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Question 1.

Tip-Top Cleaning Supply carries a large number of different items in its inventory, giving the
firm a competitive advantage in its industry. Below is part of Tip-Tops budget for the first
quarter of next year.

Historically, all of the sales are on account and are made evenly over the quarter. 5% of all
sales are determined to be uncollectible and written off. The balance of the receivables is
collected in 50 days. This sales and collection experience is expected to continue in the first
quarter. The projected balance sheet for the first day of the quarter includes the following
account balances.

How much cash can Tip-Top anticipate collecting in the first quarter (based on a 90-day


Question 2.
Steers Company has just completed its pro forma financial statements for the coming year.
Relevant information is summarized below.

Assuming that the increase in working capital was the result of an increase in the Accounts
Receivable balance, the increase in Steer's cash account for the coming year will be


Question 3.

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Data regarding Rombus Company's budget are shown below.

Rombus Company's production budget will show total units to be produced of:
a. 4,000.
b. 4,300.
c. 3,700.
d. 4,600.
Question 4.
Many companies use comprehensive budgeting in planning for the next years activities.
When both an operating budget and a financial budget are prepared, which one of the
following is correct included in the financial budget?

Capital Budget: No
Capital Budget: No
Capital Budget: Yes
Capital Budget: Yes

Pro-forma Balance Sheet: Yes

Pro-forma Balance Sheet: No
Pro-forma Balance Sheet: Yes
Pro-forma Balance Sheet: No

Cash Budget: No
Cash Budget: No
Cash Budget: Yes
Cash Budget: Yes

Question 5.
Prudent Corporations budget for the upcoming accounting period reveals total sales of
$700,000 in April and $750,000 in May. The sales cash collection pattern is

20% of each months sales are cash sales.

5% of a months credit sales are uncollectible.

70% of a months credit sales are collected in the month of sale.

25% of a months credit sales are collected in the month following the sale.

If Prudent anticipates the cash sale of a piece of old equipment in May for $25,000, Mays
total budgeted cash receipts would be
a. $737,500.
b. $735,000.

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c. $560,000.
d. $702,500.
Question 6.
Automite Company is an automobile replacement parts dealer in a large metropolitan
community. Automite is preparing its sales forecast for the coming year. Data regarding both
Automite's and industry sales of replacement parts as well as both the used and new
automobile sales in the community for the last ten years have been accumulated.
If Automite wants to determine if its sales of replacement parts are patterned after the
industry sales of replacement parts or to the sales of used and new automobiles, the company
would employ
a. statistical sampling.
b. simulation techniques.
c. time series analysis.
d. correlation and regression analysis.
Question 7.
Tidwell Corporation sells a single product for $20 per unit. All sales are on account, with
60% collected in the month of sale and 40% collected in the following month. A partial
schedule of cash collections for January through March of the coming year reveals the
following receipts for the period.

Other information includes the following:

Inventories are maintained at 30% of the following months sales

Assume that March sales total $150,000

The number of units to be purchased in February is

a. 6,100 units.
b. 4,900 units.
c. 3,850 units.
d. 7,750 units.

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Question 8.
Which of the following methods do managers use when determining what to fund in a zerobased budget?
a. Benchmarks from best-practice firms
b. In-depth interviews of each area the manager controls
c. Analysis of the prior year's zero-based budget
d. Determining specific cost drivers and cost pools
Question 9.
Novelty Inc. plans on spending $65,000 to launch its newest product. Its research indicates
that there is a 10% chance for revenue of $40,000, a 60% chance for revenue of $80,000, and
a 30% chance for revenue of $120,000.
However, the company has to revise its estimate after receiving the latest economic forecast.
Now, it is estimated that there is 50% chance for revenue of $40,000, a 40% chance for
revenue of $80,000, and a 10% chance for revenue of $120,000. What would the company
decide about introducing (or not introducing) the new product before and after the revision of
its estimate?
a. Before revision: do not introduce product; after revision: introduce product.
b. Before revision: introduce product; after revision: introduce product.
c. Before revision: do not introduce product; after revision: do not introduce
d. Before revision: introduce product; after revision: do not introduce product.
Question 10.
According to recent focus sessions, Norton Corporation has a cant miss consumer product
on its hands. Sales forecasts indicate either excellent or good results, with Nortons sales
manager assigning a probability of 0.6 to a good results outcome. The company is now
studying various sales compensation plans for the product and has determined the following
contribution margin data.

On the basis of this information, which of the following statements is correct?

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a. Either Plan should be adopted, the decision being dependent on the probability
of excellent sales results.
b. Plan 1 should be adopted because it is $8,000 more attractive than Plan 2.
c. Plan 2 should be adopted because it is $10,000 more attractive than Plan 1.
d. Plan 1 should be adopted because of the sales managers higher confidence in
good results.
Question 11.
When compared with ideal standards, practical standards

serve as a better motivating target for manufacturing personnel.

result in a less desirable basis for the development of budgets.
incorporate very generous allowances for spoilage and worker inefficiencies.
produce lower per-unit product costs.

Question 12.
Learning curve analysis is a method for
a. estimating increasing costs based on the limit in the amount of learning an
individual can accomplish.
b. determining how many workers to hire based on education levels.
c. estimating declining costs based on increased learning.
d. calculating the learning rate of individuals based on previous work and
educational experiences.
Question 13.
Daffy Tunes manufactures an animated rabbit with moving parts and a built-in voice box.
Projected sales in units are as follows.

Each rabbit requires basic materials that Daffy purchases from a single supplier at $3.50 per
rabbit. Voice boxes are purchased from another supplier at $1.00 each. Assembly labor cost is
$2.00 per rabbit and variable overhead cost is $.50 per rabbit. Fixed manufacturing overhead
applicable to rabbit production is $12,000 per month.
Daffy's policy is to manufacture 1.5 times the coming month's projected sales every other
month starting with January (i.e., odd-numbered months) for February sales, and to
manufacture 0.5 times the coming month's projected sales in alternate months (i.e., evennumbered months). This allows Daffy to allocate limited manufacturing resources to other
products as needed during the even-numbered months.

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The unit production budget for animated rabbits for January is

a. 45,000 units.
b. 60,000 units.
c. 54,000 units.
d. 14,500 units.
Question 14.
To insure that a divisional vice president places appropriate focus on both the short-term and
the long-term objectives of the division, the best approach would be to evaluate the vice
presidents performance by using
a. residual income since it will eliminate the rejection of capital investments that
have a return less than ROI but greater than the cost of capital.
b. division segment margin or profit margin.
c. return on investment (ROI) which permits easy and quick comparisons to
other similar divisions.
d. financial and nonfinancial measures, including the evaluation of quality,
customer satisfaction, and market performance.
Question 15.
Garland Company uses a standard cost system. The standard for each finished unit of product
allows for three pounds of plastic at $0.72 per pound. During December, Garland bought
4,500 pounds of plastic at $0.75 per pound and used 4,100 pounds in the production of 1,300
finished units of product. What is the material purchase price variance for the month of
a. $135 unfavorable.
b. $117 unfavorable.
c. $123 unfavorable.
d. $150 unfavorable.
Question 16.
If the budgeted fixed overhead costs are $400,000 for 50,000 budgeted direct labor hours
(DLH), and the actual direct labor usage was 48,000 DLH, what was the actual fixed
overhead cost if the underapplied overhead was $8,000?
a. $384,000
b. $376,000
c. $408,000
d. $392,000
Question 17.
According to US GAAP, which of the following statements is true of comprehensive

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A. Firms should report comprehensive income as a separate line item after net
income in the income statement.
B. Any realized or unrealized gain on an asset should be included as part of
comprehensive income, whereas realized or unrealized losses should be excluded
from comprehensive income.
C. Firms have the option of presenting the calculation of comprehensive income
either as part of an income statement or as a separate statement of comprehensive
D. Comprehensive income can be presented as a part of the statement of
shareholders' equity.
Question 18.
Arkin Co.s controller has prepared a flexible budget for the year just ended, adjusting the
original static budget for the unexpected large increase in the volume of sales. Arkins costs
are mostly variable. The controller is pleased to note that both actual revenues and actual
costs approximated amounts shown on the flexible budget. If actual revenues and actual costs
are compared with amounts shown on the original (static) budget, what variances would
a. Revenue variances would be unfavorable and cost variances would be
b. Both revenue variances and cost variances would be unfavorable.
c. Revenue variances would be favorable and cost variances would be
d. Both revenue variances and cost variances would be favorable.

Question 19.
Assume the following information from the financial section of the Balanced Scorecard for
Dry Erase Kit, Inc.:

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What overall factors may have most likely lead to the -7% result in sales penetration for Dry
Erase Kit, Inc.?
a. The quality leadership
b. The lack of sales force competency, leading to more effective product training
for the sales force.
c. The lack of customer retention and a customer-driven culture, leading to
managing customer retention more effectively.
d. The lack of revenue growth
Question 20.
The JoyT Company manufactures Maxi Dolls for sale in toy stores. In planning for this year,
JoyT estimated variable factory overhead of $600,000 and fixed factory overhead 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
Based on the output accomplished during this 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 variable overhead
spending variance for JoyT for this year was:
a. $2,000 unfavorable.
b. $22,000 favorable.
c. $24,000 unfavorable.

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d. $4,000 favorable.
Question 21.
Parkside Inc. has several divisions that operate as decentralized profit centers. Parkside's
Entertainment Division manufactures video arcade equipment using the products of two of
Parkside's other divisions. The Plastics Division manufactures plastic components, one type
that is made exclusively for the Entertainment Division, while other less complex
components are sold to outside markets. The products of the Video Cards Division are sold in
a competitive market; however, one video card model is also used by the Entertainment
Division. The actual costs per unit used by the Entertainment Division are presented below.

The Plastics Division sells its commercial products at full cost plus a 25 percent markup and
believes the proprietary plastic component made for the Entertainment Division would sell
for $6.25 per unit on the open market. The market price of the video card used by the
Entertainment Division is $10.98 per unit.
A per-unit transfer price from the Video Cards Division to the Entertainment Division at full
cost, $9.15, would
a. demotivate the Entertainment Division and cause mediocre performance.
b. encourage the Entertainment Division to purchase video cards from an outside
c. provide no profit incentive for the Video Cards Division to control or reduce
d. allow evaluation of both divisions on a competitive basis.
Question 22.
The receipt of raw materials for its production of certain products and the shipping of the
completed goods to its customers is under the control of the warehouse supervisor. The
warehouse supervisors time is spent approximately 70% on receiving activities and 30% on
shipping activities. Separate staffs of employees are employed for the receiving and shipping
functions. The labor-related costs for the warehousing function are as follows:

The company utilizes a responsibility accounting system for reporting the performance of
business segments. All costs on the report are classified as period or product costs. The total

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labor-related costs attributable to product costs under the control of the warehouse supervisor
would appear on the responsibility accounting performance report as:


Question 23.
The cash flow from operations for Charlene Energy Inc. is $25,000 for the current year. If the
amortization expense increases by $5,000 and other factors remain same, under which of the
following assumptions will the cash flow from operations remain unaffected?
A. A change in amortization method will not have a retrospective effect.
B. The company has an infinite life.
C. The company is operating in a tax-free environment.
D. The company can change the depreciation method during a financial year.
Question 24.
Parkside Inc. has several divisions that operate as decentralized profit centers. Parkside's
Entertainment Division manufactures video arcade equipment using the products of two of
Parkside's other divisions. The Plastics Division manufactures plastic components, one type
that is made exclusively for the Entertainment Division, while other less complex
components are sold to outside markets. The products of the Video Cards Division are sold in
a competitive market; however, one video card model is also used by the Entertainment
Division. The actual costs per unit used by the Entertainment Division are presented below.

The Plastics Division sells its commercial products at full cost plus a 25 percent markup and
believes the proprietary plastic component made for the Entertainment Division would sell
for $6.25 per unit on the open market. The market price of the video card used by the
Entertainment Division is $10.98 per unit.
Assume that the Plastics Division has excess capacity and it has negotiated a transfer price of
$5.60 per plastic component with the Entertainment Division. This price will
a. motivate both divisions as estimated profits are shared.
b. motivate the Plastics Division to increase the portion of its manufacturing
devoted to the Entertainment Division.

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c. cause the Plastics Division to reduce the number of commercial plastic

components it manufactures.
d. encourage the Entertainment Division to seek an outside source for plastic
Question 25.
MinnOil performs oil changes and other minor maintenance services (e.g., tire pressure
checks) for cars. The company advertises that all services are completed within 15 minutes
for each service.
On a recent Saturday, 160 cars were serviced resulting in the following labor variances: rate,
$19 unfavorable; efficiency, $14 favorable. If MinnOils standard labor rate is $7 per hour,
determine the actual wage rate per hour and the actual hours worked.

Wage Rate = $6.55, Hours Worked = 42.00

Wage Rate = $7.45, Hours Worked = 42.00
Wage Rate = $7.50, Hours Worked = 38.00
Wage Rate = $6.67, Hours Worked = 42.71

Question 26.
Based on discussions with former customers, a company determines that sales have been lost
due to the lengthy turnaround time and inflexible pricing in their proposal and bid process.
Which of the following internal activities could not be used to improve the closing ratio?
a. Benchmarking best practices
b. Process reengineering
c. Activity-based management(ABM)
d. Activity-based costing (ABC)
Question 27.
A promotional department for a retailer uses job order costing. At the beginning of the period
Job #154 had a WIP inventory balance of $5,000. During the current period, Job #154
required $4,000 in direct materials and $6,000 in direct labor. The department has an
overhead cost pool of $80,000 for all jobs. (The pool uses labor-hours as a cost-allocation
base.) All jobs in the department consumed 10,000 labor-hours. If Job #154 used 1,000 laborhours and sold for $34,000, what is its gross profit margin?
a. $18,000
b. $11,000
c. $12,000
d. $6,000
Question 28.
Cynthia Rogers, the cost accountant for Sanford Manufacturing, is preparing a management
report which must include an allocation of overhead. The budgeted overhead for each
department and the data for one job are shown below.

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Using the departmental overhead application rates, and allocating overhead on the basis of
direct labor hours, overhead applied to Job #231 in the Tooling Department would be


Question 29.
Clarendon, Inc. has two production departments, machining and assembly. James Irving, the
manager of the assembly department, has noted a concern about the indirect costs allocated to
his department, which, based on direct labor hours, seem excessive. He argues that his
department is only half the size (in square footage used) of the machining department and
uses a small portion of the engineering services and yet he is allocated nearly half of the
indirect costs provided by engineering services and occupancy costs. Mr. Irving argues that
adopting activity-based costing (ABC) , and using multiple cost drivers, would more fairly
divide the costs. Assume the following data is collected by Mr. Irving:

If Clarendon changes to the ABC system recommended, how much would indirect costs
change in Mr. Irving's department?
a. $82,500 reduction
b. $73,000 reduction
c. $103,000 reduction
d. $92,000 reduction

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Question 30.
Valyn Corporation employs an absorption costing system for internal reporting purposes;
however, the company is considering using variable costing. Data regarding Valyn's planned
and actual operations for the calendar year are presented below.

The planned per unit cost figures shown in the above schedule were based on Valyn
producing and selling 140,000 units. Valyn uses a predetermined manufacturing overhead rate
for applying manufacturing overhead to its product; thus, a combined manufacturing
overhead rate of $9.00 per unit was employed for absorption costing purposes. Any over- or
underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end
of the reporting year.
The beginning finished goods inventory for absorption costing purposes was valued at the
previous year's planned unit manufacturing cost which was the same as the current year's
planned unit manufacturing cost. There are no work-in-process inventories at either the
beginning or the end of the year. The planned and actual unit selling price was $70.00 per
The value of Valyn Corporation's actual year end finished goods inventory under the
absorption costing basis was
a. $900,000.
b. $1,050,000.
c. $1,200,000.
d. $1,400,000.
Question 31.
Pelder Products Company manufactures two types of engineering diagnostic equipment used
in construction. The two products are based upon different technologies, x-ray and ultrasound, but are manufactured in the same factory. Pelder has computed the manufacturing cost

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of the x-ray and ultra-sound products by adding together direct materials, direct labor, and
overhead cost applied based on the number of direct labor hours. The factory has three
overhead departments that support the single production line that makes both products.
Budgeted overhead spending for the departments is as follows.

Pelders budgeted manufacturing activities and costs for the period are as follows.

The budgeted cost to manufacture one ultra-sound machine using the activity-based costing
method is


Question 32.
All of the following are examples of benchmarking standards except

the best performance of the unit in comparable past periods.

a comparison with a similar unit within the same company.
the best performance of a competitor with a similar operation.
the performance of the unit during the previous year.

Question 33.
Leese Inc. has the following quality financial data for its most recent fiscal year.

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The total amount of prevention costs that should be reported in a Cost of Quality report for
the year is


Question 34.
Clipper Industries manufactures two types of scissors: a basic model, and a more durable
fabric model. During the current year, Clipper accumulated the following summary
information about its two products:

Using the high-low method, estimate the fixed production costs of both the basic model and
the fabric model.

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$6,200 variable costs for fabric model, $3,080 fixed costs for basic model.
$6,200 variable costs for fabric model, $3,800 fixed costs for basic model.
$6,200 fixed costs for basic model, $3,080 fixed costs for fabric model.
$6,200 fixed costs basic model, $3,800 fixed costs for fabric model.

Question 35.
A production process has laborers who work for two hours, must wait for a half hour while a
machine is set up, and then work for another two hours before taking a half-hour unpaid
lunch. On this day, a breakdown occurs after lunch, and the laborers lose one hour of
productive time before putting in a final three hours for the day. How many direct labor (DL)
hours and indirect labor (IL) hours per person were spent?
a. Seven-and-a-half hours DL; one hour IL
b. Eight-and-a-half hours DL
c. Seven hours DL; two hours IL
d. Seven hours DL; one-and-a-half hours IL
Question 36.
Juan Baker Inc. filed a suit against Foster Desserts in the second quarter of the current year
and claimed damages worth $15,000. There was also a pending litigation against Juan Baker
Inc. for $12,000 to its suppliers for supplying lower-quality goods. The company was
expecting to win the suit against Foster Desserts. For presenting the financial statements for
the year, Juan Baker's accountant realized a net gain of $3,000 as other comprehensive
income. As per U.S. GAAP, how should this information be presented?
A. The accountant should recognize contingent liability of $12,000 and disclose
contingent gains of $15,000 as footnotes.
B. This information should not be presented as part of financial statements but
should be disclosed in footnotes to financial statements.
C. The accountant should realize net gain of $3,000 as part of gains from
extraordinary items.
D. This information should not be presented in financial statements but should be
disclosed in the directors' responsibility statement.
Question 37.
The following information was gathered for the current period of manufacturing production
for a firm:

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There were 100 units in beginning WIP, which were 20% complete in direct materials (DM)
and 30% complete in conversion costs (CC). During the period 2,000 units were started in
production and 1,900 were completed. If the firm uses the weighted average inventory
method, and equivalent units are calculated as 2,000 for direct materials (DM) and 2,050 for
conversion costs (CC), what is the total cost assigned to the units completed?
a. $436,140
b. $408,600
c. $431,300
d. $447,760
Question 38.
When an internal auditor expresses an opinion as to the efficiency and effectiveness of an
entitys activities and makes recommendations for improvements, the auditor is conducting

financial statement audit of a municipality.

operational audit.
financial statement audit of a public company.
compliance audit.

Question 39.
Control risk is the risk that a material error in an account will not be prevented or detected on
a timely basis by the client's internal control system. The best control procedure to prevent or
detect fictitious payroll transactions is
a. storage of unclaimed wages in a vault with restricted access.
b. internal verification of authorized pay rates, computations, and agreement
with the payroll register.
c. personnel department authorization for hiring, pay rate, job status, and
d. to use and account for prenumbered payroll checks.
Question 40.
Which one of the following methods, for the distribution of employees paychecks, would
provide the best internal control for the organization?
a. Distribution of paychecks directly to each employee by the payroll manager.
b. Direct deposit in each employees personal bank account.
c. Delivery of the paychecks to each department supervisor, who in turn would
distribute paychecks directly to the employees in his/her department.
d. Distribution of paychecks directly to each employee by a representative of the
Human Resource department.
Question 41.

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The internal auditors should report all of the following control breakdowns or risks to
management except for:
a. Immaterial weaknesses
b. Illegal acts
c. Penetration of information security
d. Fraud
Question 42.
Which one of the following would be most effective in deterring the commission of fraud?
a. Policies of strong internal control, segregation of duties, and requiring
employees to take vacations.
b. Employee training, segregation of duties, and punishment for unethical
c. Policies of strong internal control and punishments for unethical behavior.
d. Hiring ethical employees, employee training, and segregation of duties.

Question 43.
Johnston Corp. has issued the following securities for $3,000,000.
Common stock
Stock warrants


Par value

Market value

Which of the following is the approximate value of stock warrants based on the proportional
A. $178,217
B. $200,000
C. $37,815
D. $49,180
Question 44.
The major feature of zero-based budgeting (ZBB) is that it
a. Questions each activity and determines whether it should be maintained as it is,
reduced, or eliminated.

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b. Focuses on planned capital outlays for property, plant, and equipment.

c. Assumes all activities are legitimate and worthy of receiving budget increases to cover
any increased costs.
d. Takes the previous years budgets and adjusts them for inflation.
Question 45
The moving-average method of forecasting
a. Includes each new observation in the average as it becomes available and discards the
oldest observation.
b. Derives final forecasts by adjusting the initial forecast based on the smoothing
c. Is a cross-sectional forecasting method.
d. Regresses the variable of interest on a related variable to develop a forecast.

Question 46
Butteco has the following cost components for 100,000 units of product for the year:
Direct materials
Direct labor
Manufacturing overhead
Selling and administrative expense


All costs are variable except for $100,000 of manufacturing overhead and $100,000 of
selling and administrative expenses. The total costs to produce and sell 110,000 units for the
year are


Question 47
Curtis Automobiles requires funds to finance its new project. If the market rate of debt is
higher than the stated rate, which of the following options should the company choose?
A. Issue notes at par value.

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B. Issue notes at the average market value.

C. Issue notes at a premium.
D. Issue notes at a discount.
Question 48
The following data relate to Tray Co.s manufacturing operations:
Standard direct labor hours per unit
Actual direct labor hours
Number of units produced
Standard variable overhead per standard
direct labor hour
Actual variable overhead


Trays variable overhead efficiency variance is

a. $3,000
b. $1,000
c. $2,000
d. $0
Question 49.
Jackson Industries employs a standard cost system in which direct materials inventory is
carried at standard cost. Jackson has established the following standards for the prime costs of
one unit of product.

Direct materials
Direct labor

5 pounds
1.25 hours

$ 3.60/pound


During May, Jackson purchased 125,000 pounds of direct materials at a total cost of
$475,000. The total factory wages for May were $364,000, 90% of which were for direct
labor. Jackson manufactured 22,000 units of product during May using 108,000 pounds of
direct materials and 28,000 direct labor hours.
Jacksons direct labor usage (efficiency) variance for May is
a. $6,000 unfavorable.
b. $6,000 favorable.
c. $5,850 unfavorable.
d. $5,850 favorable.

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Question 50.
Return on investment (ROI) is a very popular measure employed to evaluate the performance
of corporate segments because it incorporates all of the major ingredients of profitability
(revenue, cost, investment) into a single measure. Under which one of the following
combinations of actions regarding a segments revenues, costs, and investment would a
segments ROI always increase?








Question 51.
The following information is available for the Mitchelville Products Company for the month
of July.
Sales revenue
Variable manufacturing costs
Fixed manufacturing costs
Variable selling and administrative
Fixed selling and administrative



The contribution margin volume variance for the month of July would be
a. $1,800 unfavorable.
b. $200 favorable.
c. $6,800 unfavorable.
d. $400 unfavorable.
Question 52.

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Sherman Company uses a performance reporting system that reflects the companys
decentralization of decision making. The departmental performance report shows one line of
data for each subordinate who reports to the group vice president. The data presented show
the actual costs incurred during the period, the budgeted costs, and all variances from budget
for that subordinates department. Sherman is using a type of system called
a. Flexible budgeting.
b. Responsibility accounting.
c. Cost-benefit accounting.
d. Contribution accounting.
Question 53.
The variance that arises solely because the quantity actually sold differs from the quantity
budgeted to be sold is
a. Master budget increment.
b. Static budget variance.
c. Sales mix variance.
d. Sales volume variance.

Question 54
Bright Co. manufactures light bulbs. The following salaries were included in Brights
manufacturing costs for the year:
Machine operators
Factory supervisors
Machinery mechanics


What is the amount of Brights direct labor for the year?



Question 55.
Division Z of a company produces a component that it currently sells to outside customers
for $20 per unit. At its current level of production, which is 60% of capacity, Division Zs
fixed cost of producing this component is $5 per unit and its variable cost is $12 per unit.
Division Y of the same company would like to purchase this component from Division Z for
$10. Division Z has enough excess capacity to fill Division Ys requirements. The managers

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of both divisions are compensated based upon reported profits. Which of the following
transfer prices will maximize total company profits and be most equitable to the managers of
Division Y and Division Z?
a. $18 per unit.
b. $20 per unit.
c. $22 per unit.
d. $12 per unit
Question 56
Which one of the following refers to a cost that remains the same as the volume of activity
decreases within the relevant range?
a. Average cost per unit.
b. Total variable cost.
c. Variable cost per unit.
d. Unit fixed cost.
Question 57
Ace, Inc., estimates its total materials handling costs at two production levels as follows:


What is the estimated total cost for handling 75,000 gallons?



Question 58.
Consider the following situation for Weisman Corporation for the prior year:
The company produced 1,000 units and sold 900 units, both as budgeted.
There were no beginning or ending work-in-process inventories and no beginning
finished goods inventory.
Budgeted and actual fixed costs were equal, all variable manufacturing costs are
affected by volume of production only, and all variable selling costs are affected by
sales volume only.
Budgeted per unit revenues and costs were as follows.

Sales price
Direct materials
Direct labor

Per Unit

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Variable manufacturing overhead

Fixed manufacturing overhead
Variable selling costs
Fixed selling costs ($3,600 total)
Fixed administrative costs ($1,800 total)


If Weisman uses variable costing, its operating income earned in the last fiscal year was
a. $13,600
b. $14,800
c. $14,200
d. $15,300
Question 59.
Controllable costs are costs that
a. Will be unaffected by current managerial decisions.
b. Are likely to respond to the amount of attention devoted to them by a specified
c. Management decides to incur in the current period to enable the company to achieve
objectives other than the filling of orders placed by customers.
d. Fluctuate in total in response to small changes in the rate of
utilization of capacity.

Question 60.
Committed costs are costs that
a. Were capitalized and amortized in prior periods.
b. Result from a clear measurable relationship between inputs and outputs.
c. Establish the current level of operating capacity and cannot be altered in the short
d. Management decides to incur in the current period that do not have a clear cause
and effect relationship between inputs and outputs.
Question 61.
Kimber Company has the following unit cost for the current year:
Raw material
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Total unit cost

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Fixed manufacturing cost is based on an annual activity level of 8,000 units. Based on these
data, the total manufacturing cost expected to be incurred to manufacture 9,000 units in the
current year is
a. $560,000
b. $575,000
c. $615,000
d. $630,000
Question 62.
The following information relates to Clyde Corporation, which produced and sold 50,000
units during a recent accounting period:
Manufacturing costs:
Selling and administrative costs:
Income tax rate


For the next accounting period, if production and sales are expected to be 40,000 units, the
company should anticipate a contribution margin per unit of
a. $3.10
b. $13.30
c. $1.86
d. $7.30
Question 63.
Jansen, Inc., pays bonuses to its managers based on operating income. The company uses
absorption costing, and overhead is applied on the basis of direct labor hours. To increase
bonuses, Jansens managers may do all of the following except

Produce those products requiring the most direct labor.

Defer expenses such as maintenance to a future period.
Increase production schedules independent of customer demands.
Decrease production of those items requiring the most direct labor.

Question 64.
Cotton Company has two service departments and three operating departments. In allocating
service department costs to the operating departments, which of the following three methods
(direct, step-down, reciprocal) will result in the same amount of service department costs
being allocated to each operating department, regardless of the order in which the service
department costs are allocated?
a. Direct method only.

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b. Direct and reciprocal methods only.

c. Direct and step-down methods only.
d. Step-down and reciprocal methods only.
Question 65.
A manufacturing company employs variable costing for internal reporting and analysis
purposes. However, it converts its records to absorption costing for external reporting. The
Accounting Department always reconciles the two operating income figures to assure that no
errors have occurred in the conversion. The fixed manufacturing overhead cost per unit was
based on the planned level of production of 480,000 units. Financial data for the year are
presented below:
Sales (in units)
Production (in units)



Variable costs
Fixed manufacturing overhead



Total unit manufacturing costs



The difference between the operating income calculated under the variable costing method
and the operating income calculated under the absorption costing method would be


Question 66.
During the month of May, Mercer Company completed 50,000 units costing $600,000,
exclusive of spoilage allocation. Of these completed units, 25,000 were sold during the
month. An additional 10,000 units, costing $80,000, were 50% complete at May 31.
All units are inspected between the completion of manufacturing and transfer to finished
goods inventory. Normal spoilage for the month was $20,000, and abnormal spoilage of
$50,000 was also incurred during the month. The portion of total spoilage that should be
charged against revenue in May is
a. $50,000
b. $20,000
c. $60,000
d. $70,000

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Question 67
Which one of the following represents a lack of internal control in a computer-based system?
a. Provisions exist to ensure the accuracy and integrity of computer processing of all
files and reports.
b. Any and all changes in applications programs have the authorization and approval of
c. Programmers have access to change programs and data files when an error is
d. Provisions exist to protect data files from unauthorized access, modification, or
Question 68
Accounting controls are concerned with the safeguarding of assets and the reliability of
financial records. Consequently, these controls are designed to provide reasonable assurance
that all of the following take place except
a. Comparing recorded assets with existing assets at periodic intervals and taking
appropriate action with respect to differences.
b. Executing transactions in accordance with managements general or specific
c. Permitting access to assets in accordance with managements authorization.
d. Compliance with methods and procedures ensuring operational efficiency and
adherence to managerial policies.

Question 69.
If internal control is well designed, two tasks that should be performed by different persons
a. Approval of bad debt write-offs, and reconciliation of the accounts payable
subsidiary ledger and controlling account.
b. Distribution of payroll checks and approval of sales returns for credit.
c. Posting of amounts from both the cash receipts journal and cash payments journal
to the general ledger.
d. Recording of cash receipts and preparation of bank reconciliations.
Question 70
The procedure requiring preparation of a prelisting of incoming cash receipts, with copies of
the prelist going to the cashier and to accounting, is an example of which type of control?
a. Preventive.
b. Directive.
c. Corrective.
d. Detective.

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Question 71
Which of the following is not an aspect of the Foreign Corrupt Practices Act of 1977?
a. It prohibits bribes to foreign officials.
b. It requires an internal control system to be developed and maintained.
c. It subjects management to fines and imprisonment.
d. It requires the establishment of independent audit committees.
Question 72
A production plan should be based on
a. Linear regression.
b. Economic order quantities and reorder points.
c. A sales forecast adjusted for projected inventory levels.
d. Exponential smoothing.
Question 73.
Nanjones Company manufactures a line of products distributed nationally through
wholesalers. Presented below are planned manufacturing data for the year and actual data for
November of the current year. The company applies overhead based on planned machine
hours using a predetermined annual rate.

Nanjones fixed overhead volume variance for November was


$5,000 favorable.
$10,000 favorable.

Question 74.

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Question 75.
A company manufactures one product and has a standard cost system. In April the company
had the following experience:
Direct Materials
Direct Labor
Actual $/unit of input (lbs. & hrs.)
Standard price/unit of input
Standard inputs allowed per unit of output
Actual units of input
Actual units of output

The direct materials efficiency variance for April is


$240,000 favorable.
$240,000 unfavorable.
$760,000 unfavorable.
$156,000 favorable.

Question 76.

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If Ewell employs the direct method to allocate the costs of the service departments, then the
amount of Building Operations costs allocated to Fabricating would be:


Question 77.
Rogers Electronics is planning to make a market in the company's stock. The company's CFO
suggests the reacquisition of shares. Which of the following is most likely to happen if the
CFO's suggestion is implemented?
A. The risk of takeovers by competitors will increase.
B. This will hinder exercise of employee stock options.
C. The stock price will increase.
D. This could serve as an indication of the company's negative outlook about its
future performance.
Question 78.

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Under a costing system that allocates overhead on the basis of direct labor hours, Zeta
Companys materials handling costs allocated to one unit of wall mirrors would be
a. $1,000
b. $2,000
c. $5,000
d. $500
Question 79.
Calvin Software has invested in the equity stock of BioTech Corp. Its holdings consisted of
35% of the voting stock. The CFO suggests acquiring more stock of BioTech Corp. Based on
the information, which of the following will be true?
A. Additional acquisitions beyond 15% will require Calvin Software to issue
consolidated financial statements.
B. Calvin's total value will decrease as incidental costs of acquisition must be
subtracted when holdings exceed 35%.
C. The circumstances leading to the decision to acquire additional shares shall be
disclosed in the notes to the financial statements.
D. Any additional acquisition of assets up to 20% should be classified as held to

Question 80
Petersons Planters, Inc., budgeted the following amounts for the coming year:
Beginning inventory, finished goods

$ 10,000

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Cost of goods sold

Direct material used in production
Ending inventory, finished goods
Beginning and ending work-in-process inventory


Overhead is estimated to be two times the amount of direct labor dollars. The amount that
should be budgeted for direct labor for the coming year is
a. $210,000
b. $315,000
c. $157,500
d. $105,000
Question 81
Which one of the following schedules would be the last item to be prepared in the normal
budget preparation process?
a. Cost of goods sold budget.
b. Cash budget.
c. Manufacturing overhead budget.
d. Direct labor budget.
Question 82
A learning curve of 80% assumes that direct labor costs are reduced by 20% for each
doubling of output. What is the incremental cost of the sixteenth unit produced as an
approximate percentage of the first unit produced?
a. 51%
b. 31%
c. 64%
d. 41%
Question 83.
Each unit of Product XK-46 requires three direct labor hours. Employee benefit costs are
treated as direct labor costs. Data on direct labor are
Number of direct employees
Weekly productive hours per employee
Estimated weekly wages per employee
Employee benefits (related to weekly wages)


The standard direct labor cost per unit of Product XK-46 is



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Question 84.
Historically, Pine Hill Wood Products has had no significant bad debt experience with its
customers. Cash sales have accounted for 10% of total sales, and payments for credit sales
have been received as follows:
40% of credit sales in the month of the sale
30% of credit sales in the first subsequent month
25% of credit sales in the second subsequent month
5% of credit sales in the third subsequent month
The forecast for both cash and credit sales is as follows:


What is the forecasted cash inflow for Pine Hill Wood Products for May?


Question 85.
A manufacturing company has the opportunity to submit a bid for 20 units of a product on
which it has already produced two 10-unit lots. The production manager believes that the
learning experience observed on the first two lots will continue for at least the next two lots.
The direct labor required on the first two lots was as follows:
5,000 direct labor hours for the first lot of 10 units
3,000 additional direct labor hours for the second lot of 10 units
The learning rate experienced by the company on the first two lots of this product is


Question 86.

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The Maxwell Companys cash budget for March includes the following information. This
information concerns its accounts receivable:
Estimated credit sales for March
Actual credit sales for February
Estimated collections in March for credit sales in March
Estimated collections in March for credit sales in February
Estimated collections in March for credit sales prior to February
Estimated write-offs in March for uncollectible credit sales
Estimated provision for bad debts in March for credit sales in March


Determine the estimated cash receipts from accounts receivable collections in March.


Question 87.
Bowman Devices values its inventory using last in, first out (LIFO) method. For the current
year, the inventory usage exceeded the purchases. Assuming the prices are falling, how will
this situation affect net income for the year?
A. Net income will be lower due to higher LIFO liquidation.
B. Net income will be lower due to lower LIFO liquidation.
C. Net income will be higher due to lower LIFO liquidation.
D. Net income will be higher due to higher LIFO liquidation.

Question 88.

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Question 89.
Hannon Retailing Company prices its products by adding 30% to its cost. Hannon anticipates
sales of $715,000 in July, $728,000 in August, and $624,000 in September. Hannons policy
is to have on hand enough inventory at the end of the month to cover 25% of the next
months sales. What will be the cost of the inventory that Hannon should budget for purchase
in August?
a. $540,000
b. $680,000
c. $509,600
d. $560,000
Question 90.
Scarf Corporations controller has decided to use a decision model to cope with uncertainty.
With a particular proposal, currently under consideration, Scarf has two possible actions,
invest or not invest in a joint venture with an international firm. The controller has
determined the following:
Action: Invest in the Joint Venture
Events and Probabilities:
Probability of success
Cost of investment
Cash flow if investment is successful
Cash flow if investment is unsuccessful
Additional costs to be paid
Costs incurred up to this point


Action: Do Not Invest in the Joint Venture

Costs incurred up to this point
Additional costs to be paid

= $650,000
= $100,000

$9.5 million
$15.0 million
$2.0 million

Which one of the following alternatives correctly reflects the respective expected values of
investing versus not investing?

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$300,000 and $(100,000).

$300,000 and $(750,000).
$(350,000) and $(100,000).
$(350,000) and $(750,000).

Question 91.
Simson Companys master budget shows straight-line depreciation on factory equipment of
$258,000. The master budget was prepared at an annual production volume of 103,200 units
of product. This production volume is expected to occur uniformly throughout the year.
During September, Simson produced 8,170 units of product, and the accounts reflected actual
depreciation on factory machinery of $20,500. Simson controls manufacturing costs with a
flexible budget. The flexible budget amount for depreciation on factory machinery for
September would be


Question 92.
A continuous (rolling) budget
a. Is one of the budgets that is part of a long-range strategic plan, unchanged unless
the strategy of the company changes.
b. Is a plan that is revised monthly or quarterly, dropping one period and adding
c. Presents the plan for only one level of activity and does not adjust to changes in
the level of activity.
d. Presents the plan for a range of activity so the plan can be adjusted for changes in
Question 93.
Marten Company has a cost-benefit policy to investigate any variance that is greater than
$1,000 or 10% of budget, whichever is larger. Actual results for the previous month indicate
the following.

Raw material
Direct labor



The company should investigate

a. Both the material variance and the labor variance.

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b. The labor variance only.

c. Neither the material variance nor the labor variance.
d. The material variance only.
Question 94.
Selo Imports uses flexible budgeting for the control of costs. The companys annual master
budget includes $324,000 for fixed production supervisory salaries at a volume of 180,000
units. Supervisory salaries are expected to be incurred uniformly through the year. During
September, 15,750 units were produced and production supervisory salaries incurred were
$28,000. A performance report for September should reflect a budget variance of

$1,000 Unfavorable.
$1,000 Favorable.
$350 Unfavorable.
$350 Favorable.

Question 95.

Question 96.

Question 97.

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Question 98.

Question 99.
Breegle Company produces three products (B-40, J-60, and H-102) from a single process.
Breegle uses the physical volume method to allocate joint costs of $22,500 per batch to the
products. Based on the following information, which product(s) should Breegle continue to
process after the split-off point in order to maximize profit?

Physical units produced per batch

Sales value per unit at split-off
Cost per unit of further processing after split-off
Sales value per unit after further processing




J-60 only.
B-40 and H-102.
B-40 only.
H-102 only.

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Question 100.

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