Managerial Accounting Final Exam Spring 2008

1. Luella Corporation prepares its statement of cash flows using the indirect method. Which of the following would be added to net income in the operating activities section of the statement?

A. B. C. D. 2. Which of the following should be classified as an investing activity on a statement of cash flows? A. cash received from the sale of office equipment that was sold at a loss. B. cash used to purchase a long-term investment in bonds of another corporation. C. cash received from the issuance of Iguato Corporation common stock. D. both A and B above E. All of these 3. Three potential investment projects (A, B, and C) at Nit Corporation all require the same initial investment, have the same useful life (3 years), and have no expected salvage value. Expected net cash inflows from these three projects each year is as follows:

What can be determined from the information provided above? A. the net present value of project C will be the highest. B. the internal rate of return of projects A and C cannot be computed. C. the net present value and the internal rate of return will be the same for all three projects. D. both A and B above. 4. Which of the following statements is false? I. For capital budgeting decisions, the net present value method is superior to the simple rate of return method. II. When using the payback method, any cash flows for a project that occur after the payback period are not considered in computing the payback period for that project. III. The present value of a given future cash flow will increase as the discount rate decreases.

A. Statement I B. Statement II C. Statement III. D. Exactly two of the statements. E. None of the statements is false.

5. (Ignore income taxes in this problem.) How much would you have to invest today in the bank at an interest rate of 8% to have an annuity of $4,800 per year for 7 years, with nothing left in the bank at the end of the 7 years? Select the amount below that is closest to your answer. A. $33,600 B. $2,798 C. $24,989 D. $31,111 6. Which of the following statements is true? I. Sunk costs and future costs that do not differ between the alternatives are not relevant in a decision. II. A future cost that does not vary among alternatives under consideration is irrelevant. III. Opportunity costs represent economic benefits that are forgone as a result of pursuing some course of action. A. Statement I B. Statement II C. Statement III. D. Exactly two of the statements. E. All three statements are true. 7. Consider the following statements: I. A division's net operating income, after deducting both traceable and allocated common corporate costs, is negative. II. The division's avoidable fixed costs exceed its contribution margin. III. The division's traceable fixed costs plus its allocated common corporate costs exceed its contribution margin. Which of the above statements give an economic reason for eliminating the division? A. Only I B. Only II C. Only III D. Only I and II E. None of the above.

8. Once the break-even point is reached: A. B. C. D. E. the total contribution margin changes from negative to positive. net income will increase by the unit contribution margin for each additional item sold. variable expenses will remain constant in total. the contribution margin ratio begins to decrease. none of the above.

9. The Jabba Company manufactures the "Snack Buster" which consists of a wooden snack chip bowl with an attached porcelain dip bowl. Which of the following would be relevant in Jabba's decision to make the dip bowls or buy them from an outside supplier?

A. B. C. D. 10. Which of the following statements is true? I. A responsibility center is a business segment whose manager has control over costs, revenues, or investments in operating assets. II. A segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data. III. The use of return on investment (ROI) as a performance measure may lead managers to reject a project that would be favorable for the company as a whole. A. Statement I B. Statement II C. Statement III. D. Only two of the statements are true. E. All three statements are true. 11. Mike Corporation uses residual income to evaluate the performance of its divisions. The company's minimum required rate of return is 14%. In January, the Commercial Products Division had average operating assets of $970,000 and net operating income of $143,700. What was the Commercial Products Division's residual income in January? A. $7,900 B. -$20,118 C. $20,118 D. -$7,900

12. Which of the following statements is false? I. In a flexible budget, when the activity declines, the variable cost per unit also declines. II. The higher the denominator activity level used to compute the predetermined overhead rate, the higher the predetermined overhead rate. III. If the denominator level of activity is more than the standard hours allowed for the output of the period, then the volume variance is unfavorable, indicating an under utilization of available facilities. A. Statement I B. Statement II C. Statement III. D. Exactly two of the statements. E. All of the statements are false.

13. The variance that is most useful in assessing the performance of the purchasing department manager is: A. the materials quantity variance. B. the materials price variance. C. the labor rate variance. D. the labor efficiency variance. 14. All of the following statements are correct when referring to process costing except: A. Process costing would be appropriate for a jeweler who makes custom jewelry to order. B. A process costing system has the same basic purposes as a job-order costing system. C. Units produced are indistinguishable from each other. D. Costs are accumulated by department. 15. During a recent lengthy strike at Morell Manufacturing Company, management replaced striking assembly line workers with office workers. The assembly line workers were being paid $18 per hour while the office workers are only paid $10 per hour. What is the most likely effect on the labor variances in the first month of this strike?

A. B. C. D. 16. Which of the following statements is true? I. Ideal standards do not allow for machine breakdowns and other normal inefficiencies. II. The standard price per unit for direct materials should reflect the final, delivered cost of the materials, net of any discounts taken. III. The standard quantity or standard hours allowed refers to the amount of the input that should have been used to produce the actual output of the period. A. Statement I B. Statement II C. Statement III. D. Only two of the statements are true. E. All three statements are true.

17. Which of the following statements is true? I. The direct materials to be purchased for a period can be obtained by subtracting the desired ending inventory of direct materials from the total direct materials needed for the period. II. The usual starting point in budgeting is to make a forecast of net income. III. In a production budget, if the number of units in finished goods inventory at the end of the period is less than the number of units in finished goods inventory at the beginning of the period, then the expected number of units sold is greater than the number of units to be produced during the period. A. Statement I B. Statement II C. Statement III. D. Only two of the statements are true. E. All three statements are true. 18. The completion of goods is recorded as a decrease in the work in process inventory account when using:

A. B. C. D.

19. Which of the following statements is true? I. In a process costing system, the costs of one processing department become part of the costs of the next processing department. II. The units in beginning work in process inventory plus the units started into production must equal the units transferred out of the department plus the units in ending work in process inventory. III. Process costing is employed in industries that produce basically homogeneous products such as bricks, flour, or cement but would not be appropriate for assembly-type operations such as those that manufacture computers. A. Statement I B. Statement II C. Statement III. D. Only two of the statements are true. E. All three statements are true. 20. If company A has a higher degree of operating leverage than company B, then: A. the company A has higher variable expenses. B. the company A's profits are more sensitive to percentage changes in sales. C. the company A is more profitable.

D. the company A is less risky. E. none of the above. 21. Which of the following statements is false? I. Process costing is used where many different products are produced each period to customer specifications. II. When a company changes from a traditional costing system to an activity-based costing system, the unit product costs of high-volume products typically change more than the unit product costs of low-volume products. III. Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct labor-hours. A. Statement I B. Statement II C. Statement III. D. Exactly two of the statements. E. All of the statements are false.

22. Which of the following would probably be the most accurate measure of activity to use for allocating the costs associated with a factory's purchasing department? A. Machine-hours B. Direct labor-hours C. Number of orders processed D. Cost of materials purchased 23. In activity-based costing, unit product costs computed for external financial reports do NOT include: A. direct materials. B. direct labor. C. manufacturing overhead. D. selling costs. 24. Which of the following statements is correct concerning job-order costing? A. Job-order costing would be appropriate for a textbook publisher. B. All the costs appearing on a job cost sheet are actual costs. C. Indirect materials are charged to a specific job. D. Job-order costing is mainly used in firms with homogeneous products such as oil refineries. 25. Which of the following types of firms typically would use process costing rather than job-order costing? A. A small appliance repair shop. B. A manufacturer of commercial passenger aircraft. C. A specialty equipment manufacturer. D. A breakfast cereal manufacturer.

26. In a job-order costing system, the application of manufacturing overhead would be recorded as a debit to: A. Manufacturing Overhead inventory. B. Finished Goods inventory. C. Work in Process inventory. D. Cost of Goods Sold. 27. How would the following costs be classified (product or period) under variable costing at a retail clothing store?

A. B. C. D.

28. In a job-order costing system, the cost of a completed but unsold job is: A. closed to Cost of Goods Sold. B. part of the Work in Process inventory balance. C. adjusted to exclude any applied overhead. D. part of the Finished Goods inventory balance. 29. If overhead is underapplied, then: A. actual overhead cost is less than estimated overhead cost. B. the amount of overhead cost applied to Work in Process is less than the actual overhead cost incurred. C. the predetermined overhead rate is too high. D. the Manufacturing Overhead account will have a credit balance at the end of the year. 30. If both the fixed and variable expenses associated with a product decrease, what will be the effect on the contribution margin ratio and the break-even point, respectively?

A. B. C. D. 31. Which of the following is true regarding the contribution margin ratio of a single product company? A. As fixed expenses decrease, the contribution margin ratio increases. B. The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit. C. The contribution margin ratio will decline as unit sales decline. D. The contribution margin ratio equals the selling price per unit less the variable expense ratio.

32. If a company is operating at the break-even point: A. its contribution margin will be equal to its variable expenses. B. its margin of safety will be equal to zero. C. its fixed expenses will be equal to its variable expenses. D. its selling price will be equal to its variable expense per unit. 33. Which of the following strategies could be used to reduce the break-even point?

A. B. C. D. 34. Which costs will change with an increase in activity within the relevant range? A. Unit fixed cost and total fixed cost B. Unit variable cost and total variable cost C. Unit fixed cost and total variable cost D. Unit fixed cost and unit variable cost

35. Which of the following would usually be considered a discretionary fixed cost for a soft drink bottling company? A. the cost of advertising its products B. the cost of fire insurance on its factory building C. depreciation on its manufacturing equipment D. both a and b above