1.) A budget serves as a benchmark against which:
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A. actual results can be compared
B. allocated results can be compared.
C. actual results become inconsequential
D. allocated results become inconsequential.
E. cash balances can be compared to expense totals.
2.) A manufacturing firm would begin preparation of its master budget by
constructing a:
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A. sales budget.
B. production budget.
C. cash budget.
D. capital budget.
E. set of pro-forma financial statements.
3.) A company's plan for the acquisition of long-lived assets, such as buildings and
equipment, is commonly called a:
A. pro-forma budget.
B. master budget
C. financial budget.
D. profit plan.
E. capital budget.
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4.) A company's expected receipts from sales and planned disbursements to pay
bills is commonly called a:
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A. pro-forma budget.
B. master budget.
C. financial budget.
D. profit plan.
E. cash budget.
5.) Which of the following statements best describes the relationship between the
sales-forecasting process and the master-budgeting process?
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A. The sales forecast is typically completed after completion of the
master budget.
B. The sales forecast is typically completed approximately halfway
through the master-budget process.
C. The sales forecast is typically completed before the master budget
and has no impact on the master budget.
D. The sales forecast is typically completed before the master budget
and has little impact on the master budget.
E. The sales forecast is typically completed before the master
budget and has significant impact on the master budget.
6.) Bird plans to sell 5,000 units each quarter next year. During the first two
quarters each unit will sell for $12; during the last two quarters the sales price
will increase $1.50 per unit. What is Bird's estimated sales revenue for next
year?
A. $240,000.
B. $255,000.
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C. $270,000.
D. $244,000.
E. Some other amount.
Estimated sales
revenue=5000*12+5000*12+5000*13.5+5000*13.5=$255,000
7.) Swansong plans to sell 10,000 units of a particular product during July, and
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expects sales to increase at the rate of 10% per month during the remainder of
the year. The June 30 and September 30 ending inventories are anticipated to be
1,100 units and 950 units, respectively. On the basis of this information, how
many units should Swansong purchase for the quarter ended September 30?
A. 31,850.
B. 32,150.
C. 32,950.
D. 33,250.
E. Some other amount.
Answer:
Total sales=10000+10000*(1+10%)+10000*(1+10%)^2=33,100
Therefore,
Purchase=Sales + Ending Inventory - Beginning
Inventory=33,100+950-1100=32,950
8.) Coleman, Inc. anticipates sales of 50,000 units, 48,000 units, and 51,000 units in 2/100
July, August, and September, respectively. Company policy is to maintain an
ending finished-goods inventory equal to 40% of the following month's sales.
On the basis of this information, how many units would the company plan to
produce in July?
A. 46,800.
B. 49,200.
C. 49,800.
D. 52,200.
E. Some other amount.
Answer:
July beginning inventory=40% Of July sales=40%*50000=20000
July Ending inventory=40% of August sales=40%*48000-19200
Therefore,
July production=50000+19200-20000=49200
9.) An examination of Shorter Corporation's inventory accounts revealed the
following information:
Raw materials, June 1: 46,000 units
Raw materials, June 30: 51,000 units
Purchases of raw materials during June: 185,000 units
Shorter's finished product requires four units of raw materials. On the basis of
this information, how many finished products were manufactured during June?
A. 45,000.
B. 47,500.
C. 57,750.
D. 70,500.
E. Some other amount.
Answer:
Net raw material used=185,000+46,000-51,000=180,000
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Therefore,
Finished goods manufactured during june=180,000/4=45,000
10.) Northcutt's production data for a new deluxe product were taken from the most 2/100
recent quarterly production budget:
Production in units:
July - 1,000
August - 1,100
September - 980
In addition, Northcutt produces 5,000 units a month of its standard product. It
takes two direct labor hours to produce each standard unit and 2.25 direct labor
hours to produce each deluxe unit. Northwest's cost per labor hour is $15.
Direct labor cost for July would be budgeted at:
A. $183,750
B. $187,125.
C. $189,125.
D. $194,750.
E. Some other amount.
Answer:
Total Labor hours used for standard product=5000*2=10,000
Total labor hours used for deluxe product=1000*2.25=2250
Therefore,
Total labor cost=(10000+2250)*$15=$183,750
11.) Quattro began operations in April of this year. It makes all sales on account,
subject to the following collection pattern: 30% are collected in the month of
sale; 60% are collected in the first month after sale; and 10% are collected in
the second month after sale. If sales for April, May, and June were $60,000,
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$80,000, and $70,000, respectively, what were the firm's budgeted collections
for May?
A. $21,000.
B. $60,000.
C. $69,000.
D. $75,000.
E. Some other amount.
Answer:
Budgeted collections for
May=$80,000*30%+$60,000*60%=$60,000
12.) A standard cost:
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A. is the "true" cost of a unit of production.
B. is a budget for the production of one unit of a product or
service.
C. can be useful in calculating equivalent units.
D. is normally the average cost within an industry.
E. is almost always the actual cost from previous years.
13.) Variances are computed by taking the difference between which of the
following?
A. Product cost and period cost.
B. Actual cost and differential cost
C. Price factors and rate factors.
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D. Actual cost and standard cost.
E. Product cost and standard cost.
14.) Which of the following would not be considered if a company desires to
establish a series of practical manufacturing standards?
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A. Production time lost during unusual machinery breakdowns.
B. Normal worker fatigue.
C. Freight charges on incoming raw materials.
D. Production time lost during setup procedures for new
manufacturing runs.
The historical 2% defect rate associated with raw material inputs.
15.) Most companies base the calculation of the material price variance on the:
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A. quantity of direct materials purchased.
B. quantity of direct materials spoiled.
C. quantity of direct materials that should have been used in
achieving actual production.
D. quantity of direct materials actually used.
E. quantity of direct materials to be purchased during the next
accounting period.
16.) Which of the following variances are most similar with respect to the manner
in which they are calculated?
A. Labor rate variance and labor efficiency variance.
B. Material price variance and material quantity variance.
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C. Material price variance, material quantity variance, and total
material variance.
D. Material price variance and labor rate variance.
E. Material price variance and labor efficiency variance.
17.) 27. An unfavorable labor efficiency variance is created when
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A. actual labor hours worked exceed standard hours allowed.
B. actual hours worked are less than standard hours allowed
C. actual wages paid are less than amounts that should have been
paid.
D. actual units produced exceed budgeted production levels.
E. actual units produced exceed standard hours allowed.
18.) Dana, Inc. recently completed 56,000 units of a product that was expected to
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consume four pounds of direct material per finished unit. The standard price of
the direct material was $8.50 per pound. If the firm purchased and consumed
228,000 pounds in manufacturing (cost = $1,881,000), the direct-material
quantity variance would be figured as:
A. $34,000U.
B. $34,000F.
C. $57,000U.
D. $57,000F.
E. None of these.
Answer:
Direct-material Quantity variance=SP*(AQ-SQ)=$8.50*(228,000-
56000*4)=$34,000U
19.) Courtney purchased and consumed 50,000 gallons of direct material that was
used in the production of 11,000 finished units of product. According to
engineering specifications, each finished unit had a manufacturing standard of
five gallons. If a review of Courtney's accounting records at the end of the
period disclosed a material price variance of $5,000U and a material quantity
variance of $3,000F, determine the actual price paid for a gallon of direct
material.
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A. $0.50
B. $0.60.
C. $0.70
D. An amount other than those shown above.
E. Not enough information to judge.
Answer:
We have,
Material Quantity Variance=$3000F=SP*(50000-11000*5)
Or,
SP=3000/5000=$0.60
20.) Denver Enterprises recently used 14,000 labor hours to produce 7,500
completed units. According to manufacturing specifications, each unit is
anticipated to take two hours to complete. The company's actual payroll cost
amounted to $158,200. If the standard labor cost per hour is $11, Denver's
labor efficiency variance is:
A. $11,000U.
B. $11,000F.
C. $11,300U.
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D. $11,300F.
E. None of these.
Answer:
Labor Efficiency Variance=SR*(AH-SH)=$11*(14,0007,500*2)=$11,000F
21.) Lucie Corporation's purchasing manager obtained a special price on an
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aluminum alloy from a new supplier, resulting in a direct-material price
variance of $9,500F. The alloy produced more waste than normal, as evidenced
by a direct-material quantity variance of $2,000U, and was also difficult to use.
This slowed worker efficiency, generating a $2,500U labor efficiency variance.
To help remedy the situation, the production manager used senior line
employees, which gave rise to a $900U labor rate variance. If overall product
quality did not suffer, what variance amount is best used in judging the
appropriateness of the purchasing manager's decision to acquire substandard
material?
A. $4,100F.
B. $5,000F.
C. $7,000F.
D. $7,500F.
E. $9,500
Static Budget
Variance=$9500F+$2,000U+$2,500U+$900U=$4,100F
22.) A static budget:
A. is based totally on prior year's costs.
B. is based on one anticipated activity level.
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C. is based on a range of activity.
D. is preferred over a flexible budget in the evaluation of
performance.
E. presents a clear measure of performance when planned activity
differs from actual activity.
23.) Flexible budgets reflect a company's anticipated costs based on variations in:
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A. activity levels.
B. inflation rates.
C. managers.
D. anticipated capital acquisitions.
E. standards.
24.) Interspace Merchandising anticipated selling 29,000 units of a major product
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and paying sales commissions of $6 per unit. Actual sales and sales
commissions totaled 31,500 units and $182,700, respectively. If the company
used a static budget for performance evaluations, Interstate would report a cost
variance of:
A. $6,300U.
B. $6,300F.
C. $8,700U.
D. $8,700F.
E. some other amount not listed above.
Answer:
Material quantity variance=SP*(AQ-SQ)=$6*(31,500-
29,000)=$15,000U
Material price variance=$182,700-31,500*$6=$6,300F
Therefore,
Cost variance=$15,000U+$6,300F=$8,700U
25.) Zin, Inc. is planning its cash needs for an upcoming period when 85,000
machine hours are expected to be worked. Activity may drop as low as 78,000
hours if some overdue equipment maintenance procedures are performed; on
the other hand, activity could jump to 94,000 hours if one of Zin's major
competitors likely goes bankrupt. A flexible cash budget to determine cash
needs would best be based on:
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A. 78,000 hours.
B. 85,000 hours.
C. 94,000 hours.
D. 78,000 hours and 94,000 hours.
E. 78,000 hours, 85,000 hours, and 94,000 hours.
26.) Del's Diner anticipated that 84,000 process hours would be worked during an
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upcoming accounting period when, in fact, 90,000 hours were actually worked.
One of the company's cost functions is expressed as follows:
Y = $16PH + $640,000 where PH is defined as process hours
What is Del's flexible budget for the preceding cost function?
A. $1,280,000
B. $2,080,000
C. $1,984,000
D. $1,221,000
E. $2,112,000
Answer:
Flexible budget for preceding cost
function=$16*90,000+$640,000=$2,080,000
27.) Which of the following mathematical expressions is found in a typical flexible- 2/100
budget formula for overhead?
A. Total activity units + budgeted fixed overhead cost per unit.
B. Budgeted variable overhead cost per unit + budgeted fixed
overhead cost.
C. (Budgeted variable overhead cost per unit „e total activity
units) + budgeted fixed overhead costs.
D. (Budgeted fixed overhead cost per unit „e total activity units) +
(budgeted variable overhead cost per unit „e total activity units).
E. None of these.
28.) A flexible budget for 15,000 hours revealed variable manufacturing overhead
of $90,000 and fixed manufacturing overhead of $120,000. The budget for
25,000 hours would reveal total overhead costs of:
A. $210,000.
B. $270,000.
C. $290,000.
D. $350,000.
E. some other amount.
We have,
Variable overhead rate=$90,000/15000=$6
Therefore,
Total overhead for 25,000 hours=$120,000+$6*25,000=$270,000
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29.) With respect to overhead, what is the difference between normal costing and
standard costing?
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A. Use of a predetermined overhead rate.
B. Use of standard hours versus actual hours.
C. Use of a standard rate versus an actual rate.
D. The choice of an activity measure.
E. There is no difference.
30.) The concepts and tools used to measure the performance of people and
departments are known as:
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A. goal congruence.
B. planning and control.
C. responsibility accounting.
D. delegation of decision making.
E. strategic control.
31.) The concepts and tools used to measure the performance of people and
departments are known as:
A. goal congruence.
B. planning and control.
C. responsibility accounting.
D. delegation of decision making.
E. strategic control.
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32.) A revenue center manager:
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A. does not have the ability to produce revenue.
B. may be involved with the sale of new marketing programs to
clients.
C. would normally be held accountable for producing an adequate
return on invested capital.
D. often oversees divisional operations.
E. may be the manager who oversees the operations of a retail store.
33.) Decentralized firms can delegate authority by structuring an organization into 2/100
responsibility centers. Which of the following organizational segments is most
like a totally independent, standalone business where managers are expected to
"make it on their own"?
A. Cost center.
B. Revenue center.
C. Profit center.
D. Investment center.
E. Contribution center.
34.) Decentralized firms can delegate authority by structuring an organization into 2/100
responsibility centers. Which of the following organizational segments is most
like a totally independent, standalone business where managers are expected to
"make it on their own"?
A. Cost center.
B. Revenue center.
C. Profit center.
D. Investment center.
E. Contribution center.
35.) For a company that uses responsibility accounting, which of the following
costs is least likely to appear on a performance report of an assembly-line
supervisor?
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A. Direct materials used.
B. Departmental supplies.
C. Assembly-line labor.
D. Repairs and maintenance.
E. Assembly-line facilities depreciation.
36.) The difference between the profit margin controllable by a segment manager
and the segment profit margin is caused by:
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A. variable operating expenses.
B. allocated common expenses.
C. fixed expenses controllable by the segment manager.
D. fixed expenses traceable to the segment but controllable by
others.
E. sales revenue.
37.) . Sand Fly Corporation operates two stores: J and K. The following information 2/100
relates to J:
Sales Revenue - $1,300,000
Variable operatging expenses - 600,000
Fixed Expenses:
Traceable to J and controllable by J - 275,000
Traceable to J and controllable by others - 80,000
J's segment contribution margin is:
A. $345,000.
B. $425,000.
C. $620,000.
D. $700,000.
E. $745,000.
Answer:
Contribution margin=Revenue-Varibale cost=$1,300,000$600,000=$700,000
38.) Capital-budgeting decisions primarily involve:
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A. emergency situations.
B. long-term decisions.
C. short-term planning situations.
D. cash inflows and outflows in the current year.
E. planning for the acquisition of capital.
39.) The decision process that has managers select from among several acceptable
investment proposals to make the best use of limited funds is known as:
A. capital rationing.
B. capital budgeting.
C. acceptance or rejection analysis (ARA).
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D. cost analysis.
E. project planning
40.) Capital budgeting tends to focus primarily on
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A. revenues.
B. costs.
C. cost centers.
D. programs and projects.
E. allocation tools.
41.) Discounted-cash-flow analysis focuses primarily on:
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A. the stability of cash flows.
B. the timing of cash flows
C. the probability of cash flows.
D. the sensitivity of cash flows.
E. whether cash flows are increasing or decreasing.
42.) In a net-present-value analysis, the discount rate is often called the:
A. payback rate.
B. hurdle rate.
C. minimal value.
D. net unit rate.
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E. objective rate of return.
43.) The hurdle rate that is used in a net-present-value analysis is the same as the
firm's:
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A. discount rate.
B. internal rate of return.
C. minimum desired rate of return.
D. objective rate of return.
E. discount rate and minimum desired rate of return.
44.) Consider the following factors related to an investment:
I. The net income from the investment.
II. The cash flows from the investment.
III. The timing of the cash flows from the investment.
Which of the preceding factors would be important considerations in a netpresent-value analysis?
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A. I only.
B. II only.
C. I and II.
D. II and III.
E. I, II, and III.
45.) The true economic yield produced by an asset is summarized by the asset's:
A. non-discounted cash flows.
B. net present value.
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C. future value.
D. annuity discount factor
E. internal rate of return.
46.) The internal rate of return:
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A. ignores the time value of money.
B. equates a project's cash inflows with its cash outflows.
C. equates a project's cash outflows with its expenses.
D. equates the present value of a project's cash inflows with the
present value of the cash outflows.
E. equates the present value of a project's cash flows with the future
value of the project's cash flows.
47.) Paige Company is contemplating the acquisition of a machine that costs
$50,000 and promises to reduce annual cash operating costs by $11,000 over
each of the next six years. Which of the following is a proper way to evaluate
this investment if the company desires a 12% return on all investments?
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A. $50,000 vs. $11,000 x 6.
B. $50,000 vs. $66,000 x 0.507.
C. $50,000 vs. $66,000 x 4.111.
D. $50,000 vs. $11,000 x 4.111.
E. $50,000 x 0.893 vs. $11,000 x 4.111.
48.) Reids Company, which uses net present value to analyze investments, requires 2/100
a 10% minimum rate of return. A staff assistant recently calculated a $500,000
machine's net present value to be $86,400, excluding the impact of straight-line
depreciation. If Reids ignores income taxes and the machine is expected to
have a five-year service life, the correct net present value of the machine would
be:
A. $(13,600).
B. $86,400.
C. $186,400.
D. $292,700.
E. $465,500.
49.) Puck Company received $18,000 cash from the sale of a machine that had a
$13,000 book value. If the company is subject to a 30% income tax rate, the
net cash flow to use in a discounted-cash-flow analysis would be:
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A. $3,500.
B. $6,500.
C. $12,600.
D. $16,500.
E. $19,500.
50.) Raymon Company received $7,000 cash from the sale of a machine that had an
$11,000 book value. If the company is subject to a 30% income tax rate, the net cash
flow to use in a discounted-cash-flow analysis would be:
A. $2,100.
B. $4,900.
C. $5,800.
D. $7,000.
E. $8,200.