Posted: February 5th, 2019

Finance Mid-term Exam Questions

Chapter 201. Net income can be increased or decreased by changing the sales mix.2. If a company has limited machine hours available for production, it is generally more profitable to produce and sell the product with the highest contribution margin per machine hour.3. According to the theory of constraints, a company must identify its constraints and find ways to reduce or eliminate them.4. Cost structure refers to the relative proportion of product versus period costs that a company incurs.5. The difference between absorption costing and variable costing is the treatment of fixed manufacturing overhead.6. Manufacturing cost per unit will be higher under variable costing than under absorption costing.7. For Buffalo Co., at a sales level of 5,000 units, sales is $75,000, variable expenses total $50,000, and fixed expenses are $21,000. What is the contribution margin per unit?a. $4.20 c. $10.00b. $5.00 d. $15.008. For Pierce Company, sales is $500,000, variable expenses are $330,000, and fixed expenses are $140,000. Pierce’s contribution margin ratio isa. 10%. c. 28%.b. 34%. d. 66%.9. Sales mix isa. the relative percentage in which a company sells its multiple products.b. the trend of sales over recent periods.c. the mix of variable and fixed expenses in relation to sales.d. a measure of leverage used by the company.10. A shift from low-margin sales to high-margin salesa. may increase net income, even though there is a decline in total units sold.b. will always increase net income.c. will always decrease net income.d. will always decrease units sold.11. Reducing reliance on human workers and instead investing heavily in computers and online technology willa. reduce fixed costs and increase variable costs.b. reduce variable costs and increase fixed costs.c. have no effect on the relative proportion of fixed and variable costs.d. make the company less susceptible to economic swings.12. A cost structure which relies more heavily on fixed costs makes the companya. more sensitive to changes in sales revenue.b. less sensitive to changes in sales revenue.c. either more or less sensitive to changes in sales revenue, depending on other factors.d. have a lower break-even point.13. When a company assigns the costs of direct materials, direct labor, and both variable and fixed manufacturing overhead to products, that company is usinga. operations costing. c. absorption costing.b. variable costing. d. product costing.14. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. The per unit manufacturing cost under absorption costing isa. $8. c. $13.b. $9. d. $14.15. Sprinkle Co. sells its product for $20 per unit. During 2013, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labor $3, and variable overhead $1. Fixed costs are: $240,000 manufacturing overhead, and $30,000 selling and administrative expenses. The per unit manufacturing cost under variable costing isa. $8. c. $13.b. $9. d. $14.16. The manufacturing cost per unit for absorption costing isa. usually, but not always, higher than manufacturing cost per unit for variable costing.b. usually, but not always, lower than manufacturing cost per unit for variable costing.c. always higher than manufacturing cost per unit for variable costing.d. always lower than manufacturing cost per unit for variable costing.17. The one primary difference between variable and absorption costing is that undera. variable costing, companies charge the fixed manufacturing overhead as an expense in the current period.b. absorption costing, companies charge the fixed manufacturing overhead as an expense in the current period.c. variable costing, companies charge the variable manufacturing overhead as an expense in the current period.d. absorption costing, companies charge the variable manufacturing overhead as an expense in the current period.18. Capitol Manufacturing sells 3,000 units of Product A annually, and 7,000 units of Product B annually. The sales mix for Product A isa. 30%. c. 70%.b. 43%. d. Cannot determine from information given.Chapter 2119. In incremental analysis, total variable costs will always change under alternative courses of action, and total fixed costs will always remain constant.20. In incremental analysis, total fixed costs will always remain constant under alternative courses of action.21. An opportunity cost is the potential benefit obtained by using resources in an alternative course of action.22. The basic decision rule in a sell or process further decision is: process further if the incremental revenue from processing exceeds the incremental processing costs.23. From a quantitative standpoint, a segment should be eliminated if its contribution margin is less than the fixed costs that can be eliminated.24. A revenue that differs between alternatives and makes a difference in decision-making is called a(n)a. sales revenue. c. incremental revenue.b. irrelevant revenue. d. unavoidable revenue.25. Alvarez Company is considering the following alternatives:Alternative A Alternative B• Revenues $50,000 $60,000• Variable costs 30,000 30,000• Fixed costs 10,000 16,000What is the incremental profit?a. $10,000 c. $0b. $6,000 d. $4,00026. Which of the following is an irrelevant cost?a. An avoidable cost c. An incremental costb. A sunk cost d. An opportunity cost27. Relevant costs are alwaysa. fixed costs. c. variable costs.b. sunk costs d. avoidable costs.28. Miley, Inc. has excess capacity. Under what situations should the company accept a special order for less than the current selling price?a. Neverb. When additional fixed costs must be incurred to accommodate the orderc. When the company thinks it can use the cheaper materials without the customer’s knowledged. When incremental revenues exceed incremental costs29. A factory is operating at less than 100% capacity. Potential additional business will not use up the remainder of the plant capacity. Given the following list of costs, which one should be ignored in a decision to produce additional units of product?a. Variable selling expensesb. Fixed factory overheadc. Direct labord. Contribution margin of additional units30. A company’s unit costs based on 100,000 units are:• Variable costs $75• Fixed costs 30• The normal unit sales price per unit is $165.A special order from a foreign company has been received for 5,000 units at $135 a unit. In order to fulfill the order, 3,000 units of regular sales would have to be foregone.The opportunity cost associated with this order isa. $225,000. c. $495,000.b. $270,000. d. $405,000.31. In the analysis concerning the acceptance or rejection of a special order, which items are relevant?a. Variable costs only c. Variable costs and fixed costsb. Fixed costs only d. Variable costs and unavoidable costs32. What of the following would not be relevant in a make-or-buy decision?a. Opportunity costs c. Unavoidable variable costsb. Avoidable fixed cost d. Incremental fixed costs33. Max Company uses 20,000 units of Part A in producing its products. A supplier offers to make Part A for $7. Max Company has relevant costs of $8 a unit to manufacture Part A. If there is excess capacity, the opportunity cost of buying Part A from the supplier isa. $0. c. $20,000.b. $140,000. d. $160,000.34. Costs incurred before the split-off point area. sunk costs. c. incremental costs.b. relevant costs. d. opportunity costs.35. The point in the production process when joint products are readily identifiable is thea. separation point. c. split-off point.b. common point. d. break-even point.36. What will most likely occur if a company eliminates an unprofitable segment when a portion of fixed costs are unavoidable?a. All expenses of the eliminated segment will be eliminated.b. Net income will decrease.c. Net income will increase.d. The company’s variable costs will increase.37. If an unprofitable segment is eliminateda. it is impossible for net income to decrease.b. fixed expenses allocated to the eliminated segment will be eliminated.c. variable expenses of the eliminated segment will be eliminated.d. it is impossible for net income to increase.Chapter 2238. In a competitive environment, the company must set a target cost and a target selling price.39. The cost-plus pricing approach establishes a cost base and adds a markup to this base to determine a target selling price.40. Sales volume plays a large role in determining per unit costs in the cost-plus pricing approach.41. In time-and-material pricing, the material charge is based on the cost of direct materials used and a material loading charge for related overhead costs.42. A negotiated transfer price should be used when an outside market for the goods does not exist.43. The absorption-cost approach is consistent with generally accepted accounting principles because it defines the cost base as the manufacturing cost.44. In most cases, prices are set by thea. customers. c. competitive market.b. largest competitor. d. selling company.45. All of the following are correct statements about the target price except ita. is the price the company believes would place it in the optimal position for its target audience.b. is used to determine a product’s target cost.c. is determined after the company has identified its market and does market research.d. is determined after the company sets its desired profit amount.46. Target cost is comprised ofa. variable and fixed manufacturing costs only.b. variable manufacturing and selling and administrative costs only.c. total manufacturing and selling and administrative costs.d. fixed manufacturing and selling and administrative costs only.47. Bond Co. is using the target cost approach on a new product. Information gathered so far reveals:• Expected annual sales 400,000 units• Desired profit per unit $0.35• Target cost $168,000What is the target selling price per unit?a. $0.42 c. $0.70b. $0.35 d. $0.7748. In cost-plus pricing, the markup consists ofa. manufacturing costs.b. desired ROI.c. selling and administrative costs.d. total cost and desired ROI.49. Bellingham Suit Co. has received a shipment of suits that cost $200 each. If the company uses cost-plus pricing and applies a markup percentage of 60%, what is the sales price per suit?a. $333 c. $320b. $280 d. $50050. Why does the unit selling price increase when expected volume is lower than budgeted volume?a. Variable costs and fixed costs have to be spread over fewer units.b. Fixed costs and desired ROI have to be spread over fewer units.c. Variable costs and desired ROI have to be spread over fewer units.d. Fixed costs only have to be spread over fewer units.51. In time-and-material pricing, a material loading charge covers all of the following excepta. purchasing costs.b. related overhead.c. desired profit margin.d. All of these are covered.52. The labor charge per hour in time-and-material pricing includes all of the following excepta. an allowance for a desired profit.b. charges for labor loading.c. selling and administrative costs.d. overhead costs.53. Dudly Drafting Services uses a 45% material loading charge and a labor rate of $20 per hour. How much will be charged on a job that requires 3.5 hours of work and $40 of materials?a. $128 c. $110b. $88 d. $13354. All of the following are approaches for determining a transfer price except thea. cost-based approach.b. market-based approach.c. negotiated approach.d. time-and-material approach.55. The transfer price approach that is often considered the best approach because it generally provides the proper economic incentives is thea. cost-based approach.b. market-based approach.c. negotiated price approach.d. time-and-material pricing approach.56. The transfer price approach that will result in the largest contribution margin to the buying division is thea. cost-based approach.b. market-based approach.c. negotiated price approach.d. time-and-material pricing approach.57. Transfers between divisions located in countries with different tax ratesa. simplify the determination of the appropriate transfer price.b. are decreasing in number as more companies “localize” operations.c. encourage companies to report more income in countries with low tax rates.d. all of these are correct.Chapter 2358. A benefit of budgeting is that it provides definite objectives for evaluating performance.59. A budget can be a means of communicating a company’s objectives to external parties.60. The budget itself and the administration of the budget are the responsibility of the accounting department.61. The flow of input data for budgeting should be from the highest levels of responsibility to the lowest.62. Budgets can have a positive or negative effect on human behavior depending on the manner in which the budget is developed and administered.63. The budget is developed within the framework of a sales forecast.64. The master budget reflects management’s long-term plans encompassing five years or more.65. If a monthly cash budget is prepared properly, there will never be a cash deficiency at the end of any month.66. If budgets are to be effective, there must bea. a history of successful operations.b. independent verification of budget goals.c. an organizational structure with clearly defined lines of authority and responsibility.d. excess plant capacity.67. An unrealistic budget is more likely to result when ita. has been developed in a top down fashion.b. has been developed in a bottom up fashion.c. has been developed by all levels of management.d. is developed with performance appraisal usages in mind.68. A master budget consists ofa. an interrelated long-term plan and operating budgets.b. financial budgets and a long-term plan.c. interrelated financial budgets and operating budgets.d. all the accounting journals and ledgers used by a company.69. The starting point in preparing a master budget is the preparation of thea. production budget.b. sales budget.c. purchasing budget.d. personnel budget.70. Doe Manufacturing plans to sell 6,000 purple lawn chairs during May, 5,700 in June, and 6,000 during July. The company keeps 15% of the next month’s sales as ending inventory. How many units should Doe produce during June?a. 5,745 c. 6,600b. 5,655 d. Not enough information to determine.71. Lorie Nursery plans to sell 320 potted plants during April and 240 units in May. Lorie Nursery keeps 15% of the next month’s sales as ending inventory. How many units should Lorie Nursery produce during April?a. 308 c. 332b. 320 d. 35672. Pell Manufacturing is preparing its direct labor budget for May. Projections for the month are that 33,400 units are to be produced and that direct labor time is three hours per unit. If the labor cost per hour is $12, what is the total budgeted direct labor cost for May?a. 1,159,200 c. 1,180,800b. 1,202,400 d. 1,296,00073. The cash budget reflectsa. all revenues and all expenses for a period.b. expected cash receipts and cash disbursements from all sources.c. all the items that appear on a budgeted income statement.d. all the items that appear on a budgeted balance sheet.74. Which one of the following items would never appear on a cash budget?a. Office salaries expenseb. Interest expensec. Depreciation expensed. Travel expense75. The primary benefits of budgeting include all of the following except ita. requires only top management to plan ahead and formalize their future goals.b. provides definite objectives for evaluating performance.c. creates an early warning system for potential problems.d. motivates personnel throughout the organization.Chapter 2476. A static budget is one that is geared to one level of activity.77. A static budget is changed only when actual activity is different from the level of activity expected.78. A flexible budget is a series of static budgets at different levels of activities.79. Flexible budgeting relies on the assumption that unit variable costs will remain constant within the relevant range of activity.80. Get research paper samples and course-specific study resources under   homework for you course hero writing service – Manage ment by exception means that management will investigate areas where actual results differ from planned results if the items are material and controllable.81. A distinction should be made between controllable and noncontrollable costs when reporting information under responsibility accounting.82. More costs become controllable as one moves down to each lower level of managerial responsibility.83. Top management’s reaction to a difference between budgeted and actual sales often depends ona. whether the difference is favorable or unfavorable.b. whether management anticipated the difference.c. the materiality of the difference.d. the personality of the top managers.84. What is the primary difference between a static budget and a flexible budget?a. The static budget contains only fixed costs, while the flexible budget contains only variable costs.b. The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.c. The static budget is constructed using input from only upper level management, while a flexible budget obtains input from all levels of management.d. The static budget is prepared only for units produced, while a flexible budget reflects the number of units sold.85. What budgeted amounts appear on the flexible budget?a. Original budgeted amounts at the static budget activity levelb. Actual costs for the budgeted activity levelc. Budgeted amounts for the actual activity level achievedd. Actual costs for the estimated activity level86. Under management by exception, which differences between planned and actual results should be investigated?a. Material and noncontrollableb. Controllable and noncontrollablec. Material and controllabled. All differences should be investigated87. In the Dichter Co., indirect labor is budgeted for $72,000 and factory supervision is budgeted for $24,000 at normal capacity of 160,000 direct labor hours. If 180,000 direct labor hours are worked, flexible budget total for these costs isa. $ 96,000 c. $108,000b. $105,000 d. $ 99,00088. A cost is considered controllable at a given level of managerial responsibility ifa. the manager has the power to incur the cost within a given time period.b. the cost has not exceeded the budget amount in the master budget.c. it is a variable cost, but it is uncontrollable if it is a fixed cost.d. it changes in magnitude in a flexible budget.89. As one moves up to each higher level of managerial responsibility,a. fewer costs are controllable.b. the responsibility for cost incurrence diminishes.c. a greater number of costs are controllable.d. performance evaluation becomes less important.90. Get research paper samples and course-specific study resources under   homework for you course hero writing service – Manage ment by exceptiona. is most effective at top levels of management.b. can be implemented at each level of responsibility within an organization.c. can only be applied when comparing actual results with the master budget.d. is the opposite of goal congruence.91. The linens department of a large department store isa. not a responsibility center.b. a profit center.c. a cost center.d. an investment center.92. Trails and Paths, Inc. had average operating assets of $6,000,000 and sales of $3,000,000 in 2013. If the controllable margin was $600,000, the ROI wasa. 50% c. 40%b. 20% d. 10%93. A distinguishing characteristic of an investment center is thata. revenues are generated by selling and buying stocks and bonds.b. interest revenue is the major source of revenues.c. the profitability of the center is related to the funds invested in the center.d. it is a responsibility center which only generates revenues.94. Which of the following will cause an increase in ROI?a. An increase in variable costsb. An increase in average operating assetsc. An increase in salesd. An increase in controllable fixed costsChapter 2595. Standard cost is the industry average cost for a particular item.96. Actual costs that vary from standard costs always indicate inefficiencies.97. In developing a standard cost for direct materials, a price factor and a quantity factor must be considered.98. A variance is the difference between actual costs and standard costs.99. If actual costs are less than standard costs, the variance is favorable.100. The total overhead variance is the difference between actual overhead costs and overhead costs applied to work done.101. What is a standard cost?a. The total number of units times the budgeted amount expectedb. Any amount that appears on a budgetc. The total amount that appears on the budget for product costsd. The amount management thinks should be incurred to produce a good or service102. The difference between a budget and a standard is thata. a budget expresses what costs were, while a standard expresses what costs should be.b. a budget expresses management’s plans, while a standard reflects what actually happened.c. a budget expresses a total amount, while a standard expresses a unit amount.d. standards are excluded from the cost accounting system, whereas budgets are generally incorporated into the cost accounting system.103. Marburg Co. expects direct materials cost of $6 per unit for 100,000 units (a total of $600,000 of direct materials costs). Marburg’s standard direct materials cost and budgeted direct materials cost isStandard Budgeteda. $6 per unit $600,000 per yearb. $6 per unit $6 per unitc. $600,000 per year $6 per unitd. $600,000 per year $600,000 per year104. Which of the following statements about standard costs is false?a. Properly set standards should promote efficiency.b. Standard costs facilitate management planning.c. Standards should not be used in “management by exception.”d. Standard costs can simplify the costing of inventories.105. An unfavorable materials quantity variance would occur ifa. more materials were purchased than were used.b. actual pounds of materials used were less than the standard pounds allowed.c. actual labor hours used were greater than the standard labor hours allowed.d. actual pounds of materials used were greater than the standard pounds allowed.106. Which of the following statements is true?a. Variances are the differences between total actual costs and total standard costs.b. When actual costs exceed standard costs, the variance is favorable.c. An unfavorable variance results when actual costs are decreasing but standards are not changed.d. All of the above are true.107. If actual direct materials costs are greater than standard direct materials costs, it means thata. actual costs were calculated incorrectly.b. the actual unit price of direct materials was greater than the standard unit price of direct materials.c. the actual unit price of raw materials or the actual quantities of raw materials used was greater than the standard unit price or standard quantities of raw materials expected.d. the purchasing agent or the production foreman is inefficient.108. If actual costs are greater than standard costs, there is a(n)a. normal variance.b. unfavorable variance.c. favorable variance.d. error in the accounting system.109. A total materials variance is analyzed in terms ofa. price and quantity variances.b. buy and sell variances.c. quantity and quality variances.d. tight and loose variances.110. Labor efficiency is measured by thea. materials quantity variance.b. total labor variance.c. labor quantity variance.d. labor rate variance.111. An unfavorable labor quantity variance may be caused bya. paying workers higher wages than expected.b. misallocation of workers.c. worker fatigue or carelessness.d. higher pay rates mandated by union contracts.112. Dillon has a standard of 2 hours of labor per unit, at $12 per hour. In producing 2,000 units, Dillon used 3,850 hours of labor at a total cost of $46,970. Dillon’s labor price variance isa. $770 U.b. $800 U.c. $1,030 F.d. $1,930 F.113. Dillon has a standard of 2 hours of labor per unit, at $12 per hour. In producing 2,000 units, Dillon used 3,850 hours of labor at a total cost of $46,970. Dillon’s labor quantity variance isa. $770 U. c. $770 F.b. $1,800 F. d. $1,930 F.114. The balanced scorecarda. incorporates financial and nonfinancial measures in an integrated system.b. is based on financial measures.c. is based on nonfinancial measures.d. does not use financial or nonfinancial measures.115. Which is not one of the four most commonly used perspectives on a balanced scorecard?a. The financial perspectiveb. The customer perspectivec. The external process perspectived. The learning and growth perspectiveChapter 26116. Capital budgeting decisions usually involve large investments and often have a significant impact on a company’s future profitability.117. The cash payback method is frequently used as a screening tool but it does not take into consideration the profitability of a project.118. The profitability index allows comparison of the relative desirability of projects that require differing initial investments.119. Sensitivity analysis uses a number of outcome estimates to get a sense of the variability among potential returns.120. A post-audit is an evaluation of how well a project’s actual performance matches the projections made when the project was proposed.121. A major advantage of the annual rate of return method is that it considers the time value of money.122. Capital budgeting is the processa. used in sell or process further decisions.b. of determining how much capital stock to issue.c. of making capital expenditure decisions.d. of eliminating unprofitable product lines.123. The payback period is often compared to an asset’sa. estimated useful life.b. warranty period.c. net present value.d. internal rate of return.124. Which of the following ignores the time value of money?a. Internal rate of returnb. Profitability indexc. Net present valued. Cash payback125. Brady Corp. is considering the purchase of a piece of equipment that costs $20,000. Projected net annual cash flows over the project’s life are:Year Net Annual Cash Flow1. $ 3,0002. 8,0003. 15,0004. 9,000The cash payback period isb. 2.29 years c. 2.60 years.c. 2.40 years. d. 2.31 years.126. The cash payback techniquea. considers cash flows over the life of a project.b. cannot be used with uneven cash flows.c. is superior to the net present value method.d. may be useful as an initial screening device.127. A company’s cost of capital refers to thea. rate the company must pay to obtain funds from creditors and stockholders.b. total cost of a capital project.c. cost of printing and registering common stock shares.d. rate of return earned on common stock.128. A project with a zero net present value indicates that it isa. unacceptable.b. profitable.c. acceptable.d. going to have an acceptable cash payback period.129. The profitability indexa. does not take into account the discounted cash flows.b. is calculated by dividing total cash flows by the initial investment.c. allows comparison of the relative desirability of projects that require differing initial investments.d. will never be greater than 1.130. A capital budgeting method that takes into consideration the time value of money is thea. annual rate of return method.b. return on stockholders’ equity method.c. cash payback technique.d. internal rate of return method.