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 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%.

 True    

 False 

Question 2

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

 True 

 False 

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.

 True 

 False 

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.

 True 

 False 

Question 5 

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

 True 

 False 

Question 6 

 Volume variance measures fixed factory overhead.

 True 

 False 

Question 7 

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

 True 

 False 

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.

 True 

 False 

Question 9 

Currently attainable standards do not allow for reasonable production difficulties.

 True 

 False 

Question 10 

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

 True 

 False 

Question 11 

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

 True 

 False 

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.

 True 

 False 

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.

 True 

 False 

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.

 True 

 False 

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.

 True 

 False 

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.

 True 

 False 

Question 17 

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

 True 

 False 

Question 18 

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

 True 

 False 

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.

 True 

 False 

Question 20 

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

 True 

 False 

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:

suppliers 

stockholders 

management 

creditors

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 

Engineering 

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 

cost

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%.

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: 

Year  Net Cash Flow

1       $300,000

2        280,000

3       208,000

4      180,000

 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 mh                9,000 mh

Wall clocks4,900 mh              11,000 mh

 Total       20,000 mh              20,000 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.