ACC123 MID-TERM EXAM PART 1

I. Multiple Choice

1. The process of preparing a budget:

A. Forces coordination and communication across business functions
B. Increases accounting efficiencies
C. Reduces overcapacity
D. Promotes production automation

2. A well-conceived plan allows managers the ability to:

A. not make decisions again until the next planning session
B. keep lower-level managers from implementing change
C. underestimate costs so that actual operating results will be favorable when
Comparisons are made
D. take advantage of unforeseen opportunities
3. For control decisions, emphasis is place on the _____________ role (s) of
Management accounting,
A. problem-solving
B. scorekeeping
C. attention-directing
D. both scorekeeping and attention-directing are correct.
4. Which of the following statements is FALSE?
A. Product costs and inventoriable costs are interchangeable terms.
B. Inventoriable costs are important for GAAP.
C. Inventoriable costs are a special case of product costs.
D. “Product costs” refers to the particular costs of a product for the purpose at
hand.
5. Cost-volume-profit analysis assumes all of the following EXCEPT:
A. all costs are variable or fixed
B. units manufactured equal units sold
C. total variable costs remain the same over the relevant range
D. total fixed costs remain the same over the relevant range.
6. The contribution income statement:
A.reports gross margin
B.is allowed for external reporting to shareholders
C.categorizes costs as either direct or indirect
D. can be used to predict future profits at different levels of activity
7. At the breakeven point of 200 units, variable costs total $400 and fixed costs total
$600. The 201st unit sold will contribute ___________ to profits.

A.$1
B.$2
C.$3
D.$5
8. Which of the following statements about determining the breakeven point is FALSE?:
A. Operating income is equal to zero
 B. Contribution margin - fixed costs is equal to zero
C. Revenues equal fixed costs plus variable costs
D. Breakeven revenues equal fixed costs divided by the variable cost per unit.

9.How many units would have to be sold to yield a target operating income of $22,000,
assuming variable costs are $15 per unit, total fixed costs are $2,000, anda the unit selling
price is $20?
A.4,800 units
B. 4,400 units
C. 4,000 units
D. 3,600 units

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 10 THROUGH 14:

The following information is for Gamma Corporation:

Product R: Revenue $10.00

Variable Cost $ 2.50

Product S: Revenue $15.00

Variable cost 5.00
Total Fixed Costs $50,000

10. What is the breakeven point assuming the sales mix consists of two units of Product
R and one unit of Product S?

A. 1,000 units of S and 2,000 units of R

B. 1012.5 units of S and 2,025 units of R
C. 2012.5 units of S and 4,025 units of R
D. 2,000 units of S and 4,000 units of R

11. What is the operating income, assuming actual sales total 150,000 units, and the
sales mix is two units of Product R and one unit of Product S?
A. $1,200,000
B. $1,250,000
C. $1,750,000
D. None of these answers are correct.

12. If the sales mix shifts to one unit of Product R and two units of Product S, then the
weighted average contribution margin will :
A. increase per unit
B. stay the same
C. decrease per unit
D. be indeterminable

13. If the sales mix shifts to one unit of Product R and two units of Product S, then the
breakeven point will:
A.increase
 B.stay the same
C. decrease
D. be indeterminable

14. If a company has a degree of operating leverage of 2.0 and sales increase by 25%
then:
A. total variable costs will increase by 50%
B. total variable costs will not change
C. profits will increase by 20%
D. profits will increase by 50%

15. If a company would like to increase its degree of operating leverage it should:

A. increase its inventories relative to its receivables

B. increase its receivables relative to its inventories
C. increase its variable costs relative to its fixed costs
D. increase its fixed costs relative to its variable costs

16. The time coverage of a budget should be:

A. one year
B. guided by the purpose of the budget
C .cover design through manufacture and sale of the product
D. shorter rather than longer

17. The order to follow when preparing the operating budget is:
A.revenues budget, production budget, and direct manufacturing labor costs
Budget
B. cost of goods sold budget, production budget, and cash budget
C. revenues budget, manufacturing overhead costs budget, and production
Budget
D. cash expenditures budget, revenues budget, and production budget

18. Budgeted production depends on :

A.the direct materials usage budget and direct material purchases budget
B. the direct manufacturing labor budget
C. budgeted sales and expected changes in inventory levels
D. the manufacturing overhead costs budget
19. A flexible budget :
A. is another name for management by exception
B. is developed at the end of the period
C. is based on the budgeted level of output
D. provides favorable operating results
20. An unfavorable flexible-budget variance for variable costs may be the result of
A. using more input quantities than were budgeted
B. paying higher prices for inputs than were budgeted
C. selling output at a higher selling price than budgeted
D. both A and B are correct
 21. An unfavorable price variance for direct materials might indicate:
A.that the purchasing manager purchased in smaller quantities due to a
Change to just-in-time inventory methods
B. congestion due to scheduling problems
C. that the purchasing manager skillfully negotiated a better purchase price
D. that the market had an unexpected oversupply of those materials
22. When standards are used to develop a budget
A. past inefficiencies are excluded
B. benchmarking must also be used
C. information is available at a low cost
D. flexible-budget amounts are difficult to determine
23. A favorable efficiency variance for direct materials might indicate:
A. that lower-quality materials were purchased
B. an overskilled workforce
C. poor design of products or processes
D. a lower-priced supplier was used
24. A purchasing manager’s performance is BEST evaluated using the:
A. direct materials price variance
B. direct materials flexible-budget variance
C. direct manufacturing labor flexible-budget variance
D. affect the manager’s action has on the total costs for the entire company
25. Performance variance analysis can be calculated for:
A. output unit-level costs
B. batch-level costs
C. product-sustaining costs
D. all of these answers are correct
26. From the perspective of control, the direct materials efficiency variance should
be isolated at the time of :
A. purchase
B. use
C. completion of the entire product
D. sale of the product

USE THE FOLLOWING INFORMATION FOR QUESTIONS 27 THROUGH 33

During the past year, the high and low use of three different resources for Ace High
Airlines, occurred in July and April. The resources are airplane depreciation, fuel, and
airplane maintenance. The number of airplane flight hours is the driver. The total costs of
the three resources and the related number of airplane flight hours are as follows:

Resource Airplane Flight Hours Total cost

Airplane depreciation:
High 44,000 $18,000,000
Low 28,000 $18,000,000
 Fuel
High 44,000 445,896,000
Low 28,000 283,752,000

Airplane Maintenance
High 44,000 15,792,000
Low 28,000 11,504,000

$0
27. The variable rate for airplane depreciation is ___________________
28. The fixed cost for airplane depreciation is ___________________
$18,000,000
29. The cost formula for airplane depreciation is _____________________
AD = 18,000,000 + [$0 (variable rate) * 44,000 (flight hours)]
$10,134
30. The variable rate for fuel isi _______________________; the fixed cost
$0
_____________

fuel = $0 (fixed cost) + [10,134 * 44,000 (high fuel flight hours)]

31. The cost formula for the fuel is ______________________
$268
32. What is the variable rate for airplane maintenance is _______________________; the
$4,000,000
fixed cost ________________________
AM = 4,000,000 + [(268 (variable rate) * 44,000 (flight hours)]
33. The cost formula for airplane maintenance ________________________
34 to 36. Using the three cost formulas that you developed, predict the cost of each
resource in a month with 36,000 airplane flight hours.

37. A currently attainable standard is one that

A. Relies on maximum efficiency
B. Uses only historical experience
C. Is based on ideal operating conditions
D. Can be easily achieved
E. None of these

38. The underlying details for the standard cost per unit are provided in
A. The standard work-in-process account
B. The standard production budget
C. The standard cost sheet
D. The balance sheet
E. None of these

39. Investigating variances from standard is

A. always done
B. done if the variance is inside an acceptable range
C. not done if the variance is expected to recur
D. done if the variance is outside the control limits
E. none of these

40. A variable overhead spending variance can occur because

A. prices for individual overhead items have increased
B. prices for individual overhead items have decreased
 C. more of an individual item was used than expected
D. less of an individual overhead item was used than expected
E. all of these

41. The total variable overhead variance can be expressed as the sum of
A.the underapplied variable overhead and the spending variance
B. the efficiency variance and the overapplied variable overhead
C. the spending, efficiency, and volume variances
D. the spending and efficiency variances
E. none of these
42. The total fixed overhead variance can be expressed as the sum of
A. the spending and efficiency variances
B. the efficiency and volume variances
C. the spending and volume variances
D. the flexible budget and the volume variances
E. none of these
43. An unfavorable volume variance can occur because
A. too much finished goods inventory was held
B. the company overproduced
C. the actual output was less than expected or practical capacity
D. the actual output was greater than expected or practical capacity
E. all of these

44. Which of the following is not an advantage of budgeting?

A. it forces managers to plan
B. it provides information for decision making
C. it guarantees an improvement in organizational efficiency
D. it provides a standard for performance evaluation
E. it improves communication and coordination

45. A company has the following collection pattern: month of sale, 40%; month
following sale, 60%.
If credit sales for January and February are $100,000 and $200,000, respectively,
the cash collections for February are

A.$140,000
B. $300,000
C. $120,000
D. 160,000
E. $80,000

THE FOLLOWING APPLIES TO QUESTIONS 46 THROUGH 47

Beta Company produces and sells two products: Beta-Lasix and Beta Lambda. In the
coming year, Beta expects to sell 3,000 units of Beta Lasix and 1,500 units of Beta Lambda.
Information on the two products is as follows:
 Beta-Lasix Beta Lambda
Price $120 $200
Variable cost per unit 40 80

Total fixed cost is $140,000.

$3,000; $1,500
46. The sales mix of Beta-Lasix and Beta lambda is __________________________.

$1,000
47. The breakeven of Beta lasix is ______________________; Beta lambda
$500
__________________

48. The amount of revenue required to earn a targeted profit is equal to

A. Total fixed cost divided by contribution margin
B. Total fixed cost divided by the contribution margin ratio
C. Targeted profit divided by the contribution margin ratio
D. Total fixed cost plus targeted profit divided by contribution margin ratio
E. Targeted profit divided by the variable cost ratio

THE FOLLOWING APPLIES TO QUESTIONS 49 THROUGH 50

Sunta Company manufactures socket wrenches.

- For next month, the vice president of production plans on producing 4,400 wrenches
per day.
- The company can produce as many as 5,000 wrenches per day, but is more likely to
produce 4,500 per day
- The demand for wrenches for the next three years is expected to average 4,250
wrenches per day.
- Fixed manufacturing costs per month total $336,600.
- The company works 20 days a month
- Fixed manufacturing overhead is charged on a per-wrench basis.

49. Practical overhead rate is _______________________

3.78

3.82
50. Master-budget fixed manufacturing overhead rate is __________________