Managerial Accounting 20 Questions Test

Managerial Accounting 20 Questions Test

Chapter 12 Practice Quiz

The process of assigning a cost to two or more designated cost objects is
cost tracing.
cost allocation.
cost/benefit analysis.
cost classification.

Of the following statements, which is NOT true concerning indirect costs?
An allocation rate for an indirect cost is determined by dividing the total cost to be allocated by an appropriate cost driver.
An indirect cost is a cost that cannot easily be traced to a cost object.
The informational benefits from tracing an indirect cost are not worth the economic sacrifice incurred in tracing the cost.
An indirect cost can be fixed but cannot be variable.

Logan Corporation has 30 employees, 20 in Department A and 10 in Department B. Logan incurred $180,000 in fringe benefits costs last year. How much in fringe benefit costs should be allocated to Department A?
$ 60,000

Which of the following would be classified as an indirect cost in a department store? Assume the cost object is the children’s department.
Sales commissions
Cost of goods sold
Utility costs
Depreciation on cash registers

Use the following data to answer the next two (2) questions:

Product 1 Product 2 Product 3
Direct Material Cost $25,000 $30,000 $35,000
Direct Labor Cost $30,000 $40,000 $50,000
Direct Labor Hours 1,200 hours 1,800 hours 2,000 hours

Factory overhead is estimated to be $40,000 and is applied based on direct labor dollars. This overhead cost is not traceable to any particular product.
Factory overhead allocated to Product 2 is

The total cost of Product 1 is

Saylind Molding paid $280,000 in rent for the year. The company’s three departments are headrests, armrests, and air ducts. The departments occupy 5,000, 6,300, and 2,700 square feet, respectively. How much of the rent cost should be allocated to the products made in the air ducts department?
$ 54,000
$ 72,000

Employees of DTI, Inc. worked 1,600 direct labor hours in January and 1,000 direct labor hours in February. DTI expects to use 18,000 direct labor hours during the year, and expects to incur $22,500 of Worker’s Compensation insurance cost for the year. The cash payment for this cost will be paid in April. How much insurance premium should be allocated to products made in January and February?
$7,200; $5,500
$2,000; $1,250
$4,000; $2,500
$2,000; $5,500

Costs that can be traced to objects in a cost-effective manner are called
allocated costs.
conversion costs.
direct costs.
indirect costs.

Which of the following is the most logical cost driver for allocating the telephone bill among four departments?
Square footage of floor space
Direct labor hours
Telephone usage in minutes
Sales volume measured in dollars

Alpha Company is selecting a cost driver to use in allocating utilities costs to its departments. The best cost driver
has a strong cause-and-effect relationship to the cost being allocated.
is one for which information is readily available.
seems acceptable and reasonable to the managers of the departments.
all of the above.

Solutions to Quiz Questions

Question Answer
1 B
2 D
3 B
4 C
5 A
6 C
7 A
8 B
9 C
10 C
11 D

Chapter 13 Practice Quiz

Use the following information to answer the next three questions.
Harcourt Marketing (HM) has the capacity to produce 10,000 fax machines per year. HM currently produces and sells 7,000 units per year. The fax machines normally sell for $100 each. Modem Products has offered to buy 2,000 fax machines from HM for $60 each. Unit-level costs associated with manufacturing each fax machine are $15 for direct labor and $40 for direct materials. Product-level and facility-sustaining costs are $50,000 and $65,000, respectively.

What is HM’s current profit (net income)?

How much would profit increase (decrease) if HM accepted this special order?

Should HM accept the special offer?
Yes, unequivocally,
No, because it would decrease company profit.
Yes, if qualitative factors are favorable.
No, because GAAP requires all costs to be included in the product.

Use the following information to answer the next two questions.
Based on the segment income statement below, Gourmet Sorbet is considering eliminating its Mango Tango line.

Revenue from Mango Tango sales $500,000
Salaries for Mango Tango workers (120,000)
Direct material costs for Mango Tango (300,000)
Sunk costs (equipment depreciation) (75,000)
Allocated company-wide facility-sustaining costs (50,000)
Net loss $ (45,000)

The total relevant costs in this decision add up to

If Mango Tango were eliminated, profitability would
increase $25,000.
increase $525,000.
decrease $80,000.
decrease $100,000.

To be relevant, information must
differ among the alternatives.
make a difference in a decision.
be future oriented.
all of the above.

GOGO Golf Carts currently produces its own electric motors. Electco has offered to sell the electric motors to GOGO at a price of $300 each.

GOGO’s current production information for the motors follows:
Unit-level material and labor $175
Facility-level depreciation of manufacturing equip. $12,000/year
Product-level supervisor’s salary $24,000/year
Annual facility-level utilities . $1,500

GOGO is currently operating profitably producing 2,000 engines a year. GOGO maintains worker loyalty by offering employees lifetime employment. Which of the following is true?
GOGO should buy the engines for cost savings of $113 per unit.
GOGO should continue producing the engines.
GOGO has relevant costs of greater than $300 a unit and should buy.
GOGO will save $126,000 by producing the engines.

A cost that is not affected by later decisions is called a(n)
replacement cost.
historical cost.
opportunity cost.
sunk cost.

A condensed income statement for Tramco follows: (amounts are in thousands of dollars)

Products F G H Total
Sales (total) $200 $180 $320 $700
Unit-level Variable Cost (total) (120) (160) (200) (480)
Contribution Margin 80 20 120 220
Facility-Level Fixed Cost (25) (30) (40) (95)
Income (Loss) $ 55 $(10) $ 80 $125

Tramco’s management is considering whether to discontinue manufacturing product G at the beginning of the next year. Doing so will have no effect on total fixed costs and no effect on the sales or variable costs of products F and H. The change in income that would result from discontinuing product G is
$10,000 increase.
$10,000 decrease.
$20,000 decrease.
$30,000 increase.

Jason Company is considering replacing equipment that originally cost $600,000. New equipment costs $500,000, and the old equipment can be sold for $400,000. What is the sunk cost in this situation?

Tom’s Toolery is operating at 80% of its productive capacity. It is currently purchasing for $20 each a part used in its manufacturing operation. Tom’s estimates it could make the part internally for a total cost of $24 per unit, consisting of $18 of unit-level production costs and $6 of facility-level costs that are currently attributed to other products. Tom’s usually purchases 50,000 units of the part each year. These units could be manufactured using Tom’s excess capacity. What is the differential increase or decrease in cost derived from making the part rather than purchasing it?
$100,000 cost decrease.
$100,000 cost increase.
$200,000 cost increase.
$1,000,000 cost increase.
Solutions to Quiz Questions

Question Answer
1 C
2 A
3 C
4 D
5 C
6 D
7 B
8 D
9 C
10 A
11 A

Chapter 14 Practice Quiz

Strategic planning focuses on
short-range decisions.
intermediate-range decisions.
sales targets.
long-range decisions.

A plan that formalizes in financial terms the overall goals and objectives of a company is called a
capital budget.
master budget.
participative budget.
strategic plan.

For the month of November, the beginning inventory of Product M is expected to be 2,000 cases. Expected sales are 10,000 cases, and the company wishes to begin the next period with an inventory of 1,000 cases. The number of cases of M that the company must purchase during November is
11,000 cases.
10,000 cases.
9,000 cases.
13,000 cases.

Cash receipts for January are expected to total $171,000. Cash disbursements for January are expected to be $158,000. The company’s minimum desired cash balance is $10,000. It started the period with $35,000. What is the expected cash balance at the end of January?
$ 10,000
$ 48,000
$ 25,000

Manufacturing overhead expenses are budgeted at $2,000 per month. Included in the $2,000 are $500 of monthly depreciation expense and $200 of allocated expenses related to manufacturing insurance that was paid in February. What is the cash outflow for overhead for the month of May?
$ 200
$ 500

A sales budget has been prepared for April. Management wants the amount of ending inventory each month to be equal to 10% of the next month’s cost of goods sold. April cost of goods sold is projected at $80,000 and May cost of goods sold is projected at $60,000. Ending inventory at the end of March is expected to be $8,000. Based on this information, what would the amount of purchases be for April?

Budgeted sales are shown in the following table:

Sales April May June
Cash Sales $500
Sales on Account $800

The company expects a 25% increase in sales per month for May and June. The amount of sales revenues that would appear on the company’s 2nd quarter pro forma income statement would be

XYZ Company projected unit credit sales for the last four months of the year as shown below:
September 3,000
October 3,200
November 4,100
December 5,600

The company’s past records show collection of credit sales as 60% in the month of sale and the balance in the following month. If inventory units are sold for $25, the total cash collections in November will be:

$ 93,500.
$ 37,400.
$ 61,500.

Use the following information to answer the next two questions:
The following budget information is available for the XYZ Company for the first quarter of 2014:
Sales ($16 per unit) $320,000
Freight out $.25 per unit sold
Depreciation on Administrative Equipment $10,000
Sales & Admin. Salaries $40,000 +2% of sales
Advertising $12,000
Depreciation on Manufacturing Equipment $15,000
Lease on Sales Building $45,000
Miscellaneous Selling Expenses $5,000
All operating expenses are paid in cash in the month incurred.

If XYZ expects to sell 20,000 inventory units in the first quarter, what would be the amount of the total budgeted selling and administrative expenses for the first quarter of 2014?

Based on first quarter sales of 20,000 units, the amount of XYZ’s expected cash outflow for selling and administrative expenses would be

Use the following information to answer the next three questions:
Janus Industries has budgeted the following information for January:

Cash Receipts $40,000
Beginning Cash Balance $10,000
Cash Payments $48,000
Desired Ending Cash Balance $ 7,000
If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments. Interest is paid monthly on the first day of the following month. The interest rate is 1% per month. The company had no debt before January 1st.

The shortage or surplus of cash before considering cash borrowed or interest payments in January would be
$5,000 surplus.
$10,000 shortage.
$7,000 surplus.
$2,000 surplus.

The ending cash balance on January 31 would be

The amount of interest paid in February would be

Solutions to Quiz Questions

Question Answer
1 D
2 B
3 C
4 B
5 C
6 D
7 A
8 A
9 A
10 C
11 D
12 D
13 A

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