Chapter 1

Question 1

Managerial Accounting and Financial Accounting differ in the following way:

A. Financial Accounting emphasizes forecasts of future performance

B. Financial Accounting summarizes information for the companv as a whole.

C. Financial Accounting is private intormation for company managers

D. Financial Accounting emphasizes timeliness over precision.

Answer 1

B. Financial Accounting summarizes information for the companv as a whole.

Question 2

Common users of managerial accounting reports include the following:

A. Operations manager and loan officer

B. Chief financial officer and public shareholder

C.Public shareholder and loan officer

D. Chief financial officer and operations manager:

Answer 2

Chief financial officer and operations manager

Question 3

The management function ot controlling is carried out through the use of:

A. A performance report that compares budgeted to actual results.

B. A reconciliation of the beginning and ending retained earnings balances

C. A schedule of cash collections and cash payments

D. A forecast for next periods productions.

Answer 3

A performance report that compares budgeted to actual results.

Question 4

Last month 10,000 units of a product were manufactured, and the total cost per unit was $60. At this level of production the variable cost is $30 per unit and the fixed cost is $30 per unit. If 10,500 units are manufactured the next month, and the costs remain within the same relevant range

A. Total variable cost will remain unchanged

B. Fixed costs will increase in total

C Variable cost per unit will increase

D. Total cost per unit will decrease

Answer 4

Total cost per unit will decrease

Question 5

The following costs were incurred in September:
Direct materials. $39,000
Direct labor. 23,000
Manufacturing overhead. 17,000
Selling expenses. 14,000
Administrative expenses. 27,000

Prime costs during the month totaled
A. $79,000
B. $120,000
C. $62,000
D. $40,000

Answer 5

$62,000

Question 6

How do you get prime cost?

A. Manufacturing overhead total

B. Manufacturing overhead + direct labour

C. Direct labour + direct Materials

D. Direct materials + Manufacturing overhead

Answer 6

C. Direct labour + direct Materials

Question 7

To the nearest whole cent, what should be the average cost of operating the helpline per call at a volume of 36,100 calls in a month? (Assume that this call volume is within the relevant range.)
A. $21.54
B. $20.57
C. $21.34
D. S22.50

Answer 7

D. $22.50

Question 8

To the nearest whole dollar, what should be the total cost of operating the helpline costs at a volume of 34,800 calls in a month? (Assume that this call volume is within the relevant range.)
A. $742,500
B. $783,000
C. $704.095
D. $762,750

Answer 8

B. $783,000

Question 9

In computing its predetermined overhead rate, Maple Company inadvertently left its indirect labor costs out of the computation. This oversight will cause:

A. Manufacturing Overhead to be overapplied.

B. The Cost of Goods Manufactured to be understated.

C. The debits to the Manufacturing Overhead account to be understated.

D. The ending balance in Work in Process to be overstated.
Discussion: If indirect labor is omitted from the predetermined overhead rate, then the predetermined overhead rate is too low. (C) is correct because Cost of Goods Manufactured is increased by the amount of overhead applied. So it overhead applied is too low, then Cost of
Goods Manufactured would be too low. A would be true it the vredetermined overhead rate were too high. (D) could be true if predetermined overhead rate were too high. (C) refers to the increases in Manufacturing Overhead when overhead is incurred. It decreases as it is applied to jobs based on the predetermined overhead rate, so it is the credits to Manufacturing Overhead that could be effected by this error.

Answer 9

B. The Cost of Goods Manufactured to be understated.

Question 10

In a job-order costing system, the use of direct materials that have been previously purchased is
recorded as a debit to:

A. Raw Materials inventory

B. Finished Goods inventory.

C. Work in Process inventory.

D. Manufacturing Overhead.

Answer 10

C. Work in Process inventory.

Question 11

In a job-order costing system, indirect materials that have been previously purchased and that are used in production are recorded as a debit to:

A. Work in Process inventory.

B. Manufacturing Overhead.

C. Finished Goods inventory.

D. Raw Materials inventorv.

Answer 11

B. Manufacturing Overhead.

Question 12

Over applied Manufacturing Overhead occurs when:

A. applied overhead exceeds actual overhead.

B. applied overhead exceeds estimated overhead

C. actual overhead exceeds estimated overhead.

D. budgeted overhead exceeds actual overhead

Answer 12

applied overhead exceeds actual overhead.

Question 13

Guidelines for ethical behavior for management accounts require:

A. Management accounts maintain professional competence.

B. Management accounts disclose confidential information to competitors.

C. Management accounts eliminate all potential limitations before communicating recommendations.

D. Management accounts ignore conflicts of interest.

Answer 13

A. Management accounts maintain professional competence.

Question 14

Institute of Management Accounts supports ethical practices by:

A. Staffing an ethics hotline for it’s members.

B. Representing its members to legal cases.

C. Investigating corporate ethical lapses.

D. Requiring members to report unethical conduct to their supervisors.

Answer 14

A. Staffing an ethics hotline for it’s members.

Question 15

Which of the following costs is an example of a period rather than a product cost?

A. Depreciation on product equipment

B. Salaries of salespersons

C. Wages of production machine operators

D. Insurance on product equipment

Answer 15

B. Salaries of salespersons

Question 16

Last month 10,000 units of a product were manufactured, and the total cost per unit was $60. At this level of production the variable cost is $30 per unit and the fixed cost is $30 per unit. If 10,500 units are manufactured the next month, and the costs remain within the same relevant range:

A. Total variable cost will remain unchanged.

B. Fixed costs will increase in total.

C. Variable cost per unit will increase.

D. Total cost per unit will decrease.

Answer 16

D. Total cost per unit will decrease.

Question 17

In a job order costing system, the use of direct materials that have been previously purchased is recorded as a debit to:

A. Raw Materials Inventory

B. Finished Goods Inventory

C. Work in Process Inventory

D. Manufacturing Overhead

Answer 17

C. Work in Process Inventory

Question 18

In a job-order costing system, indirect materials that have been previously purchased and that are used in production are recorded as a debit to:

A. Manufacturing Overhead

B. Work in Process inventory

C. Finished Goods Inventory

D. Raw Materials Inventory

Answer 18

A. Manufacturing Overhead

Question 19

Overapplied manufacturing overhead occurs when:

A. Applied overhead exceeds actual overhead

B. Applied overhead exceeds estimated overhead

C. Actual overhead exceeds estimated overhead

D. Budgeted overhead exceeds actual overhead

Answer 19

A. Applied overhead exceeds actual overhead

Question 20

Hults Corporation has provided data concering the company’s Manufacturing Overhead account for the month of November. Prior to the closing of the overapplied or underapplied balance to the COGS, the total of the debits to the Manufacturing Overhead account was $75,000 and the total of the credits to the account was $57,000. Which of the following statements is true?

A. Manufacturing overhead transferred from Finished Goods to COGS during the month was $75,000

B. Actual Manufacturing overhead incurred during the month was $57,000

C. Manufacturing overhead applied to Work in Process for the month was $75,000

D. Manufacturing overhead for the month was underapplied by $18,000

Answer 20

D. Manufacturing overhead for the month was underapplied by $18,000

Question 21

Wedd Corporation had $35,000 of raw materials on hand on May 1. During the month, the company purchased an additional $68,000 of raw materials. During May, $92,000 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $5000. The debits to the Work in Process account as a consequence of the raw materials transactions in May total:

A. $92,000
B. $0
C. $68,000
D. $87,000

Answer 21

D. $87,000

Question 22

The break-even point in unit sales is found by dividing total fixed expenses by:

A. The contribution margin ratio
B. The variable expense per unit
C. The sales price per unit
D. The contribution margin per unit

Answer 22

D. The contribution margin per unit

Question 23

The break-even point in unit sales increases when variable expenses:

A. Increase and the selling price remains unchanged

B. Decrease and the selling price remains unchanged o

Answer 23

A. Increase and the selling price remains unchanged

Question 24

The amount by which a company’s sales can decline before losses are incurred is called the:

A. Contribution Margin
B. Degree of Operating Leverage
C. Margin of Safety
D. Contribution Margin Ratio

Answer 24

C. Margin of Safety

Question 25

The degree of operating leverage can be calculated as: A. Contribution margin divided by sales B. Gross margin divided by net operating income C. Net operating income divided by sales D. Contribution margin divided by net operating income

Answer 25

D. Contribution margin divided by net operating income

Question 26

Costs incurred at which of the following activity levels should NOT be allocated to products for decision-making purposes? A. Unit-level activities. B. Batch-level activities. C. Product-level activities. D. Organization-sustaining activities.

Answer 26

D. Organization-sustaining activities.

Question 27

Testing a prototype of a new product is an example of an activity at which of the following levels? A. Unit-level activity. B. Batch-level activity. C. Product-level activity. D. Organization-sustaining activity.

Answer 27

C. Product-level activity.

Question 28

Setting up equipment is an example of an activity at which of the following levels? A. Unit-level activity. B. Batch-level activity. C. Product-level activity. D. Organization-sustaining activity.

Answer 28

B. Batch-level activity.

Question 29

Which of the following activity levels is an example of the clerical activity associated with processing purchase orders to produce an order for a standard product? A. Unit-level activity. B. Batch-level activity. C. Product-level activity. D. Organization-sustaining activity.

Answer 29

B. Batch-level activity.

Question 30

Worker recreational facilities are examples of costs that would ordinarily be considered to be incurred at which of the following activity levels? A. Unit-level activity. B. Batch-level activity. C. Product-level activity. D. Organization-sustaining activity.

Answer 30

D. Organization-sustaining activity.

Question 31

Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels? A. Unit-level activity. B. Batch-level activity. C. Customer-level activity. D. Organization-sustaining activity.

Answer 31

B. Batch-level activity.

Question 32

Human resource management is an example of an activity at which of the following levels? A. Unit-level activity. B. Product-level activity. C. Batch-level activity. D. Organization-sustaining activity.

Answer 32

D. Organization-sustaining activity.

Question 33

Which of the following would be classified as a product-level activity? A. Machine setup for a batch of a standard product. B. Cafeteria facilities available to and used by all employees. C. Human resource management. D. Advertising a product.

Answer 33

D. Advertising a product.

Question 34

Why may departmental overhead rates NOT correctly assign overhead costs? A. Because of the use of direct labour hours in allocating overhead costs to products rather than machine time or quantity of materials. B. Because of the high correlation between direct labour hours and the incurrence of overhead costs. C. Because of the over-reliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production. D. Because of the difficulties associated with identifying cost pools for the first stage of the allocation process.

Answer 34

C. Because of the over-reliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production.

Question 35

Which of the following statements about overhead allocation based on volume alone is correct? A. It is a key aspect of the activity-based costing model. B. It will systematically overcost high-volume products and undercost low-volume products. C. It will systematically overcost low-volume products and undercost high-volume products. D. It must be used for external financial reporting.

Answer 35

It will systematically overcost high-volume products and undercost low-volume products.

Question 36

What is a duration driver? A. A simple count of the number of times an activity occurs. B. An activity measure that is used for the life of the company. C. A measure of the amount of time required to perform an activity. D. An activity measure that is used for the life of an activity-based costing system.

Answer 36

C. A measure of the amount of time required to perform an activity.

Question 37

What is a transaction driver? A. An event that causes a transaction to begin. B. A measure of the amount of time required to perform an activity. C. An event that causes a transaction to end. D. A simple count of the number of times an activity occurs.

Answer 37

D. A simple count of the number of times an activity occurs.

Question 38

Which of the following is NOT a limitation of activity-based costing? A. Maintaining an activity-based costing system is more costly than maintaining a traditional direct labour-based costing system. B. Changing from a traditional direct labour-based costing system to an activity-based costing system changes product margins and other key performance indicators used by managers. Such changes are often resisted by managers. C. In practice, most managers insist on fully allocating all costs to products, customers, and other costing objects in an activity-based costing system. This results in overstated costs. D. More accurate product costs may result in increasing the selling prices of some products.

Answer 38

D. More accurate product costs may result in increasing the selling prices of some products.

Question 39

Why would an activity-based costing system that is designed for internal decision making NOT conform to generally accepted accounting principles? A. Some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining costs) will not be assigned to products. B. Some non-manufacturing costs are assigned to products. C. First-stage allocations may be based on subjective interview data. D. All of the above.

Answer 39

D. All of the above.

Question 40

Day-to-day decision making is most common to which of the following activities managers are expected to carry on in organizations? A. Strategy formulation. B. Directing and motivating. C. Planning. D. Budgeting.

Answer 40

B. Directing and motivating.

Question 41

Identifying alternatives and selecting the best among them is part of which of the following activities which managers carry on in organizations? A. Controlling. B. Directing. C. Planning. D. Motivating.

Answer 41

C. Planning.

Question 42

Budgeting is part of which of the following activities managers perform in organizations? A. Controlling. B. Directing. C. Planning. D. Motivating.

Answer 42

C. Planning.

Question 43

Obtaining feedback is generally identified most directly with which of these functions of management? A. Planning. B. Directing and motivating. C. Controlling. D. Decision making.

Answer 43

C. Controlling.

Question 44

Which of the following is part of managing and improving business processes? A. Directing B. Lean production C. Motivating D. Planning

Answer 44

B. Lean production

Question 45

How is the degree of operating leverage calculated? A. Contribution margin divided by sales. B. Gross margin divided by operating income. C. Operating income divided by sales. D. Contribution margin divided by operating income.

Answer 45

D. Contribution margin divided by operating income