The master budget is a network consisting of many separate budgets that are interdependent.

Conversion cost consists of which of the following?

Direct labor and manufacturing overhead cost.

Direct materials and direct labor cost.

Manufacturing overhead cost.

Direct labor cost.

2.

East Company manufactures and sells a single product with a positive contribution margin. If the selling price and the variable expense per unit both increase 5% and fixed expenses do not change, what is the effect on the contribution margin per unit and the contribution margin ratio? Picture

Option C

Option D

Option B

Option A

3.

Which of the following three statements are correct? I. A profit center has control over both cost and revenue. II. An investment center has control over invested funds, but not over costs and revenue. III. A cost center has no control over sales.

Only II.

Only I and III.

Only I and II.

Only I.

4.

Which of the following costs is an example of a period rather than a product cost?

Depreciation on production equipment.

Wages of salespersons.

Wages of production machine operators.

Insurance on production equipment.

5.

An increase in the discount rate will result in an increase in the present value of a given cash flow.

True

False

6.

The purpose of the Data Processing Department of Falena Corporation is to assist the various departments of the corporation with their information needs free of charge. The Data Processing Department would best be evaluated as a:

revenue center.

investment center.

cost center.

profit center.

Top of Form

7.

Which of the following represents the normal sequence in which the indicated budgets are prepared?

Sales, Balance Sheet, Direct Labor

Production, Manufacturing Overhead, Sales

Production, Cash, Income Statement

Direct Materials, Cash, Sales

Bottom of Form

8.

The wages of factory maintenance personnel would usually be considered to be: Picture

Option D

Option C

Option B

Option A

9.

Horizontal analysis involves comparing two or more years' financial data for a single company.

True

False

10.

For a given level of sales, a low contribution margin ratio will produce less net operating income than a high contribution margin ratio.

True

False

11.

Manufacturing overhead consists of:

indirect materials but not indirect labor.

indirect labor but not indirect materials.

all manufacturing costs, except direct materials and direct labor.

all manufacturing costs.

Net income/Cost of goods sold

12.

The formula for the gross margin percentage is:

(Sales - Cost of goods sold)/Cost of goods sold

(Sales - Cost of goods sold)/Sales

Net income/Sales

Net income/Cost of goods sold

13.

Which of the following statements is not correct?

The sales budget generally is accompanied by a computation of expected cash receipts for the forthcoming budget period.

The cash budget must be prepared prior to the sales budget because managers want to know the expected cash collections on sales made to customers in prior periods before projecting sales for the current period.

The sales budget is constructed by multiplying the expected sales in units by the sales price.

The sales budget is the starting point in preparing the master budget.

14.

In activity-based costing, the total overhead cost in an activity cost pool can be computed by:

dividing the total activity in the activity cost pool by the activity rate for the activity cost pool.

dividing the total direct labor-hours in the activity cost pool by the activity rate for the activity cost pool.

multiplying the total direct labor-hours in the activity cost pool by the activity rate for the activity cost pool.

multiplying the total activity in the activity cost pool by the activity rate for the activity cost pool.

15.

Issuing new shares of stock in a five-for-one split of common stock would:

increase total stockholders' equity.

decrease total stockholders' equity.

decrease the book value per share of common stock.

increase the book value per share of common stock.

16.

The difference between total sales in dollars and total variable expenses is called:

net operating income.

the contribution margin.

the gross margin.

net profit.

17.

Which of the following statements provide(s) an argument in favor of including only a plant's net book value rather than gross book value as part of operating assets in the ROI computation? I. Net book value is consistent with how plant and equipment items are reported on a balance sheet. II. Net book value is consistent with the computation of net operating income, which includes depreciation as an operating expense. III. Net book value allows ROI to decrease over time as assets get older.

Only I.

Only I and II.

Only I and III.

Only III.

18.

Guerra Electronics manufactures a variety of electronic gadgets for use in the home. Which of the following would probably be the most accurate measure of activity to use for allocating the cost of inspecting the finished products at Guerra?

Machine-hours

Number of inspections

Direct labor-hours

Inspection time

19.

If two companies have the same total sales and total expenses and make the same product, the volatility of net operating income with changes in sales will tend to be greater in the company with a higher proportion of fixed expenses in its cost structure.

True

False

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20.

Budgeted production needs are determined by:

deducting the beginning inventory in units from budgeted sales in units.

adding budgeted sales in units to the desired ending inventory in units and deducting the beginning inventory in units from this total.

adding budgeted sales in units to the beginning inventory in units and deducting the desired ending inventory in units from this total.

adding budgeted sales in units to the desired ending inventory in units.

Bottom of Form

©2011 T

21.

If a company's return on assets is substantially higher than its cost of borrowing, then the common stockholders would normally want the company to have a relatively high debt/equity ratio.

True

False

22.

Residual income is superior to return on investment as a means of measuring performance because it encourages managers to make investment decisions that are more consistent with the interests of the company as a whole.

True

False

 23.

National Telephone company has been forced by competition to put much more emphasis on planning and controlling its costs. Accordingly, the company's controller has suggested initiating a formal budgeting process. Which of the following steps will NOT help the company gain maximum acceptance by employees of the proposed budgeting system?

Demonstrating top management support for the budgeting program.

Implementing the change quickly.

Ensuring that favorable deviations of actual results from the budget, as well as unfavorable deviations, are discussed with the responsible managers.

Including in departmental responsibility reports only those items that are under the department manager's control.

24.

Human resource management is an example of an activity at which of the following levels?

Batch-level activity.

Facility-level activity.

Product-level activity.

Unit-level activity.

25.

The market price of XYZ Company's common stock dropped from $25 to $21 per share. The dividend paid per share remained unchanged. The company's dividend payout ratio would:

increase.

decrease.

be unchanged.

impossible to determine without more information.

26.

The master budget is a network consisting of many separate budgets that are interdependent.

True

False

27.

A decrease in the discount rate:

b. is one way to compensate for greater risk in a project.

d. responses a and b are both correct.

a. will increase present values of future cash flows.

c. will reduce present values of future cash flows.

28.

Product engineering is an example of a:

Batch-level activity.

Product-level activity.

Unit-level activity.

Facility-level activity.

29.

The use of return on investment as a performance measure may lead managers to make decisions that are not in the best interests of the company as a whole.

True

False

30.

If an investment has cash outflows of Q dollars at the end of each year for three years, then the present value of these cash outflows under a 10% rate of return will be:

greater than under a 12% rate of return.

equal to that under a 12% rate of return.

less than under a 12% rate of return.

unknown because it depends on the size of Q.

31.

Even if operations are interrupted or cut back, committed fixed costs remain largely unchanged in the short term because the costs of restoring them later are likely to be far greater than any short-run savings that might be realized.

True

False

32.

The dividend yield ratio is calculated by dividing dividends per share by earnings per share.

True

False

3.

When a company shifts from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity-based costing system in which there are batch-level and product-level costs, the unit product costs of high volume products typically decrease whereas the unit product costs of low volume products typically increase.

True

False

Top of Form

34.

Financial leverage is negative when:

total liabilities are less than total assets.

the return on total assets is less than the rate of return demanded by creditors.

the return on total assets is less than the rate of return on common stockholders' equity.

total liabilities are less than stockholders' equity.

35.

A company with a degree of operating leverage of 4 would expect net operating income to increase by 200% if sales increased from $100,000 to $150,000.

True

False

Bottom of Form

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