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## CPA Exam Prep:Bus Envr & Cncpt

 CPA Exam Prep:Bus Envr & Cncpt May 2013 Question Type: # Of Questions: # Correct: Multiple Choice 10 9

## Grade Details - All Questions

 1. Question : A ceramics manufacturer sold cups last year for \$7.50 each. Variable costs of manufacturing were \$2.25 per unit. The company needed to sell 20,000 cups to break even. Net income was \$5,040. This year, the company expects the price per cup to be \$9.00; variable manufacturing costs to increase 33.3%; and fixed costs to increase 10%. How many cups (rounded) does the company need to sell this year to break even? Student 17,111 Answer: 17,500 19,250 25,667 Instructor Choice "c" is correct. The ceramics manufacturer will need to sell 19,250 cups Explanation: under new cost assumptions to break even. The fact pattern provides current breakeven information and requires computation of a revised breakeven subject to new assumptions.
 Current Costs Assumptions Revised Costs Selling price (given) \$ 7.50 \$ 9.00 Variable costs (given) 2.25 x 1.333 = 3.00 Contribution margin (computed) \$ 5.25 \$ 6.00 Breakeven in units (given) 20,000 Fixed costs (computed) \$ 105,000 x 1.10 = \$

115,500

Current fixed costs are computed using the breakeven formula in units as follows:

Fixed costs ÷ Contribution margin per unit = Breakeven in units Fixed costs ÷ \$5.25 = 20,000 Fixed costs = \$5.25 x 20,000 = \$105,000

Revised breakeven point in units is computed using the same formula with revised data:

Fixed costs ÷ Contribution margin per unit = Breakeven in units \$115,500 ÷ \$6.00 = Breakeven in units 19,250 = Breakeven in units

## CPA Exam Prep:Bus Envr & Cncpt

Choice "a" is incorrect. The solution assumes no change in variable costs. Choice "b" is incorrect. The solution assumes no change in fixed costs Choice "d" is incorrect, per the explanations provided above.

## CPA Exam Prep:Bus Envr & Cncpt

 Answer: Instructor inventories budgets. Materials used, direct labor, overhead applied, work-in-process inventories, and finished goods inventories budgets. Materials used, direct labor, overhead applied, and finished goods inventories budgets. Materials used, direct labor, overhead applied, unit production, and raw materials inventories budgets. Explanation: Choice "a" is correct. Materials, labor, and overhead applied are all "inputs" to the cost of goods manufactured. Work-in-process affects both inputs (for beginning W-I-P) and outputs (for ending W-I-P). Choice "b" is incorrect. Finished goods inventory is not necessary for the determination of cost of goods manufactured. Choice "c" is incorrect. Finished goods inventory is not necessary for the determination of cost of goods manufactured. WIP inventoiry is necessary to calculate cost if goods manufactured. Choice "d" is incorrect. Raw materials inventory is not sufficient information to assist in the calculatation cost of goods manufactured, nor is units of production. WIP inventory is necessary.
 Points Received: 0 of 10 Comments: 4. Question : Many firms have made significant strides in reducing their

inventories. Which of the following would be least likely to encourage managers to reduce inventory?

 Student Using variable costing. Answer: Using absorption costing. Using throughput costing. Instituting a charge against the budget for managers based on the size of the inventory. Instructor Choice "b" is correct. Absorption costing (as the name implies) absorbs fixed Explanation: overhead cost into the units produced. Those units placed in inventory can absorb some of the manager's cost and raise profits. This method encourages larger inventories. Choice "a" is incorrect. Variable costing places only variable costs into products and all fixed overhead is charged to cost of goods sold. This does not give an incentive to overproduce. Choice "c" is incorrect. Throughput costing is an inventory costing method that places only variable direct material in inventoriable cost. All other costs are treated as costs of the period. This also does not give an incentive to overproduce. Choice "d" is incorrect. Clearly, putting a charge against the budget for inventory will discourage excess inventory. Points Received: 10 of 10 Comments:

## CPA Exam Prep:Bus Envr & Cncpt

manager most likely influence?

 Student Direct materials price. Answer: Direct materials quantity. Direct labor rate. Direct labor efficiency. Instructor Choice "a" is correct. The purchasing manager is directly involved in the Explanation: negotiation of materials prices and would have the greatest influence over the direct materials price variance. The direct materials price variance could be used to monitor purchasing manager performance. Choice "b" is incorrect. The direct materials quantity variance relates to the amount of materials used and would be influenced most significantly by the production manager. Choice "c" is incorrect. The direct labor rate variance is associated with compensation paid to the direct labor force. A human resource or other professional tasked with recruiting and hiring direct labor would have greater influence on this variance than the purchasing manager. Choice "d" is incorrect. The direct labor efficiency variance would largely be under the control of the production manager, not the purchasing manager.
 Points Received: 10 of 10 Comments: 6. Question : Which one of the following items would have to be included for a company preparing a schedule of cash receipts and disbursements for the calendar year Year 1? Student A purchase order issued in December Year 1 for items to be delivered in Answer: February Year 2. Dividends declared in November Year 1 to be paid in January Year 2 to shareholders of record as of December Year 1. The amount of uncollectible customer accounts for Year 1. Borrowing funds from a bank on a note payable taken out in June Year 1 and agreeing to pay the principal and interest in June Year 2. Instructor Choice "d" is correct. Borrowing funds on a note in June Year 1 would be a cash 2. Explanation: inflow in Year 1 and would have to be included in a schedule of cash receipts and disbursements for Year 1. The repayment would be a cash outflow in Year 2. Choice "a" is incorrect. A purchase order is a commitment, but not a cash event. Choice "b" is incorrect. Dividends declared are a non-cash item until paid in Year Choice "c" is incorrect. Uncollectible accounts are a non-cash item. Points Received: 10 of 10 Comments: 7. Question : Which of the following forecasting methods relies mostly on judgment? Student Time series models.

## CPA Exam Prep:Bus Envr & Cncpt

 Answer: Econometric models. Delphi. Regression. Instructor Choice "c" is correct. The Delphi method of forecasting involves the use of Explanation: multiple teams in geographically remote locations. Information is shared and gathered in a central point and compiled and then redistributed for comment. The method is highly interpersonal and requires significant judgment. Choice "a" is incorrect. Although all forecast methods require some judgment regarding both variables used and the evaluation of results, quantitative methods, such as time series models, rely more heavily on mathematical relationships than pure judgment. Choice "b" is incorrect. Although all forecast methods require some judgment regarding both variables used and the evaluation of results, quantitative methods, such as econometric models, rely more heavily on mathematical relationships than pure judgment. Choice "d" is incorrect. Although all forecast methods require some judgment regarding both variables used and the evaluation of results, quantitative methods, such as regression analysis, rely more heavily on mathematical relationships than pure judgment.
 Points Received: 10 of 10 Comments: 8. Question : The controller for Durham Skates is reviewing the production cost report for July. An analysis of direct material costs reflects an unfavorable flexible budget variance of \$25. The plant manager believes this is excellent performance on a flexible budget for 5,000 units of direct material. However, the production supervisor is not pleased with this result as he claims to have saved \$1,200 in material cost on actual production using 4,900 units of direct material. The standard material cost is \$12 per unit. Actual material used for the month amounted to \$60,025. If the direct material variance was investigated further, it would reflect a price variance of: Student \$850 unfavorable. Answer: \$1,200 favorable. \$1,225 unfavorable. \$2,500 favorable. Instructor Choice "c" is correct. The price variance is the difference between the standard Explanation: price and the actual price times the actual volume.
 Standard price (given) \$ 12.00 Actual price (determined above) 12.25 Difference \$ .25 Times actual volume 4,900.00 Equals price variance \$ 1,225.00

Use the mnemonics you learned!

P

=

D

x

A

## CPA Exam Prep:Bus Envr & Cncpt

 U = D x S R = D x A E = D x S

The difference is always "SAD"-and it would be sad if you forgot that!

\$12.00 - \$12.25 = (\$0.25) difference

 P = D x A P = (\$0.25) x 4,900 P = (\$1,225) UNFAVORABLE

Choices "a", "b", and "d" are incorrect, based on the above calculations.

 Points Received: 10 of 10 Comments: 9. Question : Clay Co. has considerable excess manufacturing capacity. A special job order's cost sheet includes the following applied manufacturing overhead costs: Fixed costs \$21,000 Variable costs 33,000 The fixed costs include a normal \$3,700 allocation for in-house design costs, although no in-house design will be done. Instead the job will require the use of external designers costing \$7,750. What is the total amount to be included in the calculation to determine the minimum acceptable price for the job? Student \$36,700 Answer: \$40,750 \$54,000 \$58,050 Instructor Choice "b" is correct. The minimum acceptable selling price should include only Explanation: the incremental costs associated with the order: \$33,000 variable costs + \$7,750 external designers costs = \$40,750. Note that this is a special order (won't affect regular sales) and there is idle capacity. Choice "a" is incorrect. The \$3,700 allocation of in-house design costs should not be included as it is not an incremental cost for this special order. Choice "c" is incorrect. The \$21,000 fixed costs should not be included as they are not incremental costs for this special order. Choice "d" is incorrect. No part of the \$21,000 fixed costs should be included as they are not incremental costs for this special order. Points Received: 10 of 10 Comments: 10. Question : Under the balanced scorecard concept developed by Kaplan and

## CPA Exam Prep:Bus Envr & Cncpt

Norton, employee satisfaction and retention are measures used under which of the following perspectives?

 Student Customer. Answer: Internal business. Learning and growth. Financial. Instructor Choice "c" is correct. Employee satisfaction and retention measures are used Explanation: under the "learning and growth" perspective of the balanced scorecard. Employee satisfaction typically correlates with productivity, employee effectiveness, and retention. Retention itself often relates to reduced retraining, increased opportunity for human resource development, and reduced investment in learning curves. Choice "a" is incorrect. The customer perspective of the balanced scorecard measures results of business operation (e.g., customer satisfaction and customer retention), not employee satisfaction and retention. Choice "b" is incorrect. The internal business perspective of the balanced scorecard measures results of business operation (e.g., improvements in throughput and other measures of efficiency), not employee satisfaction and retention. Choice "d" is incorrect. The financial perspective of the balanced scorecard measures traditional results of business operation (e.g., improved margins or improved cash flows), not employee satisfaction and retention Points Received: 10 of 10 Comments:

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