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Managerial Accounting Test

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TEST QUESTIONS:

Questions 1-3 refer to the following:

The following selected data for March were taken from Rubenstein
Company's financial statements:

Cost of goods available for sale Manufacturing overhead
Cost of goods manufactured
Finished goods inventory ‑ ending
Direct materials used
Sales
Selling and administrative expenses
Direct labor
Work in process inventory ‑ beginning
$ 65,000
20,000
51,000
10,000
15,000
105,000
30,000
20,000
0

1. The gross margin was:

1. $55,000.
2. $54,000.
3. $50,000.
4. $40,000.

2. The beginning finished goods inventory was:

1. $24,000.
2. $ 9,000.
3. $10,000.
4. $14,000.

3. The ending work in process inventory was:

1. $ 4,000.
2. $ 8,000.
3. $10,000.
4. $0.



4. Farber Company uses a job order cost system. The information below is from the financial records of the company for last year:

Total manufacturing costs $2,500,000
Cost of goods manufactured $2,425,000
Predetermined overhead rate 80% of direct labor cost

Applied overhead was 30% of total manufacturing costs. The Work in Process inventory at January 1 was 75% of the Work in Process inventory at December 31.

Farber Company's total direct labor cost was:

1. $750,000.
2. $600,000.
3. $900,000.
4. $937,500.

5. Dukes Company used a predetermined overhead rate this year of $2 per direct labor hour, based on an estimate of 20,000 direct labor hours to be worked during the year. Actual costs and activity during the year were:

Actual manufacturing overhead cost incurred $38,000
Actual direct labor hours worked 18,500

The under‑ or overapplied overhead for the year was:

1. $1,000 underapplied.
2. $1,000 overapplied.
3. $3,000 underapplied.
4. $3,000 overapplied.

6. Krumbly Company uses the FIFO method in its process costing system. At the beginning of the month, Department D's work in process inventory contained 2,000 units. These units were fully complete with respect to materials and 40% complete with respect to conversion costs, with a total cost at that point of $3,600. During the month, conversion costs amounted to $8 per equivalent unit of production. If all 2,000 units are fully complete by the end of the month, their total cost by that time will be:

1. $19,600.
2. $10,000.
3. $13,200.
4. $9,000.



7. Details of the manufacturing activity in Amy Company's Assembly Department for the month of December are given below:

Number
of Units
Labor and Overhead
Percent Complete
Work in process inventory, Dec. 1
Started in assembly during the month
Work in process inventory, Dec. 31
10,000
80,000
15,000
70%

40%

All materials are added at the beginning of processing in the Assembly Department.

The equivalent units of production for labor and overhead for the month, using the FIFO method, are:

1. 90,000.
2. 70,000.
3. 80,000.
4. 74,000.

8. Lap Company uses the weighted‑average method in its process costing system. The beginning inventory in a particular department consisted of 80,000 units, 100% complete with respect to materials and 25% complete with respect to conversion costs. The total dollar value of this inventory was $226,000. During the month, 150,000 units were transferred out of the department. The costs per equivalent unit of production for the month were $2.00 for materials and $3.50 for conversion costs. The value of the units completed and transferred out of the department was:

1. $681,000.
2. $765,000.
3. $821,000.
4. $825,000.



9. Robin Company uses activity‑based costing to compute product costs for external reports. The company has three activity centers and applies overhead using predetermined overhead rates for each activity center. Estimated costs and activities for the current year are presented below for the three activity centers:

Estimated
Overhead Expected
Cost Activity
Activity 1 $44,148 2,600
Activity 2 $24,570 2,700
Activity 3 $21,956 1,100

Actual costs and activities for the current year were as follows:

Actual
Overhead Actual
Cost Activity
Activity 1 $44,098 2,585
Activity 2 $24,715 2,695
Activity 3 $21,901 1,120

The amount of overhead applied for Activity 2 during the year was closest to:

1. $24,570.00.
2. $24,715.00.
3. $24,524.50.
4. $38,182.25.

10. Shipping cost at Junk Food Imports is a mixed cost with variable and fixed components. Past records indicate total shipping cost was $18,000 for 16,000 pounds shipped and $22,500 for 22,000 pounds shipped. If the company plans to ship 18,000 pounds next month, the expected shipping cost is:

1. $18,500.
2. $20,400.
3. $19,500.
4. $24,000.



11. Erg Manufacturing Company has developed the following overhead cost formulas:

Cost Formula
Depreciation $500
Set up $400 plus $0.20 per machine‑hour
Lubrication $ 50 plus $0.25 per machine‑hour
Utilities $0.40 per machine‑hour

Based on these cost formulas, the total overhead cost expected if 200 machine hours are worked is:

1. $ 620.
2. $ 900.
3. $ 170.
4. $1,120.

12. Alpha Company reported the following data for its most recent year: sales, $500,000; variable expenses, $300,000; and fixed expenses, $150,000. The company's degree of operating leverage is:

1. 10
2. 2
3. 4
4. 2.5

13. As total sales increase in a company beyond the breakeven point, the

Operating Breakeven Margin of
Leverage in Sales Safety
1. will increase will increase will increase
2. will increase will decrease will decrease
3. will decrease remain the same will increase
4. will decrease will increase will decrease


14. The following data pertain to last year's operations at Hruska Corp.:

Units in beginning inventory
Units produced
Units sold
0
5,000
4,000
Selling price per unit
$180.00
Variable costs per unit:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative

$20.00
30.00
10.00
20.00
Fixed costs per year:
Fixed manufacturing overhead
Fixed selling and administrative

$100,000
300,000

What was the variable costing net income last year?

1. $20,000
2. $80,000
3. $0
4. $60,000


15. The following data pertain to last year’s operations at Clarkson, Incorporated:

Units in beginning inventory 0
Units produced 100,000
Units sold 98,000

Selling price per uni $10.00

Variable costs per unit:
Direct materials $1.50
Direct labor 2.50
Variable manufacturing overhead 1.00
Variable selling and administrative 2.00

Fixed costs per year:
Fixed manufacturing overhead $200,000
Fixed selling and administrative 50,000

What was the absorption costing net income last year?

1. $44,000
2. $48,000
3. $50,000
4. $49,000

16. Home Company will open a new store on January 1. Based on experience from its other retail outlets, Home Company is making the following sales projections:

Cash Sales Credit Sales
January $60,000 $40,000
February $30,000 $50,000
March $40,000 $60,000
April $40,000 $80,000

Home Company estimates that 70% of the credit sales will be collected in the month following the month of sale, with the balance collected in the second month following the month of sale.

Based on these data, the balance in accounts receivable on January 31 will be:

1. $40,000.
2. $28,000.
3. $12,000.
4. $58,000.




17. Hamway Products, Inc. makes and sells a single product called a Wob. It takes two yards of material A to make one Wob. Budgeted production of Wobs for the next four months is as follows:

April 12,000 units
May 13,500 units
June 12,400 units
July 11,200 units

The company wants to maintain monthly ending inventories of material A equal to 10% of the following month's production needs. On March 31 this target had not been met since only 1,500 yards of material A were on hand. The cost of material A is $.90 per yard.

The total cost of material A to be purchased in April is:

1. $22,680.
2. $24,750.
3. $26,750.
4. $26,780.


Questions 18-19 refer to the following:

Dudley, Inc. makes a single product which has the following standards:

Direct materials: 2 kilograms at $4.30 per kilogram
Direct labor: 3 hours at $6 per hour
Variable manuf. overhead: $19.50 per unit of output

At the beginning of June there were no inventories. The following data pertain to June's operations:

Direct labor was $820,500 for 147,000 hours worked.
Direct material purchases were 110,000 kilograms for $485,000.
Variable manuf. overhead incurred was $986,000.
92,000 kilograms of direct materials were used.
The company sold 42,000 units at $130 each.
Variable manuf. overhead is applied based on direct labor hours.
46,000 units were produced during the year.

18. The material quantity variance is:

1. $77,400 U.
2. $0.
3. $14,800 F.
4. $14,800 U.

19. The labor rate variance is:

1. $61,500 U.
2. $54,000 U.
3. $54,000 F.
4. $61,500 F.

20. A flexible budget:
1. classifies budget requests by activity and estimates the benefits arising from each activity.
2. presents a statement of expectations for a period of time but does not present a firm commitment.
3. presents the plan for only one level of activity and does not adjust to changes in the level of activity.
4. presents the plan for a range of activity so that the plan can be adjusted for changes in activity levels.


21. The overhead budget variance is measured by:

1. the difference between budgeted fixed overhead cost and actual fixed overhead cost.
2. the difference between actual fixed overhead cost and applied fixed overhead cost.
3. the difference between budgeted fixed overhead cost and applied fixed overhead cost.
4. none of these.

22. The factory overhead variance that serves as a measure of capacity utilization is:

1. the overhead spending variance.
2. the overhead efficiency variance.
3. the overhead budget variance.
4. the overhead volume variance.

Questions 23-25 refer to the following:

Norman Enterprises has a standard cost system in which manufacturing overhead is applied to units of product on the basis of direct labor hours. The company has provided the following data concerning its fixed manufacturing overhead costs for last year:

Total actual fixed overhead cost incurred $42,000
Fixed overhead cost overapplied $ 6,000
Number of units produced 12,500
Volume variance, unfavorable $ 3,600
Standard labor hours per unit 1.6 hours

23. The fixed portion of the predetermined overhead rate last year was:

1. $1.80.
2. $2.40.
3. $2.88.
4. $3.84.

24. The budgeted fixed overhead cost last year was:

1. $41,000.
2. $42,000.
3. $44,400.
4. $51,600.





25. The budget variance for fixed overhead last year was:

1. $9,600 F.
2. $9,600 U.
3. $2,400 F.
4. $2,400 U.

26. Managerial performance can be measured in many different ways including return on investment (ROI) and residual income. A good reason for using residual income instead of ROI is:

1. Residual income can be computed without having to measure operating assets.
2. Managers are more likely to accept projects that are beneficial to the company.
3. ROI does not take into account both turnover and margin.
4. A minimum rate of return does not have to be specified when the residual income approach is used.

27. Which of the following will not result in an increase in ROI, assuming other factors remain constant?

1. A reduction in expenses.
2. An increase in net operating income.
3. An increase in operating assets.
4. An increase in sales.

28. Consider the following three conditions:

I. An increase in sales
II. An increase in operating assets
III. A reduction in expenses

Which of the above conditions provide a way in which a manager can improve return on investment?

1. Only I
2. Only I and II
3. Only I and III
4. Only II and III



29. Devlin Company has two divisions, C and D. The overall company contribution margin ratio is 30%, with sales in the two divisions totaling $500,000. If variable expenses are $300,000 in Division C, and if Division C's contribution margin ratio is 25%, then sales in Division D must be:

1. $ 50,000.
2. $100,000.
3. $150,000.
4. $200,000.

30. Given the following data:

Return on investment (ROI) 15%
Sales $120,000
Average operating assets $60,000
Minimum required rate of return 12%
Margin 7.5%

The residual income would be:

1. $1,800.
2. $5,400.
3. $2,700.
4. $3,600.



31. Division T of Clocker Company makes a timer which it sells for $30 to outside customers. The division has supplied the following data concerning the timer:

Monthly capacity 12,000 timers
Variable cost per unit $15
Fixed cost per unit $10

Presently, Division S of Clocker Company is buying 5,000 similar timers each month from an overseas supplier at $27 each. Division S would like to acquire its timers from Division T if the price is right.

Suppose Division T is operating at capacity and can sell all of the timers it produces to outside customers at its usual selling price. If Division T meets the price of the overseas supplier and sells 5,000 timers to Division S each month, the effect on the monthly net operating income of the company as a whole will be:

1. increase of $15,000.
2. decrease of $15,000.
3. decrease of $60,000.
4. increase of $10,000.

32. Consider the following statements:

I. Assemble all costs associated with each alternative being considered.
II. Eliminate those costs that are sunk.
III. Eliminate those costs that differ between alternatives.

Which of the above statements does not represent a step in identifying the relevant costs in a decision problem?

1. Only I
2. Only II
3. Only III
4. Only I and III

33. In a make or buy decision:

1. only the variable costs are relevant.
2. only the fixed costs are relevant.
3. both the variable costs and the fixed costs which will continue regardless of the decision are relevant.
4. both the variable costs and the fixed costs which are avoidable are relevant.



34. Which of the following best describes an opportunity cost:

1. it is a relevant cost in decision making, but is not part of the traditional accounting records.
2. it is not a relevant cost in decision making, but is part of the traditional accounting records.
3. it is a relevant cost in decision making, and is part of the traditional accounting records.
4. it is not a relevant cost in decision making, and is not part of the traditional accounting records.

35. Landor Appliance Company makes and sells electric fans. Each fan regularly sells for $42. The following cost data per fan is based on a full capacity of 150,000 fans produced each period.

Direct materials ....................................... $ 8
Direct labor ............................................. 9
Manufacturing overhead (70% variable
and 30% unavoidable fixed) ............ 10

A special order has been received by Landor for a sale of 25,000 fans to an overseas customer. The only selling costs that would be incurred on this order would be $4 per fan for shipping. Landor is now selling 120,000 fans through regular channels each period. What should Landor use as a minimum selling price per fan in negotiating a price for this special order?

1. $28
2. $27
3. $31
4. $24



36. The Milham Company has two divisions ‑ East and West. The divisions have the following revenues and expenses:

East West
Sales .............................................. $720,000 $350,000
Variable costs .................................. 370,000 240,000
Traceable fixed costs ........................ 130,000 80,000
Allocated common corporate costs ..... 120,000 50,000
Operating income (loss) ..................... $100,000 $(20,000)

The management at Milham is pondering the elimination of the West division since it has shown an operating loss for the past several years. If the West division were eliminated, its traceable fixed costs could be avoided. The total common corporate costs would be unaffected by this decision. Given these data, the elimination of the West Division would result in an overall company operating income of:

1. $100,000
2. $ 80,000
3. $120,000
4. $ 50,000

37. Kingston Company needs 10,000 units of a certain part to be used in its production cycle. The following information is available concerning Kingston's manufacturing costs per unit:

Direct materials ............................... $ 6
Direct labor ..................................... 24
Variable manufacturing overhead ....... 12
Fixed manufacturing overhead ........... 15
Total manufacturing cost per unit ...... $57

Utica Company has offered to supply Kingston's entire annual requirements of the part for $53 each. If Kingston buys the part from Utica instead of making it, Kingston would have no other use for the facilities and 60 percent of the fixed manufacturing overhead would continue. In deciding whether to make or buy the part, the total relevant costs to make the part internally are:

1. $342,000.
2. $480,000.
3. $530,000.
4. $570,000.



38. If income tax considerations are ignored, how is straight‑line depreciation expense used in the following capital budgeting techniques?

Internal Net
Rate of Return Present Value
1. Excluded Excluded
2. Excluded Included
3. Included Excluded
4. Included Included

39. A project's net present value, ignoring income tax considerations, is affected by:

1. the net book value of an asset that is replaced.
2. the depreciation on an asset that is replaced.
3. the depreciation to be taken on assets used directly on the project.
4. proceeds from the sale of an asset that is replaced.

40. Which of the following characteristics represent an advantage of the internal rate of return method over the simple rate of return method of capital budgeting?

I. Recognition of an asset's salvage value.
II. Emphasis on cash flows.
III. Recognition of the time value of money.

1. I only.
2. I and II.
3. II and III.
4. I, II, and III.

41. (Ignore income taxes in this problem.) The Able Company is considering buying a new donut maker. This machine will replace an old donut maker that still has a useful life of 2 years. The new machine will cost $2,500 a year to operate, as opposed to the old machine, which costs $2,700 per year to operate. Also, because of increased capacity, an additional 10,000 donuts a year can be produced. The company makes a contribution margin of $.02 per donut. The old machine can be sold for $5,000 and the new machine costs $25,000. The incremental annual net cash inflows provided by the new machine will be:

1. $ 200.
2. $ 400.
3. $5,200.
4. $5,400.





42. (Ignore income taxes in this problem.) Given the following data on a proposed investment project:

Cost of equipment required $50,000
Working capital required $30,000
Salvage value of equipment $‑0‑
Annual cash inflows from the project $20,000
Required rate of return 20%
Life of the project 8 years

The net present value of the project would be:

1. $ 3,730.
2. $ ‑0‑.
3. $32,450.
4. $88,370.

43. (Ignore income taxes in this problem.) Highpoint, Inc., is considering investing in automated equipment with a ten‑year useful life. Managers at Highpoint have estimated the cash flows associated with the tangible costs and benefits of automation, but have been unable to estimate the cash flows associated with the intangible benefits. Using the company's 12% required rate of return, the net present value of the cash flows associated with just the tangible costs and benefits is a negative $282,500. How large would the annual net cash inflows from the intangible benefits have to be to make this a financially acceptable investment?

1. $20,000.
2. $28,250.
3. $35,000.
4. $50,000.



44. (Ignore income taxes in this problem.) Para Co. is reviewing the following data relating to an energy saving investment proposal:

Initial investment $50,000
Life of the project 5 years
Salvage value $10,000
Annual cash savings ?

What annual cash savings would be needed in order to satisfy the company's 12% required rate of return (rounded to the nearest one hundred dollars)?

1. $10,600
2. $11,100
3. $12,300
4. $13,900

45. In net present value analysis, the release of working capital at the end of a project should be:

1. ignored.
2. included as a cash outflow.
3. included as a cash inflow.
4. included as a tax deduction.

46. When evaluating a project, the portion of the fixed corporate headquarter's expense that would be allocated to the project should be:

1. included as a cash outflow on an after‑tax basis by multiplying the expense by one minus the tax rate.
2. included as a cash outflow on an after‑tax basis by multiplying the expense by the tax rate.
3. included as a cash outflow on a before‑tax basis.
4. ignored.

47. All of Schnider Company's sales and expenses last year were for cash. The tax rate was 30%. If the net cash inflow (after taxes) last year was $18,900, and if the total gross cash sales were $75,000, then the total cash expenses before taxes must have been:

1. $27,000.
2. $48,000.
3. $52,000.
4. $37,000.

Questions 48 and 49 refer to the following:

The following data pertain to a four‑year project being considered by Metro Industries.

The project will require the purchase of equipment that costs $1,200,000. This new equipment is expected to have a $200,000 salvage value at the end of four years. The equipment qualifies as 3‑year property under the MACRS system. The company would depreciate the equipment for tax purposes uses the MACRS tables.

The new equipment will replace an existing asset that has a net book value of $150,000 and a salvage value now of $180,000. The tax on the gain would be paid at the end of the first year.

The project is expected to provide added annual sales of 30,000 units at $20 for each unit. Additional cash operating costs are $12 per unit variable plus $90,000 per year fixed.

The project requires an investment of $50,000 in working capital that is fully recoverable at the end of the fourth year.

Metro's tax rate is 40%. The company's after‑tax cost of capital is 12%.

48. The present value of the after‑tax cash flows related to the disposal of the existing asset is closest to:

1. $168,000.
2. $169,300.
3. $180,000.
4. $150,000.

49. The present value of the after‑tax cash flows related to the additional sales and additional cash operating costs for all years is closest to:

1. $360,000.
2. $ 92,160.
3. $273,400.
4. $150,000.


50. Labor setup cost is an example of a cost that can be traced to a:

1. Unit-level activity center.
2. Batch-level activity center.
3. Product-level activity center.
4. Facility-level activity center.

Answers

1. 3
2. 4
3. 1
4. 4
5. 1
6. 3
7. 4
8. 4
9. 3
10. 3
11. 4
12. F
13. 3
14. ?
15. 3
16. 1
17. 1
18. 2
19. 4
20. 4
21. 1
22. 4
23. 2
24. 4
25. 1
26. 2
27. 3
28. 3
29. 2
30. 1
31. 2
32. 3
33. 4
34. 1
35. 1
36. 4
37. 2
38. 1
39. 4
40. 3
41. 2
42. 1
43. 4
44. 3
45. 3
46. 4
47. 2
48. 2
49. 3

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