Test 2 MC Practice

Question 1

A The cost of safety and alarm systems.
B The costs that can occur from inventory shrinkage.
C The costs of the annual physical inventory count required for the external audit.
D The costs associated with space allocated to inventory storage in a manufacturing plant.

Answer 1

Answer

Question 2

Last year the Temperate Garden’s Cash Conversion Efficiency (CCE) ratio was 5.1% and revenues were $125,000. Vera, the owner, wants a CCE ratio of 7.5% this year with expected revenues of $150,000. What is the amount of cash provided by operating activities required to achieve the desired ratio?
A $6,375
B $7,650
C $11,250
D Cash provided by operating activities remains unchanged.

Answer 2

C

Question 3

Elphalba’s Magic Supplies Ltd. is considering a change to its credit terms from net 30 to net 60 days. If the change is made sales will increase from $10 million to $12 million, average accounts receivable will increase from $500,000 to $1 million, average inventory levels will increase from $125,000 to $225,000 and operating profit will increase from $1 million to $1.1 million. If the effective tax rate is 25% and the desired return on investment is 15% should Elphalba’s proceed with the proposed change and why?
A Yes, because the return on investment is 17% if the change is implemented.
B Yes, because the return on investment is 333% if the change is implemented.
C No, because the return on investment is 13% if the change is implemented.
D Yes, because the return on investment is 250% if the change is implemented.

Answer 3

Answer

Question 4

4. All of the following are included in working capital except:
A Trade and other payables.
B Interest payments.
C Prepaid expenses.
D Short-term loans and investments.

Answer 4

B Interest payments

Question 5

The following relate to production expenses at the Temperate Garden to produce 1 unit of bedding plants:
Greenhouse labour $0.95
Depreciation on equipment $0.05
Sales counter labour $0.85
Veterinary bills for, Mimi, the resident mouse catcher $0.01
Benefits for greenhouse labour $0.05 Water, fertilizer, pot, soil & seed $0.25 Benefits for sales counter labour $0.05

Based on the above information the prime cost for one unit of bedding plants is:
A $1.25 B $1.30 C $2.20 D $2.21

Answer 5

A $1.25

Question 6

The benefit given up when one alternative is chosen over another is referred to as:
Answer:
5. The following relate to production expenses at the Temperate Garden to produce 1 unit of bedding plants:
Greenhouse labour $0.95
Depreciation on equipment $0.05
Sales counter labour $0.85
Veterinary bills for, Mimi, the resident mouse catcher $0.01
Benefits for greenhouse labour $0.05 Water, fertilizer, pot, soil & seed $0.25 Benefits for sales counter labour $0.05
A A sunk cost.
B An assigned loss cost.
C An opportunity cost.
D A conversion cost.

Answer 6

C An opportunity cost.

Question 7

Materials inventories include which of the following:
Answer:
A Raw materials, work in progress and finished goods.
B Raw materials and indirect work in progress materials.
C Direct and indirect materials not yet used in the manufacturing process.
D Direct and indirect materials net of scrap and wastage.

Answer 7

C Direct and indirect materials not yet used in the manufacturing process.

Question 8

Cost of goods sold is considered a \_\_\_\_\_\_ cost while depreciation is considered a \_\_\_\_\_\_\_ cost.
A Selling; Overhead.
B Period, Manufacturing.
C Product, Period.
D Period, Product

Answer 8

C Product, Period

Question 9

Hazel's Magic Kitchen ships gourmet products to customers across North America. The following data was collected over the past six months.
Page 5 of 18 90 Minutes
8.
 Packages Shipped 10
20 15 15 18 25
Total Cost $800
$1,100 $900 $900 $1,050 $1,250
  Based on the above information what is the fixed component of Hazel's shipping costs?
A $1,000 
B $30
C $5,000 
D $500

Answer 9

D $500

Question 10

Which of the following is true regarding unit cost?
Answer:
A Fixed components vary inversely throughout the relevant range of production.
B Unit costs are accrued at the end of each accounting period.
C Variable components are fixed throughout the relevant range of production.
D A and C

Answer 10

D A and C

Question 11

Which of the following is not a method used to separate a mixed cost into its fixed and variable components?

A High - low method.
B Method of least squares.
C Scatter graph method.
D Maslow’s cost hierarchy.

Answer 11

D Maslow’s cost hierarchy.

Question 12

Costs that have both a fixed and variable component are referred to as:
A Step costs
B Mixed costs
C Semi-variable costs.
D B and C

Answer 12

D B and C

Question 13

If fixed costs are $500,000, variable manufacturing costs are $300,000, variable selling costs are $300,000, the effective tax rate is 25% , the selling price is $25 and 50,000 units are expected to be sold, then the break even point is:

A $961,538
B $1,250,000
C $657,895
D $721,154

Answer 13

A $961,538

Question 14

Refer to the data for question 13. What is the margin of safety in units?
A 26,316
 B 28,846 
C 25,000 
D 11,538

Answer 14

D 11,538

Question 15

The relative combination of products or services being sold by an organization is referred to as:
A Cost structure.
B Sale mix.
C Contribution leverage.
D Operating leverage.

Answer 15

B Sale mix.

Question 16

Which of the following is not true regarding contribution margin income statements?
A They separate costs into fixed and variable components.
B They provide management with useful information regarding CVP behaviour.
C They are must be included in the annual report for manufacturers under IFRS.
D They are prepared for internal use.

Answer 16

C They are must be included in the annual report for manufacturers under IFRS.

Question 17

Activity Based Costing (ABC) differs from traditional costing because:
A Traditional costing allocated overhead while ABC does not.
B ABC allows for detailed inventory tracking while traditional costing does not.
C Traditional costing allocates cost more effectively while ABC allocates costs more efficiently.
D Traditional costing allocates indirect costs using a single rate while ABC allocates indirect costs using multiple rates.

Answer 17

D Traditional costing allocates indirect costs using a single rate while ABC allocates indirect costs using multiple rates.

Question 18

Which of the following is not a reason to adopt Activity Based Costing?
A Simple to use and easy to implement.
B Fierce global competition and shrinking profit margins.
C Indirect costs are more important in today’s business world.
D Better tracking of a company’s share resources among different products and customers.

Answer 18

A Simple to use and easy to implement.

Question 19

Problem with question. No answer

machine hours and takes 600 setup hours. The activity rates are $20 per machine hour and $50 per setup hour. Total plant overhead is $800,000.
The cost per unit for game consoles is:
$10.00 
$30.00 
$190.00 
$40.00

Answer 19

$10.00
$30.00
$190.00
$40.00

Question 20

Scrap and rework costs are examples of:
A External failure costs.
B Appraisal costs.
C Prevention costs.
D Internal failure costs.

Answer 20

D Internal failure costs.

Question 21

Define Cost

Answer 21

The amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization

Question 22

Revenue per unit is called

Answer 22

Price

Question 23

Define Accumulating Costs

Answer 23

The way that’s costs are measured and recorded

Question 24

Define Assigning costs

Answer 24

The way that a Cost is linked to an object

Question 25

Define Cost Object

Answer 25

Any item such as a product, service, customer, department, project for which costs are measured and assigned.

Question 26

What 3 elements equal total product cost?

Answer 26

Direct Materials, Direct Labour, Manufacturing Overhead

Question 27

Define Prime Costs

Answer 27

The sum of direct materials cost and direct labour costs

Question 28

Define conversion cost

Answer 28

The sum of direct labour cost and manufacturing overhead.

Can be remembered as the cost of converting direct material into a finished good

Question 29

Define Period costs

Answer 29

All costs that are not products costs. All areas of the value chain except production.

Ex. Office supplies, research and development, CEO’s salary, advertising