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Managerial Accounting Review Questions

Which one of the following does NOT appear on the balance sheet of a manufacturing company:
a) finished goods inventory
b) work in process inventory
c) costs of goods manufactured
d) raw materials inventory
Cost of goods manufactured
The equivalent of finished goods inventory for a merchandising firm is referred to as:
a) purchases
b) cost of goods purchased
c) merchandise inventory
d) raw materials inventory
Merchandise inventory
The major reporting standard for presenting managerial accounting information is:
a) relevance
b) generally accepted accounting principles
c) the cost principle
d) the current tax law
relevance
Management accountants would NOT:
a) assist in budget planning
b) prepare reports primarily for external users
c) determine cost behavior
d) be concerned with the impact of cost and volume on profits
prepare reports primarily for external users.
Which of the following would NOT be classified as manufacturing overhead?
a) indirect labor
b) direct materials
c) insurance on factory building
d) indirect materials
direct materials
Sales commissions are classified as:
a) overhead costs
b) period costs
c) product costs
d) indirect labor
period costs
The function of management that compares planned results to actual results is known as:
a) planning
b) directing and controlling
c) controlling
d) decision making
controlling
For a manufacturing company, which of the following is an example of a period cost rather than a product cost?
a) depreciation on factory equipment
b) wages of salespersons
c) wages of machine operators
d) insurance on factory equipment
wages of salespersons
An activity that has a direct cause-effect relationship with the resources consumes is a:
a) cost driver
b) overhead rate
c) cost pool
d) product activity
cost driver
A well-designed activity-based costing system starts with:
a) identifying the activity-cost pools
b) computing the activity-based overhead rate
c) assigning manufacturing overhead costs for each activity coast pool to products
d) analyzing the activities performed to manufacture a product
analyzing the activities performed to manufacture a product.
An activity-based overhead rate is computed as follows:
a) actual overhead divided by actual use of cost drivers
b) estimated overhead divided by actual use of cost drivers
c) actual overhead divided by estimated us of cost drivers
d) estimated overhead divided by estimated us of cost drivers
estimated overhead divided by estimated use of cost drivers.
Which of the following is a limitation of activity-based costing?
a) more cost pools
b) less control over overhead costs
c) ABC can be expensive to use
d) poorer management decisions
ABC can be expensive to use.
The presence of any of the following factors would suggest a switch to ABC except when:
a) product lines differ greatly in volume
b) overhead costs constitute a minor portion of total costs
c) the manufacturing process has changed significantly
d) production managers are ignoring data provided by the existing system
overhead costs constitute a minor portion of total costs.
Which of the following is a non-value-added activity?
a) Engineering design
b) Machining
c) Inspection
d) Packaging
Inspection
The labor time required to assemble a product is an example of a:
a) unit-level activity.
b) batch-level activity.
c) product-level activity.
d) organization-sustaining activity.
unit-level activity.
An appropriate cost driver for an assembling cost pool is the number of:
a) purchase orders.
b) setups.
c) parts.
d) engineering changes
parts
In most cases, prices are set by the:
a) customers
b) competitive market
c) largest competitor
d) selling company
competitive market
Which of the following is NOT generally the type of product sold by a price-taker?
a) sand
b) corn
c) a designer dress
d) coal
a designer dress
Why does the unit selling price increase when expected volume is lower than budgeted volume?
a) variable costs and fixed costs have to be spread over fewer units
b) fixed costs and desired ROI have to be spread over fewer units
c) variable costs and desired ROI have to be spread over fewer units
d) fixed costs only have to be spread over fewer units
fixed costs and desired ROI have to be spread over fewer units
Under the time-and-material-pricing approach, the charges for any particular job include each of the following except the:
a) labor charge
b) charge for materials
c) material loading charge
d) all of the above are included
all of the above are included
In cost-plus pricing, the markup percentage is computed by dividing the desired ROI per unit by the:
a) fixed cost per unit
b) total cost per unit
c) total manufacturing cost per unit
d) variable cost per unit
total cost per unit
Assuming the selling division had available capacity, a negotiated transfer price should be within the range of:
a) fixed cost per unit and the external purchase price
b) total cost per unit and the external purchase price
c) variable cost per unit and the external purchase price
d) variable cost per unit and the opportunity cost
variable cost per unit and the external purchase price
Why are budgets useful in the planning process?
a) they provide management with information about the company’s past performance
b) they help communicate goals and provide a basis for evaluation
c) they guarantee the company will be profitable if it meets it objectives
d) they enable the budget committee to earn their paycheck
they help communicate goals and provide a basis for evaluation
The starting point in preparing a master budget is the preparation of the:
a) production budget
b) sales budget
c) purchasing budget
d) personnel budget
sales budget
The budget that is often considered to be the most important financial budget is the:
a) cash budget
b) capital expenditure budget
c) budgeted income statement
d) budgeted balance sheet
cash budget
The best measure of a company’s ability to generate sufficient cash to continue as a going concern is net cash provided by:
a) financing activities
b) investing activities
c) operating activities
d) processing activities
operating activities
If a company reports a net lost, it:
a) may still have a net increase in cash
b) will not be able to pay cash dividends
c) will not be able to get a loan
d) will not be able to make capital expenditures
may still have a new increase in cash
Which of the following would be considered a “source” of cash for purposes of constructing a statement of cash flows”
a) a decrease in accounts payable
b) dividends paid to the company’s own shareholders
c) an increase in accrued liabilities
d) an increase in prepaid expenses
Short-term creditors are usually most interested in evaluating:
a) solvency
b) liquidity
c) marketability
d) profitability
liquidity
Midwest Engineering could improve its current ratio of 2 by:
a) expensing insurance using prepaid insurance
b) writing off an uncollectible receivable
c) selling merchandise on credit at a profit
d) purchasing inventory on credit
selling merchandise on credit at a profit
Which of the following would be classified as an extraordinary item?
a) expropriation of property by a foreign government
b) losses attributed to a labor strike
c) write-down of inventories
d) gains or losses from sales of equipment
expropriation of property by a foreign government
A liquidity ration measures:
a) income or operating success of an enterprise over a period of time
b) ability of the enterprise to survive over a long period of time
c) short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash
d) number of time interest is earned
short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash
McNally Manufacturing Company reported the following year-end information:
Beginning WIP inventory: $46,000
Beginning raw materials inventory: 24,000
Ending WIP inventory: 50,000
Ending raw materials inventory: 20,000
Raw materials purchased: 680,000
Direct labor: 240,000
Manufacturing overhead: 100,000
How much is McNally Manufacturing’s cost of goods manufactured for the year?
a) $684,000
b) $1,024,000
c) $1,020,000
d) $1,028,000
$1,020,000
Modine Manufacturing Inc.’s accounting records reflect the following inventories:
Dec. 31, 2012
Raw materials inventory: $120,000
WIP inventory: 156,000
Finished goods inventory: 150,000
Dec. 31, 2013
Raw materials inventory: $96,000
WIP inventory: 174,000
Finished goods inventory: 138,0000

During 2014, Modine purchased $1,140,000 of raw materials, incurred direct labor costs of $150,000, and incurred manufacturing overhead totaling $192,000.

How much is total manufacturing costs incurred during 2013 for Modine?
a) $1,488,000
b) $1,506,000
c) $1,482,000
d) $1,500,000

$1,506,000
Modine Manufacturing Inc.’s accounting records reflect the following inventories:
Dec. 31, 2012
Raw materials inventory: $120,000
WIP inventory: 156,000
Finished goods inventory: 150,000
Dec. 31, 2013
Raw materials inventory: $96,000
WIP inventory: 174,000
Finished goods inventory: 138,0000

During 2014, Modine purchased $1,140,000 of raw materials, incurred direct labor costs of $150,000, and incurred manufacturing overhead totaling $192,000.

How much would Modine Manufacturing report as cost of goods manufactured for 2013?
a) $1,464,000
b) $1,524,000
c) $1,518,000
d) $1,488,000

$1,488,000
Hollern Combines, Inc. has $10,000 of ending finished goods inventory as of December 31, 2008. If beginning finished goods inventory was $5,000 and cost of goods sold was $20,000, how much would Hollern report for cost of goods manufactured?
a) $22,500
b) $5,000
c) $25,000
d) $15,000
$25,000
Given the following data for Glennon Company, compute (A) total manufacturing costs and (B) costs of goods manufactured:
Direct materials: $120,000
Direct labor: $50,000
Manufacturing overhead: $150,000
Operating expenses: $175,000
Beginning WIP: $20,000
Ending WIP: $10,000
Beginning finished goods: $25,000
Ending finished goods: $15,000
a) $310,000 and $330,000
b) $320,000 and $310,000
c) $320,000 and $330,000
d) $330,000 and $340,000
$320,000 and $330,000
Zones Co. incures $350,000 of overhead costs each year in its three main departments, machining ($200,000), inspections ($100,000) and packaging ($50,000). The machining department works 4,000 hours per year, there are 500 inspections per year, and the packing department packs 500 orders per year. Information about Zone’s two products is as follows:
Product A
Machining hours: 1,000
Inspections: 100
Orders packed: 350
Direct labor hours: 1,700
Product B
Machining hours: 3,000
Inspections: 500
Orders packed: 650
Direct labor hours: 1,800

If traditional costing based on direct labor hours is used, how much overhead is assigned to Product A this year?
a) $84,167
b) $121,154
c) $170,000
d) $175,000

$170,000
Zones Co. incurs $350,000 of overhead costs each year in its three main departments, machining ($200,000), inspections ($100,000) and packaging ($50,000). The machining department works 4,000 hours per year, there are 500 inspections per year, and the packing department packs 500 orders per year. Information about Zone’s two products is as follows:
Product A
Machining hours: 1,000
Inspections: 100
Orders packed: 350
Direct labor hours: 1,700
Product B
Machining hours: 3,000
Inspections: 500
Orders packed: 650
Direct labor hours: 1,800

Using ABC, how much overhead is assigned to Product A this year?
a) $84,167
b) $121,154
c) $170,000
d) $175,000

$84,167
Jaime Inc. manufactures two products, sweaters and jackets. The company has estimated its overhead in the order-processing department to be $240,000. The company produces 50,000 sweaters and 80,000 jackets each year. Sweater production requires 25,000 machine hours, jacket production requires 50,000 machine hours. The company places raw materials orders 10 times per month, 2 times for raw materials for sweaters and the remainder for raw materials for jackets. How much of the order processing overhead should be allocated to jackets?
a) $120,000
b) $160,000
c) $147,693
d) $192,000
$192,000
Robot Toy Company manufactures two products: X-O-Tron and Mechoman. Robot’s overhead costs consist of setting up machines, $200,000; machining, $450,000; and inspecting, $150,000. Additional information on the two products is:
X-O-Tron
Direct labor hours: 15,000
Machine setups: 600
Machine hours: 24,000
Inspections: 800
Mechoman
Direct labor hours: 25,000
Machine setups: 400
Machine hours: 26,000
Inspections: 700
Overhead applied to Mechoman using traditional costing based on direct labor hours is:
a) $320,000
b) $384,000
c) $416,000
d) $500,000
$500,000
Robot Toy Company manufactures two products: X-O-Tron and Mechoman. Robot’s overhead costs consist of setting up machines, $200,000; machining, $450,000; and inspecting, $150,000. Additional information on the two products is:
X-O-Tron
Direct labor hours: 15,000
Machine setups: 600
Machine hours: 24,000
Inspections: 800
Mechoman
Direct labor hours: 25,000
Machine setups: 400
Machine hours: 26,000
Inspections: 700
Overhead applied to X-O-Tron using activity-based costing is:
a) $300,000
b) $384,000
c) $416,000
d) $500,000
$416,000
If there were 70,000 pounds of raw materials on hand on January 1, 140,000 pounds are desired for inventory at January 31, and 420,000 pounds are required for January production, how many pounds of raw materials should be purchased in January?
a) 350,000 pounds
b) 560,000 pounds
c) 280,000 pounds
d) 490,000 pounds
490,000 pounds
Sudler Production is planning to sell 600 bodes of ceramic tile, with production estimated at 580 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.50 per pound and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rat of 110% of direct labor costs. Sudler has 2,600 pounds of clay mix in beginning inventory and wants to have 3,000 pounds in ending inventory.

What is the total amount to be budgeted for manufacturing overhead for the the month?
a) $2,392.50
b) $2,475
c) $9,570
d) $9,900

$2,392.50
What is the proper preparation sequencing of the following budgets?
1. Budgeted Balance Sheet
2. Sales Budget
3. Selling and Administrative Budget
4. Budgeted Income Statement
a) 1,2,3,4
b) 2,3,1,4
c) 2,3,4,1
d) 2,4,1,3
2,3,4,1
Reed Merchandising Company expects to purchase $90,000 of materials in July and $105,000 of materials in August. Three-quarters of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. How much will August’s cash disbursements for materials purchases be?
a) $67,500
b) $78,750
c) $101,250
d) $105,000
$101,250
Farley Company reported the following information for 2012:
Budgeted Sales
Oct: $230,000
Nov: $220,000
Dec: $270,000
Budgeted Purchases
Oct: $120,000
Nov: $128,000
Dec: $144,000
All sales are on credit. Customer amounts on account are collected 50% in the month of sale and 50% in the following month. Cost of goods sold is 35% of sales. Farley purchases and pays for merchandise 60% in the month of acquisition and 40% in the following month. Accounts payable is used only for inventory acquisitions.
How much cash will Farley receive during November?
a) $110,000
b) $245,000
c) $225,000
d) $220,000
$225,000
Lowe Ridge had budgeted its activity for December according to the following information:
Sales at $400,000, all for cash.
Budgeted depreciation for December is $10,000
The cash balance at December 1 was $10,000
Selling and administrative expenses are budgeted at $40,000 for December and are paid for in cash. The planned merchandise inventory on December 31 and December 1 is $12,000. The invoice cost for merchandise purchases represents 75% of the sales price. All purchases are paid in cash.

How much are the budgeted cash disbursements for December?
a) $230,000
b) $340,000
c) $350,000
d) $328,000

$340,000
Grant Company estimates its sales at 60,000 units in the first quarter and that sales will increase bu 6,000 units each quarter over the year. It has, and desires, an ending inventory of 25% of the next quarter’s sales. Each unit sells for $25. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale.

Cash collections for the third quarter are budgeted at:
a) $1,017,000
b) $1,476,000
c) $1,773,000
d) $2,052,000

$1,773,000
Holden Company estimates its sales at 60,000 units in the first quarter and that sales will increase by 6,000 units each quarter over the year. It has, and desires, an ending inventory of 25% of the next quarter’s sales. Each unit sells for $25. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale.

Production in units for the third quarter should be budgeted at:
a) 73,500
b) 69,000
c) 91,500
d) 72,000

73,500
Joy Elle’s Vegetable Market had the following transactions during 2008:
Issued $25,000 of par value common stock for cash. Repaid a 6 year note payable in the amount of $11,000. Acquired land by issuing common stock of par value $50,000. Declared and paid a cash dividend of $1,000. Sold a long-term investment (cost $3,000) for cash of $3,000. Acquired an investment in IBM stock for cash of $6,000.

What is the net cash provided by financing activities?
a) $13,000
b) $25,000
c) $14,000
d) $9,000

$13,000
Joy Elle’s Vegetable Market had the following transactions during 2008:
Issued $25,000 of par value common stock for cash. Repaid a 6 year note payable in the amount of $11,000. Acquired land by issuing common stock of par value $50,000. Declared and paid a cash dividend of $1,000. Sold a long-term investment (cost $3,000) for cash of $3,000. Acquired an investment in IBM stock for cash of $6,000.

What is the net cash provided by investing activities?
a) $6,000
b) $16,000
c) ($3,000)
d) $3,000

($3,000)
Buster Company reported a net loss of $3,000 for the year ended December 31, 2008. During the year, accounts receivable increased $7,000, merchandise inventory decreased $5,000, accounts payable decreased by $10,000, and depreciation expense of $5,000 was recorded. During 2007, operation activities:
a) used net cash of $10,000
b) used net cash of $14,000
c) provided net cash of $14,000
d) provided net cash of $9,000
used net cash of $10,000
Harbor Company reported net income of $60,000 for the year ended December 31, 2008. During the year, inventories decreased by $12,000, accounts payable decreased by $18,000, depreciation expense was $20,000 and a gain on disposal of equipment of $9,000 was recorded. Net cash provided by operating activities in 2008 using the indirect method was:
a) $119,000
b) $65,000
c) $77,000
d) $55,000
$65,000
Midwest Manufacturing’s net income last year was $82,000. Changes in company’s balance sheet accounts for the year appear below:
DEBIT BALANCES and Increases/(Decreases)
Cash: $3,000
Accounts receivable: $5,000
Inventory: $1,000
Prepaid expenses: ($8,000)
Long-term investments: $80,000
Plant and Equipment: $25,500
CREDIT BALANCES and Increases/(Decreases)
Accumulated depreciation: $66,000
Accounts payable: ($7,000)
Accrued liabilities: ($2,000)
Taxes payable; $0
Bonds payable: ($40,000)
Deferred taxes: $15,000
Common stock: $20,000
Retained earnings: $54,000

The company declared and paid cash dividends of $28,000 last year. The net cash provided by (used in) operating activities last year was:
a) $90,000
b) $156,000
c) $82,000
d) $148,000

$156,000
Midwest Manufacturing’s net income last year was $82,000. Changes in company’s balance sheet accounts for the year appear below:
DEBIT BALANCES and Increases/(Decreases)
Cash: $3,000
Accounts receivable: $5,000
Inventory: $1,000
Prepaid expenses: ($8,000)
Long-term investments: $80,000
Plant and Equipment: $25,500
CREDIT BALANCES and Increases/(Decreases)
Accumulated depreciation: $66,000
Accounts payable: ($7,000)
Accrued liabilities: ($2,000)
Taxes payable; $0
Bonds payable: ($40,000)
Deferred taxes: $15,000
Common stock: $20,000
Retained earnings: $54,000

The company declared and paid cash dividends of $28,000 last year. The net cash provided by (used in) financing activities last year was:
a) $48,000
b) ($48,000)
c) $20,000
d) ($20,000)

($48,000)
Midwest Manufacturing’s net income last year was $82,000. Changes in company’s balance sheet accounts for the year appear below:
DEBIT BALANCES and Increases/(Decreases)
Cash: $3,000
Accounts receivable: $5,000
Inventory: $1,000
Prepaid expenses: ($8,000)
Long-term investments: $80,000
Plant and Equipment: $25,500
CREDIT BALANCES and Increases/(Decreases)
Accumulated depreciation: $66,000
Accounts payable: ($7,000)
Accrued liabilities: ($2,000)
Taxes payable; $0
Bonds payable: ($40,000)
Deferred taxes: $15,000
Common stock: $20,000
Retained earnings: $54,000

The company declared and paid cash dividends of $28,000 last year. The net cash provided by (used in) investing activities last year was:
a) $85,000
b) ($85,000)
c) $105,000
d) ($105,000)

($105,000)
Sammy Corporation reported net sales of $300,000, $330,000 and $360,000 in the years 2011, 2012, and 2013 respectively. If 2011 is the base year, what is the percentage of growth (horizontal analysis) for 2013?
a) 77%
b) 8%
c) 20%
d) 30%
20%
The market price per share of Cameron Company stock at the beginning of the year was $60 and at the end of the year was $72. Net income for the year was $48,000. Dividends to the preferred stockholders for the year totaled $12,000, and dividends of $2.50 per share were paid on the 6,000 shares of common stock outstanding during the year. The price-to-earnings ratio at year end was:
a) 10
b) 6
c) 11
d) 12
12
The following information is available for Central Valley Manufacturing:
2013
Accounts receivable: $360,000
Inventory: $280,000
Net credit sales: $3,000,000
Cost of goods sold: $1,200,000
Net income: $300,000
2012
Accounts receivable: $400,000
Inventory: $320,000
Net credit sales: $1,400,000
Cost of goods sold: $1,060,000
Net income: $170,000

The receivable turnover ratio for 2013 is:
a) 8.3 times
b) 3.9 times
c) 7.9 times
d) 10.0 times

7.9 times
The following information is available for Central Valley Manufacturing:
2013
Accounts receivable: $360,000
Inventory: $280,000
Net credit sales: $3,000,000
Cost of goods sold: $1,200,000
Net income: $300,000
2012
Accounts receivable: $400,000
Inventory: $320,000
Net credit sales: $1,400,000
Cost of goods sold: $1,060,000
Net income: $170,000

The inventory turnover ratio for 2013 is:
a) 4.3 times
b) 4.0 times
c) 2.0 times
d) 2.4 times

4.0 times
The following amounts were taken from the financial statements of Palmer Company:
2013
Total assets: $800,000
Net sales: $720,000
Gross profit: $352,000
Net income: $144,000
Weighted avg. common shares: $120,000
Market price of common stock: $36
2012
Total assets: $1,000,000
Net sales: $650,000
Gross profit: $320,000
Net income: $117,000
Weighted avg. common shares: $120,000
Market price of common stock: $40

The return on assets (ROA) ratio for 2013 is:
a) 18%
b) 16%
c) 36%
d) 32%

16%
The following amounts were taken from the financial statements of Palmer Company:
2013
Total assets: $800,000
Net sales: $720,000
Gross profit: $352,000
Net income: $144,000
Weighted avg. common shares: $120,000
Market price of common stock: $36
2012
Total assets: $1,000,000
Net sales: $650,000
Gross profit: $320,000
Net income: $117,000
Weighted avg. common shares: $120,000
Market price of common stock: $40

The profit margin ratio for 2013 is:
a) 10%
b) 15%
c) 20%
d) 30%

20%
Black Hills Company disposes of an unprofitable segment of its business. The operation of the segment suffered a $240,000 loss in the year of disposal. The loss on disposal of the segment was $120,000. If the tax rate is 30%, and income before income taxes was $1,500,000,
a) the income tax expense on the income before discontinued operations is $342,000
b) the income from continuing operations is $1,050,000
c) net income is $1,140,000
d) the losses from discontinued operations are reported net of income taxes at $180,000
the income from continuing operations is $1,050,000
During 2013 Thomas Company had an asset turnover ratio of 4 times with sales totaling $1,000.000. If net income was $80,000, Thomas Company’s return on assets in 2013 would be:
a) 8%
b) 32%
c) 40%
d) 80%
32%
Raney Corporation had net income of $200,000 and paid dividends to common stockholders of $50,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Raney Corporation’s common stock is selling for $40 per share on the New York Stock Exchange. Raney Corporation’s price-earnings ratio is:
a) 2.5 times
b) 10 times
c) 13.3 times
d) 4 times
10 times

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