ACC/400 FINAL EXAM

1. Which of the following is not a characteristic of managerial accounting?

A. Reports are used primarily by insiders rather than by persons outside of the
business entity.
B. Its purpose is to assist managers in planning and controlling business
operations.
C. Information must be developed in conformity with generally accepted
accounting principles or with income tax regulations.
D. Information may be tailored to assist in specific managerial
decisions.

2. In comparison with a financial statement prepared in conformity with generally accepted

accounting principles, a managerial accounting report is less likely to:

A. Focus upon the entire organization as the

accounting entity.
B. Focus upon future accounting
periods.
C. Make use of estimated
amounts.
D Be tailored to the specific needs of an individual
. decision maker.

3. Alton Company produces metal belts. During the current month, the company incurred
the following product costs:

Raw materials $100,000

Direct labor $75,000
Electricity used in the Factory $25,000
Factory foreperson salary $3,750
Maintenance of factory machinery $2,000

Alton Company's total product costs:

A. $175,00
0.

B. $30,75
0.

C. $205,7
50.

D. $28,750.
Particulars Amount
Raw materials $ 1,00,000
Direct labor $ 75,000
Electricity used in the Factory $ 25,000
Factory foreperson salary $ 3,750
Maintenance of factory machinery $ 2,000
Total product cost $ 2,05,750
4. Objectives of a cost accounting system

What are the major objectives of a cost accounting system in a manufacturing

company?

Solution:
There are 2 most important management objectives: to make available managers
with useful in sequence for planning and cost be in charge of functions and to settle
on unit manufacturing costs. A manufacturing corporation usually uses an
accomplished job cost sheet which contains a Cost Summary and Unit Costs. This
contain the total and unit costs of the following:

Direct materials is the raw material utilized in production whose cost or expenses are
directly identify or traceable to the products manufactured

Direct labor is take-home pay and other payroll costs of workers whose efforts are
directly perceptible to the products they contrived Manufacturing overhead is a catch
all classification, which includes all manufacturing costs other than the costs of direct
materials and direct labor.

Sue's Soup Products uses a process costing system with two processing
departments: the Mixing and Cooking Department and the Canning Department.
Work in process inventories are reduced to zero each month. In March, the Mixing
and Cooking Department incurred manufacturing costs of $63,000 to mix 42,000
gallons of soup. The Canning Department incurred manufacturing costs of $9,000.
A total of 170,000 cans of soup were transferred to the finished goods warehouse
during the month.

5. Refer to the information above. The journal entry to record the transfer of soup out of
the Mixing and Cooking Department during March would include:

A. A debit to Work in Process Inventory, Mixing and Cooking Department of

$63,000.
B. A credit to Work in Process Inventory, Canning Department of
$72,000.
C. A debit to Finished Goods Inventory of
$72,000.
D. A credit to Work in Process Inventory, Mixing and Cooking
Department of $63,000.

6. Refer to the information above. The journal entry to record the transfer of soup out of
the Canning Department during March would include:

A. A credit to Work in Process Inventory, Canning Department of

$9,000.
B. A credit to Work in Process Inventory, Canning Department of
 $63,000.
C. A debit to Finished Goods Inventory
of $72,000.
D. A credit to Finished Goods Inventory, Mixing and Cooking Department of
$72,000.
7. Refer to the information above. The unit cost per gallon of soup transferred to the
Canning Department during March was:

A. $1.5
0.

B. $1.6
2.

C. $1.7
1.

D. $1.8
3.

$63,000/42,000 = $1.50

Summit Products, Inc. is interested in producing and selling an improved widget.

Market research indicates that customers would be willing to pay $90 for such a
widget and that 50,000 units could be sold each year at this price. The current cost to
40.
produce the widget is estimated to be $65.

8. Refer to the information above. If Summit Products requires a 25% return on sales
to undertake production, what is the target cost for the new widget?

A. $65.0
0.

B. $67.5
0.

C. $80.0
0.

D. Some other
amount.
90 x .25= 22.5
90-22.5= 67.50

9. Refer to the information above. Summit has learned that a competitor plans to
41.

introduce a similar widget at a price of $80. In response, Summit may reduce its
selling price to $80. If Summit requires a 25% return on sales, what is the target cost
for the new widget?

A. $80.0
0.
B. $60.0
0.

C. $23.7
5.

D. $20.0
0.
80 x .25= 20.0
80-20= 60.00
42.

10. Refer to the information above. At a price of $80, Summit's market research indicates that it
can sell 60,000 units per year. Assuming Summit can reach its new target cost, how will Summit's
profit at the $80 price compare to what it would have earned in the absence of the competitor's
product?

A. Profit will be $75,000

higher.

B. Profit will be $75,000

lower.

C. Profit will be unaffected if Summit can reach the revised

target cost.

D. None of
these.
37.

11. A 45% contribution margin ratio means that:

A. The company should contribute 45% of its operating income to qualified charities
for maximum tax benefits.

B. 55% of the company's revenue is consumed by fixed and

variable costs.

C. The company's revenue has increased by 45% during the current

accounting period.

D. 45% of the company's revenue is available to cover fixed costs and to

contribute toward operating income.
41.12.

12. If the monthly sales volume required to break even is $190,000 and monthly fixed costs are
$55,900, the contribution margin ratio is closest to:

A. 29
%.

B. 71%
.

C. 23%
.

D. 340
%.
 Mitchell Corporation manufactures a single product. The selling price is $85 per
unit, and variable costs amount to $68 per unit. The fixed costs are $16,500 per
month.

13. Refer to the information above. What is the contribution margin ratio of Mitchell's
product?

A. 65%
.
B. 80%
.
C. 72%
.
D. 20
%.

14. Refer to the information above. What is the monthly sales volume in dollars necessary
to break-even?

A. $82,5
00.

B. $66,50
0.

C. $97,05
9.

D. $77,50
0.

15. Refer to the information above. How many units must be sold each month to earn a
monthly operating income of $8,000? (Round your final answer to the next whole
number.)

A. 971
units.

B. 1,442
units.

C. 122,500
units.

D. 353
units.
16. Refer to the information above. What will be Mitchell's monthly operating income if
1,800 units are sold each month?
A. $153,00
0.

B. $136,50
0.

C. $30,60
0.

D. $14,10
0.
17. Which factor is not relevant in deciding whether or not to accept a special order?

A. Incremental revenue that will be

earned.

B. Additional costs that will be

incurred.

C. The effect that the order will have on the company's regular sales volume and
selling prices.

D. The average cost of production if the special

order is accepted.

18. The primary difference between profit centers and cost centers is that:

A. Profit centers generate

revenue.

B. Cost centers incur

costs.

C. Profit centers are evaluated using return on investment

criteria.

D. Profit centers provide services to other centers in the

organization.
19. An investment center:

A. Is a profit center for which management is able to objectively measure

the cost of the assets used in the center's operations.

B. Is a cost center for which management is able to identify the original

amount invested.

C. May be either a cost center or a profit

center.

D. Is a subunit of the organization that provides services to other centers within the
organization.

20. Which of the following is not considered an operating budget?

A. Manufacturing cost
budget.

B. Production
schedule.

C. Capital expenditures
budget.
D. Sales
forecast.
21. A budget that can be easily adjusted to show budgeted revenues, costs, and cash flows at
different levels of activity is known as:

A. A flexible
budget.

B. A master
budget.

C. A production
budget.

D. A multi-level
budget.

22. Explain what is meant by "profit rich, yet cash poor".

Solution:

Firms have to often tie up large arithmetic of cash in

direct materials,
work in process, and
finished goods inventories.

As finished goods are sold, cash carry on to remain tied up in accounts

receivable. consequently, a business may be coverage record profits, yet
still experience cash flow problems.

23. There will be a favorable materials price variance if:

A. The standard price per unit is less than the actual price
per unit.

B. The standard price per unit is greater than the

actual price per unit.

C. The actual quantity purchased is greater than

expected.

D. The actual quantity purchased is less than

expected.

24. Greenleaf's flexible budget for June, based on actual output, called for the use of
10,000 square feet of materials at a standard cost of $9.90 per square foot. Company
records show that the actual price paid for the materials used in June was $9.70 per
square foot, and that the direct materials price variance for the month was $2,090
favorable. The materials quantity variance for Greenleaf's June operations was:

A. $1,000
favorable.

B. $4,455
unfavorable.

C. $4,365
favorable.

D. Impossible to determine from the data

given.
 Maple Company's flexible budget, based upon the number of equivalent units
produced, called for the use of 5,000 square yards of fabric at a standard cost of
$2.45 per square yard. The Production Department actually used 5,200 square yards
costing $2.35 per square yard during June.

25. Refer to the information above. The materials price variance for Maple Company for June is:

A. $520
favorable.

B. $990
favorable.

C. $30
unfavorable.

D. $520
unfavorable.

Eagle Company uses a standard cost system which has provided the following
data:

26. Refer to the information above. The direct labor rate variance for the period
was:

A. $425
favorable.
B. $360
favorable.
C. $360
unfavorable.
D. $425
unfavorable.

27. Identify the criticisms of using ROI (Return on investment) as the only performance
measure.

Return on investment (ROI) gives a methodical method for appraise a product line or
organization segment. It is a % that can be worn to contrast financial performance
from corner to corner products and/or business segments. Criticisms of ROI contain:
motivating short-term oriented decision making, managers select to below invest in
products with satisfactory ROI's from the firm's viewpoint, complexity in matching
invested capital with sales and operating earnings, focal point only on financial
actions, and ignoring other important components of the value chain
28. Explain the importance of incentive systems for motivating performance.

Solution:
Employees might have targets and objectives that be at variance from those
of the organization. Motivation systems give a instrument that helps align
employee goals with persons of the association by drawing concentration to
the company's goals, by choosing to calculate particular components of
performance, and by satisfying employees for the actual result associated
with those machinery of performance being measured

29. Capital budget audit

Briefly discuss the reasons that a company's management would conduct a

regular capital budget audit.

A firm will behavior a capital budget audit in arranges to guard alongside excessively hopeful or
pessimistic approximation in the capital budgeting process. For that kind of estimates arise for that
reason employees are regularly appraise on outcomes that depend on the sum and type of capital
investments chosen. If employees comprehend that a capital budget audit will be commence, they will
be less probable to furnish biased approximation of quantities central to the capital budgeting
calculations
30. Accounting terminology

Listed below are nine technical accounting terms introduced or emphasized in this
chapter:

Each of the following statements may (or may not) describe one of these technical
terms. In the space provided beside each statement, indicate the accounting term
described, or answer "None" if the statement does not correctly describe any of the
terms.

____ (a) The amount by which sales revenue exceeds total variable cost expressed as
a percentage of sales.
____ (b) The amount by which sales volume exceeds the break-even point.
____ (c) The study of financial statements by a potential investor or creditor as a
means of evaluating the profitability and solvency of a business.
____ (d) A type of activity that has a causal effect in the occurrence of a particular
cost.
____ (e) The level of sales at which revenue equals operating expenses.
____ (f) A cost that responds to changes in sales volume by less than a proportionate
amount.
____ (g) A mathematical technique used to determine the fixed and variable elements
of a mixed or semi-variable cost.

a) Contribution margin ratio

(b) Margin of safety
(c) None
(d) Cost driver
(e) Break-even point
(f) None
(g) High-low method