is expected to generate net cash inflows of $1,000,000
in total during the five years life. What is the accounting rate of return associated with the
equipment investment?
Select one:

a. 8.89% 

b. 7.56%

c. 9.32%

d. 9.99%
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The correct answer is: 8.89%

Question 38
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Cortes Company is considering three investment opportunities with the following payback
periods:

Project X Project Y Project Z

Payback period 3 years 2.5 years 2.8 years

Use the decision rule for payback to rank the projects from most desirable to least desirable, all
else being equal.
Select one:

a. X, Y, Z

b. Y, Z, X 

c. Y, X, Z

d. Z, Y, X
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The correct answer is: Y, Z, X

Question 39
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Jasper Corporation reports the following cost information for March:

Cost of Goods Manufactured $75,000

Manufacturing Overhead 18,250

Finished Goods Inventory, March 1 4,500

Finished Goods Inventory, March 31 2,650

Work-in-Process Inventory, March 1 9,670

Work-in-Process Inventory, March 31 1,250

Direct Labor 36,300

What is the amount of direct materials used by Jasper in March?

Select one:

a. $137,970

b. $18,600

c. $12,030 

d. $28,870
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The correct answer is: $12,030

Question 40
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Huntswell Corporation has two major divisions: Agricultural Products and Industrial Products. It
provides the following information for the year 2014.

Agriculture Division Industrial Division

Sales revenue $140,000 $1,040,000

Operating income $16,400 $218,400

Average assets $300,000 $5,540,000

Calculate the profit margin ratio for the Industrial Division of the company.
Select one:

a. 10.5%
b. 21.0% 

c. 11.1%

d. 11.7%
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The correct answer is: 21.0%

Which of the following inventory costing methods results in the highest value of ending
inventory during a period of rising inventory costs?
Select one:

a. Last-in, first-out

b. Weighted-average

c. First-in, first-out 

d. Specific identification
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The correct answer is: First-in, first-out

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Gamma Company is considering an investment proposal that would require an initial outlay of
$800,000, and would yield yearly cash flows of $200,000 for 9 years. The company uses a
discount rate of 10%. What is the NPV of the investment?
Present value of annuity of $1:

8% 9% 10%

1 0.926 0.917 0.909

2 1.783 1.759 1.736

 3 2.577 2.531 2.487

4 3.312 3.24 3.17

5 3.993 3.89 3.791

6 4.623 4.486 4.355

7 5.206 5.033 4.868

8 5.747 5.535 5.335

9 6.247 5.995 5.759

Select one:

a. $350,000

b. $351,800 

c. $250,000

d. $400,000
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The correct answer is: $351,800

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Which of the following are two methods of estimating uncollectible receivables?

Select one:

a. direct write-off method and percent-of-completion method

b. allowance method and amortization method

c. aging-of-accounts-receivable method and percent-of-sales method 

d. gross-up method and direct write-off method

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The correct answer is: aging-of-accounts-receivable method and percent-of-sales method

Question 4
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Lightfoot Company sells its product for $55 and has variable costs of $30 per unit. The total fixed
costs are $25,000. What will be the effect on the breakeven point in units if variable costs
increase by $5 due to an increase in the cost of direct materials?
Select one:

a. It will increase by 167 units.

b. It will decrease by 250 units.

c. It will decrease by 167 units.

d. It will increase by 250 units. 

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The correct answer is: It will increase by 250 units.

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Becky's Bakery sells three large muffins for every two small ones. A small muffin sells for $3.00,
with a variable cost of $2.00. A large muffin sells for $5.00 with a variable cost of $2.50. What is
the weighted-average contribution margin? (Round your intermediate calculations to one decimal
place)
Select one:

a. $1.25 per muffin

b. $1.75 per muffin 

c. $1.90 per muffin

d. $1.93 per muffin

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The correct answer is: $1.90 per muffin

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The benefit foregone by not choosing an alternative course of action is referred to as a(n):
Select one:

a. opportunity cost. 

b. incremental cost

c. sunk cost.

d. variable cost.
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The correct answer is: opportunity cost.

Question 7
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Which capital budgeting method uses accrual accounting, rather than net cash flows, as a basis
for calculations?
Select one:
a. payback

b. internal rate of return

c. accounting rate of return 

d. net present value

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The correct answer is: accounting rate of return

Question 8
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Gotham Products is a price-taker and uses target pricing. Gotham has just done an analysis of
their revenues, costs and desired profits, and has calculated its target full product cost. Refer to
the following information:

Target full product cost $500,000per year

Actual fixed cost $280,000per year

Actual variable cost $2per unit

Production volume 150,000units per year

Actual costs are currently higher than target full product cost. Assuming that fixed costs cannot
be reduced, how much is the target variable cost per unit?
Select one:

a. $1.20

b. $1.33

c. $3.33

d. $1.47 
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The correct answer is: $1.47

Question 9
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Flip Flop company is considering investing in production-management software that costs

$600,000, has $60,000 residual value, and should lead to cost savings of $150,000 per year for its
five-year life. Calculate the average amount invested in the asset that should be used for
calculating the accounting rate of return?
Select one:

a. $60,000

b. $330,000 

c. $660,000

d. $600,000
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The correct answer is: $330,000

Question 10
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Which of the following is true of the proper balance sheet treatment of the Allowance for Bad
Debts with a credit balance?
Select one:

a. It is reported as a current liability.

b. It is shown as a contra account related to accounts receivable. 

c. It is reported as a separate, independent line item under current assets.

d. It is reported as an operating expense.
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The correct answer is: It is shown as a contra account related to accounts receivable.

Question 11
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Lightening Semiconductors produces 400,000 hi-tech computer chips per month. Each chip uses
a component which Lightening makes in-house. The variable costs to make the component are
$1.20 per unit, and the fixed costs run $1,200,000 per month. The company has been approached
by a foreign producer who can supply the component, ready-made and with acceptable quality
standards for $1.10 each. If the company chooses to outsource, it could reduce the fixed costs by
40%. The company does not have any other use for the facilities currently employed in making
the component. What is the effect on operating income, if the company decides to outsource?
Select one:

a. There would be no effect on operating income.

b. Operating income would go up by $520,000. 

c. Operating income would go down by $80,000.

d. Operating income would go up by $440,000.

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The correct answer is: Operating income would go up by $520,000.

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Meson Production is a price-taker. It produces large spools of electrical wire in a highly
competitive market, so it practices target pricing. The current market price of the electric wire is
$780 per unit. The company has $3,000,000 in assets and its shareholders expect a return of 6%
on assets. The company provides the following information:

Sales volume 100,000units per year

Variable costs $700per unit

Fixed costs $12,000,000per year

If variable costs cannot be reduced, how much reduction in fixed costs will be needed to achieve
the profit target?
Select one:

a. $4,200,000

b. $7,820,000

c. $4,180,000 

d. $12,000,000
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The correct answer is: $4,180,000

Question 13
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Which of the following exists if the maker of a promissory note fails to pay the note on the due
date?
Select one:

a. a depreciated note

b. a discounted note

c. a dishonored note 

d. an amortized note

Feedback

The correct answer is: a dishonored note

Question 14
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Collins Computers stored its inventory in a warehouse which suffered a fire in late November,
2014. Their sales office was at a different location. In order to file a claim with the insurance
company, the owners ask you to estimate the inventory in the warehouse. The following
information is available:

Beginning inventory for November $375,500

Purchases through November 30 470,250

Net sales revenue through November 31 793,000

The company's gross profit has historically been 40% of Net sales revenue. Estimate the value of
the inventory destroyed in the fire using the gross profit method.
Select one:

a. $528,550

b. $369,950 

c. $388,450

d. $410,000
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The correct answer is: $369,950

Question 15
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Which of the following is the right formula for calculating total mixed cost?
Select one:

a. Total mixed cost = (Variable cost per unit ÷ Number of units) + Total fixed cost

b. Total mixed cost = (Variable cost per unit × Number of units) + Total fixed cost 

c. Total mixed cost = (Variable cost per unit × Number of units) - Total fixed cost

d. Total mixed cost = (Variable cost per unit ÷ Number of units) - Total fixed cost
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The correct answer is: Total mixed cost = (Variable cost per unit × Number of units) + Total
fixed cost

Question 16
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The following information has been provided by Nugget Company:

Direct Labor $25,000

Direct Materials Used 10,000

Raw Materials Purchased 16,750

Cost of Goods Manufactured 49,750

Ending Work-in-Process Inventory 11,500

Corporate Headquarters' Property Taxes 1,500

Manufacturing Overhead 19,750

Calculate the beginning balance of the Work-in-Process Inventory account.
Select one:

a. $16,500

b. $10,500

c. $6,500 

d. $5,000
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The correct answer is: $6,500

Question 17
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At the beginning of 2015, Peter Dots has the following ledger balances:

During the year, credit sales amounted to $800,000. Cash collected on credit sales amounted to
$760,000 and $18,000 has been written off. At the end of the year, company adjusted for bad
debts expense using the aging method. The amount estimated as uncollectible was $25,000. The
ending balance in the Allowance for Bad Debts would be:
Select one:

a. $30,000.

b. $18,000.

c. $38.000.

d. $25,000. 
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The correct answer is: $25,000.

Question 18
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Which of the following best describes the term sensitivity analysis?

Select one:

a. setting the budgets of an investment

b. testing the results of an investment analysis with varying assumptions 

c. evaluating different investment options

d. analyzing the effect of an investment on workers' morale

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The correct answer is: testing the results of an investment analysis with varying assumptions

Question 19
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Perfect Fit Company sells hand-sewn shirts for $40 per shirt. It incurs monthly fixed costs of
$5,000. The contribution margin ratio is calculated to be 20%. What is the breakeven point in
units?
Select one:

a. 1,750 units

b. 1,125 units

c. 625 units 

d. 950 units
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The correct answer is: 625 units

Question 20
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Susan Florists had the following account balances at the end of the current accounting period:

Beginning inventory $53,500

Net purchases 75,500

Net sales revenue 93,700

A normal gross profit percent is 30%. What is the estimated ending inventory as per the gross
profit method?
Select one:

a. $100,890

b. $65,590

c. $28,110

d. $63,410 
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The correct answer is: $63,410

Question 21
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Which of the following is included in the category of other receivables?
Select one:

a. notes receivable

b. accounts receivable

c. interest receivable 

d. investments
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The correct answer is: interest receivable

Question 22
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Garcia Company provides the following information about its product:

Targeted operating income $50,000

Selling price per unit 6.00

Variable cost per unit 1.50

Total fixed costs 125,000

What is the contribution margin ratio?

Select one:

a. 125%

b. 100%

c. 25%

d. 75% 
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The correct answer is: 75%

Question 23
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Which of the following is the correct formula for asset turnover ratio?
Select one:

a. Net sales ÷ Average total assets 

b. Net sales ÷ Cost of goods sold

c. Net profit ÷ Net sales

d. Net Sales ÷ Net assets

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The correct answer is: Net sales ÷ Average total assets

Question 24
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For a manufacturing business, which of the following would be included as manufacturing

overhead?
Select one:

a. Direct materials cost

b. Direct labor

c. Advertising

d. Indirect materials cost 

Feedback

The correct answer is: Indirect materials cost

Question 25
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Selected data for Lemon Grass Company for 2015 is provided below:

Factory Utilities $ 1,500

Indirect Materials Used 37,500

Direct Materials Used 300,000

Property Taxes on Factory Building 6,900

Sales Commissions 85,000

Indirect Labor Incurred 25,000

Direct Labor Incurred 150,000

Depreciation on Factory Equipment 6,500

What is the total factory overhead?

Select one:

a. $450,000

b. $77,400 

c. $612,000

d. $62,400
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The correct answer is: $77,400

Question 26
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Carlo Company makes bulk quantities of cleaning fluids. They currently sell 1,000 containers a
month at a price of $22 per unit. If they added a newer scent, they could charge $22.75 per unit
for the improved product. It would cost them a total of $700 per month to make that alteration.
What would be the effect on operating income?
Select one:

a. It would increase by $300.

b. It would decline by $800.

c. It would decline by $120.

d. It would increase by $50. 

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The correct answer is: It would increase by $50.

Question 27
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Healthier Cook Company manufactures two products: toaster ovens and bread machines. The
following data are available:

Toaster Ovens Bread Machines

Sale price $80 $150

Variable costs $40 $70

Healthier Cook can manufacture six toaster ovens per machine hour and four bread machines per
machine hour. Healthier Cook's production capacity is 1,800 machine hours per month.
Marketing limitations indicate that Healthier Cook can sell a maximum of 5,000 toasters a month,
and 4,000 bread machines per month. What product and how many units should the company
produce in a month to maximize profits?
Select one:

a. 4,800 toaster ovens and 4,000 bread machines 

b. 7,200 bread machines

c. 10,800 toaster ovens

d. 5,400 toaster ovens and 3,600 bread machines

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The correct answer is: 4,800 toaster ovens and 4,000 bread machines

Question 28
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Samson Company had the following balances and transactions during 2014:

Beginning Merchandise Inventory 10 units at $95

March 10 Sold 8 units

June 10 Purchased 20 units at $100

October 30 Sold 15 units

What is the amount of the company's Merchandise Inventory, as disclosed in the December 31,
2014 balance sheet as per the periodic first-in, first-out (FIFO) costing method?
Select one:

a. $700 

b. $475

c. $665

d. $500
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The correct answer is: $700

Question 29
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Parkinson Company provides the following financial information:

Income from operations $200,000

Interest expense 45,000

Gains/(losses) on sale of equipment (2,500)

Net income 152,500

Total assets at Jan 1 2,600,000

Total assets at Dec 31 3,200,000

Calculate return on investment based on the information given above.

Select one:

a. 7.2%

b. 6.3%

c. 5.3%

d. 6.9% 
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The correct answer is: 6.9%

Question 30
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Hilltop Golf Course is planning for the coming season. Investors would like to earn a 15% return
on the company's $60,000,000 of assets. The company primarily incurs fixed costs to groom the
greens and fairways. Fixed costs are projected to be $30,000,000 for the golfing season. About
600,000 rounds of golf are expected to be played each year. Variable costs are about $15 per
round of golf. Hilltop golf course has a favorable reputation in the area and therefore, has some
control over the price of a round of golf. Using a cost-plus pricing approach, what price should
Hilltop charge for a round of golf to achieve the desired profit?
Select one:

a. $80 

b. $50

c. $70

d. $60
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The correct answer is: $80

Question 31
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Grand Products is a price-setter, and they use cost-plus pricing methodology for pricing their
products which are unique, artistically designed architectural decorations. They produce and sell
6,000 units per year, at their maximum capacity. Variable costs are $330 per unit. Total fixed
costs are $900,000 per year. The CEO has a target of $50,000 operating income which he wants
to hit by year-end. Using the cost-plus pricing method, what price should Grand use? (Round to
nearest whole dollar.)
Select one:

a. $378 per unit

b. $338 per unit

c. $488 per unit 

d. $480 per unit

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The correct answer is: $488 per unit

Question 32
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Companies are price-takers when:

Select one:

a. it has very high fixed costs.

b. it is operating in a highly competitive market. 

c. its product is unique.

d. it has considerable flexibility in setting prices of its products.

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The correct answer is: it is operating in a highly competitive market.

Question 33
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A company sells two products with information as follows:

A B

Price per unit $12 $20

Variable cost per unit $10 $12

Products are made by machine. 4 units of Product A can be made with one machine hour and 2
units of Product B can be made with one machine hour. The company has a maximum of 3,000
machine hours available per month. The company can sell up to 7,000 units of Product A per
month, and up to 3,000 units of Product B for the month. What is the optimum product mix to
maximize company's operating income?
Select one:

a. 12,000 units of A; zero units of B

b. 6,000 units of A; 3,000 units of B 

c. 2,000 units of A; 4,000 units of B

d. zero units of A; 3,000 units of B

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The correct answer is: 6,000 units of A; 3,000 units of B

Question 34
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Rica Company is a price-taker and uses a target-pricing approach. Refer to the following
information:

Production volume 600,000units per year

Market price $30per unit

Desired operating income 15%of total assets

Total assets $13,900,000

How much is the desired profit for the year?

Select one:

a. $1,440,000

b. $2,085,000 

c. $2,700,000
d. $18,000,000
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The correct answer is: $2,085,000

Question 35
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The cost of goods available for sale is equal to the:

Select one:

a. ending inventory plus the sales revenues.

b. sales revenue minus the cost of goods sold.

c. cost of goods sold minus the ending inventory.

d. cost of goods sold plus the ending inventory. 

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The correct answer is: cost of goods sold plus the ending inventory.

Question 36
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Which of the following is the most important key to short-term business decision making?
Select one:

a. focus on costs which do not change under two alternatives and on historic costs

b. focus on sunk costs and quantitative data

c. focus on relevant costs and use the contribution margin approach 

d. focus on qualitative data only and ignore future cash flows

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The correct answer is: focus on relevant costs and use the contribution margin approach

Question 37
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Which of the following is an example of direct labor cost in a factory?

Select one:

a. Wages of assembly line personnel 

b. Wages of factory security guard

c. Salary of vice president of production

d. Salary of production manager

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The correct answer is: Wages of assembly line personnel

Question 38
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If $10,000 is invested annually in an account with 7% interest compounded yearly, what will the
balance of the account be after six years? Refer to the following Future Value table:
Future value of annuity of $1:
 5% 6% 7% 8%

1 1 1 1 1

2 2.05 2.06 2.07 2.08

3 3.153 3.184 3.215 3.246

4 4.31 4.375 4.44 4.506

5 5.526 5.637 5.751 5.867

6 6.802 6.975 7.153 7.336

7 8.142 8.394 8.654 8.923

 
Select one:

a. $71,530 

b. $83,290

c. $79,050

d. $18,020
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The correct answer is: $71,530

Question 39
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Arturo Manufacturing Company provided the following information for the year 2015:

Beginning Balance-Work-in-Process Inventory $12,000

Ending Balance-Work-in-Process Inventory 28,000

Beginning Balance-Raw Materials Inventory 42,000

Ending Balance-Raw Materials Inventory 30,000

Purchases-Raw Materials 180,000

Direct Labor 235,000

Indirect Materials 23,500

Indirect Labor 9,500

Depreciation on Factory Plant & Equipment 12,000

Plant Utilities & Insurance 135,000

How much is the cost of goods manufactured?

Select one:

a. $607,000

b. $619,000

c. $579,000

d. $591,000 
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The correct answer is: $591,000

Question 40
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Which of the following is the correct formula for calculating residual income?
Select one:

a. Historical cost of assets - Accumulated depreciation

b. Weighted Average Cost of Capital - Net Operating Profit After Tax

c. Operating income - Minimum acceptable operating income 

d. Operating income ÷ Average assets

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The correct answer is: Operating income - Minimum acceptable operating income
On October 1, 2015, Android Inc. made a loan to one of its customers. The customer signed a 4-
month note for $100,000 at 15%. Calculate the total interest earned on the note.
Select one:

a. $5,000 

b. $15,000

c. $3,750

d. $1,250
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The correct answer is: $5,000

Question 2
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Fantabulous Products sells 2,000 kayaks per year at a price of $450 per unit. Fantabulous sells in
a highly competitive market and uses target pricing. The company has $1,000,000 of assets and
the shareholders wish to make a profit of 18% on assets. Variable cost is $200 per unit and cannot
be reduced. How much is the target fixed costs?
Select one:

a. $265,000

b. $180,000

c. $720,000

d. $320,000 
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The correct answer is: $320,000

Question 3
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Which of the following would be included in the entry by the payee to record a dishonored note
receivable?
Select one:

a. a debit to Notes Receivable

b. a credit to Interest Expense

c. a debit to Accounts Receivable 

d. a debit to Interest Revenue

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The correct answer is: a debit to Accounts Receivable

Question 4
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Which of the following best describes the profitability index?

Select one:

a. an array of possible investment outcomes at different discount rates

b. the ratio of present value of net cash inflows to initial investment 

c. the ratio of total cash inflows to initial investment

d. an index of projects based on their net income

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The correct answer is: the ratio of present value of net cash inflows to initial investment
Question 5
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A company may prefer to use residual income over return on investment for performance
evaluation because:
Select one:

a. it is easier to calculate residual income than return on investment.

b. residual income considers three elements but return on investment considers only two elements.

c. residual income is more likely to lead to goal congruence than return on investment. 

d. return on investment is absolute figure but residual income is a ratio.

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The correct answer is: residual income is more likely to lead to goal congruence than return on
investment.

Question 6
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A company is considering an iron ore extraction project which requires an initial investment of
$1,000,000 and will yield annual cash flows of $350,263 for 4 years. The company's hurdle rate
is 9%. Calculate IRR.
Select one:

a. 15% 

b. 10%

c. 12%
d. 18%
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The correct answer is: 15%

Question 7
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________ refer to the value forgone in order to make one particular investment instead of
another.
Select one:

a. Opportunity costs 

b. Irrelevant costs

c. Relevant costs

d. Sunk costs
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The correct answer is: Opportunity costs

Question 8
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The income statement for Sweet Dreams Company is divided by its two product lines, blankets
and pillows, as follows:

Blankets Pillows Total

Sales revenue $620,000 $300,000 $920,000

Variable expenses (465,000) (240,000) (705,000)

Contribution margin $155,000 $60,000 $215,000

Fixed expenses (76,000) (76,000) (152,000)

Operating income (loss) $79,000 $(16,000) $63,000

Sweet Dreams is considering eliminating the pillows product line. If they do so, they will be able
to eliminate $76,000 of total fixed costs. How would that business decision impact operating
income?
Select one:

a. increase $42,000 in operating income

b. increase $76,000 in operating income

c. decrease $60,000 in operating income

d. increase of $16,000 in operating income 

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The correct answer is: increase of $16,000 in operating income

Question 9
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Recreation Equipment Company has several divisions which are investment centers. Data for the
Boat Division and the Trailer Division are shown here:

Boat Division Trailer Division

Operating income $90,000 $36,000

Total assets at Jan 1 $670,000 $230,000

Total assets at Dec 31 $710,000 $220,000

Which of the following statements would be the most meaningful interpretation of this data?
Select one:

a. Boat Division shows more efficient use of assets than Trailer Division because it has higher
operating income.

b. Boat Division is more financially successful than Trailer Division because it shows an increase
in assets

c. Trailer Division uses its assets more efficiently than Boat Division because it has higher ROI. 

d. Performance of Boat Division is better than that of Trailer Division because Boat Division has
higher assets.
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The correct answer is: Trailer Division uses its assets more efficiently than Boat Division because
it has higher ROI.

Question 10
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Jasper Corporation reports the following cost information for March:

Cost of Goods Manufactured $75,000

Direct Materials Used 16,850

Finished Goods Inventory, March 1 4,500

Finished Goods Inventory, March 31 2,650

Work-in-Process Inventory, March 1 9,670

Work-in-Process Inventory, March 31 1,250

Direct Labor 36,300

What is the amount of manufacturing overhead incurred by Jasper in March?

Select one:

a. $20,000

b. $30,270
c. $136,570

d. $13,430 
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The correct answer is: $13,430

Question 11
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Which of the following best describes a post-audit in capital budgeting?

Select one:

a. an audit of an operating unit of a company

b. an analysis of an investment's cash flows prior to committing to the initial investment

c. an audit performed after financial statements have been issued

d. a comparison of actual results of capital investments with projected results 

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The correct answer is: a comparison of actual results of capital investments with projected results

Question 12
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Custom Furniture manufactures a small table and a large table. The small table sells for $900, has
variable costs of $560 per table, and takes ten direct labor hours to manufacture. The large table
sells for $1,500, has variable costs of $980, and takes eight direct labor hours to manufacture. The
company has a maximum of 5,000 direct labor hours per month when operating at full capacity.
If there are no constraints on sales of either of the products, and the company could choose any
proportions of product mix that they wanted, the maximum contribution margin that the company
could earn will be:
Select one:

a. $325,000 

b. $330,000

c. $425,000

d. $250,000
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The correct answer is: $325,000

Question 13
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A company that uses labor, equipment, supplies, and facilities to convert raw materials into
finished products is a:
Select one:

a. manufacturing company. 

b. merchandising company.

c. service company.

d. trading company.
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The correct answer is: manufacturing company.

Question 14
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A company used $35,000 of direct materials, incurred $73,000 in direct labor cost, and $114,000
in manufacturing overhead costs during the period. If beginning and ending Work-in-Process
Inventories were $28,000 and $21,000 respectively, what is the cost of goods manufactured?
Select one:

a. $215,000

b. $222,000

c. $250,000

d. $229,000 
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The correct answer is: $229,000

Question 15
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A company reports net accounts receivable of $150,000 on its December 31, 2015 balance sheet.
The Allowance for Bad Debts has a credit balance of $15,000. What is the balance in Accounts
Receivable?
Select one:

a. $150,000

b. $135,000

c. $165,000 

d. $155,000
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The correct answer is: $165,000

Question 16
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Rubal Inc. earned revenue of $400,000 and incurred cost of goods sold of $320,000. Calculate the
gross profit percent.
Select one:

a. 20% 

b. 80%

c. 75%

d. 60%
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The correct answer is: 20%

Question 17
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A company with significant amounts of accounts receivable, experiences uncollectible accounts

from time to time. If the company uses the direct write-off method, the effect of writing off of an
uncollectible receivable will be a(n):
Select one:

a. generation of positive cash flow.

b. increase in total assets.

c. nil on net income.

d. reduction in net income. 

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The correct answer is: reduction in net income.

Question 18
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Lara is going to receive $10,000 a year at the end of each of the next five years from her insurer
to meet her education cost. Using a discount rate of 14%, the present value of the receipts can be
stated as:
Select one:

a. PV = $10,000 (PV factor, i = 14%, n = 5).

b. PV = $10,000 (Annuity PV factor, i = 14%, n = 5). 

c. PV = $10,000 (FV factor, i = 14%, n = 5).

d. PV = $10,000 (Annuity FV factor, i = 14%, n = 5).

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The correct answer is: PV = $10,000 (Annuity PV factor, i = 14%, n = 5).

Question 19
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Barricades Corporation provided the following information for the year 2015:
Beginning Balance-Work-in-Process Inventory $24,000

Ending Balance-Work-in-Process Inventory 56,000

Beginning Balance-Raw Materials Inventory 84,000

Ending Balance-Raw Materials Inventory 60,000

Purchases-Raw Materials 360,000

Direct Labor 470,000

Indirect Materials 47,000

Indirect Labor 19,000

Depreciation on Factory Plant & Equipment 24,000

Plant Utilities & Insurance 270,000

What was the total manufacturing cost incurred during the year 2015?
Select one:

a. $744,000

b. $1,414,000

c. $360,000

d. $1,214,000 
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The correct answer is: $1,214,000

Question 20
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A company that uses the perpetual inventory system sold goods to a customer on account for
$2,000. The cost of the goods sold was $1,000. Which of the following journal entries correctly
records this transaction?
Select one:

a.
Merchandise Inventory 2,000

  Cost of Goods Sold 2,000

b.
Cost of Goods Sold 2,000

  Sales Revenue 2,000

c.
Accounts Receivable 2,000

  Sales Revenue 2,000

Cost of Goods Sold 1,000

  Merchandise Inventory 1,000

d.
Accounts Receivable 2,000

  Cash 2,000

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The correct answer is:

Accounts Receivable 2,000

  Sales Revenue 2,000

Cost of Goods Sold 1,000

  Merchandise Inventory 1,000

Question 21
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Gould Enterprises sells computer disks for $1.50 per disk. Unit variable expenses total $0.90. The
breakeven point in units is 3,000 and expected sales in units are 4,300. What is the margin of
safety in dollars?
Select one:
a. $1,950 

b. $3,870

c. $4,500

d. $6,450
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The correct answer is: $1,950

Question 22
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Which of the following formulae is the right formula for calculating contribution margin ratio?
Select one:

a. Contribution margin ratio = Contribution margin ÷ Net sales revenue 

b. Contribution margin ratio = Contribution margin + Net sales revenue

c. Contribution margin ratio = Contribution margin - Net sales revenue

d. Contribution margin ratio = Contribution margin × Net sales revenue

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The correct answer is: Contribution margin ratio = Contribution margin ÷ Net sales revenue

Question 23
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A company sells two products with information as follows:

A B

Price per unit $12 $20

Variable cost per unit $10 $12

Products are made by machine. 4 units of Product A can be made with one machine hour and 2
units of Product B can be made with one machine hour. The company has a maximum of 3,000
machine hours available per month. The company can sell up to 7,000 units of Product A per
month, and up to 3,000 units of Product B for the month. What is the maximum amount of
contribution margin that the company could earn in a month given the stated constraints?
Select one:

a. $40,000

b. $36,000 

c. $30,000

d. $10,000
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The correct answer is: $36,000

Question 24
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When a company is considering the option of processing their product further to achieve higher
sales revenues, they must ignore:
Select one:

a. how much incremental revenue can be earned if processed further.

b. how much cost is required to produce the basic product, before processing further. 

c. will the additional processing produce any environmental toxins.

d. how much additional costs are necessary to process further.

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The correct answer is: how much cost is required to produce the basic product, before processing
further.

Question 25
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In which of the following ways is the management of a company accountable to its communities?
Select one:

a. ensuring the company's environmental impact is not harmful to its area of operations 

b. making timely interest payments to creditors and dividend payments to investors

c. providing a capital return on the shareholders' investment

d. repaying principal and interest to the suppliers

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The correct answer is: ensuring the company's environmental impact is not harmful to its area of
operations

Question 26
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Macaulay Company has three product lines-D, E, and F. The following information is available:

D E F

Sales $70,000 $40,000 $30,000

Variable costs (40,000) (20,000) (10,000)

Contribution margin 30,000 20,000 20,000

Fixed expenses (15,000) (15,000) (25,000)

Operating income (loss) $15,000 $5,000 ($5,000)

Macaulay Company is thinking of dropping product line F because it is reporting an operating

loss. Assume that $25,000 of total fixed costs could be eliminated by dropping F. What effect
would this decision have on operating income?
Select one:

a. Operating income will decrease by $25,000.

b. Operating income will increase by $25,000.

c. Operating income will increase by $5,000. 

d. Operating income will decrease by $5,000.

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The correct answer is: Operating income will increase by $5,000.

Question 27
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When the total fixed costs increases, the contribution margin per unit:
Select one:

a. remains the same. 

b. decreases.

c. increases.

d. increases proportionately.
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The correct answer is: remains the same.

Question 28
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Custom Furniture manufactures a small table and a large table. The small table sells for $900, has
variable costs of $560 per table, and takes ten direct labor hours to manufacture. The large table
sells for $1,500, has variable costs of $980, and takes eight direct labor hours to manufacture.
Calculate the contribution margin per direct labor hour for the small table.
Select one:

a. $32 per direct labor hour

b. $29 per direct labor hour

c. $36 per direct labor hour

d. $34 per direct labor hour 

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The correct answer is: $34 per direct labor hour

Question 29
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Clay Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp. The
following per unit data are available:

Bedford Lamp Lowell Lamp

Sale price $25 $35

Variable costs $17 $23

Machine hours required for 1 lamp 2 4

Total fixed costs are $30,000. Machine hour capacity is 25,000 hours per year. Assuming that the
company can sell as many products as it can make, which product mix would deliver the highest
operating income?
Select one:

a. 12,500 Bedford lamps, 12,500 Lowell lamps

b. 12,500 Bedford lamps, zero Lowell lamps 

c. Zero Bedford lamps, 6,250 Lowell lamps

d. 10,000 Bedford lamps, 1,250 Lowell lamps

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The correct answer is: 12,500 Bedford lamps, zero Lowell lamps

Question 30
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Garcia Company provides the following information about its product:

Targeted operating income $50,000

Selling price per unit 6.00

Variable cost per unit 1.50

Total fixed costs 125,000

What is the contribution margin ratio?

Select one:

a. 75% 

b. 100%

c. 25%

d. 125%
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The correct answer is: 75%

Question 31
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The term net present value means the difference between:

Select one:

a. the future value of the cash flows and the present value of the cash flows.

b. the initial investment and the residual value.

c. the present value of the net cash inflows and the investment's cost. 

d. the total net income of the project and the initial investment.
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The correct answer is: the present value of the net cash inflows and the investment's cost.

Question 32
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Williams Company had the following balances and transactions during 2014.

Beginning Inventory 10 units at $70

June 10 Purchased 20 units at $80

December 30 Sold 15 units

December 31 Replacement cost $68

Williams maintains its records of inventory on a perpetual basis using the last-in, first-out
method. Calculate the amount of ending Merchandise Inventory at December 31, 2014 using the
lower-of-cost-or-market rule.
Select one:

a. $2,040

b. $1,360

c. $1,200

d. $1,020 
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The correct answer is: $1,020

Question 33
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Hilltop Golf Course is planning for the coming season. Investors would like to earn a 15% return
on the company's $60,000,000 of assets. The company primarily incurs fixed costs to groom the
greens and fairways. Fixed costs are projected to be $30,000,000 for the golfing season. About
600,000 rounds of golf are expected to be played each year. Variable costs are about $15 per
round of golf. Hilltop golf course is a price-taker and will not be able to charge more than its
competitors, who charge $75 per round of golf. What profit will it earn in terms of dollars?
Select one:

a. $6,000,000 

b. $45,000,000

c. $48,000,000

d. $9,000,000
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The correct answer is: $6,000,000

Question 34
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Sprint Company makes special equipment used in cell towers. Each unit sells for $400. Sprint
produces and sells 12,500 units per year. They have provided the following income statement
data:

Traditional Costing Contribution Margin

Revenue $5,000,000 Revenue $5,000,000

Cost of goods sold 3,000,000 Variable Expenses

Gross Profit 2,000,000 Manufacturing 1,000,000

Selling & admin expenses 650,000 Selling & admin 400,000

Contribution
3,600,000
Margin

 Fixed Expenses
Manufacturin
2,000,000
g

Selling
& 250,000
admin

Operating
Operating income $1,350,000 $1,350,000
income

A foreign company has offered to buy 80 units for a reduced price of $300 per unit. The
marketing manager says the sale will not negatively affect the company's regular sales. The sales
manager says that this sale will require incremental selling & administrative costs, as it is a one-
time deal. The production manager reports that it would require an additional $30,000 of fixed
manufacturing costs to accommodate the specifications of the buyer. If Sprint accepts the deal,
how will this impact operating income?
Select one:

a. operating income will increase by $5,440

b. operating income will decrease by $800

c. operating income will decrease by $14,960 

d. operating income will increase by $24,000

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The correct answer is: operating income will decrease by $14,960

Question 35
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A company purchased 100 units for $30 each on January 31. It purchased 150 units for $25 on
February 28. It sold 150 units for $50 each from March 1 through December 31. If the company
uses the first-in, first-out inventory costing method, what is the amount of Cost of Goods Sold on
the income statement for the year ending December 31? (Assume that the company uses a
perpetual inventory system.)
Select one:

a. $6,750

b. $3,000

c. $4,250 

d. $4,000
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The correct answer is: $4,250

Question 36
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On December 1, 2015, Parsons Inc. sold machinery to a customer for $20,000. The customer
could not pay at the time of sale, but agreed to pay 9 months later, and signed a 9-month note at
9% interest. What was the total amount of cash collected by Parsons on the maturity of the note?
Select one:

a. $18,650

b. $21,350 

c. $21,800

d. $21,200
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The correct answer is: $21,350

Question 37
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Harris Company had the following balances and transactions during 2014:

Beginning Merchandise Inventory 100 units at $75

March 10 Sold 50 units

June 10 Purchased 200 units at $80

October 30 Sold 150 units

What would the Cost of Goods Sold be as reported on the income statement for the year ending
December 31, 2014 if the perpetual, last-in, first-out costing method is used? Round your answer
to two decimal places.
Select one:

a. $15,000

b. $12,000

c. $3,750

d. $15,750 
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The correct answer is: $15,750

Question 38
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Moylan Company has provided the following information:

Sales $777,000

Variable expenses 504,000

Fixed expenses 212,000

Which of the following statements is true, if the sales volume increases by 10%?
Select one:

a. Operating income will increase by $27,300. 

b. Fixed expenses will increase by $21,200.

c. Operating income will increase by $6,100.

d. Contribution margin will increase by $77,700.

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The correct answer is: Operating income will increase by $27,300.

Question 39
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Huntswell Corporation has two major divisions: Agricultural Products and Industrial Products. It
provides the following information for the year 2014

Agriculture Division Industrial Division

Sales revenue $140,000 $1,040,000

Operating income $46,400 $220,000

Average total assets $300,000 $5,540,000

Target rate of return 14.0% 14.0%

Calculate the residual income for the Agriculture division.

Select one:

a. $1,800

b. $4,400 

c. $2,500

d. $5,500
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The correct answer is: $4,400

Question 40
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Carlo Company makes bulk quantities of cleaning fluids. They currently sell 1,000 containers a
month at a price of $22 per unit. If they added a disinfectant, they could charge $25 per unit for
the improved product. It would cost them a total of $3,800 per month to make that alteration.
What would be the effect on operating income?
Select one:

a. It would decline by $800. 

b. It would increase by $400.

 c. It would decline by $1,200.

d. It would increase by $3,000.

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The correct answer is: It would decline by $800.

The disclosure principle states that a company should disclose all major accounting methods and
procedures in the:
Select one:

a. balance sheet.

b. adjusted trial balance.

c. income statement.

d. footnotes to the financial statements. 

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The correct answer is: footnotes to the financial statements.

The following details are provided by Dopler Company:

Project A Project B Project C Project D

Initial investment $420,000 $200,000 $550,000 $500,000
PV of cash inflows $570,000 $380,000 $800,000 $390,000
Payback period
(years) 3.6 3.2 4.0 2.0
NPV of project $150,000 $180,000 $250,000 ($110,000)
Which project has the highest profitability index?
Select one:
a. Project C
b. Project D
c. Project B
d. Project A