Question 1 If the profit margin for a division is 8% and the investment turnover is 1.20, the rate of return on investment is 9.6%.



Question 2 Activity cost pools are assigned to products, using factory overhead rates for each activity.



Question 3 A responsibility center in which the department manager has responsibility for and authority over costs, revenues, and assets invested in the department is termed a cost center.



Question 4 In net present value analysis for a proposed capital investment, the expected future net cash flows are averaged and then reduced to their present values.



Question 5 variable cost system is an accounting system where standards are set for each manufacturing cost element.



Question 6 Volume variance measures fixed factory overhead.



Question 7 Multiple production department factory overhead rates are most useful when production departments are very similar in their manufacturing processes.



Question 8 The primary disadvantage of decentralized operations is that decisions made by one manager may affect other managers in such a way that the profitability of the entire company may suffer.



Question 9 Currently attainable standards do not allow for reasonable production difficulties.



Question 10 A favorable cost variance means that actual cost is more than standard cost.



Question 11 The profit center income statement should include only revenues and expenses that are controlled by the manager.



Question 12 The methods of evaluating capital investment proposals can be grouped into two general categories that can be referred to as (1) average rate of return and (2) cash payback methods.



Question 13 The expected period of time that will elapse between the date of a capital investment and the complete recovery in cash of the amount invested is called the discount period.



Question 14

If in evaluating a proposal by use of the net present value method there is a deficiency of the present value of future cash inflows over the amount to be invested, the proposal should be accepted.



Question 15

If the activities causing overhead costs are different across different departments and products, use of a plant-wide factory overhead rate will cause distorted product costs.



Question 16 Under the negotiated price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.



Question 17 A plant-wide factory overhead rate is computed by dividing total budgeted factory overhead costs by the plant-wide allocation base.



Question 18 Activity based costing can only be used to allocate manufacturing factory overhead.



Question 19 The method of analyzing capital investment proposals in which the estimated average annual income is divided by the average investment is the average rate of return method.



Question 20 Standard costs should always be revised when they differ from actual costs.



Question 21 The standard price and quantity of direct materials are separated because:

GAAP reporting requires this separation

direct materials prices are controlled by the purchasing department, and quantity used is controlled by the production department

standard quantities are more difficult to estimate than standard prices

standard prices change more frequently than standard quantities

Question 22 Which of the following are present value methods of analyzing capital investment proposals?

Internal rate of return and average rate of return

Average rate of return and net present value

Net present value and internal rate of return

Net present value and payback

Question 23 Variances from standard costs are usually reported to:





Question 24 If the wage rate paid per hour differs from the standard wage rate per hour for direct labor, the variance is termed:

variable variance

rate variance

quantity variance

volume variance

Question 25 A responsibility center in which the department manager has responsibility for and authority over costs and revenues is called a(n):

profit center

investment center

volume center

cost center

Question 26

Which of the following is not a cost pool used with the activity-based costing method?

Materials handling

Production Setups


All are used.

Question 27

A factor in determining the rate of return on investment–the ratio of income from operations to sales–is called:

profit margin

indirect expenses

investment turnover


Question 28 The method of analyzing capital investment proposals that divides the estimated average annual income by the average investment is:

cash payback method

net present value method

internal rate of return method

average rate of return method

Question 29 The transfer price that must be less than the market price but greater than the supplying division s variable costs per unit is called

the cost price approach

the negotiated cost approach

the standard cost approach

the market price approach

Question 30 In evaluating the profit center manager, the income from operations should be compared:

across profit centers

to the budget

to the competition’s net income

to the total company earnings per share

Question 31 The investment turnover is the:

ratio of income from operations to sales

ratio of income from operations to invested assets

ratio of assets to liabilities

ratio of sales to invested assets

Question 32 Which method of evaluating capital investment proposals uses present value concepts to compute the rate of return from the net cash flows expected from capital investment proposals

Internal rate of return

Cash payback

Net present value

Average rate of return

Question 33 Which of the following is an advantage of the cash payback method?

It is easy to use.

It takes into consideration the time value of money.

It includes the cash flow over the entire life of the proposal.

It emphasizes accounting income.

Question 34 Calico Company produces a bench that requires 5 yards of material per unit. The standard price of one yard of material is $7.60. During the month, 8,500 chairs were manufactured using 40,000 yards at a cost of $7.50. Determine the (a) price variance, (b) quantity variance, and (c) cost variance.

Question 35 Better Homes Company produces a product that requires two standard hours per unit at a standard hourly rate of $18 per hour. If 2,500 units required 5,500 hours at an hourly rate of $19 per hour, what is the direct labor (a) rate variance, (b) time variance, (c) cost variance.

Question 36 Stouffers Processing Company has $1,100,000 in invested assets, sales of $1,210,000, income from operations amounting to $242,000, and a desired minimum rate of return of 15%.

(a)Calculate the profit margin.

(b)Calculate the investment turnover

(c)Calculate the return on investment

(d)Calculate the residual income

Question 37 A project has estimated annual net cash flows of $90,000. It is estimated to cost $405,000. Determine the cash payback period.

Question 38 A $550,000 capital investment proposal has an estimated life of four years and no residual value. The estimated net cash flows are as follows:

YearNet Cash Flow





The minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is .893, .797, .712, and .636, respectively. Determine the net present value. Would the proposal be accepted? Why?

Question 39 Doomsday Clock, Inc. manufactures two products, alarm clocks and wall clocks. There are two production departments, assembly and finishing. The budgeted overhead costs for next year are:

Assembly, $310,000

Finishing, $245,000

The machine hours expected to be used are:

Assembly Dept.Finishing Dept.

Alarm clocks15,100 mh9,000 mh

Wall clocks4,900 mh11,000 mh

Total20,000 mh20,000 mh

(a) Compute the factory overhead rates for each department.

(b) Compute the total factory overhead allocated to alarm clocks. Assuming that 10,000 alarm clocks are budgeted to be produced, how much factory overhead will be allocated to each unit.

(c) Compute the total factory overhead allocated to wall clocks. Assuming that 20,000 wall clocks are budgeted to be produced, how much factory overhead will be allocated to each unit.