Page 1

1. (TCO 1) The principle managers follow when they only investigate significant departures from the plan is commonly known as (Points : 4)

small amounts don’t matter
only materials and labor deserve attention
management by exception
exceptional costs yield exception results

2. (TCO 1) A company has a cost that is $2.00 per unit at a volume of 12,000 units and $2.00 per unit at a volume of 16,000 units. What type of cost is this? (Points : 4)


3. (TCO 2) Ice Box Company manufactures refrigerators. Which of the following items is most likely to be an indirect material cost for Ice Box Company? (Points : 4)

Factory supervisor s salary
Lubricant for refrigerator door hinges
Glass shelves for the refrigerators
Refrigerator motors

4. (TCO 2) A form used to accumulate the cost of producing an item is called a(n) (Points : 4)

job-cost sheet
material requisition
balance sheet

5. (TCO 3) Equivalent units are calculated by (Points : 4)

taking the units needed to complete the beginning inventory, adding units started and taking the equivalent units in ending inventory
taking the units completed plus the equivalent units in ending inventory.
taking the total units to account for and subtracting equivalent units in ending inventory
taking units started plus units transferred out.

6. (TCO 3) The Freedom Corporation s painting department had a beginning inventory of 580 units, which had direct material costs of $22,715. During June, 9,290 units were started and costs of $1,268,085 were incurred for direct material. Ending inventory consists of 1,000 units, which are 35% complete with respect to direct material. What is the cost per equivalent unit for direct material? (Points : 4)


7. (TCO 4) Regression analysis (Points : 4)

uses all the available data points to estimate a cost equation
can be performed by many spreadsheet programs
provides an equation that can be used to estimate total costs at different levels
all of the above

8. (TCO 4) The number of units that must be sold to exactly cover its fixed and variable costs is the (Points : 4)

contribution margin
break-even point
relevant range
margin of safety

9. (TCO 5) Which of the following is treated as a product cost in full costing? (Points : 4)

Sales commissions
Administrative salaries
Factory supervisor
Security at corporate headquarters

10. (TCO 5) Which of the following is not true when units sold exceed units produced? (Points : 4)

Full costing and variable costing will yield the same net income.
Full costing will assign some fixed manufacturing costs to the units in ending inventory.
Net income will be higher under variable costing than under full costing.
Inventory levels will decrease.

11. (TCO 6) Cost-plus contracts are common in which of the following industries? (Points : 4)

Manufactured home builders
Soft drink bottlers
Defense contractors
Newspaper publishers

12. (TCO 6) The traditional approach to cost allocation (Points : 4)

tends to over-cost high volume core products.
usually requires more cost pools than ABC.
attempts to identify the activities that cause costs.
produces more accurate costs than any other method.

13. (TCO 7) Which of the following is not a term used to describe the additional costs incurred as a result of selecting one decision over another? (Points : 4)

Differential costs
Sunk costs
Relevant costs
Incremental costs

Page 2

1. (TCO 7) The value of benefits foregone by selecting one alternative over another is a(n) (Points : 4)

sunk cost
incremental benefit
differential revenue
opportunity cost

2. (TCO 8) Which of the following statements about price, demand and profit is most generally true? (Points : 4)

As price increases, demand increases
As demand increases, prices increase
As prices increase, demand decreases
As price increases, profits decrease

3. (TCO 8) Which of the following should be true in order for a company to accept a special order? (Points : 4)

Variable costs are less than fixed costs
Incremental revenues exceed incremental costs
Opportunity costs are zero
The order is for a current customer

4. (TCO 9) Present value techniques (Points : 4)

ignore cash flows that will occur more than ten years in the future.
are a way of converting future dollars into equivalent current dollars.
provide more conservative results than similar time value of money computations.
treat dollars received today the same as dollars received in the future.

5. (TCO 9) The internal rate of return (Points : 4)

takes into account the time value of money.
is the rate of return that equates the present value of future cash flows to the initial investment.
both A and B
neither A nor B

6. (TCO 10) Which of the following is not a reason that actual results may deviate from planned performance? (Points : 4)

A bottom-up approach to budgeting was used.
Managers have done a particularly good or particularly poor job of managing operations.
Conditions have changed since the budget was developed.
The budget was poorly conceived and constructed.

7. (TCO 10) The cash budget alerts management to all of the following except? (Points : 4)

Stockouts will cause customer dissatisfaction
The cash balance will be very low
Excess cash will be available for investment
Significant capital acquisitions are planned

8. (TCO 10) The standard cost is (Points : 4)

same as actual cost
the cost that should have been incurred to produce an item or service
useful only to manufacturing firms
calculated after production is completed

9. (TCO 10) Which of the following are components of a direct labor variance? (Points : 4)

Rate and efficiency
Attainable and ideal
Price and quantity
Volume and controllable

10. (TCO 10) The type of center that has responsibility for generating revenue as well as controlling costs is a(n) (Points : 4)

investment center.
cost center.
business center.
profit center.

11. (TCO 10) Which of the following is not an advantage of decentralization for a company? (Points : 4)

Subunit managers have better information.
Subunit managers will act to benefit the organization as a whole.
Subunit managers can respond quicker to changing circumstances.
Subunit managers can receive training to move into top level management positions.

12. (TCO 10) The ratio that measures the return earned independently of how the firm is financed is the (Points : 4)

return on stockholders’ equity.
price earnings ratio.
earnings per share.
return on assets.

Page 3

1. (TCO 1) Many U.S. businesses have changed their management philosophies to become more competitive. These changes include:

  • Marketing strategies aimed at global markets.
  • Emphasis on customer satisfaction, including focus on product quality.
  • Large investments in new production technologies.
  • Creation of management teams with representatives from many functional areas.
  • Development of real-time business information systems.

How can managerial accounting support these changes so that businesses can compete successfully? (Points : 20)

2. (TCO 6) Pacific Airlines has three service departments; ticketing, baggage handling, and aircraft maintenance. Costs of these departments are allocated to two revenue producing departments, domestic and international flights. Costs for the service departments are not separated into fixed and variable and the totals are as follows:

Ticketing $4,000,000
Baggage handling $2,000,000
Aircraft maintenance $6,000,000

Air miles are as follows:

Domestic 5,000,000
International 20,000,000

(a) Allocate the service department costs based on air miles.
(b) Evaluate World Airlines use of air miles as a basis for allocation. Do you think the cause-and-effect relationship is strong?
(c) Suggest alternative methods to allocate the service department costs. (Points : 25)

3. (TCO 10) Gina’s Boutique makes custom jewelry. One item, the guru necklace, is a best seller and sales in units for the first quarter are as follows:

January 100,000 units
February 150,000 units
March 180,000 units

Desired ending inventory is budgeted at 20% of next month sales.

Compute production for February.

(Points : 25)

4. (TCO 2) Singleton Company is trying to determine a predetermined manufacturing overhead. Estimated overhead for the upcoming year is $600,000. Budgeted machine hours are 120,000 hours, and budgeted labor hours are 15,000 hours at a rate of $20.00 per hour. Compute the predetermined overhead rate based on:

(a) Machine hours
(b) Direct labor hours
(c) Direct labor dollars

(Points : 25)

Page 4

1. (TCO 9) An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next four years. What is the investment’s internal rate of return? (Points : 25)

2. (TCO 4) Legal Docs Inc is a legal services firm that files incorporation papers for small businesses. They charge $1,000 per application. This year’s income statement shows the following:

Sales $1,295,000
Variable Expenses $1,023,000
Contribution margin $272,000
Fixed costs $250,000
Profit $22,000

(a) Compute the break-even point in units.
(b) Compute the contribution margin ratio.
(c) Compute the current margin of safety.
(d) How many applications must the company sell to make a profit of $350,000?

(Points : 25)

3. (TCO 5) The following data has been taken from Air-Tite company in its first year of business.

Units produced 100,000
Units sold 80,000
Units in ending inventory 20,000
Fixed manufacturing overhead $400,000

(a) Compute the amount of fixed manufacturing overhead that would be expensed in the current year if full absorption costing is used.
(b) Compute the amount of fixed manufacturing overhead that would be expensed in the current year if variable costing is used.
(c) Compute the amount of fixed manufacturing overhead that would be included in ending inventory under full absorption costing.

(Points : 25)