Instruction: Encircle the letter of the correct answer in each of the given question.

1. Management accounting:
a. focuses on estimating future revenues, costs, and other measures to forecast activities and their results
b. provides information about the company as a whole
c. reports information that has occurred in the past that is verifiable and reliable
d. provides information that is generally available only on a quarterly or annual basis

2. The person MOST likely to use ONLY financial accounting information is a:

a. factory shift supervisor b. vice president of operations
c. current shareholder d. department manager

3. The person MOST likely to use management accounting information is a(n):

a. banker evaluating a credit application b. shareholder evaluating a stock investment
c. governmental taxing authority d. assembly department supervisor

4. Financial accounting provides the PRIMARY source of information for:

a. decision making in the finishing department b. improving customer service
c. preparing the income statement for shareholders d. planning next year’s operating budget

5. Which of the following descriptors refers to management accounting information?

a. It is verifiable and reliable. b. It is driven by rules.
c. It is prepared for shareholders. d. It provides reasonable and timely estimates.

6. Financial accounting provides a historical perspective, whereas management accounting emphasizes:

a. the future b. past transactions
c. a current perspective d. reports to shareholders

7. The general term used to identify both the tracing and the allocation of accumulated costs to a cost object is:
a. cost accumulation b. cost assignment c. cost tracing d. conversion costing

8. The collection of accounting data in some organized way is:

a. cost accumulation b. cost assignment c. cost tracing d. conversion costing

9. Which of the following statements about the direct/indirect cost classification is NOT true?
a. Direct costs are always traced.
b. Direct costs are always allocated.
c. The design of operations affects the direct/indirect classification.
d. The direct/indirect classification depends on the choice of cost object.

10. Cost allocation is:

a. the process of tracking both direct and indirect costs associated with a cost object
b. the process of determining the actual cost of the cost object
c. the assignment of indirect costs to the chosen cost object
d. a function of cost tracing

11. Indirect manufacturing costs:

a. can be traced to the product that created the costs b. can be easily identified with the cost object
c. generally include the cost of material and the cost of labor d. may include both variable and fixed costs

12. All of the following are true EXCEPT that indirect costs:
a. may be included in prime costs b. are not easily traced to products or services
c. vary with the selection of the cost object d. may be included in manufacturing overhead

13. Cost behavior refers to:

a. how costs react to a change in the level of activity
b. whether a cost is incurred in a manufacturing, merchandising, or service company
c. classifying costs as either inventoriable or period costs
d. whether a particular expense has been ethically incurred

14. Variable costs:

a. are always indirect costs
b. increase in total when the actual level of activity increases
c. include most personnel costs and depreciation on machinery
d. can always be traced directly to the cost object

15. Fixed costs:

a. may include either direct or indirect costs b. vary with production or sales volumes
c. include parts and materials used to manufacture a product d. can be adjusted in the short run to meet actual demands

16. Which one of the following is a variable cost for an insurance company?
a. rent b. president's salary c. sales commissions d. property taxes

17. Which of the following is a fixed cost for an automobile manufacturing plant?
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a. administrative salaries b. electricity used by assembly-line machines
c. sales commissions d. windows for each car produced
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 18. The MOST likely cost driver of distribution costs is the:
a. number of parts within the product b. number of miles driven
c. number of products manufactured d. number of production hours

19. The MOST likely cost driver of direct material costs is the:
a. number of parts within the product b. number of miles driven
c. number of products manufactured d. number of production hours

20. A band of normal activity or volume in which specific cost-volume relationships are maintained is referred to as the:
a. average range b. cost-allocation range c. cost driver range d. relevant range

21. Within the relevant range, if there is a change in the level of the cost driver, then
a. total fixed costs and total variable costs will change
b. total fixed costs and total variable costs will remain the same
c. total fixed costs will remain the same and total variable costs will change
d. total fixed costs will change and total variable costs will remain the same

22. Within the relevant range, if there is a change in the level of the cost driver, then
a. fixed and variable costs per unit will change
b. fixed and variable costs per unit will remain the same
c. fixed costs per unit will remain the same and variable costs per unit will change
d. fixed costs per unit will change and variable costs per unit will remain the same

23. When 10,000 units are produced, fixed costs are $14 per unit. Therefore, when 20,000 units are produced fixed costs will:
a. increase to $28 per unit b. remain at $14 per unit c. decrease to $7 per unit d. total $280,000

24. When 10,000 units are produced, variable costs are $6 per unit. Therefore, when 20,000 units are produced:
a. variable costs will total $120,000 b. variable costs will total $60,000
c. variable unit costs will increase to $12 per unit d. variable unit costs will decrease to $3 per unit

25. Christi Manufacturing provided the following information for last month:
Sales $10,000
Variable costs 3,000
Fixed costs 5,000
Operating income $2,000

If sales double next month, what is the projected operating income?

a. $4,000 b. $7,000 c. $9,000 d. $12,000

26. Kym Manufacturing provided the following information for last month:
Sales $12,000
Variable costs 4,000
Fixed costs 1,000
Operating income $7,000

If sales double next month, what is the projected operating income?

a. $14,000 b. $15,000 c. $18,000 d. $19,000

27. Wheel and Tire Manufacturing currently produces 1,000 tires per month. The following per unit data apply for sales to regular customers:

Direct materials $20

Direct manufacturing labor 3
Variable manufacturing overhead 6
Fixed manufacturing overhead 10
Total manufacturing costs $39

The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires. What is the total cost of producing 2,000 tires?
a. $39,000 b. $78,000 c. $68,000 d. $62,000

28. XIAN Manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually. Currently XIAN produces 40,000 valves
and is thinking about increasing production to 45,000 valves next year. What is the most likely behavior of total manufacturing costs and unit
manufacturing costs given this change?
a. Total manufacturing costs will increase and unit manufacturing costs will stay the same.
b. Total manufacturing costs will increase and unit manufacturing costs will decrease.
c. Total manufacturing costs will stay the same and unit manufacturing costs will stay the same.
d. Total manufacturing costs will stay the same and unit manufacturing costs will decrease.

29. Tire and Spoke Manufacturing currently produces 1,000 bicycles per month. The following per unit data apply for sales to regular customers:
Direct materials $50
Direct manufacturing labor 5
Variable manufacturing overhead 14
Fixed manufacturing overhead 10
Total manufacturing costs $79
The plant has capacity for 3,000 bicycles and is considering expanding production to 2,000 bicycles. What is the per unit cost of producing 2,000
bicycles?
a. $79 per unit b. $158 per unit c. $74 per unit d. $134 per unit
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30. Axle and Wheel Manufacturing currently produces 1,000 axles per month. The following per unit data apply for sales to regular customers:
Direct materials $30
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 Direct manufacturing labor 5
Variable manufacturing overhead 10
Fixed manufacturing overhead 40
Total manufacturing costs $85
The plant has capacity for 2,000 axles and is considering expanding production to 1,500 axles. What is the total cost of producing
1,500 axles?
a. $85,000 b. $170,000 c. $107,500 d. $102,500

31. What is the per unit cost when producing 1,500 axles? (refer to the problem above)
a. $71.67 b. $107.50 c. $85.00 d. $170.00

32. For a manufacturing-sector company, the cost of factory insurance is classified as a:

a. direct material cost b. direct manufacturing labor cost
c. manufacturing overhead cost d. period cost

33. For a printing company, the cost of paper is classified as a:

a. direct material cost b. direct manufacturing labor cost
c. manufacturing overhead cost d. period cost

34. Wages paid to machine operators on an assembly line are classified as a:

a. direct material cost b. direct manufacturing labor cost
c. manufacturing overhead cost d. period cost

35. Inventoriable costs are expensed on the income statement:

a. when direct materials for the product are purchased b. after the products are manufactured
c. when the products are sold d. not at any particular time, it varies

36. The following information pertains to the Cannady Corporation:

Beginning work-in-process inventory $ 50,000
Ending work-in-process inventory 48,000
Beginning finished goods inventory 180,000
Ending finished goods inventory 195,000
Cost of goods manufactured 1,220,000
What is cost of goods sold?
a. $1,235,000 b. $1,205,000 c. $1,218,000 d. $1,222,000

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 377 THROUGH 39:

Beginning finished goods, 1/1/20X5 $ 40,000
Ending finished goods, 12/31/20X5 33,000
Cost of goods sold 250,000
Sales revenue 600,000
Operating expenses 120,000

37. What is cost of goods manufactured for 20X5?

a. $257,000 b. $350,000 c. $243,000 d. $250,000

38. What is gross margin for 20X5?

a. $243,000 b. $527,000 c. $357,000 d. $350,000

39. What is operating income for 20X5?

a. $230,000 b. $123,000 c. $107,000 d. $157,000

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 40 THROUGH 43:

The Singer Company manufactures several different products. Unit costs associated with Product ICT101 are as follows:
Direct materials $ 60
Direct manufacturing labor 10
Variable manufacturing overhead 18
Fixed manufacturing overhead 32
Sales commissions (2% of sales) 4
Administrative salaries 16
Total $140
40. What are the variable costs per unit associated with Product ICT101?
a. $18 b. $22 c. $88 d. $92

41. What are the fixed costs per unit associated with Product ICT101?
a. $102 b. $48 c. $52 d. $32

42. What are the inventoriable costs per unit associated with Product ICT101?
a. $120 b. $140 c. $50 d. $88

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a. $4 b. $16 c. $20 d. $52
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 44. Rodney Worsham is paid $10 an hour for straight-time and $15 an hour for overtime. One week he worked 45 hours, which
included 5 hours of overtime, and 3 hours of idle time caused by material shortages. Compensation would be reported as:
a. $370 of direct labor and $105 of manufacturing overhead
b. $420 of direct labor and $55 of manufacturing overhead
c. $450 of direct labor and $25 of manufacturing overhead
d. $445 of direct labor and $30 of manufacturing overhead

45. Joseph Davis worked 44 hours last week for Breakgood Manufacturing. Of the 44 hours 4 hours were considered overtime, and
also Davis was idle for 5 of the 44 hours due to an equipment malfunction. Davis makes $20 per hour and is paid $30 an hour (time
and a half) for overtime. Davis’ total compensation for that week would be ______, and assuming Breakgood charges overtime
premium and idle time to indirect labor, the amount of this compensation credited to indirect labor would be ______.
a. $840; $40 b. $840; $140 c. $920; $40 d. $920; $140

46. Story Manufacturing incurs annual fixed costs of $250,000 in producing and selling “Tales.” Estimated unit sales for 2001 are
125,000. An after-tax income of $75,000 is desired by management. The company projects its income tax rate at 40 percent. What is
the maximum amount that Story can expend for variable costs per unit and still meet its profit objective if the sales price per unit is
estimated at $6?
a. $3.37 b. $3.59 c. $3.00 d. $3.70

Use the following information for questions 28 and 29.

The following information relates to financial projections of Big Co. for 2001:
Projected sales 60,000 units
Projected variable costs $2.00 per unit
Projected fixed costs $50,000 per year
Projected unit sales price $7.00

47. How many units would Big Co. need to sell in 2001 to earn a profit before taxes of $10,000?
a. 25,714 b. 10,000 c. 8,571 d. 12,000

48. If Big Co. achieves its projections in 2001, what will be its degree of operating leverage?
a. 6.00 b. 1.20 c. 1.68 d. 2.40

49. Signal Co. manufactures a single product. For 2001, the company had sales of $90,000, variable costs of $50,000, and fixed costs
of $30,000. Signal expects its cost structure and sales price per unit to remain the same in 2002, however total sales are expected to
jump by 20 percent. If the 2002 projections are realized, net income in 2002 should exceed net income in 2001 by
a. 100 percent. b. 80 percent. c. 20 percent. d. 50 percent.

Use the following information for questions 50-52.

Diversified Corp. manufactures and sells two products: X and Y. The operating results of the company for 2001 follow:
Product X Product Y
Sales in units 2,000 3,000
Sales price per unit $10 $5
Variable costs per unit 7 3
In addition, the company incurred total fixed costs in the amount of $9,000.
50. How many total units would the company have needed to sell to breakeven in 2001?
a. 3,750 b. 750 c. 3,600 d. 1,800

51. If the company would have sold a total of 6,000 units in 2001, consistent with CVP assumptions how many of those units would
you expect to be Product Y?
a. 3,000 b. 4,000 c. 3,600 d. 3,500

52. How many units would the company have needed to sell in 2001 to produce a profit of $12,000?
a. 8,750 b. 20,000 c. 10,000 d. 8,400

53. Below is an income statement for Jewell Co. for 2002:

Sales $ 300,000
Variable costs (150,000 )
Contribution margin $ 150,000
Fixed costs (100,000 )
Profit before taxes $ 50,000
What was the company’s margin of safety in 2002?
a. $50,000 b. $100,000 c. $150,000 d. $25,000

54. Below is an income statement for Jewell Co. for 2002:

Sales $ 300,000
Variable costs (150,000 )
Contribution margin $ 150,000
Fixed costs (100,000 )
Profit before taxes $ 50,000
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If the unit sales price for Jewell’s sole product was $10, how many units would it have needed to sell in 2002 to produce a profit of
$40,000?
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 a. 27,500 b. 29,000 c. 28,000 d. can’t be determined from the information
given

55. A firm estimates that it will sell 100,000 units of its sole product in the coming period. It projects the sales price at $40 per unit,
the CM ratio at 60 percent, and profit at $500,000. What is the firm budgeting for fixed costs in the coming period?
a. $1,600,000 b. $2,400,000 c. $1,100,000 d. $1,900,000

56. Hat Co. manufactures a western-style hat that sells for $10 per unit. This is its sole product and it has projected the break-even
point at 50,000 units in the coming period. If fixed costs are projected at $100,000, what is the projected contribution margin ratio?
a. 80 percent b. 20 percent c. 40 percent d. 60 percent

57. Brando Co. manufactures little boxes of “bad attitudes.” Each box sells for $15. The firm’s projected costs for 2002 are listed
below:
Variable costs per unit:
Production $5
SG&A 1

Fixed costs:
Production $40,000
SG&A 60,000
Estimated volume 20,000 units
What is Brando’s projected margin of safety for 2002?
a. $133,333 b. $150,000 c. $80,000 d.
$100,000

58. Brando Co. manufactures little boxes of “bad attitudes.” Each box sells for $15. The firm’s projected costs for 2002 are listed
below:
Variable costs per unit:
Production $5
SG&A 1
Fixed costs:
Production $40,000
SG&A 60,000
Estimated volume 20,000 units
What is Brando’s projected degree of operating leverage for 2002?
a. 2.25 b. 1.80 c. 3.75 d. 1.67

59. Alan is interested in entering the catfish farming business. He estimates if he enters this business, his fixed costs would be
$50,000 per year and his variable costs would equal 30 percent of sales. If each catfish sells for $2, how many catfish would Alan
need to sell to generate a profit that is equal to 10 percent of sales?
a. 40,000 b. 41,667 c. 35,000 d. No level of sales can generate a
10 percent net return on sales.

60. The following information pertains to Nova Co.’s cost-volume-profit relationships:

Break-even point in units sold 1,000
Variable costs per unit $500
Total fixed costs $150,000
How much will be contributed to profit before taxes by the 1,001st unit sold?
a. $650 b. $500 c. $150 d. $0

61. Information concerning Label Corporation’s Product A follows:

Sales $300,000
Variable costs 240,000
Fixed costs 40,000
Assuming that Label increased sales of Product A by 20 percent, what should the profit from Product A be?
a. $20,000 b. $24,000 c. $32,000 d. $80,000

62. Lindsay Company reported the following results from sales of 5,000 units of Product A for June:
Sales $200,000
Variable costs (120,000 )
Fixed costs (60,000 )
Operating income $ 20,000
Assume that Lindsay increases the selling price of Product A by 10 percent in July. How many units of Product A would have to be
sold in July to generate an operating income of $20,000?
a. 4,000 b. 4,300 c. 4,500 d. 5,000

63. Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and a net loss of $40,000. Based on this
information, the break-even point was: _____________
c. $800,000.
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 64. The margin of safety in the Flaherty Company is $24,000. If the company's sales are $120,000 and its variable expenses are
$80,000, its fixed expenses must be: ________________
b. $32,000.

65. Young Company has a margin of safety percentage of 20%. The break-even point is $400,000 and the variable costs are 40% of
sales. Given this information, the net income is: ________________________
c. $60,000.

66. A company has provided the following data:

Sales........... 3,000 units
Sales price..... $70 per unit
Variable cost... $50 per unit
Fixed cost...... $25,000

If the sales volume decreases by 25%, the variable cost per unit increases by 15%, and all other factors remain the same, net income
will:
a. decrease by $31,875. b. decrease by $15,000. c. increase by $20,625. d. decrease by $3,125.

67.. Green Company's variable expenses are 75% of sales. At a sales level of $400,000, the company's degree of operating leverage is
8. At this sales level, fixed expenses equal: ___________
a. $87,500.

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