1-1
A controllable expense
A. is an expense whose actual amount will not normally differ from the standard (budget) amount.
B. is one that is directly influenced at a given level of managerial authority within a given time period.
C. is an expense that will remain semivariable in total over the relevant range in a given time period.
D. is an expected future expense that will be different under various alternatives.
1-2
A computer company charges indirect manufacturing costs to a project at a fixed percentage of a cost pool. This project is covered by a cost-plus government contract. Which of the following is an appropriate guideline for determining how costs are assigned to the pool?
A. Assign all manufacturing costs related to the project to the same pool.
B. Establish a separate pool for each assembly line worker to account for wages. C. Assign prime costs and variable administrative costs to the same pool. D. Establish separate pools for variable and fixed costs.
1-3
The assignment of raw material costs to the major end products resulting from refining a barrel of crude oil is best described as
A. Incremental costing. B. Differential costing. C. Joint costing. D. Indirect costing.
1-4
Because this allocation method recognizes that service departments often provide each other with interdepartmental service, it is theoretically considered to be the most accurate method for allocating service department costs to production departments.
This method is the A. Reciprocal method. B. Direct method. C. Linear method.
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D. Variable method.
1-5
Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26,000, to determine which product will be more profitable. The results of the study follow.
Sales of Rolls at $1.20/unit Sales of Desserts at $1.80/unit Volume Probability Volume Probability 250,000 .30 200,000 .20 300,000 .40 250,000 .50 350,000 .20 300,000 .20 400,000 .10 350,000 .10
The costs associated with the two products have been estimated by Gleason’s cost accounting department and are shown as follows:
Rolls Dessert Ingredients per unit $.40 $.25 Direct labor per unit .35 .30 Variable overhead per unit .40 .20 Production tooling* 48,000 25,000 Advertising 30,000 20,000
*Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset.
The advertising expense estimated by Gleason for the introduction of the new products is an example of a(n)
A. Opportunity cost. B. Committed cost. C. Conversion cost. D. Discretionary cost.
1-6
A manufacturing firm produces multiple families of products requiring various combinations of different types of parts. The manufacturer has identified various cost pools, one of which consists of materials handling costs. This cost
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pool includes the wages and employee benefits of the workers involved in receiving materials, inspecting materials, storing materials in inventory, and moving materials to the workstations; depreciation and maintenance of materials handling equipment (e.g., forklift trucks); and costs of supplies used as well as other related costs. Of the following, the most appropriate cost driver for assigning materials handling costs to the various products most likely is
A. Number of units produced. B. Direct labor hours.
C. Number of vendors involved. D. Number of parts used.
1-7
Atlantic Co. used $200,000 of direct materials during June. At June 30, Atlantic’s direct materials inventory was $30,000 more than it was at June 1. What were Atlantic’s direct materials purchases during June?
A. $200,000 B. $170,000 C. $30,000 D. $230,000
1-8
Costs are allocated to cost objects in many ways and for many reasons. Which one of the following is a purpose of cost allocation?
A. Aiding in variable costing for internal reporting.
B. Measuring income and assets for external reporting. C. Budgeting cash and controlling expenditures. D. Evaluating revenue center performance.
1-9
A company experienced a machinery breakdown on one of its production lines. As a consequence of the breakdown, manufacturing fell behind schedule, and a decision was made to schedule overtime to return manufacturing to schedule. Which one of the following methods is the proper way to account for the overtime paid to the direct laborers?
A. The overtime hours times the sum of the straight-time wages and overtime premium would be treated as direct labor.
B. The overtime hours times the overtime premium would be charged to
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manufacturing overhead, and the overtime hours times the straight-time wages would be treated as direct labor.
C. The overtime hours times the overtime premium would be charged to repair and maintenance expense, and the overtime hours times the straight-time wages would be treated as direct labor.
D. The overtime hours times the sum of the straight-time wages and overtime premium would be charged entirely to manufacturing overhead.
1-10
Direct labor costs are wages paid to
Machine Operators A. No B. Yes C. No D. Yes
Factory Supervisors No Yes Yes No Corporate Vice-President Yes Yes Yes No
1-11
In a process-costing system, the cost of abnormal spoilage should be
A. Included in the cost of units transferred out. B. Ignored.
C. Treated as a loss in the period incurred.
D. Prorated between units transferred out and ending inventory.
1-12
All of the following are likely to be used as a cost allocation base in activity-based costing except the
A. Number of vendors supplying the materials used to manufacture the product. B. Number of different materials used to manufacture the product. C. Units of materials used to manufacture the product. D. Cost of materials used to manufacture the product.
1-13
Job-order costs are most useful for
A. Controlling indirect costs of future production. B. Determining inventory valuation using LIFO.
C. Estimating the overhead costs included in transfer prices.
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D. Determining the cost of a specific project.
1-14
A profitable company with five departments uses plant wide overhead rates for its highly diversified operation. The firm is studying a change to either allocating overhead by using departmental rates or using activity-based costing (ABC). Which one of these two methods will likely result in the use of a greater number of cost allocation bases and more accurate costing results?
Greater Number of More Accurate
Costing Results Allocation Bases A. ABC Departmental B. Departmental Departmental C. ABC ABC D. Departmental ABC
1-15
Lucy Sportswear manufactures a specialty line of T-shirts using a job-order costing system. During March, the following costs were incurred in completing job ICU2: direct materials, $13,700; direct labor, $4,800; administrative, $1,400; and selling, $5,600. Overhead was applied at the rate of $25 per machine hour, and job ICU2 required 800 machine hours. If job ICU2 resulted in 7,000 good shirts, the cost of goods sold per unit would be
A. $6.30 B. $5.50 C. $6.50 D. $5.70
1-16
A company uses a job-order cost system in accounting for its manufacturing operations. Because its processes are labor oriented, it applies manufacturing overhead on the basis of direct labor hours (DLH). Normal spoilage is defined as 4% of the units passing inspection. The company includes a provision for normal spoilage cost in its budgeted manufacturing overhead and manufacturing overhead rate. Data regarding a job consisting of 30,000 units are presented below:
Volume Data: Good units passing inspection 28,500 Units failing inspection (spoiled) 1,500
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Total units in job
Cost Data: Direct materials
Direct labor (2 DLH @ $16.00/DLH) Manufacturing overhead (2 DLH @ $30.00/DLH) Total
30,000
Per Unit $18.00
60.00 $110.00 Total Cost $540,000
1,800,000 $3,300,000
The 1,500 units that failed inspection required .25 direct labor hours per unit to rework the units into good units. What is the proper charge to the loss from abnormal spoilage account?
A. Zero. B. $4,140 C. $1,440 D. $3,450
1-17
Target pricing
A. Considers short-term variable costs and excludes fixed costs. B. Is often used when costs are difficult to control.
C. Is more effective when applied to mature, long-established products. D. Is a pricing strategy used to create competitive advantage.
1-18
Activities, their drivers, and their costs may be classified as unit-level, batch-level, product-level, and facility-level. If activity-based costing (ABC) information is prepared for internal purposes, which costs are most likely to be treated as period costs?
A. Facility-level. B. Unit-level. C. Batch-level. D. Product-level.
1-19
Waller Co. uses a weighted-average process-costing system. Material B is added at two different points in the production of shirms, 40% is added when the units are 20% completed, and the remaining 60% of Material B is added when the
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units are 80% completed. At the end of the quarter, there are 22,000 shirms in process, all of which are 50% completed. With respect to Material B, the ending shirms in process represent how many equivalent units?
A. 22,000 B. 8,800 C. 4,400 D. 11,000
1-20
When using activity-based costing techniques, which one of the following departmental activities would be expected to use machine hours as a cost driver to allocate overhead costs to production?
A. Material handling. B. Robotics painting. C. Plant cafeteria. D. Machine setups.
1-21
The contribution margin is the excess of revenues over
A. All variable costs. B. Direct cost.
C. Manufacturing cost. D. Cost of goods sold.
1-22
Estimated unit costs for Cole Lab using full absorption costing and operating at a production level of 12,000 units per month:
Estimated Unit Cost Cost Item Direct material $32 Direct labor 20 Variable manufacturing overhead 15 Fixed manufacturing overhead 6 Variable selling 3 Fixed selling 4
Cole Lab’s estimated conversion costs per unit are
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A. $44 B. $41 C. $35 D. $48
1-23
The denominator of the overhead application rate can be based on one of several production capacities. Which would minimize expected over- or underapplied overhead?
A. Practical capacity. B. Expected volume. C. Theoretical capacity. D. Normal volume.
1-24
Manchester Airlines is in the process of preparing a contribution margin income statement that will allow a detailed look at its variable costs and profitability of operations. Which one of the following cost combinations should be used to evaluate the variable cost per flight of the company’s Boston-Las Vegas flights?
A. Fuel, food service, and airport landing fees.
B. Communication system operation, food service, and ramp personnel. C. Airplane depreciation, baggage handling, and airline marketing. D. Flight crew salary, fuel, and engine maintenance.
1-25
A review of the year-end accounting records of Elk Industries discloses the following information:
Raw materials $80,000 Work-in-process 128,000 Finished goods 272,000 Cost of goods sold 1,120,000
The company’s underapplied overhead equals $133,000. On the basis of this information, Elk’s cost of goods sold is most appropriately reported as
A. $1,213,100 B. $1,218,000 C. $987,000
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D. $1,253,000
1-26
Tempo Company produces three products from a joint process. The three products are sold after further processing as there is no market for any of the products at the split-off point. Joint costs per batch are $315,000. Other product information is shown below. Product A Product B Product C Units produced per bath 20,000 30,000 50,000 Further processing and marketing cost per $.70 $3.00 $1.72 unit
Final sales value per unit 5.00 6.00 7.00
If Tempo uses the net realizable value method of allocating joint costs, how much of the joint costs will be allocated to each unit of Product C?
A. $3.78 B. $2.10 C. $3.15 D. $2.65
1-27
Wagner Corporation applies factory overhead based upon machine hours. At the beginning of the year, Wagner budgeted factory overhead at $250,000 and estimated that 100,000 machine hours would be used to make 50,000 units of product. During the year, the company produced 48,000 units using 97,000 machine hours. Actual overhead for the year was $252,000. Under a standard cost system, the amount of factory overhead applied during the year was
A. $250,000 B. $240,000 C. $252,000 D. $242,500
1-28
The following steps make up the stages of a theory of constraints (TOC) analysis.
I. Determine the most profitable product mix given the constraint. II. Increase capacity at the constraint.
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III. Identify the constraint.
IV. Redesign the manufacturing process. V. Maximize the flow through the constraint.
If executed in the correct order, the sequence is
A. III, I, V, II, IV. B. III, I, II, V, IV. C. III, II, I, IV, V. D. III, II, I, V, IV.
1-29
Gram Co. develops computer programs to meet customers’ special requirements. How should Gram categorize payments to employees who develop these programs?
Value-Adding Costs Direct Costs A. Yes Yes B. No No C. No Yes D. Yes No
1-30
Just-in-time production is also called
A. Lean manufacturing.
B. Activity-based management. C. Backflush costing. D. Kaizen.
1-31
A systematic approach to reaching targeted cost levels during value chain analysis is known as
A. Process value analysis. B. Value engineering. C. Activity analysis. D. Life-cycle costing.
1-32
Which of the following terms is not connected with the employment of
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just-in-time (JIT) manufacturing?
A. Safety stock. B. Lean production. C. Cells. D. Kanban.
1-33
Three of the basic measurements used by the theory of constraints (TOC) are
A. Gross margin (or gross profit), return on assets, and total sales.
B. Number of constraints (or subordinates), number of nonconstraints, and operating leverage.
C. Fixed manufacturing overhead per unit, fixed general overhead per unit, and unit gross margin (or gross profit).
D. Throughput (or throughput contribution), inventory (or investments), and operational expense.
1-34
A manufacturer can sell its single product for $660. Below are the cost data for the product:
Direct materials $170 Direct labor 225 Manufacturing overhead 90
The relevant margin amount when beginning a theory of constraints (TOC) analysis is
A. $490 B. $175 C. $265 D. $345
1-35
Starr Company uses material requirements planning (MRP) and manufactures a product with the following product structure tree.
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Starr has just received an order for 100 units of X, the finished product. The company has 20 units of X, 100 units of B, and 50 units of E in inventory. How many units of E must Starr purchase in order to fill the order?
A. 800 B. 550 C. 950 D. 1,000
1-36
When comparing performance report information for top management with that for lower-level management,
A. Top management reports show control over fewer costs. B. Top management reports are more detailed.
C. Lower-level management reports are typically for longer time periods.
D. Lower-level management reports are likely to contain more quantitative data and less financial data.
1-37
The probabilities shown in the table below represent the estimate of sales for a new product.
Probability Sales (Units) 0-200 15% 201-400 45% 401-600 25% 601-800 15%
What is the probability of selling between 201 and 600 units of the product?
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A. 11.25% B. 70% C. 25% D. 0%
1-38
The primary role of the budget director and the budgeting department is to
A. Develop the annual profit plan by selecting the alternatives to be adopted from the suggestions submitted by the various operating segments.
B. Settle disputes among operating executives during the development of the annual operating plan.
C. Justify the budget to the executive committee of the board of directors. D. Compile the budget and manage the budget process.
1-39
Which one of the following four probability distributions provides the highest expected monetary value?
Alternative #1 Alternative #2
Cash Inflows Prob Cash Inflows Prob 10% $50,000 10% $50,000 20% 75,000 20% 75,000 40% 100,000 45% 100,000 30% 150,000 25% 150,000
Alternative #3 Alternative #4
Cash Inflows Prob Cash Inflows Prob 10% $50,000 10% $150,000 20% 75,000 20% 100,000 40% 100,000 40% 75,000 30% 125,000 30% 50,000
A. Alternative #1. B. Alternative #4. C. Alternative #3. D. Alternative #2.
1-40
The College Honor Society sells hot pretzels at the home football games. The pretzels are sold for $1.00 each, and the cost per pretzel is $.30. Any unsold pretzels are discarded because they will be stale before the next home game.
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The frequency distribution of the demand for pretzels per game is presented as follows:
Probability Unit Sales Volume 2,000 pretzels .10 3,000 pretzels .15 4,000 pretzels .20 5,000 pretzels .35 6,000 pretzels .20
The conditional profit per game of having 4,000 pretzels available but only selling 3,000 pretzels is
A. $2,100 B. $1,800 C. $2,800
D. Some amount other than those given.
1-41
Aerosub, Inc., has developed a new product for spacecraft that includes the production of a complex part. The manufacture of this part requires a high degree of technical skill.
Management believes there is a good opportunity for its technical force to learn and improve as they become accustomed to the production process. The production of the first unit requires 10,000 direct labor hours. Management projects an 80% learning curve and wants to produce a total of eight units.
Upon completion of the eighth unit, Aerosub’s cumulative average direct labor hours required per unit of the product will be
A. 6,400 hours. B. 8,000 hours. C. 5,120 hours. D. 10,000 hours.
1-42
What coefficient of correlation results from the following data?
Y X 1 10 2 8
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3 4 5 6 4 2
A. 0 B. +1 C. –1
D. Cannot be determined from the data given.
1-43
The technique used to predict the change in direct labor hours as a new process stabilizes is
A. Time series analysis. B. Learning curve analysis. C. Simple regression. D. Multiple regression.
1-44
A budget helps a company control costs by setting cost guidelines. However, a budget also performs the function(s) of
A. Planning.
B. All of the answers are correct. C. Communicating. D. Motivating.
1-45
Savior Corporation assembles backup tape drive systems for home microcomputers. For the first quarter, the budget for sales is 67,500 units. Savior will finish the fourth quarter of last year with an inventory of 3,500 units, of which 200 are obsolete. The target ending inventory is 10 days of sales (based upon 360 days). What is the budgeted production for the first quarter?
A. 75,000 B. 71,700 C. 64,350 D. 71,500
1-46
The production budget process usually begins with the
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A. Sales budget.
B. Direct labor budget.
C. Manufacturing overhead budget. D. Direct materials budget.
1-47
Super Drive, a computer disk storage and back-up company, uses accrual accounting. The company’s Statement of Financial Position for the year ended November 30 is as follows:
Super Drive
Statement of Financial Position
as of November 30
Liabilities and Stockholders’ Equity Assets Cash $52,000 Accounts payable $175,000 Accounts receivable, net 150,000 Common stock 900,000 Inventory 315,000 Retained earnings 442,000 Property, plant, and equipment 1,000,000 Total liabilities and Total assets $1,517,000 stockholders’ equity $1,517,000
Additional information regarding Super Drive’s operations include the following:
l Sales are budgeted at $520,000 for December and $500,000 for January of
the next year.
l Collections are expected to be 60% in the month of sale and 40% in the
month following the sale.
l Eighty percent of the disk drive components are purchased in the month
prior to the month of sale, and 20% are purchased in the month of sale. Purchased components are 40% of the cost of goods sold.
l Payment for the components is made in the month following the purchase. l Cost of goods sold is 80% of sales.
Super Drive’s projected gross profit for the month ending December 31 is
A. $416,000 B. $104,000 C. $536,000 D. $134,000 1-48
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Mountain Corporation manufactures cabinets but outsources the handles. Eight handles are needed for a cabinet, with assembly requiring 30 minutes of direct labor per unit. Ending finished goods inventory is planned to consist of 50% of projected unit sales for the next month, and ending handles inventory is planned to be 80% of the requirement for the next month’s projected unit output of finished goods.
Mountain’s projected unit sales:
October 4,600 November 5,000 December 4,200 January 6,000
Mountain’s ending inventories in units at September 30:
Finished goods 3,800 Handles 16,000
The number of units that Mountain finished during December is
A. 3,000 B. 5,100 C. 4,200 D. 5,000
1-49
A static budget
A. Presents the plan for a range of activity so that the plan can be adjusted for changes in activity.
B. Drops the current month or quarter and adds a future month or a future quarter as the current month or quarter is completed.
C. Presents the plan for only one level of activity and does not adjust to changes in the level of activity.
D. Presents a statement of expectations for a period but does not present a firm commitment.
1-50
Which one of the following items should be done first when developing a comprehensive budget for a manufacturing company?
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A. Preparation of a pro forma income statement. B. Development of the capital budget. C. Development of a sales budget.
D. Determination of the advertising budget.
1-51
Country Ovens is a family restaurant chain. Due to an unexpected road construction project, traffic passing by the Country Ovens restaurant in Newtown has significantly increased. As a result, restaurant volume has similarly increased well beyond the level expected. Which type of budget would be most appropriate in helping the restaurant manager plan for restaurant labor costs?
A. Activity-based budget. B. Flexible budget. C. Rolling budget.
D. Zero-based budget.
1-52
A company has budgeted sales of 24,000 finished units for the forthcoming 6-month period. It takes 4 pounds of direct materials to make one finished unit. Given the following:
Beginning inventory Target ending inventory
Finished Units Direct Material (Pounds) 14,000 44,000 12,000 48,000
How many pounds of direct materials should be budgeted for purchase during the 6-month period?
A. 92,000 B. 88,000 C. 96,000 D. 48,000 1-53
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Bootstrap Corporation anticipates the following sales during the last 6 months of the year:
July $460,000 August 500,000 September 525,000 October 500,000 November 480,000 December 450,000
20% of Bootstrap’s sales are for cash. The balance is subject to the collection pattern shown below.
Percentage of balance collected in the month of sale 40% Percentage of balance collected in the month following sale 30% Percentage of balance collected in the second month following sale 25% Percentage of balance uncollectible 5%
What is the planned net accounts receivable balance as of December 31?
A. $367,500 B. $360,000 C. $294,000 D. $279,300
1-54
Stevens Company manufactures electronic components used in automobile manufacturing. Each component uses two raw materials, Geo and Clio. Standard usage of the two materials required to produce one finished electronic component, as well as the current inventory, are shown below.
Standard Per Unit Price Current Inventory Material Geo 2.0 pounds $15/lb. 5,000 pounds Clio 1.5 pounds $10/lb. 7,500 pounds
Stevens forecasts sales of 20,000 components for the next two production periods. Company policy dictates that 25% of the raw materials needed to produce the next period’s projected sales be maintained in ending direct materials inventory.
Based on this information, the budgeted direct material purchases for the coming period would be
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A. B. C. D.
Geo $825,000 $675,000 $450,000 $675,000 Clio $450,000 $300,000 $450,000 $400,000
1-55
A company has $10,000 in cash and $150,000 in merchandise inventory on March 31. The desired cash and merchandise inventory balances on June 30 are $20,000 and $250,000, respectively. Sales for the quarter are expected to be $300,000, all in cash. Gross margin is 40% of sales. Cash operating expenses are expected to be $50,000. All merchandise inventory purchases are paid for in cash at the time of purchase. What amount of financing will the company need during the quarter?
A. $50,000 B. $30,000 C. $40,000 D. $20,000
1-56
When sales volume is seasonal in nature, certain items in the budget must be coordinated. The three most significant items to coordinate in budgeting seasonal sales volume are
A. Raw material inventory, work-in-process inventory, and production volume. B. Direct labor hours, work-in-process inventory, and sales volume.
C. Raw material inventory, direct labor hours, and manufacturing overhead costs.
D. Production volume, finished goods inventory, and sales volume.
1-57
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.) $28 $18 Standard price/unit of input $24 $20 Standard input allowed per unit of output 10 4 Actual units of input 190,000 78,000 Actual units of output 20,000 20,000
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The direct labor rate variance for April is
A. $240,000 favorable. B. $156,000 favorable. C. $156,000 unfavorable. D. $40,000 unfavorable.
1-58
The following performance report was prepared for Dale Manufacturing for the month of April:
Actual Static
Budget Variance Results Sales units 100,000 80,000 20,000 F Sales dollars $190,0000 $160,000 $30,000 F Variable costs 125,000 96,000 29,000U Fixed costs 45,000 40,000 5,000 U Operating income $20,000 $24,000 $4,000
If inventories did not change during the month, using a flexible budget, Dale’s total production-volume variance is
A. $4,000 unfavorable. B. $10,000 favorable. C. $6,000 favorable. D. $20,000 unfavorable.
1-59
Tub Co. uses a standard cost system. The following information pertains to direct labor for product B for the month of October:
Standard hours allowed for actual production 2,000 Actual rate paid per hour $8.40 Standard rate per hour $8.00 Labor efficiency variance $1,600U
What were the actual hours worked?
A. 1,800 B. 2,190
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C. 2,200 D. 1,810
1-60
A materials or labor mix variance equals
A. The actual total quantity of inputs times the difference between the weighted-average budgeted price for inputs and the weighted-average actual price for inputs.
B. The budgeted total quantity of inputs times the difference between the weighted-average budgeted price for inputs and the weighted-average expected price for inputs.
C. The actual total quantity of inputs times the difference between the weighted-average budgeted price for inputs and the weighted-average expected price for inputs.
D. The actual total quantity of inputs times the difference between the weighted-average actual price for inputs and the weighted-average expected price for inputs.
1-61
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.
Actual Budget Raw material $100,000 $89,000 Direct labor 50,000 54,000
The company should investigate
A. Neither the material variance nor the labor variance. B. The labor variance only. C. The material variance only.
D. Both the material variance and the labor variance.
1-62
Which one of the following variances is most controllable by the production control supervisor?
A. Materials usage variance.
B. Fixed overhead budget variance.
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C. Materials price variance.
D. Variable overhead spending variance. 1-63
Which of the following management practices involves concentrating on areas that deserve attention and placing less attention on areas operating as expected?
A. Management by objectives. B. Responsibility accounting. C. Benchmarking.
D. Management by exception.
1-64
Clear Plus, Inc., manufactures and sells boxes of pocket protectors. The static master budget and the actual results for May appear in the opposite column.
Static Budget Actual Unit sales 12,000 10,000 Sales $132,000 $100,000
(60,000) Variable costs of sales (70,800) Contribution margin 61,200 40,000 Fixed cost (32,000) (30,000) Operating income $29,200 $10,000
Which one of the following statements concerning Clear Plus’s actual results for May is correct?
A. The flexible budget variable cost variance is $10,800 unfavorable. B. The flexible budget variance is $8,000 favorable. C. The sales price variance is $32,000 favorable. D. The sales volume variance is $8,000 favorable.
1-65
Under a standard cost system, the materials price variances are usually the responsibility of the
A. Cost accounting manager. B. Purchasing manager. C. Production manager. D. Sales manager.
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1-66
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.) $28 $18 Standard price/unit of input $24 $20
10 4 Standard input allowed per unit of output
Actual units of input 190,000 78,000 Actual units of output 20,000 20,000
The direct materials price variance for April is
A. $156,000 favorable. B. $760,000 favorable. C. $240,000 unfavorable. D. $760,000 unfavorable. 1-67
Tower Company planned to produce 3,000 units of its single product, Titactium, during November. The standard specifications for one unit of Titactium include 6 pounds of materials at $.30 per pound. Actual production in November was 3,100 units of Titactium. The accountant computed a favorable direct materials purchase price variance of $380 and an unfavorable direct materials quantity variance of $120. Based on these variances, one could conclude that A. More materials were used than were purchased. B. More materials were purchased than were used.
C. The actual cost of materials was less than the standard cost.
D. The actual usage of materials was less than the standard allowed.
1-68
The monthly sales volume of Shugart Corporation varies from 7,000 units to 9,800 units over the course of a year. Management is currently studying anticipated selling expenses along with the related cash resources that will be needed. Which of the following types of budgets (1) should be used by Shugart in planning and (2) will provide Shugart the best feedback in performance reports for comparing planned expenditures with actual amounts?
Planning Performance Reporting A. B.
Static Static
Flexible Static
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C. D. 1-69
Flexible Flexible
Static Flexible
Using the three-variance method for analyzing factory overhead, which of the following is used to compute the spending variance? Budget Budget
Actual Factory Overhead A. B. C. D. 1-70
Sara Bellows, manager of the telecommunication sales team, has the following department budget. Billings -- long distance Billings -- phone card Billings -- toll free
A. Profit center. B. Revenue center. C. Investment center. D. Cost center. 1-71
Listed below is selected financial information for the Western Division of the Hinzel Company for last year.
Account Average working capital
General and administrative expenses Net sales
Average plant and equipment Cost of goods sold
Amount (thousands) $ 625 75 4,000 1,775 3,525
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Allowance Based on Actual Input Yes Yes No No
Allowance Based on Standard Input Yes Yes No Yes
Yes No No Yes
$350,000 75,000 265,000
Her responsibility center is best described as a
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If Hinzel treats the Western Division as an investment center for performance measurement purposes, what is the before-tax return on investment (ROI) for last year? A. 34.78% B. 22.54% C. 19.79% D. 16.67% 1-72
Making segment disclosures is an advantage to a company because it A. Facilitates evaluation of company management by providing data on particular segments.
B. Masks the effect of intersegment transfers. C. Eliminates the interdependence of segments.
D. Provides competitors with comparative information on the company’s performance. 1-73
A firm earning a profit can increase its return on investment by
A. Increasing sales revenue and operating expenses by the same dollar
amount. B. Decreasing sales revenues and operating expenses by the same
percentage.
C. Increasing sales revenues and operating expenses by the same percentage. D. Increasing investment and operating expenses by the same dollar amount.
1-74
The price that one division of a company charges another division for goods or services provided is called the A. Outlay price. B. Market price. C. Distress price. D. Transfer price. 1-75
The segment margin of an investment center after deducting the imputed interest on the assets used by the investment center is known as A. Operating income. B. Return on investment. C. Residual income.
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D. Return on assets. 1-76
Common costs are A. Current costs. B. Indirect costs. C. Controllable costs. D. Direct costs. 1-77
On a balanced scorecard, which of the following would not be an example of a customer satisfaction measure? A. Response time. B. Economic value added. C. Market share. D. Customer retention.
1-78
Managers are most likely to accept allocations of common costs based on A. Fairness.
B. Cause and effect. C. Benefits received. D. Ability to bear.
1-79
The following information relates to Cinder Co.’s Northeast Division: Sales
Variable costs
Traceable fixed costs Average invested capital Imputed interest rate
Cinder’s residual income was A. $180,000 B. $230,400 C. $170,400 D. $189,600 1-80
After investing in a new project, a company discovered that its residual income
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$600,000 360,000 60,000 120,000 8%
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remained unchanged. Which one of the following must be true about the new project?
A. The return on investment of the new project must have been equal to the firm’scost of capital.
B. The net present value of the new project must have been positive.
C. The net present value of the new project must have been negative.
D. The return on investment of the new project must have been less than the firm’s cost of capital. 1-81
David Burke is manager of claims processing for Continental Health Care System. His performance is evaluated using various measures agreed upon in advance with Diane Lewis, general manager. Lewis asked Burke to recommend several measures to evaluate the performance of his unit next year. Which one of the following performance measures would likely have the least positive effect on Burke’s motivation and performance? A. Processing cost per claim.
B. Average processing time per claim.
C. Total dollar amount of claims processed per month.
D. Percentage of claims processed accurately the first time. 1-82
Which of the following is not an internal control objective of the revenue cycle? A. Revenue cycle transactions are properly executed. B. Appropriate goods are ordered so that sales can be made.
C. Custody over assets resulting from the revenue cycle is properly
maintained. D. Transactions relating to revenue are properly recorded.
1-83
Which one of the following situations represents an internal control weakness in the
payroll department?
A. Payroll records are reconciled with quarterly tax reports.
B. Paychecks are distributed by the employees’ immediate supervisor. C. The timekeeping function is independent of the payroll department. D. Payroll department personnel are rotated in their duties. 1-84
A bill of lading is a document that
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A. Indicates the amount the customer owes by listing the quantities shipped, unit price, and total price of goods shipped.
B. Is sent with the goods giving a listing of the quantities of items included in the shipment.
C. Is used to transfer responsibility for goods between the seller of goods and a common carrier.
D. Reduces a customer’s account for goods returned to the seller. 1-85
Which of the following controls could be used to detect bank deposits that are recorded but never made?
A. Linking receipts to other internal accountabilities (i.e., collections to either accounts receivable or sales).
B. Having bank reconciliations performed by a third party. C. Consolidating cash receiving points.
D. Establishing accountability for receipts at the earliest possible time. 1-86
Certain management characteristics may heighten the auditor’s concern about the risk of material misstatements. The characteristic that is least likely to cause concern is that management
A. Has an excessive interest in increasing the entity’s stock price through use of unduly aggressive accounting practices.
B. Operating and financing decisions are made by numerous individuals. C. Is interested in inappropriate methods of minimizing earnings for tax purposes.
D. Commits to unduly aggressive forecasts.
1-87
Which of the following credit approval procedures would be the basis for developing a deficiency finding for a wholesaler?
A. An authorized signature from the credit department, denoting approval of the customer’s credit, is to appear on all credit-sales orders.
B. Salespeople are responsible for evaluating and monitoring the financial condition of prospective and continuing customers.
C. Trade-credit standards are reviewed and approved by the finance committee of the board of directors.
D. Customers not meeting trade-credit standards are shipped merchandise on a cash-on-delivery (C.O.D.) basis only.
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1-88
Auditors document their understanding of internal control with questionnaires, flowcharts, and narrative descriptions. A questionnaire consists of a series of questions concerning controls that auditors consider necessary to prevent or detect errors and fraud. The most appropriate question designed to contribute to the auditors’ understanding of the completeness of the expenditure (purchases-payables) cycle concerns the A. Qualifications of accounting personnel.
B. Internal verification of quantities, prices, and mathematical accuracy of sales invoices.
C. Use and accountability of pre numbered checks. D. Disposition of cash receipts. 1-89
To control purchasing and accounts payable, an information system must include certain source documents. For a manufacturing organization, these documents should include
A. Purchase requisitions, purchase orders, inventory reports of goods needed, and vendor invoices.
B. Purchase orders, receiving reports, and vendor invoices.
C. Purchase requisitions, purchase orders, receiving reports, and vendor invoices.
D. Receiving reports and vendor invoices.
1-90
A retailer of high-priced durable goods operates a catalog-ordering division that accepts customer orders by telephone. The retailer runs frequent price promotions.
During these times, the telephone operators enter the promotional prices. The risk of this practice is that
A. Frequent price changes could overload the order entry system. B. Customers could systematically be charged lower prices. C. Operators could collude with outsiders for unauthorized prices. D. Operators could give competitors notice of the promotional prices. 1-91
Internal auditing is an assurance and consulting activity. An example of an assurance service is a(n) A. Facilitation engagement. B. Compliance engagement.
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C. Advisory engagement. D. Training engagement.
1-92
Which of the following is an example of an input control? A. Dual write routines. B. Hash totals.
C. Run-to-run control totals. D. Error listings. 1-93
In connection with the consideration of internal control, an auditor encounters the following flowcharting symbols:
The auditor should conclude that a
A. Master file has been created by a computer operation. B. Master file has been created by a manual operation.
C. Document has been generated by a computer operation. D. Document has been generated by a manual operation.
1-94
Which of the following statements is(are) correct regarding the deterrence of fraud?
I. The primary means of deterring fraud is through an effective control system initiated by senior management.
II. Internal auditors are responsible for assisting in the deterrence of fraud by examining and evaluating the adequacy of the internal control system. III. Internal auditors should determine whether communication channels provide management with adequate and reliable information regarding the effectiveness of the control system and the occurrence of unusual transactions. A. I only. B. I, II, and III. C. II only.
D. I and II only. 1-95
When documenting the understanding of a client’s internal control, the
independent auditor sometimes uses a systems flowchart, which can best be
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described as a
A. Graphic illustration of the flow of operations that is used to replace the auditor’s internal control questionnaire.
B. Diagram that clearly indicates an organization’s internal reporting structure. C. Pictorial presentation of the flow of instructions in a client’s internal computer system.
D. Symbolic representation of a system or series of sequential processes. 1-96
The internal auditing department has just completed an audit report that outlines several deficiencies found in the company’s product distribution channels. Which one of the following persons should receive a copy of the audit report to ensure maximum benefits for the company? A. The advertising manager. B. The sales representative. C. The treasurer.
D. The marketing director. 1-97
In recent years, which two factors have changed the relationship between internal auditors and external auditors so that internal auditors are partners rather than subordinates?
A. The use of computerized accounting systems and the evolving economics of
external auditing. B. The increasing professionalism of internal auditors and the evolving economics of external auditing.
C. The increasing liability of external auditors and the increasing
professionalism of internal auditors.
D. The globalization of audit entities and the increased reliance on computerized
accounting systems. 1-98
Routines that use the computer to check the validity and accuracy of transaction data during input are called A. Integrated test facilities. B. Compiler programs. C. Edit programs. D. Operating systems. 1-99
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A company employing an online computer system has terminals located in all operating departments for inquiry and updating purposes. Many of the company’s employees have access to and are required to use the terminals. A control the company would incorporate to prevent an employee from making an unauthorized change to computer records unrelated to that employee’s job would be to
A. Establish user codes and passwords. B. Restrict the physical access to terminals.
C. Apply a compatibility test to transactions or inquiries entered by the user. D. Use validity checks. 1-100
When conducting fraud investigations, internal auditors should
A. Assess the probable level of, and the extent of complicity in, the fraud within the organization. B. Assign personnel to the investigation in accordance with the engagement schedule established at the beginning of the fiscal year.
C. Perform its investigation independent of lawyers, security personnel, and
specialists from outside the organization who are involved in the
investigation.
D. Clearly indicate the extent of the internal auditors’ knowledge of the fraud
when questioning suspects.
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