Q.No.

Question 1. 2.

Options The claim to an asset s benefit is legally enforceable An asset is tangible An asset is obtained at a cost An asset provides future benefits Equity and assets are dependent variables Assets and liabilities are dependent variables Equity and liabilities are dependent variables None of the above Fictitious assets that will not result in flow of economic benefits to the enterprise Non-monetary assets without physical substance Non-monetary current assets without physical substance None of the above Monetary current asset Non-monetary current asset Fixed asset None of the above The utility of the asset Whether the asset is movable or not Its intended use
,

Answer

1.

Which of the following is an essential characteristic of an asset

3. 4. 5. 1. 2.

2.

In the accounting equation:

3. 4. 5. 1. 2.

3.

The intangible assets are:

3. 4. 5. 1. 2.

4.

Receivable, that is, the amount due from a customer 3. is a: 4. 5. 1.

5.

An asset is classified as a non-current asset or current asset based on:

2. 3.

4. 5. 1.

None of the above Assets that are expected to be realised within twelve months of the balance sheet date. Assets that are expected to be realised or consumed in the normal course of the enterprise,s operating cycle Assets that are expected to be realised within twelve months of the balance 3 sheet date, and also assets that are expected to be realised or consumed in the normal course of the operating cycle of the enterprise None of the above Liabilities that are due to be settled within twelve months of the balance sheet date Liabilities that are expected to be settled in the normal course of the operating cycle of the enterprise Liabilities that are due to be settled within twelve months of the balance sheet date, and also liabilities that are expected to be settled in the normal course of the operating cycle of the enterprise. None of the above. Liability of uncertain timing Liability of uncertain timing and amount Liability of uncertain amount None of the above Voting right Fixed Percentage of dividend 1 Preference over equity shareholders None of the above 2

2.

6.

Current assets are :

3.

4. 5. 1.

2.

7.

Current liabilities are:

3.

4. 5. 1. 2. 8. A provision is a: 3. 4. 5. 1. 2. 3. 4.

9.

Which of the following is not entitled for preference share holders?

5. 1. 2. 10. Purchase of goods (for sale) for Rs. 10,000 results in: 3. 4. 5. 1.

Increase in equity by Rs. 10,000, if the purchase is on credit Increase in equity by Rs. 10,000, if the purchase is on cash basis Decrease in equity by Rs. 10,000 None of the above Decrease in equity by Rs. 10,000 Increase in equity by the difference between Rs. 10,000 and the cost at which the goods were purchased if the cost was lower than Rs. 10,000 Increase in equity by Rs. 10,000 None of the above Increase in equity by Rs. 5,000 Decrease in equity by Rs. 5,000 Decrease in equity by Rs. 5,000 if it does not include any advance payment 3 of salaries and wages None of the above Decrease in equity Decrease in both equity and assets Decrease in equity and increase in liabilities None of the above Current asset 1 Fictitious asset 3 4

2. 11. Sale of goods (stock-in-trade) for Rs. 10,000 leads to:

3. 4. 5. 1. 2.

12.

Payment of Rs. 5,000 towards salaries and wages results in:

3. 4. 5. 1. 2.

13.

Interest accrued but not due for payment leads to:

3. 4. 5. 1.

14.

Prepaid insurance premium should be classified as a: 2.

3. 4. 5. 1. 2. 15. Payment of dividend by a company results in: 3. 4. 5. 1. 2. 16. Usually, monetary assets are classified as current assets or investments 3. 4. 5. 1. 2. 17. Investments are necessarily assets that are held by an enterprise for the accretion of wealth through distribution or for capital appreciation 3. 4. 5. 1. 2. 18. The degree of uncertainty surrounding provision is higher as compared to the degree of uncertainty surrounding ,accurals,
, ,

Non-current asset None of the above Decrease in equity that represents a loss Decrease in equity that represents distribution to owners Decrease in equity that represents an expense None of the above True False True False True False True 2 1 1 2 2

3. 4. 5.

19.

The profit measured as increase in networth and the 1. profit computed as excess of revenue over costs are

not one and the same

2. 3. 4. 5. 1. 2.

False True False True False True False True False 1 1 1 1

20.

Trade receivables is a financial instrument

3. 4. 5. 1. 2.

21.

Issue of bonus shares is a process of distribution of profit to shareholders

3. 4. 5. 1. 2.

22.

The terms ,non-controlling interests, and ,minority interests, are often used interchangeably

3. 4. 5. 1. 2.

23.

General reserve is also called Free reserve

3. 4. 5.

1. 2. 24. Which of the following is true about the link between 3. authorized share capital and issued share capital? 4. 5. 1. 2. 25. Fixed assets are always shown in the financial statement at 3. 4. 5. 1. 2. 26. Equity shareholders are the real owners of a limited liability company but they have 3. 4. 5. 1. 2. 27. Which of the following statements is true about depreciation? 3. 4. 5. 1. 2. 3. 4.

Issued share capital can exceed the authorized share capital Issued share capital can be less than or equal to the authorized share capital Issued share capital can never equal the authorized share capital None of these Cost only Realizable value Cost less depreciation Fair value Residual claim on the earning and assets First and assured claim on the earning and assets Claim depending upon the policy of the 1 company None of these It is provided on fixed assets on account of their use in the business It is a non-cash expense Both of these Neither of these. Increase in non-current liabilities and increase in current assets Increase in current liabilities and current assets Increase in non-current liabilities and non current assets None of these 3 3 2

28.

A loan taken from a bank to be repaid after three years will result into

5. 1. 2. 29. Which of the following will be the impact of the purchase of building for which consideration was discharged by the issue of equity shares? 3. 4. 5. 1. 2. 30. Which of the following is affected by payment of dividend? 3. 4. 5. 1. 2. 31. 3. 4. 5.

Increase in non-current assets and increase in non-current liability excluding owner,s equity Increase in non-current assets and increase in owner,s equity Increase in current liabilities and increase in non-current assets None of these Direct decrease in the equity Direct decrease in current assets Decrease in distributable equity and decrease in current assets Decrease in equity and decrease in current assets 0 3 2

Q.No.

Question 1. 2. 3. 4. 5. Jan Way Company has a retained earnings balance of 1. $162,000 at the beginning of the period. At the end of the period, the retained earnings balance was $220,000. Assuming a dividend of $25,000 was declared and paid during 2. the period, the net income for the period was: 60,000 15,000 65,000 45,000 $33,000

Options

Answer

1.

The financial Statements for Harold Corporation contained the following information: Account receivable: 5,000; Sales Revenue: 75,000; Cash 15,000; Salaries expense 20,000; Rent Expense 10,000. What is Harold,s net income?

1.

3 $58,000

3. 4. 5. 1. 2. 2. The element of a corporation,s annual report that describes the corporation,s accounting methods is the: 3. 4. 5. 1. 2. Doug Stahl Company on June 15 sells merchandise on account to Duffy Co. for $1,000, terms 2/10, n/30. On June 20, Duffy Co. returns merchandise worth $300 to Stahl 3. Company. On June 24, payment is received from Duffy Co. for the balance due. What is the amount of cash received? 4. 5. 1. 2. 3. 4. 5. 1. 2. 3. Depreciation is a process of : 3. 4. 5. 4. The balance in retained earnings is not affected by : 1.

$83,000 $187,000 notes to the financial statements management discussion and analysis auditor,s report income statement $700 $680 $686 None of the above property,plant and equipment land expense a long-term investment an intangible asset Valuation Cost allocation Cash accumulation Appraisal net income 3 2 3 3 1

2.

3.

A company has purchased a tract of land. It expects to build a production plant on the land in approximately 5 years. During the 5 years before construction, the land will be idle. The land should be reported as :

2. 3. 4. 5. 1. Micah Bartlett Company purchased equipment on January 1, 2. 2001, at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. The amount of accumulated depreciation 3. at December 31, 2002, if the straight-line method of depreciation is used is: 4. 5. 1. 2. 5. An example of a cash flow from investing activity is : 3. 4. 5. 1. 2. 5. What is the primary criterion by which accounting information 3. can be judged? 4. 5. 1. 2. 6. What accounting constraint refers to the tendency of accountants to resolve uncertainty in a way least likely to overstate assets and net income? 3. 4. 5.

net loss issuance of common stock dividends $80,000 $160,000 $78,000 $156,000 Receipt of cash from the issuance of bonds payable Payment of cash to repurchase outstanding capital stock Receipt of cash from the sale of equipment Payment of cash to suppliers for inventory Consistency Predictive value Usefulness for decision making Comparability Comparability Materiality Conservatism Consistency 3 3 3 4

4.

1. 2. Net Income is $132,000. During the year, accounts payable increased $10,000, inventory decreased $6,000, and accounts receivable increased $12,000. Under the indirect method, net 3. cash provided by operations is; 4. 5. 1. 2. 7. Genesis Company buys a $900 machine on credit. The transaction will affect the: 3. 4. 5. 1. 2. 7. Which of the following items is reported on a cash flow statement prepared by the direct method? 3. 4. 5. 1. 2. 8. Debits 3. 4. 5. 1. 2. 8. Gross profit will result if: 3. 4.

$102,000 $112,000 $124,000 $136,000 income statement only balance sheet only income statement and retained earnings 2 statement only. income statement, retained earnings statement, and balance sheet Loss on sale of building Increase in accounts receivable Depreciation expense Cash payments to suppliers increase both assets and liabilities decrease both assets and liabilities increase assets and decrease liabilities decrease assets and increase liabilities Operating expenses are less than net income. Sales revenues are greater than operating expenses Sales revenues are greater than cost of goods sold Operating expenses are greater than cost of goods sold 3 4 4

6.

5. 1. 2. 9. A revenue account : 3. 4. 5. 1. Arbor Corporation had reported the following amounts at December 31, 2010: Sales $184,000; ending inventory $11,600; beginning inventory $17,200; purchases $60,400; purchase discounts $3,000; purchase returns and allowances $1,100; freight-in $600; freight-out $900; Calculate the cost of goods available for sale. 2. 3. 4. 5. 1. 2. 10. Which of these statements about a journal is false? 3. 4. 5. 1.

is increased by debits is decreased by credits has a normal balance of a debit is increased by credits $69,400 $74,100 $56,900 $197,700 It contains only revenue and expense accounts It provides a chronological record of transactions It helps to locate errors because the debit and credit amounts for each entry can be readily compared It discloses in one place the complete effect of a transaction Negative cash from operations, negative cash from investing, and positive cash from financing Negative cash from operations, positive cash from investing and positive cash from financing Positive cash from operations, negative 1 cash from investing and negative cash from financing Positive cash from operations, negative cash from investing and positive cash from financing Depreciation expense 2 An increase in inventory 1 2 4

9.

2. 10. During the introductory phase of a companys life cycle, one would normally expect to see:

3.

4. 5. 1. Items that are added back to net income in determining cash provided by operations under the indirect method do not include: 2.

11.

3. 4. 5. 1. 2. 11. A trial balance will not balance if: 3.

Amortization expense Loss on sale of equipment a correct journal entry is posted twice the purchase of supplies on account is debited to Supplies and credited to Cash a $100 cash dividend is debited to 3 Dividends for $1,000 and credited to Cash for $100 a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45. $160,000 $220,000 $240,000 $280,000

4. 5. The following data are available for Allen Clapp Corporation. 1. 2. 3. 4.

12.

Net Income $200,000 Depreciation 40,000 expense Dividends 60,000 paid Gain on sale 10,000 of land Decrease in Accounts 20,000 Receivable Decrease in Accounts 30,000 Payable
Net cash provided by operating activities is :

5.

1. 2. 12. Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)? 3. 4. 5. 1. 13. Kamal Company has the following units and costs. 2. 3.

Matching principle Cost principle Periodicity principle Revenue recognition principle 99.000 108,000 113,000 3 1

Particulars Inventory, Jan 1

Units 8,000

Unit Cost $11

Purchase, June 19 Purchase, Nov 8

13,000 5,000

12 13

4. 5. 1.

117,000 $84,000 $70,000 $56,000 $75,250 the conservatism constraint the historical cost principle the materiality constraint the economic entity assumption understated and overstated overstated and understated overstated and overstated understated and understated Cash $48,000 and Service Charge Expense $2,000 Accounts Receivable $48,000 and Service Charge Expense $2,000 Cash $50,000 Accounts Receivable $50,000 ($11,000/Total estimated activity) x Units of activity for 2010 ($10,000/Total estimated activity) x Units of activity for 2010 1 2 1 4

If 9,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO?

Davidson Electronics has the following : 2. 14.

Particulars Inventory, Jan 1 Purchase, April 2 Purchase, Nov 8

Units 5,000 15,000 20,000 $8 10 12

Unit Cost
3. 4.

If Davidson has 7,000 units on hand at December 31, the cost 5. of ending inventory under the average-cost method is: 1. 2. 15. The lower of cost or market rule for inventory is an example of the application of: 3. 4. 5. 1. 2. 16. Fran Company,s ending inventory is understated by $4,000. The effects on the current year,s cost of goods sold and net income, respectively are: 3. 4. 5. 1. 2. Good Stuff Retailers accepted $50,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction 3. by Good Stuff Retailers will include a credit to Sales of $50,000 and debit(s) to : 4. 5. Kant Enterprises purchased a truck for $11,000 on January 1, 1. 2009. The truck will have an estimated salvage value of $1,000 at the end of 5 years. If you use the units-of-activity method, the balance in accumulated depreciation at 2. December 31,2010, can be computed by the following

17.

18.

formula:

3. 4. 5. 1. 2.

($11,000/Total estimated activity) x Units of activity for 2009 and 2010 ($10,000/Total estimated activity) x Units of activity for 2009 and 2010 The company is a valuable company worth investing in The company has a well-established brand name The company purchased another company The goodwill will generated a lot of positive business for the company for many years to come. $2,655 $3,540 $ 4,425 $ 10,620 $0 $295,000 $215,000 $135,000 dividend preference preference to assets in the event of liquidation cumulative dividends all of the above to reissue the shares to officers and employees under bonus and stock compensation plans 4 4 4 2 3

19.

If a company reports goodwill as an intangible asset on its books, what is the one thing you know with certainty?

3. 4. 5. 1. 2.

20.

Corricten Company borrows $88,500 on September 1, 2010 from Harrington State Bank by signing an $88,500, 12%, one- 3. year note. What is the accured interest at December 31,2010? 4. 5. 1. 2. M-Bot Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2010. No dividends were declared in 2008 or 2009. If M-Bot 3. wants to pay $375,000 of dividends in 2010, common stockholders will receive: 4. 5. 1. 2.

21.

22.

Preferred stock may have which of the following features?

3. 4. 5.

23.

Treasury stock may be repurchased:

1.

2. 3. 4. 5. 1. 2.

to signal to the stock market that management believes the stock is underpriced to have additional shares available for use in the acquisition of other companies more than one of the above net income will decrease by $80,000 retained earnings will decrease by $80,000 and total stockholders equity will increase by $80,000 retained earnings will decrease by 4 $300,000 and total stockholders equity will increase by $300,000 retained earnings will decrease by $300,000 and total paid-in capital will increase by $300,000 $700 $686 $685 $650 80,000 160,000 78,000 156,000 6,000 4,800 4 15,000 12,100 4 2

24.

Raptor Inc. has retained earnings of $500,000 and total stockholders equity of $2,000,000. It has 100,000 shares of $8 par value common stock outstanding, which is currently selling for $30 per share. If Raptor declares a 10% stock dividend on its common stock:

3.

4. 5. 1. 2. 25. A company makes credit sale of $750 on June 13, terms 2/10, n/30, on which it grants a return of $50 on June 16. What amount is received as payment in full on June 23? 3. 4. 5. 1. Cuso Company purchased equipment on January 1, 2009 at a 2. total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful 3. life of 5 years. What is the amount of accumulated depreciation at December 31, 2010 if the straight-line method of depreciation is used? 4. 5. 1. Able Towing Company purchased a tow truck for $60,000 on January 1, 2010. It was originally depreciated on a straightline basis over 10 years with an assumed salvage value of 2. $12,000. On December 31,2012, before adjusting entries had been made, the company decided to change the remaining 3. estimated life to 4 years (including 2012) and the salvage value to $2,000. What was the depreciation expense for 2012? 4.

26.

27.

5. 1. 2. Sensible Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1. What amount should 3. Sensible report as a current liability for Unearned Insurance Premiums at December 31? 4. 5.

$0 $4,500 $13,500 $18,000 2

28.

Q.No.

Question 1. 2. For 2010 Stoneland Corporation reported net income $26,000; net sales $400,000; and average shares outstanding 6,000. There were preferred stock 3. dividends of $2,000. What was the 2010 earnings per share? 4. 5. 1. 2. $4.00 $0.06 $16.67 $66.67 -

Options

Answer

1.

An increase in advertising expense A decrease in depreciation expense An increase in cost of goods sold A decrease in insurance expense Net income divided by sales Cost of goods sold divided by sales Net sales minus cost of goods sold, divided 3 by net sales Sales minus cost of goods sold, divided by cost of goods sold Is computed as net income divided by net cash provided by operating activities That is less than 1 indicates that a company might by using aggressive accounting tactics 2 3

2.

Which of the following would affect the gross profit rate? (Assume sales remains constant)

3. 4. 5. 1. 2.

3.

The gross profit rate is equal to:

3. 4. 5. 1.

4.

A quality of earnings ratio: 2.

3. 4. 5. 1. 2. 5. Which of the following measures provides an indication of how efficient a company is in employing its assets? 3. 4. 5. 1. 2. 6. Which of the following is not a measure of liquidity? 3. 4. 5. 1. 2. 7. Which of the following is incorrect about the statement of cash flows?

That is greater than 1 indicates that a company might be using aggressive accounting tactics Is computed as net cash provided by operating activities divided by total assets. Current ratio Profit margin ratio Debt to total assets ratio Asset turnover ratio Debt to total assets ratio Working capital Current ratio Current cash debt coverage It is a fourth basic financial statement It provides information about cash receipts and cash payments of an entity during a period It reconciles the ending cash account 3 balance to the balance per the bank statement It provides information about the operating, investing and financing activities of the business The net change in plant assets during the year Cash payments for plant assets during the year Cash receipts from sales of plant assets during the year Sources of financing during the period 1 1 4

3.

4. 5. 1. 2. 8. Which of the following will not be reported in the statement of cash flows? 3. 4. 5.

1. 2. 9. Which is an example of cash flow from an operating activity? 3. 4. 5. 1. 2. 10. Cash dividends paid to stockholders are classified on the statement of cash flows as: 3. 4. 5. 1. 2. 3. 4. 5. 1. 2. 12. Items that are added back to net income in determining cash provided by operations under the indirect method do not include: 3. 4. 5. 1. 2. 3. 4.

Payment of cash to lenders for interest Receipt of cash from the sale of capital stock Payment of cash dividends to the company,s stock holders None of the above Operating activities Investing activities A combination of (a) and (b) Financing activities $102,000 $112,000 $124,000 $136,000 Depreciation expense An increase in inventory Amortization expense Loss on sale of equipment $120,000 $130,000 1 $150,000 $190,000 2 4 4 1

11.

Net income is $132,000, accounts payable increased $10,000 during the year, inventory decreased $6,000 during the year, and accounts receivable increased $12,000 during the year. Under the indirect method, what is net cash provided by operations?

13.

The following are data concerning cash received or paid from various transactions for Orange Peels Corporation:

5.

Net cash provided by investing activities is: The following data are available for Something Strange!: 1. 2. 14. 3. 4. Net cash provided by financing activities is 5. 1. 2. 15. In horizontal analysis, each item is expressed as a percentage of the: 3. 4. 5. 1. The following schedule is a display of what type of analysis? 16. 2. 3. 4. 5. 1. 2. 17. In vertical analysis, the base amount for depreciation 3. expense is generally: 4. 5. $90,000 $130,000 $160,000 $170,000 Net income amount Stockholders, equity amount Total assets amount Base-year amount Horizontal analysis Differential analysis Vertical analysis Ratio analysis Net sales Depreciation expense in a previous year Gross profit Fixed assets 1 3 4 2

1. 2. 18. Which measure is an evaluation of a company,s ability 3. to pay current liabilities? 4. 5. 1. 2. 19. Which measure is useful in evaluating the efficiency in managing inventories? 3. 4. 5. 1. 2. 20. Which of these is not a liquidity ratio? 3. 4. 5. 1. 2. 21. Plano Corporation reported net income $24,000; net sales $400,000; and average assets $600,000 for 2010. What is the 2010 profit margin ratio? 3. 4. 5. 1. 2. 3. 4.

Current cash debt coverage ratio Current ratio Both (a) and (b) None of the above Inventory turnover ratio Days in inventory Both (a) and (b) None of the above Current ratio Asset turnover ratio Inventory turnover ratio Receivables turnover ratio 6% 12% 40% 200% The same accounting principles are used each year Revenue is recognized when earned Maintenance costs are capitalized and then depreciated The company,s P-E ratio is high relative to competitors 3 1 2 3 3

22.

Which situation below might indicate a company has a low quality of earnings?

5. 1. The following ratios are available for Leer Inc. and Stable Inc. 2. 3. 4. Compared to Stable Inc., Leer Inc. has: 5. 1. During the year ended December 31, 2010, State Street Corporation had the following results: Sales $267,000; cost of good sold $107,000; net income $92,400; operating expenses $55,400; net cash provided by operating expenses $55,400; net cash provided by operating activities $108,950. What was the company,s profit margin ratio? 2. 3. 4. 5. 1. 2. Carlos Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of 3. $285,000, and sales of $475,000. Carlos,s days in inventory is : 4. 5. 1. 2. Eddy Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in receivables at the beginning of the year 3. was $100,000 and at the end of the year was $150,000. What was the receivables turnover ratio? 4. 5. 1. 27. Prall Corporation sells its goods on terms of 2/10, n/30. It has a receivables turnover ratio of 7. What is its average collection period (days)? 2. 3.

Higher liquidity, higher solvency, and higher profitability Lower liquidity, higher solvency, and higher profitability Higher liquidity, lower solvency and higher profitability Higher liquidity and lower solvency, but profitability cannot be compared based on information provided 40% 60% 20.5% 34.6% 73 days 121.7 days 102.5 days 84.5 days 6.4 8.0 5.3 4.0 2,555 30 52 3 1 2 4 4

23.

24.

25.

26.

4. 5. 1. 2. Lake Coffee Company reported net sales of $180,000, net income of $54,000, beginning total assets of $200,000, and ending total assets of $300,000. What 3. was the company,s asset turnover ratio? 4. 5. 1. 2. 3. 4. 5. 1.

210 0.90 0.20 0.72 1.39 5.00 4.00 6.67 7.50 Negative cash from operations, negative cash from investing, and positive cash from financing Negative cash from operations, positive cash from investing, and positive cash from financing Positive cash from operations, negative 1 cash from investing, and negative cash from financing Positive cash from operations, negative cash from investing and positive cash from financing. $160,000 $220,000 $240,000 $280,000 77% 3 2 3 3

28.

29.

In a recent year Day Corporation had net income of $150,000, interest expense of $30,000, and tax expense of $20,000. What was Day Corporation,s times interest earned ratio for the year?

2. 30. During the introductory phase of a company,s life cycle, one would normally expect to see:

3.

4. 5. The following data are available for Allen Clapp Corporation: 1. 2. 31. 3. 4. 5. 1.

Net cash provided by operating activities is: 32. Adams Corporation reported net sales of $300,000, $330,000, and $360,000 in the years 2008, 2009 and

2010, respectively. If 2008 is the base year, what percentage do 2010 sales represent of the base?

2. 3. 4. 5.

108% 120% 130% -

Q.No.

Question 1. 2.

Options total fixed costs total variable costs total direct materials costs fixed costs per unit Out of pocket cost Sunk cost Opportunity cost Direct cost fixed variable sunk incremental All fixed and variable costs Costs that would be incurred within the relevant range of production

Answer

1.

Which of the following costs does not change when the 3. level of business activity changes? 4. 5. 1. 2.

1.

Which type of cost is a vital part of decision-making but 3. omitted from conventional accounting records? 4. 5. 1. 2.

2.

A company has a cost that is $4.00 per unit at a volume of 9,000 units and $3.00 per unit at a volume of 3. 12,000 units. The cost is: 4. 5. 1.

2.

Relevant costs are

2. 3.

Past costs that are expected to be different in the future

4. 5. 1. 2. 3. A sunk cost is a cost 3. 4. 5. 1. 2. 3. An increase in sales price 3. 4. 5. 1. 2. 4. You own a car and are trying to decide whether or not to trade it in and buy a new car. Which of the following costs is an opportunity cost in this situation? 3. 4. 5. 1. 2. 4. Given the following notations, what is the break-even sale in rupees? 3. 4. 5. If sales are Rs. 5,00,000, variable costs are Rs. 2,00,000 and fixed costs are Rs. 2,40,000 what is the contribution margin ratio (P/V ratio)? 1. 2.

Anticipated future costs that will differ among various alternatives incurred in the past which is not relevant to present decisions. incurred in the current period which changes with changes in production activity. incurred in the current period which remains 1 constant even though production activity changes. which is estimated to occur in the future. Does not affect the break-even point Lowers the net profit Increase the break-even point Lowers the break even point the trip to Europe that you will not be able to take if you buy the car the cost of the car you are trading in the cost of your books for this term the cost of your car insurance last year SP/(FC-VC) VC/(SP-FC) FC/(VC-SP) FC/(SP-VC)/SP 40% 3 80% 4 1 4

5.

3. 4. 5. 1. 2. 5. Calculating the difference in revenue and the difference 3. in cost between decision alternatives is called 4. 5. 1. 2. 6. If the unit selling price is Rs. 16, the unit variable cost is Rs. 12 and fixed costs are Rs. 60,000, what are the break-even sales (units)? 3. 4. 5. 1. 2. 6. Variable costs per unit 3. 4. 5. Based on the following data, what is the Degree of Operating Leverage? 1. 2. 3. 4.

60% None of the above budgeting production. incremental analysis. profit planning. systems development. 10,000 units 15,000 units 20,000 units 45,000 units can be estimated by the high-low method. remains the same on a per unit basis when the level of activity changes. are represented by the slope of the total cost 4 line. All of the above answers are correct. .8 1.2 1.8 4.0 2 2

Sales
7.

Rs. 6,0 0,0 00 Rs, 2,4 0,0 00

Less : Variable Costs

Rs. Contributi 3,6 on margin 0,0

5.

00 Fixed Costs Rs. 1,6 0,0 00

Rs. Operating 2,0 Income 0,0 00

1. 2. 7. When units produced and total production costs are graphed, the result is called a(n) 3. 4. 5. 1. 2. 8. Del Co. has fixed costs of Rs. 1,00,000 and break-even sales of Rs. 8,00,000. What is its projected profit at Rs. 3. 12,00,000 sales? 4. 5. 1. 2. 8. Marro Manufacturing is operating at its break-even point of 10,000 units. Which of the following statements 3. is not true? 4. 5. 1. 2. 3. 4. incremental analysis. resource constraint. contribution margin. scattergraph. Rs. 50,000 Rs. 1,50,000 Rs. 2,00,000 Rs. 4,00,000 The amount of Marros costs equals the amount of its revenues Marro,s fixed costs equal its variable costs Marro,s profit equals zero. Assuming no other changes, if Marro sold more units, it would earn a profit. Rs. 16,000 Rs. 24,000 2 Rs. 80,000 Rs. 96,000 2 1 4

9.

A company has sales of Rs. 2,00,000, a contribution margin of 20% and a margin of safety of Rs. 80,000. What is the companys fixed cost?

5. 1. 2. 9. Which of the following is not an assumption of C-V-P analysis? 3. 4. 5. 1.

Costs can be accurately separated into fixed and variable components. Fixed costs remain constant within the relevant range. Total variable costs are proportional to the level of activity. Selling price per unit declines after the break-even point is reached. The contribution margin ratio is equal to the ontribution margin per unit divided by the selling price. The contribution margin ratio is the amount of each sales dollar that goes toward covering fixed costs and generating a profit. The contribution margin ratio is equal to 3 variable cost per unit divided by fixed cost per unit. The contribution margin ratio is useful when companies that sell a variety of products calculate a break-even point. Rs. 50,000 Rs. 1,50,000 Rs. 2,00,000 None of the above increase by less than 15%. 3 increase by 15%. 0 1 4

2. 10. Which of the following statements regarding the contribution margin ratio is not true?

3.

4. 5. 1. 2. 3. 4. 5. 1. 2. 11. 3. 4. 5. If a company has fixed costs and is operating above the breakeven point, when sales increase by 15%, profits will 1. 2.

10.

A company is considering the disposal of equipment that was originally purchased for Rs. 2,00,000 and has accumulated depreciation to date of Rs. 1,50,000. The same equipment would cost Rs. 3,10,000 to replace. What is Sunk Cost?

11.

3. 4. 5. 1. 2. 12. When considering a process that involves a resource constraint, the optimal decision 3. 4. 5. 1. 2. 3. 4. 5. 1. 2. 14. Assume that Penelope s Pinwheels has fixed costs of $128,325. Each unit generates variable costs of $0.42 and sells for $1.00. What is the break-even point?
,

increase by more than 15%. decrease by less than 15%. minimizes the break-even point. maximizes the contribution margin per unit of the constraint. minimizes the contribution margin per unit of 2 output. minimizes total fixed costs. $80,115 $76,000 $79,800 $91,800 90,170 units 221,250 units 304, 536 units 86,325 units $24,400 $26,840 $59,780 $32,940 20 cars 1 4 2 3

13.

Total costs were $75,800 when 30,000 units were produced and $95,800 when 40,000 units were produced. Use the high-low method to find the estimated total costs for a production level of 32,000 units.

3. 4. 5. 1. 2.

15.

Charles Company s break-even point is 12,200 units. Each unit generates variable costs of $2.20 and is sold for $4.90. What are the total fixed costs?

3. 4. 5.

16.

Alma,s Used Autos has fixed costs of $7,000 per 1. month. If each car is sold for $350 more than Alma paid

for it, how many cars must Alma sell in a month in order 2. to break even? 3. 4. 5. 1. Maintenance costs at Chain Company are allocated to the production departments based on area occupied. Maintenance costs of $300,000 are budgeted to maintain a 60,000 square foot production area. If the finishing department occupies 25,000 square feet, how much of the maintenance department costs will be allocated to the finishing department? 2. 3. 4. 5. 1. Canoe Company has two products. In the past, Canoe 2. has averaged sales of four standard models at a price of $250 and one deluxe model at a price of $750 each day. Variable costs total $75 for the standard model and 3. $200 for the deluxe model. If fixed costs are $281,250, how many canoes must be sold in order for the company to break even? 4. 5. 1. Lisa,s Light Lunches sells three soup and salad buffet 2. lunches for every one sub sandwich lunch. The price for the buffet is $5.00 and variable costs for one of these lunches are $2.76. The price of a sub sandwich is $6.50, 3. and a sandwich has variable costs of $4.42. If fixed costs total $78,860, what is the weighted average contribution margin? 4. 5. 1. 2. 20. Full costing 3. 4. 5.

50 cars 5 cars 30 cars $125,000 $175,000 $100,000 $5,000 1,125 225 1,607 511 $8.80 $2.20 $4.32 $7.18 is the same as absorption costing. considers fixed manufacturing overhead as part of the cost of inventory. often does not provide the information needed for C-V-P analysis. All of the above choices are correct. 4 2 1 1

17.

18.

19.

1. 2. 21. Which of the following items appears on a variable costing income statement but not on a full costing income statement? 3. 4. 5. 1. 2. 22. Which of the following items on a variable costing income statement will change in direct proportion to a change in sales? 3. 4. 5. 1. 2. 23. When the number of units sold is equal to the number of units produced, net income using full costing will be 3. 4. 5. 1. 2. 24. If the number of units sold is less than the number of units produced 3. 4. 5. 1. 25. Which of the following is not true when units sold exceed units produced? 2. 3.

sales gross margin net income contribution margin sales, contribution margin, income sales, variable costs, contribution margin sales, variable costs, contribution margin, fixed costs and income sales, variable costs, and fixed costs greater than net income using variable costing. equal to net income using variable costing. less than net income using variable costing. None of the above answers is always correct. 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. 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. 1 2 2 2 4

4. 5. 1. 2. 26. If a company employs JIT inventory techniques: 3. 4. 5. 1. 2. 27. Indirect costs occur when 3. 4. 5. 1. 2. 28. From a decision-making standpoint, the allocated cost should measure the 3. 4. 5. 1. 2. 29. The cost objective is the 3. 4. 5. 1. 2.

Inventory levels will decrease. variable and full costing income will differ little since there is almost no inventory variable and full costing income will differ little since there is almost no fixed cost variable and full costing income will differ greatly little since there is much inventory variable and full costing income will differ greatly since there are high levels of fixed costs. resources are shared by more than one product or service. costs cannot be directly traced to products or services. multiple departments share a piece of equipment. All of the above are correct. sunk cost of the equipment involved. variable costs of the goods purchased. opportunity cost of using a company resource. product cost of the goods produced. reason for allocating the cost. calculation based on budgeted amounts. product, service, or department that is to receive the allocation maximum amount to be allocated to any single department cost-plus recipient. 2 cost object. 3 3 4 1

30.

The product, service, or department that is to receive the cost allocation is called the

3. 4. 5. 1. 2. 31. A cost pool is 3. 4. 5. 1. 2. 32. An allocation base 3. 4. 5. 1. 2. 33. Which of the following is not a criterion used to allocate fixed costs? 3. 4. 5. 1. 2. 34. The method of allocation which allocates service department costs to production departments but not to 3. other service departments is called the 4. 5. 35. Service department costs are allocated to producing departments 1.

terminal. pool for manufacturing overhead. not necessary in cost-plus contracts. useful when separating mixed costs into their fixed and variable components. allocated using a single allocation base. a method of allocating costs among service departments. is the minimum amount to be allocated to a cost object. coordinates the manufacturing overhead costs as they are incurred. will always be less than the variable costs for 4 a product. relates the cost pool to the cost objectives. ability to bear costs equity feasible outcomes relative benefits equity method. direct method. reciprocal method. sequential or step method. so that the costs can be allocated to the products in the producing departments. 1 2 3 3

2. 3. 4. 5. 1. 2. 36. The type of costs which are affected by the manager,s decisions and for which the manager should be held accountable are 3. 4. 5. 1. 2. 37. When fixed costs are unitized, they 3. 4. 5. 1. 2. 38. An allocation of a predetermined amount that is not affected by changes in the activity level of the 3. organizational unit receiving the allocation is called a(n) 4. 5. 1. 2. 39. Lump sum allocations 3. 4. 5.

because the costs of the service is not material so the service will not be purchased externally all of the above. indirect costs. controllable costs. basis costs. pooled costs. are stated on a per unit basis. may appear to be variable costs. may cause managers to make decisions that 4 are not in the best interest of the company as a whole. All of the above are true. allocation base. unitized cost. lump-sum allocation. cost driver. should generally be adjusted each month. will change when the activity levels of any of the user departments change. are not impacted by the usage of the allocated resource by other departments. make fixed costs appear variable. 3 3 2

1. 2. 40. When activity based costing is implemented, the initial outcome is normally that: 3.

the cost of all products will be higher The cost of all products will be lower The cost of low volume products will be higher and the cost of high volume products will be lower The cost of low volume products will be lower and the cost of high volume products will be higher. 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. one or two three to ten ten to twenty-five twenty-five to one hundred weight of parts ordered direct labor cost depreciation expense number of orders placed ABC uses more cost drivers. ABC allocates cost based solely on production 2 volume. ABC is more expensive. 4 4 1 3

4. 5. 1. 2. 41. The traditional approach to cost allocation 3. 4. 5. 1. 2. 42. How many distinct activities are used by most companies that design ABC systems? 3. 4. 5. 1. 2. 43. Cool Company uses ABC costing. Which of the following is most likely to be the cost driver for the cost of 3. ordering parts? 4. 5. 1. 44. Which of the following is not generally true when a company compares ABC and traditional costing? 2. 3.

4. 5. 1. 2. 45. Activity-based management: 3. 4. 5. 1. 2. 46. At Wolfe s Wearables, the break-even point is 2,000 units. If fixed costs total $300,000 and variable costs are $30 per unit, what is the selling price per unit?
,

ABC is less likely to undercost complex, lowvolume products. is the same as ABC requires cost pools to be formed first determines the major activities. all of the above $5 $210 $150 $180 $468,140 $124,025 $700,975 $405,000 48,750 units 39,000 units 29,000 units 21,167 units $5.20 1 $13.60 2 2 4 3

3. 4. 5. 1. 2. 3. 4. 5. 1.

47.

Copper Corporation sells a single product at a price of $275 per unit. Variable cost per unit is $135 and fixed costs total $356,860. If sales are expected to be $825,000, what is Sterlings margin of safety?

48.

The president of Cummings Corporation will not receive a bonus next year unless the companys profits are at least $435,000. Cummings sells a single product at a price of $27 per unit. If variable costs are $12 per unit and fixed costs total $150,000, what amount of sales must Cummings generate in order for the president to receive a bonus?

2. 3. 4. 5.

49.

Lightning Company sells 3 types of umbrellas. Umbrella 1. A sells for $20 and has variable cost of $9.00 per unit. Umbrella B sells for $17.00 and has variable cost of $12.00 per unit. Umbrella C sells for $9.00 and has 2. variable costs of $6.00 per unit. Lightning sells in a mix

of 2 units of A, 3 units of B and 5 units of C. What is the 3. weighted average contribution margin per unit for Lightning? 4. 5. 1. Louie,s Lunch Counter,s employees know that they serve three meat and potatoes lunches for every two soup and salad lunches on a typical day. The variable costs for a meat and potatoes lunch total $2.30, while the variable costs for the soup and salad lunch are $2.85. The price for any lunch is $5.75. If fixed costs are $120,802, how many lunches must be sold for Louies to earn a profit of $77,520? 2. 3. 4. 5. 1.

$10.00 $6.33 57,485 42,387 38,509 61,400 determine major activities, form cost pools, evaluate the performance of the activities, identify ways to improve the activities determine major activities, identify resources used by each activity, evaluate the performance of the activities, identify ways to improve the activities determine major activities, identify ways to 2 improve the activities, evaluate the performance of the activities, identify resources used by each activity determine major activities, evaluate the performance of activities, form cost pools, identify ways to improve the activities 4

50.

2. The major steps in Activity-Based Management, in order, are:

51.

3.

4. 5.