Cma/Cfm: Preparatory Program

CMA/CFM
Preparatory Program
New Format Part 2
Mock Exam
HOCK
international
HOCK international – CMA/CFM Distance Learning Program
New Part 2 – Mock Exam
Question 1: Coach Corporation is considering which capacity measure is appropriate to use

as the denominator level of activity when applying fixed factory overhead to units produced.
Assume that Coach selects direct labor hours as the cost driver and the following additional
data are available from the prior year.
Hours
Standard direct labor hours for normal capacity 200,000
Standard direct labor hours allowed for units produced in the prior year 210,000
Standard direct labor hours for the master budget capacity 220,000
Which of the following capacity measures for the denominator-level of activity would have
resulted in an unfavorable volume variance?
a) Both normal capacity and master budget capacity.
b) Neither normal capacity nor master budget capacity.
c) Normal capacity only.
d) Master budget capacity only.
Question 2: Assuming that there is a constant contribution margin per unit, the change in
period-to-period operating income when using variable costing can be explained by the
change in the
a) Unit sales level multiplied by the unit sales price.
b) Finished goods inventory level multiplied by the unit sales price.
c) Unit sales level multiplied by the unit contribution margin.
d) Finished goods inventory level multiplied by the unit contribution margin.
Prepared by Hock Training, Inc., 2005 1

Question 3: Pane Company uses a job costing system and applies overhead to products on
the basis of direct labor cost. Job No. 75, the only job in process on January 1, had the
following costs assigned as of that date: direct materials, $40,000; direct labor, $80,000; and
factory overhead, $120,000. The following selected costs were incurred during the year.
Traceable to jobs:
Direct materials $178,000
Direct labor 345,000 $523,000
Not traceable to jobs:
Factory materials and supplies 46,000
Indirect labor 235,000
Plant maintenance 73,000
Depreciation on factory equipment 29,000
Other factory costs 76,000 459,000
Pane’s profit plan for the year included budgeted direct labor of $320,000 and factory
overhead of $448,000. There was no work-in-process on December 31. Pane’s overhead for
the year was
a) $11,000 overapplied.
b) $24,000 overapplied.
c) $11,000 underapplied.
d) $24,000 underapplied.
Question 4: When compared with normal spoilage, abnormal spoilage
a) Arises more frequently from factors that are inherent in the manufacturing process.
b) Is given the same accounting treatment as normal spoilage.
c) Is generally thought to be more controllable by production management than normal

spoilage.
d) Is not typically influenced by the “tightness” of production standards.
Question 5: In allocating support department costs to operating departments, the

allocation method that best accounts for interdepartmental relationship between support
departments is the
a) Reciprocal method.
b) Direct method.
c) Step method
d) Physical volume method
2 Prepared by Hock Training, Inc., 2005

Question 6: Juniper Manufacturing uses a weighted-average process costing system at its

satellite plant. Goods pass from the Major Assembly Department to the Finishing Department
to finished goods inventory. The goods are inspected twice in the Finishing Department. The
first inspection occurs when the goods are 30% complete, and the second inspection occurs
at the end of production. The following data pertain to the Finishing Department for the
month of July.
Units
Good units started and completed during July 65,000
Normal spoilage - first inspection 2,000
Abnormal spoilage - second inspection 150
Ending work-in-process inventory, 60% complete 15,000
There was no beginning work-in-process inventory in July. Juniper recognizes spoiled units to
make the cost of all spoilage visible in their management reporting. Equivalent units for
assigning costs for July would total
a) 74,000.
b) 74,150.
c) 74,600.
d) 74,750.
Question 7: Tucariz Company processes Duo into two joint products, Big and Mini. Duo is
purchased in 1,000-gallon drums for $2,000. Processing costs are $3,000 to process the
1,000 gallons of Duo into 800 gallons of Big and 200 gallons of Mini. The selling price is $9
per gallon for Big and $4 per gallon for Mini. If the physical measure method is used to
allocate joint costs to the final products, the total cost assigned to produce Mini is
a) $500.
b) $1,000.
c) $4,000.
d) $4,500.
Question 8: Trumbull Company budgeted sales on account of $120,000 for July, $211,000
for August, and $198,000 for September. Collection experience indicates that 60% of the
budgeted sales will be collected the month after the sale, 36% the second month, and 4%
will be uncollectible. The cash from accounts receivable that should be budgeted for
September would be
a) $169,800.
b) $194,760.
c) $197,880.
d) $198,600.

Question 9: In an organization that plans by using comprehensive budgeting, the master

budget refers to
a) A compilation of all the separate operational and financial budget schedules of the
organization.
b) The booklet containing budget guidelines, policies, and forms to use in the budgeting
process.
c) The current budget updated for operations for part of the current year.
d) A budget of a not-for-profit organization after it is approved by the appropriate

authoritative body.
Question 10: Which one of the following types of budget systems most strongly supports
the objective of improving communication and promoting coordination?
a) Bottom up, flexible budgets.
b) Bottom up, fixed budgets.
c) Top down, flexible budgets.
d) Top down, fixed budgets.
Question 11: Werner Company buys raw materials from several suppliers, and makes
payments according to the following schedule.
In the month of purchase 25%
In the month after purchase 60%
In the second month after purchase 15%
In preparing the master budget for the fourth quarter of the year, Werner assumed that total
purchases for the quarter would be spread evenly over the three months. In its pro forma
balance sheet, Werner anticipated a December 31 account payable balance of $207,000.
What amount of purchase did Werner anticipate for the fourth quarter of the year?
a) $496,800.
b) $558,900.
c) $621,000.
d) $690,000.
Question 12: Kaizen budgeting primarily refers to a process that
a) Is used when an activity-based costing system is implemented.
b) Uses flexible budgeting.
c) Is used with just-in-time inventory management.
d) Includes continuous improvement to achieve the budget amounts.

Question 13: The cost of scrap, rework, and tooling changes in a product quality cost
system is categorized as a(n)
a) External failure cost.
b) Internal failure cost.
c) Prevention cost.
d) Appraisal cost.
Question 14: Which one of the following best describes the performance elements contained
in most balanced scorecards?
Financial Nonfinancial
Performance Measures Performance Measures
a) No No.
b) No Yes.
c) Yes No.
d) Yes Yes.
Question 15: The JoyT Company manufactures Maxi Dolls for sale in toy stores. In planning
for this year, JoyT estimated variable factory overheard of $600,000 and fixed factory
overheard of $400,000. JoyT uses a standard costing system, and factory overhead is
allocated to units produced on the basis of standard direct labor hours. The denominator level
of activity budgeted for this year was 10,000 direct labor hours, and JoyT used 10,300 actual
direct labor hours.
Based on the output accomplished during the year, 9,900 standard direct labor hours should
have been used. Actual variable factory overhead was $596,000, and actual fixed factory
overhead was $410,000 for the year. Based on this information, the volume variance for JoyT
for this year is
a) $4,000 unfavorable.
b) $6,000 unfavorable.
c) $10,000 unfavorable.
d) $16,000 unfavorable.

Question 16: Smith & Howard, a manufacturing company, recently changed its budget
preparation procedures from a bottom-up to a top-down approach. Consider the five possible
outcomes below.
I. The efforts made by mid-level managers to achieve budget goals will likely increase.
II. The amount of slack present in the resulting operating budgets will decrease.
III. The resulting budgets will have more of a tendency to reflect overall company goals
rather than individual divisions and departmental goals.
IV. The company will probably experience a decrease in the cost associated with budget
development.
V. The number of budget iterations throughout the organizational structure will increase.
Which of the above outcomes will Smith & Howard most likely experience from the change in
its approach to budget preparation?
a) I, II and V only.
b) II, III and IV only.
c) I, III, and IV only.
d) I, II, III, IV and V.
Question 17: If the production level decreases by 20%, then the unit variable cost
a) Decreases by 20%.
b) Increases by 20%.
c) Remains constant.
d) Increases by less than 20%.
Question 18: Activity costs tend to vary more or less in proportion to production volume in
the long run because
a) Variable costs comprise a large portion of total costs.
b) Total costs are independent of the level of production.
c) Managers have greater flexibility in changing committed levels in the long run.
d) Fixed costs become independent of production volume in the long run.
Question 19: Within the relevant range, if the contribution margin increases, operating
profit
a) Increases by an equal amount.
b) Decreases by an equal amount.
c) Increases by the amount of fixed cost.
d) Remains unchanged.

The following information is for Questions 20 and 21:
Bowen Company estimates its manufacturing support costs as:
Support costs = $10,000 + $150 * Direct labor hours
Question 20: What is the estimated amount of fixed support costs?
a) $10,000.
b) $150.
c) $10,150.
d) $0.
Question 21: What are the estimated support costs if Bowen Company plans to use 1,000
direct labor hours during October 1998?
a) $10,000.
b) $150,000.
c) $10,150.
d) $160,000
The following information is for Questions 22 and 23: Plymouth Company has two
departments: Machining and Assembly. The following estimates were made for the first
quarter of 1998:
Machining Assembly
Support costs $440,000 $1,360,000
Direct labor hours 40,000 80,000
Number of machine hours 40,000 20,000
Question 22: A single predetermined cost driver rate based on total plant direct labor hours is
a) $11 per direct labor hour.
b) $15 per direct labor hour.
c) $17 per direct labor hour.
d) $20 per direct labor hour.
Question 23: A predetermined cost driver rate for the Machining department based on the
number of machine hours in that department is
a) $11 per machine hour.
b) $15 per machine hour.
c) $17 per machine hour.
d) $20 per machine hour.

The following information is for Questions 24 thru 27: The following standard cost
information is used by Bloomington Company for product BZ701:
Direct material: 10 pieces @$4
Direct labor: 2 hours @$20
The company manufactured 6,000 units of BZ701 for job TKL1. Relevant data for this job
were as follows:
Favorable total direct material variance: $1,000
Favorable direct material price variance: $4,000
Unfavorable direct labor rate variance: $7,000
Favorable direct labor efficiency variance: $4,000
Question 24: How many pieces of direct material were used for the job TKL1?
a) 50,000 pieces.
b) 55,000 pieces.
c) 60,000 pieces.
d) 60,750 pieces.
Question 25: What was the actual price per piece of direct material for the job TKL1?
a) $3.00.
b) $3.30.
c) $3.93.
d) $4.00.
Question 26: How many direct labor hours were worked for the job TKL1?
a) 13,000 hours.
b) 12,000 hours.
c) 11,800 hours.
d) 11,600 hours.
Question 27: What was the total direct labor cost variance for the job TKL1?
a) $3,000 unfavorable.
b) $3,000 favorable.
d) $11,000 favorable.

The following information is for Questions 28 thru 31: Fancy Furniture Company uses
a standard cost system for its products. The standards per unit of a desk is as follows:
Lumber: 3 feet @$4,00
Paint: 1 quart @30.00
Direct labor: 2 hours @$30,00
The company manufactured 200 desks for job J420. The actual quantities of material used for
this job were 610 feet of lumber at $4,00 per foot and 190 quarts of paint at $32 per quart.
In addition, there was a $400 favorable labor rate variance and no labor efficiency variance.
Question 28: Lumber usage variance for job J420 was
a) $40 favorable.
b) $40 unfavorable.
c) $20 favorable.
d) $20 unfavorable.
Question 29: Paint price variance for job J420 was
a) $80 favorable.
b) $80 unfavorable.
c) $380 favorable.
d) $380 unfavorable.
Question 30: How many direct labor hours were actually incurred on job J420?
a) 200 hours.
b) 300 hours.
c) 350 hours.
d) 400 hours.
Question 31: What is the actual direct labor cost for job J420?
a) $10,000.
b) $11,600.
c) $12,000.
d) $12,400.

Question 32: Carlos Company manufactures a single product called CX. The production
process also yields a waste material called WX. During July 1998, 6,000 units of raw
materials costing $36,000 were consumed to produce 5,400 units of CX. The remaining 600
units of output were waste material WX which must be disposed of at a cost of $2.70 per
unit. Other conversion costs incurred during the month July 1998 amounted to $28,800.
What is the manufacturing cost per unit of CX?
a) $10.60.
b) $10.87.
c) $12.00.
d) $12.30.
Question 33: For the following industries, indicate the most appropriate type of product-
costing system.
Printing Chemical
a) Process Job-Order
b) Process Process
c) Job-Order Process
d) Job-Order Job-Order
Question 34: Burnsville Corporation uses a job-order cost system and has two product
departments, A and B. Budgeting manufacturing costs for the year are:
Department A Department B
Direct materials $700,000 $100,000
Direct labor $200,000 $800,000
Manufacturing support $600,000 $400,000
The actual material and labor costs charged to Job No. 432 were as follows:
Total
Direct materials $25,000
Direct labor:
Dept. A $8,000
Dept. B 12,000 20,000
Burnsville applies manufacturing support costs to jobs on the basis of direct labor cost using
departmental rates determined at the beginning of the year. The total costs associated with
Lob No. 432 should be:
a) $55,000.
b) $65,000.
c) $70,000.
d) $75,000.

Question 35: In evaluating whether a machine should be kept or replaced, which of the
following is a sunk cost?
a) Acquisition cost of the new machine.
b) Operating cost of the new machine.
c) Current salvage value of the old machine.
d) Acquisition cost of the old machine.
The following information is for Questions 36 thru 38: Waconia Company has
established the following support cost pools and costs drivers for October 1997:
Cost pool Support costs Cost driver levels
Purchase orders $50,000 100 orders
Machine setups 120,000 200 setups
Electricity 30,000 100,000 kilowatt hours
The following information pertains to the actual consumption of activity resources for two
representative jobs completed during October.
Job W1 Job W2
Number of units produced 2,000 4,000
Number of purchase orders 20 30
Number of setups 40 40
Number of kilowatt hours 1,000 2,000
Question 36: What is the cost driver rate per machine setup?
a) $625.
b) $600.
c) $550.
d) $500.
Question 37: What is the total support cost assigned to Job W1?
a) $34,300.
b) $39,600.
c) $24,000.
d) $15,000.

Question 38: What is the support cost per unit produced for Job W2?
a) $19.80.
b) $17.15.
c) $9.90.
d) $17.14.
The following information is for Questions 39 thru 43: FM Company has two production
departments, Fabricating and Finishing, and two service departments, Maintenance and
Materials Handling. In September 1997, directly identified support costs were $180,000 for
Maintenance and $60,000 for Materials Handling. Information on the consumption of their
services is presented below:
User departments
Supplying
Fabricating Finishing Maintenance Materials Handling
Departments
Maintenance 25% 50% ----- 25%
Materials
40% 40% 20% ----
Handling
Question 39: Under the direct method, Materials Handling department costs allocated to
the Finishing department are
a) $30,000.
b) $75,000.
c) $90,000.
d) $60,000.
Question 40: Under the step method starting with the allocation of Maintenance
department costs, Maintenance costs allocated to the Finishing department are
a) $30,000.
b) $75,000.
c) $90,000.
d) $60,000.
Question 41: Under the step method starting with the allocation of Maintenance
department costs, Materials Handling costs allocated to the Finishing department are
a) $60,000.
b) $165,000.
c) $52,500.
d) $160,000.

Question 42: Under the reciprocal method, Maintenance department costs allocated to the
Finishing department are
a) $202,104.
b) $101,052.
c) $30,000.
d) $180,000.
Question 43: Under the reciprocal method, Materials Handling department costs allocated
to the Fabricating department are
a) $110,526.
b) $44,208.
c) $105,000.
d) $60,000.
The following information is for Questions 44 thru 49: CAC Company manufactures a
wide range of high precision instruments. As part of the cost cutting program the company’s
management investigates the product costing at one of the plants in Europe.
The plant manufactures measurement instruments that are produced in a many -

departments process. The final process involves assembly of various parts. Direct materials
are added at the beginning of the process. After completion of the assembly, which involves
the expenditure of 60 percent of the conversion costs, the instruments are inspected. Final
inspection takes place when all of the material and conversion costs are added.
The following information about the process during December is given below:
The beginning work-in-process (BWIP) inventory had 250 units that were 40 percent
complete as to conversion costs.
The costs in BWIP were as follows:
Cost
Materials $5,500
Conversion 2,200
Total cost $7,700
A total of 750 good units were completed during the month. The cost accountants at the
plant monitor spoilage on an on-going basis. As a result of this on-going monitoring, 5 units
at the end of assembly were rejected of which 2 were considered abnormally spoiled units.
Additional 16 units were removed during the month for failing to meet quality standards at
the final inspection of which 12 were considered a normal spoilage. The spoiled units are not
reworked and have no salvage value. The units in ending work-in-process inventory for
December consisted of 90 instruments that were 50 percent completed as to conversion
costs. The plant uses Weighted Average assumption as the Inventory tracking method.

The following production costs were incurred during the month:
Materials $ 19,400
Conversion costs $ 12,495
Total costs $ 31,895
Question 44: The number of started units in December is
a) 750.
b) 611.
c) 1000.
d) 771.
Question 45: The number of EUP as for Direct Materials in the month is
a) 840.
b) 750.
c) 611.
d) 861.
Question 46: How many equivalent units as for conversion costs were abnormally spoiled
during the period?
a) 21
b) 0
c) 5.2
d) 6
Question 47: What is the total per EUP cost?
a) 46.97
b) 28.92
c) 49.25
d) 31.75
Question 48: Under FIFO assumption, what would be EUP as for conversion costs in
December?
a) 763.8
b) 750
c) 814
d) 714

Question 49: What is the loss charged directly to the Income Statement due to Spoilage?
a) $950.32
b) $0
c) $267.39
d) $79.5
The following information is for Questions 50 thru 53: The following information
pertains to Boeck Company:
Month Sales Purchases
January $30,000 $10,000
February 10,000 5,000
March 20,000 12,000
Thirty percent of purchases are paid for in cash in the month of purchase, and the balance is
paid the following month. Cash is collected from customers in the following manner:
Month of sale 40%
Month following rate 60%
Boeck will incur labor costs equal to 15 percent of sales, and other operating costs of $15,000
per month (including $4,000 of depreciation). Both of these are paid in the month incurred.
The cash balance on March 1 is $3,500. A minimum cash balance of $2,500 is required at the
end of the month. Money can be borrowed in multiples of $500.
Question 50: How much cash will be paid to suppliers in March?
a) $12,000.
b) $7,100.
c) $9,900.
d) $13,000.
Question 51: How much cash will be disbursed for operations in March?
a) $7,100.
b) $10,100.
c) $21,100.
d) $25,100.

Question 52: How much cash will be collected from customers in March?
a) $20,000.
b) $16,000.
c) $7,800.
d) $14,000.
Question 53: What is the ending cash balance for March?
a) $2,900.
b) $2,500.
c) $(3,600).
d) $3,500.
The following information is for Questions 54 thru 57: CM Printing Company produces
paper note pads. One ream of paper will produce 25 note pads. Budgeted production of note
pads for the next four months is as follows:
September 5,000 pads
October 4,000 pads
November 7,500 pads
December 6,000 pads
The company wants to maintain monthly ending inventories of paper equal to 25 percent of
the following month’s production needs. On August 31, 100 reams of paper were in
inventory. The cost of the paper is $4 per ream, and the note pads sell for $0.50 per pad.
Question 54: What is the production in pads for the fourth quarter?
a) 5,000 pads.
b) 16,500 pads.
c) 17,500 pads.
d) Cannot be determined.
Question 55: What is the cost of paper to be purchased in September?
a) $800.
b) $560.
c) $140.
d) $480.

Question 56: What is the desired ending inventory of paper for October?
a) 100 reams.
b) 160 reams.
c) 40 reams.
d) 75 reams.
Question 57: What is the amount of paper needed to be purchased to meet the company’s
needs in November?
a) 60 reams.
b) 300 reams.
c) 285 reams.
d) 360 reams.
Question 58: In _________________, as one budget period passes, planners delete that
budget period from the master budget and add another one.
a) Zero-based budgeting.
b) Periodic budgeting.
c) Incremental budgeting.
d) Continuous budgeting.
Question 59: ______________________ requires that proponents of discretionary

expenditures continuously justify every expenditure.
a) Zero-based budgeting.
b) Periodic budgeting.
c) Incremental budgeting.
d) Continuous budgeting.
Question 60: A cost center would be best used in which of the following situations?
a) A department in a department store.
b) A university football team.
c) A manufacturing department.
d) An independent business.

Question 61: If an organization actually uses $60 of material per unit of activity, plans to
use $55 of material per unit of activity, plans to make 10,000 units, and actually makes
11,000 units, the flexible budget amount is
a) $600,000.
b) $660,000.
c) $550,000.
d) $605,000.
Question 62: If an organization actually uses $60 of material per unit of activity, plans to
use $55 of material per unit of activity, plans to make 10,000 units, and actually makes
11,000 units, the flexible budget variance is
a) $60,000 favorable.
b) $50,000 unfavorable.
d) $65,000 favorable.
Question 63: The manager of a profit center controls
a) Service quality.
b) Units sold.
c) Both of the above.
d) Neither a) nor b).
Question 64: Which of the following is suitable for evaluating the performance of an
investment center?
a) Variance analysis.
b) Earnings per share.
c) Economic value added.
d) Net income.
Question 65: Outlet Company makes and distributes beach equipment. Last year its sales
were $15,000,000, net income was $1,500,000, and the assets used were $35,000,000. The
return on investment was
a) 10%.
b) 4.3%.
c) 43%.
d) None of the above.

Question 66: Economic value added can be used to
a) Evaluate the efficiency of some practice.
b) Evaluate a manager’s performance.
c) Decide whether to discontinue a product.
d) All the above.
Question 67: In responsibility accounting, a segment's manager performance is measured

by controllable costs. Controllable costs include all cost items except
a) Direct labor costs.
b) Variable manufacturing costs.
c) Discretionary costs.
d) The manager's salary.
Question 68: The production volume variance is computed as
a) Difference between budgeted fixed costs and the product of the standard fixed cost
per unit of input times the actual units of input.
b) Difference between budgeted fixed costs and the product of the standard fixed cost
per unit of input times the standard units of input allowed for the actual output.
c) Difference between actual fixed overheads and applied fixed overheads.
d) Difference between actual fixed overheads and budgeted fixed overheads.
Question 69: Under a standard cost system, the materials usage variances are usually the
responsibility of the
a) Production manager and purchasing manager.
b) Production manager only.
c) Purchasing manager only.
d) Logistics manager and production manager.

Question 70: Projected sales budget of Ingls Co. for the next 4 months as follows:
Month Units
1 9,000
2 8,000
3 10,000
4 12,000
The Company has a policy of keeping a finished goods inventory at the end of each month
equal to 20% of the next month’s sales. Budgeted production for the second month would be
a) 7,600.
b) 8,000.
c) 8,400.
d) 7,400.
Question 71: Prime costs consist of
a) Conversion costs and direct labor costs.
b) Direct material costs and Direct labor costs.
c) Direct and Indirect material costs.
d) Out-of-pocket costs and opportunity costs.
Question 72: Flexible budgets differ from static budgets mainly because
a) Flexible budgets reflect changes in the inflation rate.
b) Flexible budgets use actual prices and rates.
c) Static budgets are organization wide, whereas flexible budgets are prepared for each
department.
d) Static budgets are prepared for one level of activity only.
Question 73: The direct materials budget should follow preparation of the
a) Production budget.
b) Sales budget.
c) Forecasted balance sheet.
d) Capital expenditure budget.

Question 74: A static budget
a) Does not assist in controlling fixed costs.
b) Is effective for control of variable costs.
c) Is used in computing spending variance for fixed costs.
d) Helps control costs through comparison of flexible and master budget amounts.
Question 75: The variance in an absorption costing system that measures the departure
from the denominator level of activity that was used to set the fixed overhead rate is the
a) Efficiency variance.
b) Production volume variance.
c) Flexible budget variance.
d) Spending variance.
Question 76: If the beginning balance for May of the materials inventory account was
$27,500, the ending balance for May is $28,750, and $128,900 of materials were used during
the month, the materials purchased during the month cost
a) $130,150.
b) $157,650.
c) $127,650.
d) $101,400.
Question 77: For the month of December, Crystal Clear Bottling expects to sell 12,500
cases of Cranberry Sparkling Water at $24.80 per case and 33,100 cases of Lemon Dream
Cola at $32.00 per case. Sales personnel receive 6% commission on each case of Cranberry
Sparkling Water and 8% commission on each case of Lemon Dream Cola. In order to receive
a commission on a product, the sales personnel team must meet the individual product
revenue quota. The sales quota for Cranberry Sparkling Water is $500,000, and the sales
quota for Lemon Dream Cola is $1,000,000. The sales commission that should be budgeted
for December is
a) $82,152.
b) $103,336.
c) $84,736.
d) $4,736.

Question 78: When preparing a performance report for a cost center using flexible
budgeting techniques, the planned cost column should be based on the
a) Budget adjusted to the actual level of activity for the period being reported.
b) Actual amount for the same period in the preceding year.
c) Budget adjusted to the planned level of activity for the period being reported.
d) Budgeted amount in the original budget prepared before the beginning of the year.
Question 79: Budgetary slack can best be described as
a) The planned overestimation of budgeted expenses.
b) The planned underestimation of budgeted expenses.
c) A plug number used to achieve a pre-set level of operating income.
d) The elimination of certain expenses to enhance budgeted income.
Question 80: Smile Labs develops 35mm film using a four-step process that moves
progressively through four departments. The company specializes in overnight service and
has the largest drug store chain as its primary customer. Currently, direct labor, direct
materials, and overhead are accumulated by department. The cost accumulation system that
best describes the system Smile Labs is using is
a) Job-order costing.
b) Operation costing.
c) Activity-based costing.
d) Process costing.
Question 81: In data modeling and database design, the nature and extent of a relationship
between two entities is known as the
a) domain.
b) subschema.
c) cardinality.
d) referential path.
Question 82: In an information system environment, many organizations combine key data
processing cycles related to accounting and finance. Traditionally, these cycles are
a) cash receipts, cash disbursements and capital budgeting.
b) capital budgeting, budget reporting, and financial reporting.
c) cash receipts and cash disbursements.
d) cash receipts, cash disbursements, capital budgeting, and financial reporting.

Question 83: An online real-time system differs from a batch processing system in a
number of ways. Which one of the following statements in regard to these two different types
of processing systems is not correct?
a) An online real-time processing system is more useful for decision-making purposes

than a batch processing system.
b) Online real-time processing updates the master file as each transaction occurs
whereas batch processing updates the master file periodically during scheduled
computer runs.
c) Batch processing requires the transaction file to be in sequential order, whereas

online real-time processing does not.
d) A traditional payroll processing system is an example of online real-time processing,

and an airline reservation system is an example of batch processing.
Question 84: An accounting system identification code that utilizes a sum-of-digits check
digit will detect all of the following errors except
a) completeness errors.
b) transcription errors.
c) transposition errors.
d) validity errors.
Question 85: Which one of the following statements concerning concurrent auditing
techniques is not correct?
a) They allow monitoring a system on a continuous basis for fraudulent transactions.
b) They are most useful in complex on-line systems where audit trails have either
become diminished or are very limited.
c) They allow faster detection of unauthorized transactions.
d) They are standard components of generic software packages.
Question 86: To avoid potential errors and irregularities, a well designed system of internal
accounting control in the accounts payable area should include segregation of which of the
following functions from each other?
a) Cash disbursements and vendor invoice verification
b) Vendor invoice verification and merchandise ordering
c) Physical handling of merchandise received and preparation of receiving reports
d) Check signing and cancelation of payment documentation

Question 87: A firm uses a centralized computer system that allows its traveling sales
personnel to directly enter new orders and to query the database on old orders. To maintain
data integrity in this application, it would be important to have:
a) Backup.
b) Password protection.
c) Uninteruptable power supplies.
d) Encryption.
Question 88: Which of the following describes exchanges between a system and other
systems or a system and any external agencies?
a) Environment
b) Boundary
c) Interface
d) Subsystem
Question 89: Which category of computer-based information systems is concerned with

supporting the functional areas of an organization?
a) End user computing systems
b) Business information systems
c) Office automation systems
d) Expert systems
Question 90: Which of the following is not one of the three main components in a decision
support system?
a) Model
b) Communications
c) Data
d) Dialogue
Question 91: When in-house IS/IT expertise is high and the degree of uniqueness of the
business to be supported is high, the most appropriate method of acquiring applications
software is:
a) Purchase of a standard off the shelf package
b) Development of software by a software house
c) Development of custom software by the in-house team
d) Having a package tailored to the needs of the business

Question 92: Direct changeover is:
a) The same as phased implementation
b) When the transition from an old IS to a new IS is immediate
c) When the old IS and new IS run simultaneously for a period
d) When the transition from an old IS to a new IS is phased
Question 93: Staff training for a new IS should include:
a) Education about the reasons for the system
b) Education for all employees in an organization
c) Training in how to use the features of the software
d) A and C only
Question 94: Which of the following are usually cited as reasons for companies to outsource
some or all of their IS/IT?
a) It enables them to dispense with the need for any IS/IT staff
b) Difficult to manage internal service level agreements can be eliminated
c) Companies are able to focus on their core business activities
d) The risks associated with IS/IT investment can be completely eliminated
Question 95: The benefits that are often associated with the centralization of the IS/IT
function within an organization include
a) A higher degree of responsiveness to user requests
b) The reduced risk of missing or ignoring important matters
c) Reduced overhead when compared decentralized control
d) None of the above
Question 96: Which of the following is not a common cause of accidental damage to a
computer-based information system or the data it holds?
a) Interruptions to the power supply
b) Inaccurate data entry
c) Attempts to carry out tasks beyond the ability of the employee
d) Failure to comply with procedures for the use of organizational information systems

Question 97: With regard to methods of controlling computer-based information systems,

the use of locks and security doors are examples of...
a) Physical Protection
b) Biometric Controls
c) Telecommunications Controls
d) Failure Controls
Question 98: The use of the Internet for internal use within companies is:
a) An intranet
b) An extranet
c) A legacy system
d) None of the above
Question 99: In electronic commerce, authentication is:
a) A check that the data is encrypted
b) A check that a customer is credit-worthy
c) A check that a transaction is received
d) A check that both parties are who they claim to be
Question 100: Using Information Technology as a means of observing the actions of

employees is known as...
a) Computer monitoring
b) Electronic eavesdropping
c) Copyright theft
d) Hacking
Question 101: Invern, Inc. has a self-insurance plan. Each year, retained earnings are
appropriated for contingencies in an amount equal to insurance premiums saved minus
recognized losses from lawsuits and other claims. As a result of a 2001 accident, Invern is a
defendant in a lawsuit in which it will probably have to pay damages of $190,000. What are
the effects of this lawsuit's probable outcome on Invern's 2001 financial statements?
a) No effect on either expenses or liabilities.
b) An increase in both expenses and liabilities.
c) An increase in expenses and no effect on liabilities.
d) No effect on expenses and an increase in liabilities.

Question 102: Star Co. leases a building for its product showroom. The 10-year
nonrenewable lease will expire on December 31, 2006. In January 2001, Star redecorated its
showroom and made leasehold improvements of $48,000. The estimated useful life of the
improvements is 8 years. Star uses the straight-line method of amortization. What amount of
leasehold improvements, net of amortization, should Star report in its June 30, 2001 balance
sheet?
a) $45,600
b) $44,000
c) $43,200
d) $40,000
Question 103: Birch Corporation had net income for the year of $101,504 and a simple
capital structure consisting of the following common shares outstanding:
Months Outstanding Number of Shares
January - February 24,000
March - June 29,400
July - November 36,000
December 35,040
Total 124,440
Birch Corporation's basic earnings per share (rounded to the nearest cent) were
a) $3.20
b) $3.45
c) $3.26
d) $2.90
Question 104: The following information pertains to Lee Corp.'s defined benefit pension
plan for 2001:
Service cost $160,000

Actual and expected gain on plan assets 35,000
Unexpected loss on plan assets related to a
2001 disposal of a subsidiary 40,000
Amortization of unrecognized prior service cost 5,000
Annual interest on pension obligation 50,000
What amount should Lee report as pension expense in its 2001 income statement?
a) $250,000
b) $210,000
c) $180,000
d) $220,000

Question 105: Cross Corp. had outstanding 2,000 shares of 11% preferred stock, $50 par.
On August 8, 2001, Cross redeemed and retired 25% of these shares for $22,500. On that
date, Cross's additional paid-in capital from preferred stock totaled $30,000. To record this
transaction, Cross should debit (credit) its capital accounts as follows:
Preferred Additional Retained

Stock Paid-in Capital Earnings
a) $25,000 $7,500 $(10,000)
b) $25,000 -- $(2,500)
c) $25,000 $(2,500) --
d) $22,500 -- --
Question 106: On January 1, 2001, Oak Co. issued 400 of its 8%, $1,000 bonds at 97 plus
accrued interest. The bonds are dated October 1, 2000 and mature on October 1, 2010.
Interest is payable semiannually on April 1 and October 1. Accrued interest for the period
October 1, 2000 to January 1, 2001 amounted to $8,000. On January 1, 2001, what amount
should Oak report as bonds payable, net of discount?
a) $380,300
b) $392,000
c) $388,300
d) $388,000
Question 107: In its December 31, 2001 balance sheet, Fleet Co. reported accounts
receivable of $100,000 before allowance for uncollectible accounts of $10,000. Credit sales
during 2002 were $611,000, and collections from customers, excluding recoveries, totaled
$591,000. During 2002, accounts receivable of $45,000 were written off and $17,000 were
recovered. Fleet estimated that $15,000 of the accounts receivable at December 31, 2002
were uncollectible. In its December 31, 2002 balance sheet, what amount should Fleet report
as accounts receivable before allowance for uncollectible accounts?
a) $ 67,000
b) $ 58,000
c) $ 75,000
d) $ 82,000

Question 108: Clay Company started construction of a new office building on January 1,
2001 and moved into the finished building on July 1, 2002. Of the building's $2.5 million total
cost, $2 million was incurred in 2001 evenly throughout the year. Clay's incremental
borrowing rate was 12% throughout 2001, and the total amount of interest incurred by Clay
during 2001 was $102,000. What amount should Clay report as capitalized interest at
December 31, 2001?
a) $102,000
b) $240,000
c) $150,000
d) $120,000
Question 109: How should a gain from the sale of used equipment for cash be reported in a
statement of cash flows using the indirect method?
a) In operating activities as a deduction from income.
b) In operating activities as an addition to income.
c) In investment activities as a reduction of the cash inflow from the sale.
d) In investment activities as a cash outflow.
Question 110: On March 1, 1996, Somar Co. issued 20-year bonds at a discount. By
September 1, 2001, the bonds were quoted at 106 when Somar exercised its right to retire
the bonds at 105. How should Somar report the bond retirement on its 2001 income
statement?
a) An extraordinary loss.
b) A loss in continuing operations.
c) An extraordinary gain.
d) A gain in continuing operations.
Question 111: How should the effect of a change in accounting estimate be accounted for?
a) By restating amounts reported in financial statements of prior periods.
b) As a prior-period adjustment to beginning retained earnings.
c) In the period of change and future periods if the change affects both.
d) By reporting pro forma amounts for prior periods.

Question 112: Strand, Inc. incurred the following infrequent losses during 2001:
 A $90,000 write-down of equipment leased to others
 A $50,000 adjustment of accruals on long-term contracts
 A $75,000 write-off of obsolete inventory
In its 2001 income statement, what amount should Strand report as total infrequent losses
that are not considered extraordinary?
a) $140,000
b) $125,000
c) $165,000
d) $215,000
Question 113: On January 1, 2005, LMN Corp. had 250,000 shares issued and outstanding
of $20 par, 5% cumulative preferred stock. It also had 500,000 shares issued and
outstanding of $1 par common stock.
During 2005, LMN did not pay any dividends on either the preferred or the common stock.
LMN reported net income for the year ended December 31, 2005, of $325,000.
In 2006, LMN paid preferred dividends of $350,000 and no common dividends. The company
had net income for the year ended December 31, 2006, of $400,000.
What are LMN Corp.’s earnings per share in 2005 and 2006?
2005 2006
a) .65 .10
b) .15 .30
c) .65 .80
d) .15 .60
Question 114: On December 30, 2000, Ames Co. leased equipment under a capital lease
for 10 years. It contracted to pay $40,000 annual rent on December 31, 2000, and on
December 31 of each of the next 9 years. The capital lease liability was recorded at $270,000
on December 30, 2000, before the first payment. The equipment's useful life is 12 years, and
the interest rate implicit in the lease is 10%. Ames uses the straight-line method to
depreciate all equipment. In recording the December 31, 2001 payment, by what amount
should Ames reduce the capital lease liability?
a) $27,000
b) $13,000
c) $17,000
d) $23,000

Question 115: At October 31, 2001, Dingo, Inc. had cash accounts at three different banks.
One account balance is segregated solely for a November 15, 2001 payment into a bond
sinking fund. A second account, used for branch operations, is overdrawn. The third account,
used for regular corporate operations, has a positive balance. How should these accounts be
reported in Dingo's October 31, 2001 classified balance sheet?
a) The segregated account should be reported as a noncurrent asset, and the regular
account should be reported as a current asset net of the overdraft.
b) The segregated and regular accounts should be reported as current assets net of the
overdraft.
c) The segregated account should be reported as a noncurrent asset, the regular account
should be reported as a current asset, and the overdraft should be reported as a
current liability.
d) The segregated and regular accounts should be reported as current assets, and the
overdraft should be reported as a current liability.
Question 116: On December 1, 2001, Nilo Corp. declared a property dividend to be

distributed on December 31, 2001 to shareholders of record on December 15, 2001. On
December 1, 2001, the property to be transferred had a carrying amount of $60,000 and a
fair value of $78,000. What is the effect of this property dividend on Nilo's 2001 retained
earnings, after all nominal accounts are closed?
a) $0
b) $18,000 increase.
c) $60,000 decrease.
d) $78,000 decrease.
Question 117: Stock dividends on common stock should be recorded at their fair market
value by the investor when the related investment is accounted for under which of the
following methods?
Cost Equity
a) No Yes
b) Yes Yes
c) No No
d) Yes No
Question 118: A company should report the marketable equity securities that it has
classified as trading at
a) Fair value, with holding gains included in earnings only to the extent of previously
recognized holding losses.
b) Lower of cost or market, with holding gains and losses included in earnings.
c) Fair value, with holding gains and losses included in earnings.
d) Lower of cost or market, with holding gains included in earnings only to the extent of
previously recognized holding losses.

Question 119: On December 31, 2003, Greer Co. entered into an agreement to sell its Hart
segment's assets. On that date, Greer estimated the gain from the disposition of the assets in
2004 would be $700,000 and Hart's 2004 operating losses would be $200,000. Hart's actual
operating losses were $300,000 in both 2003 and 2004, and the actual gain on disposition of
Hart's assets in 2004 was $650,000. Disregarding income taxes, what net gain (loss) should
be reported for discontinued operations in Greer's comparative 2004 and 2003 income
statements?
2004 2003
a) $0 $50,000
b) $50,000 $(300,000)
c) $(150,000) $200,000
d) $350,000 $(300,000)
Question 120: In a statement of cash flows, which of the following would increase reported
cash flows from operating activities using the direct method? (Ignore income tax
considerations.)
a) Change from straight-line to accelerated depreciation.
b) Gain on early retirement of bonds.
c) Gain on sale of equipment.
d) Dividends received from investments.
Question 121: The following information applied to Fenn, Inc. for 2001:
Merchandise purchased for resale $400,000
Freight-in 10,000
Freight-out 5,000
Purchase returns 2,000
Fenn's 2001 inventoriable cost was
a) $408,000
b) $400,000
c) $413,000
d) $403,000

Question 122: On January 2, 2001, Lake Mining Co.'s board of directors declared a cash
dividend of $400,000 to shareholders of record on January 18, 2001, payable on February
10, 2001. The dividend is permissible under law in Lake's state of incorporation. Selected
data from Lake's December 31, 2000 balance sheet are as follows:
Accumulated depletion $100,000
Capital stock 500,000
Additional paid-in capital 150,000
Retained earnings 300,000
The $400,000 dividend includes a liquidating dividend of
a) $0
b) $100,000
c) $150,000
d) $300,000
Question 123: On October 1, 2001, Acme Fuel Co. sold 100,000 gallons of heating oil to
Karn Co. at $3 per gallon. Fifty thousand gallons were delivered on December 15, 2001, and
the remaining 50,000 gallons were delivered on January 15, 2002. Payment terms were:
50% due on October 1, 2001, 25% due on first delivery, and the remaining 25% due on
second delivery. What amount of revenue should Acme recognize from this sale during 2001?
a) $150,000
b) $225,000
c) $75,000
d) $300,000
Question 124: Interest cost included in the net pension cost recognized for a period by an
employer sponsoring a defined benefit pension plan represents the
a) Increase in the fair value of plan assets resulting from the passage of time.
b) Increase in the projected benefit obligation resulting from the passage of time.
c) Amortization of the discount on unrecognized prior service costs.
d) Shortage between the expected and actual return on plan assets.

Question 125: In preparing its cash flow statement for the year ended December 31, 2001,
Reve Co. collected the following data:
Gain on sale of equipment $(6,000)

Proceeds from sale of equipment 10,000
Purchase of A.S., Inc. bonds (par value $200,000,
classified as held-to-maturity) (180,000)
Amortization of bond discount 2,000
Dividends declared (45,000)
Dividends paid (38,000)
Proceeds from sale of treasury stock (carrying
amount $65,000) 75,000
In its December 31, 2001 statement of cash flows, what amount should Reve report as net
cash used in investing activities?
a) $188,000
b) $194,000
c) $170,000
d) $176,000
Question 126: On January 2, 2001, Gill Co. issued $2 million of 10-year, 8% bonds at par.
The bonds, dated January 1, 2001, pay interest semiannually on January 1 and July 1. Bond
issue costs were $250,000. What amount of bond issue costs are unamortized at June 30,
2002?
a) $212,500
b) $220,800
c) $225,000
d) $237,500
Question 127: Payne, Inc. implemented a defined-benefit pension plan for its employees on
January 2, 2001. The following data are provided for 2001 as of December 31, 2001:
Accumulated benefit obligation $103,000

Plan assets at fair value 78,000
Net periodic pension cost 90,000
Employer's contribution 70,000
What amount should Payne record as additional minimum pension liability at December 31,
2001?
a) $5,000
b) $0
c) $45,000
d) $20,000

Question 128: Gains from remeasuring a foreign subsidiary's financial statements from the
local currency into its functional currency should be reported
a) As a deferred foreign currency transaction gain.
b) As an extraordinary item, net of income taxes.
c) As a part of continuing operations.
d) In other comprehensive income.
Question 129: Burr Company had the following account balances at December 31, 2001:
Cash in banks $2,250,000
Cash on hand 125,000
Cash legally restricted for additions to the
plant (expected to be disbursed in 2002) 1,600,000
Cash in banks includes $600,000 of compensating balances related to short-term borrowing

arrangements. The compensating balances are not legally restricted as to withdrawal by Burr.
In the current assets section of Burr's December 31, 2001 balance sheet, total cash should be
reported at
a) $2,375,000
b) $2,250,000
c) $3,975,000
d) $1,775,000
Question 130: On December 1, 2001, Alt Department Store received 505 sweaters on
consignment from Todd. Todd's cost for the sweaters was $80 each, and they were priced to
sell at $100. Alt's commission on consigned goods is 10%. At December 31, 2001, 5 sweaters
remained. In its December 31, 2001 balance sheet, what amount should Alt report as payable
for consigned goods?
a) $45,000
b) $45,400
c) $49,000
d) $40,400

Question 131: In 2000, Cobb adopted the dollar-value LIFO inventory method. At that
time, Cobb's ending inventory had a base-year cost and an end-of-year cost of $300,000. In
2001, the ending inventory had a $400,000 base-year cost and a $440,000 end-of-year cost.
What dollar-value LIFO inventory cost would be reported in Cobb's December 31, 2001
balance sheet?
a) $400,000
b) $440,000
c) $430,000
d) $410,000
Question 132: When a company declares a cash dividend, retained earnings is decreased
by the amount of the dividend on the date of
a) Declaration.
b) Payment.
c) Declaration or record, whichever is earlier.
d) Record.
Question 133: The following information is available from Sand Corp.'s accounting records
for the year ended December 31, 2001:
Cash received from customers $870,000

Rent received 10,000
Cash paid to suppliers and employees 510,000
Taxes paid 110,000
Cash dividends paid 30,000
Net cash flow provided by operations for 2001 was
a) $250,000
b) $220,000
c) $260,000
d) $230,000
Question 134: On March 31, 2001, Ashley, Inc.'s bondholders exchanged their convertible
bonds for common stock. The carrying amount of these bonds on Ashley's books was less
than the market value but greater than the par value of the common stock issued. If Ashley
used the book-value method of accounting for the conversion, which of the following
statements correctly states an effect of this conversion?
a) Additional paid-in capital is decreased.
b) Retained earnings is increased.
c) Equity is increased.
d) An extraordinary loss is recognized.

Question 135: In 1999, Super Comics Corp. sold a comic strip to Fantasy, Inc. and will
receive royalties of 20% of future revenues associated with the comic strip. At December 31,
2000, Super reported royalties receivable of $75,000 from Fantasy. During 2001, Super
received royalty payments of $200,000. Fantasy reported revenues of $1.5 million in 2001
from the comic strip. In its 2001 income statement, what amount should Super report as
royalty revenue?
a) $200,000
b) $300,000
c) $125,000
d) $175,000
Question 136: A corporation declared a dividend, a portion of which was liquidating. How
does this declaration affect each of the following?
Additional Retained
Paid-in Capital Earnings
a) No effect No effect
b) No effect Decrease
c) Decrease No effect
d) Decrease Decrease
Question 137: During 2001, Beck Co. purchased equipment for cash of $47,000, and sold
equipment with a $10,000 carrying value for a gain of $5,000. How should these transactions
be reported in Beck's 2001 statement of cash flows?
a) Cash inflow of $5,000 and cash outflow of $47,000.
b) Cash outflow of $32,000.
c) Cash inflow of $15,000 and cash outflow of $47,000.
d) Cash outflow of $42,000.
Question 138: As a result of differences between depreciation for financial reporting

purposes and tax purposes, the financial reporting basis of Noor Co.'s sole depreciable asset,
acquired in 2001, exceeded its tax basis by $250,000 at December 31, 2001. This difference
will reverse in future years. The enacted tax rate is 30% for 2001 and 40% for future years.
Noor has no other temporary differences. In its December 31, 2001 balance sheet, how
should Noor report the deferred tax effect of this difference?
a) As a liability of $100,000.
b) As an asset of $75,000.
c) As a liability of $75,000.
d) As an asset of $100,000.

Question 139: The calculation of the income recognized in the third year of a 5-year
construction contract accounted for using the percentage-of-completion method includes the
ratio of
a) Total costs incurred to date to total estimated costs.
b) Costs incurred in year 3 to total billings to date.
c) Costs incurred in year 3 to total estimated costs.
d) Total costs incurred to date to total billings to date.
Question 140: On September 22, 2001, Yumi Corp. purchased merchandise from an
unaffiliated foreign company for 10,000 units of the foreign company's local currency. On that
date, the spot rate was $.55. Yumi paid the bill in full on March 20, 2002, when the spot rate
was $.65. The spot rate was $.70 on December 31, 2001. What amount should Yumi report
as a foreign currency transaction loss in its income statement for the year ended December
31, 2001?
a) $1,000
b) $1,500
c) $0
d) $500

Cma/Cfm: Preparatory Program

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New Format Part 2

Question 1: Coach Corporation is considering which capacity measure is appropriate to use

Standard direct labor hours for normal capacity 200,000

a) Both normal capacity and master budget capacity.

b) Neither normal capacity nor master budget capacity.

c) Normal capacity only.

d) Master budget capacity only.

a) Unit sales level multiplied by the unit sales price.

b) Finished goods inventory level multiplied by the unit sales price.

c) Unit sales level multiplied by the unit contribution margin.

d) Finished goods inventory level multiplied by the unit contribution margin.

Prepared by Hock Training, Inc., 2005 1

Direct materials $178,000

Direct labor 345,000 $523,000

Not traceable to jobs:

Factory materials and supplies 46,000

Indirect labor 235,000

Plant maintenance 73,000

Depreciation on factory equipment 29,000

Other factory costs 76,000 459,000

Question 4: When compared with normal spoilage, abnormal spoilage

b) Is given the same accounting treatment as normal spoilage.

c) Is generally thought to be more controllable by production management than normal

d) Is not typically influenced by the “tightness” of production standards.

Question 5: In allocating support department costs to operating departments, the

d) Physical volume method

2 Prepared by Hock Training, Inc., 2005

Question 6: Juniper Manufacturing uses a weighted-average process costing system at its

Good units started and completed during July 65,000

Normal spoilage - first inspection 2,000

Abnormal spoilage - second inspection 150

Ending work-in-process inventory, 60% complete 15,000

Prepared by Hock Training, Inc., 2005 3

Question 9: In an organization that plans by using comprehensive budgeting, the master

d) A budget of a not-for-profit organization after it is approved by the appropriate

a) Bottom up, flexible budgets.

b) Bottom up, fixed budgets.

c) Top down, flexible budgets.

d) Top down, fixed budgets.

In the month of purchase 25%

In the month after purchase 60%

In the second month after purchase 15%

Question 12: Kaizen budgeting primarily refers to a process that

a) Is used when an activity-based costing system is implemented.

b) Uses flexible budgeting.

c) Is used with just-in-time inventory management.

d) Includes continuous improvement to achieve the budget amounts.

4 Prepared by Hock Training, Inc., 2005

a) External failure cost.

b) Internal failure cost.

Performance Measures Performance Measures

Prepared by Hock Training, Inc., 2005 5

b) II, III and IV only.

c) I, III, and IV only.

d) I, II, III, IV and V.

d) Increases by less than 20%.

a) Variable costs comprise a large portion of total costs.

b) Total costs are independent of the level of production.

d) Fixed costs become independent of production volume in the long run.

a) Increases by an equal amount.

b) Decreases by an equal amount.

c) Increases by the amount of fixed cost.