financial and managerial accounting mcq

Q.No. Question Options Answer

1. Which of the following is an essential characteristic of an asset

1. The claim to an asset,s benefit is legally enforceable

4

2. An asset is tangible

3. An asset is obtained at a cost

4. An asset provides future benefits

5. -

2. In the accounting equation:

1. Equity and assets are dependent variables

2

2. Assets and liabilities are dependent variables

3. Equity and liabilities are dependent variables

4. None of the above

5. -

3. The intangible assets are:

1. Fictitious assets that will not result in flow of economic benefits to the

enterprise

2

2. Non-monetary assets without physical substance

3. Non-monetary current assets without physical substance


5. -

4. Receivable, that is, the amount due from a customer

is a:

1. Monetary current asset

1

2. Non-monetary current asset

3. Fixed asset


5. -

5. An asset is classified as a non-current asset or

current asset based on:

1. The utility of the asset

4 2. Whether the asset is movable or not

3. Its intended use


5. -

6. Current assets are :

1. Assets that are expected to be realised within twelve months of the balance

sheet date.

3

2. Assets that are expected to be realised or consumed in the normal course of

the enterprise,s operating cycle

3.

Assets that are expected to be realised within twelve months of the balance

sheet date, and also assets that are

expected to be realised or consumed in the normal course of the operating

cycle of the enterprise


5. -

7. Current liabilities are:

1. Liabilities that are due to be settled

within twelve months of the balance sheet date

3

2. Liabilities that are expected to be

settled in the normal course of the operating cycle of the enterprise

3.

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.

4. None of the above.

5. -

8. A provision is a:

1. Liability of uncertain timing

2

2. Liability of uncertain timing and

amount

3. Liability of uncertain amount


5. -

9. Which of the following is not entitled for preference

share holders?

1. Voting right

1

2. Fixed Percentage of dividend

3. Preference over equity shareholders


5. -

10. Purchase of goods (for sale) for Rs. 10,000 results

in:

1. Increase in equity by Rs. 10,000, if the

purchase is on credit

4

2. Increase in equity by Rs. 10,000, if the purchase is on cash basis

3. Decrease in equity by Rs. 10,000


5. -

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


2

2.

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

3. Increase in equity by Rs. 10,000


5. -

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

1. Increase in equity by Rs. 5,000

3


3. Decrease in equity by Rs. 5,000 if it does not include any advance payment

of salaries and wages


5. -

13. Interest accrued but not due for payment leads to:

1. Decrease in equity

3

2. Decrease in both equity and assets

3. Decrease in equity and increase in

liabilities


5. -

14. Prepaid insurance premium should be classified as a:

1. Current asset

1

2. Fictitious asset

3. Non-current asset


5. -

15. Payment of dividend by a company results in:

1. Decrease in equity that represents a

loss

2

2. Decrease in equity that represents distribution to owners

3. Decrease in equity that represents an expense


5. -

16. Usually, monetary assets are classified as current

assets or investments

1. True

2

2. False

3. -

4. -

5. -

17. Investments are necessarily assets that are held by an enterprise for the accretion of wealth through

distribution or for capital appreciation

1. True

1

2. False

3. -

4. -

5. -

18. The degree of uncertainty surrounding ,provision, is

higher as compared to the degree of uncertainty

surrounding ,accurals,

1. True

1

2. False

3. -

4. -

5. -

19. The profit measured as increase in networth and the

profit computed as excess of revenue over costs are 1. True 2

not one and the same 2. False

3. -

4. -

5. -

20. Trade receivables is a financial instrument

1. True

1

2. False

3. -

4. -

5. -

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

1. True

1

2. False

3. -

4. -

5. -

22. The terms ,non-controlling interests, and ,minority

interests, are often used interchangeably

1. True

1

2. False

3. -

4. -

5. -

23. General reserve is also called Free reserve

1. True

1

2. False

3. -

4. -

5. -

24. Which of the following is true about the link between

authorized share capital and issued share capital?

1. Issued share capital can exceed the

authorized share capital

2

2. Issued share capital can be less than

or equal to the authorized share capital

3. Issued share capital can never equal

the authorized share capital

4. None of these

5. -

25. Fixed assets are always shown in the financial statement at

1. Cost only

3

2. Realizable value

3. Cost less depreciation

4. Fair value

5. -

26. Equity shareholders are the real owners of a limited

liability company but they have

1. Residual claim on the earning and

assets

1

2. First and assured claim on the earning and assets

3. Claim depending upon the policy of the company

4. None of these

5. -

27. Which of the following statements is true about

depreciation?

1. It is provided on fixed assets on

account of their use in the business

3

2. It is a non-cash expense

3. Both of these

4. Neither of these.

5. -

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

1. Increase in non-current liabilities and

increase in current assets

1

2. Increase in current liabilities and

current assets

3. Increase in non-current liabilities and

non current assets

4. None of these

5. -

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?

1. Increase in non-current assets and increase in non-current liability

excluding owner,s equity

2

2. Increase in non-current assets and increase in owner,s equity

3. Increase in current liabilities and

increase in non-current assets

4. None of these

5. -

30. Which of the following is affected by payment of

dividend?

1. Direct decrease in the equity

3

2. Direct decrease in current assets

3. Decrease in distributable equity and decrease in current assets

4. Decrease in equity and decrease in current assets

5. -

31. -

1. -

0

2. -

3. -

4. -

5. -


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. 60,000

4

2. 15,000

3. 65,000

4. 45,000

5. -

1.

Jan Way Company has a retained earnings balance of $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

the period, the net income for the period was:

1. $33,000

3

2. $58,000

3. $83,000

4. $187,000

5. -

2. The element of a corporation,s annual report that describes

the corporation,s accounting methods is the:

1. notes to the financial statements

1

2. management discussion and analysis

3. auditor,s report

4. income statement

5. -

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

Company. On June 24, payment is received from Duffy Co. for

the balance due. What is the amount of cash received?

1. $700

3

2. $680

3. $686


5. -

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 :

1. property,plant and equipment

3

2. land expense

3. a long-term investment

4. an intangible asset

5. -

3. Depreciation is a process of :

1. Valuation

2

2. Cost allocation

3. Cash accumulation

4. Appraisal

5. -

4. The balance in retained earnings is not affected by : 1. net income 3

2. net loss

3. issuance of common stock

4. dividends

5. -

4.

Micah Bartlett Company purchased equipment on January 1, 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 at December 31, 2002, if the straight-line method of

depreciation is used is:

1. $80,000

4

2. $160,000

3. $78,000

4. $156,000

5. -

5. An example of a cash flow from investing activity is :

1. Receipt of cash from the issuance of bonds payable

3

2. Payment of cash to repurchase outstanding capital stock

3. Receipt of cash from the sale of

equipment

4. Payment of cash to suppliers for

inventory

5. -

5. What is the primary criterion by which accounting information

can be judged?

1. Consistency

3

2. Predictive value

3. Usefulness for decision making

4. Comparability

5. -

6. What accounting constraint refers to the tendency of accountants to resolve uncertainty in a way least likely to

overstate assets and net income?

1. Comparability

3

2. Materiality

3. Conservatism

4. Consistency

5. -

6.

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 cash provided by operations is;

1. $102,000

4

2. $112,000

3. $124,000

4. $136,000

5. -

7. Genesis Company buys a $900 machine on credit. The transaction will affect the:

1. income statement only

2

2. balance sheet only

3. income statement and retained earnings

statement only.

4. income statement, retained earnings

statement, and balance sheet

5. -

7. Which of the following items is reported on a cash flow

statement prepared by the direct method?

1. Loss on sale of building

4

2. Increase in accounts receivable

3. Depreciation expense

4. Cash payments to suppliers

5. -

8. Debits

1. increase both assets and liabilities

3

2. decrease both assets and liabilities

3. increase assets and decrease liabilities

4. decrease assets and increase liabilities

5. -

8. Gross profit will result if:

1. Operating expenses are less than net

income.

3

2. Sales revenues are greater than

operating expenses

3. Sales revenues are greater than cost of

goods sold

4. Operating expenses are greater than

cost of goods sold

5. -

9. A revenue account :

1. is increased by debits

4

2. is decreased by credits

3. has a normal balance of a debit

4. is increased by credits

5. -

9.

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.

1. $69,400

2

2. $74,100

3. $56,900

4. $197,700

5. -

10. Which of these statements about a journal is false?

1. It contains only revenue and expense

accounts

1

2. It provides a chronological record of

transactions

3. It helps to locate errors because the debit and credit amounts for each entry

can be readily compared

4. It discloses in one place the complete

effect of a transaction

5. -

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

1. Negative cash from operations, negative

cash from investing, and positive cash from financing

1

2. Negative cash from operations, positive

cash from investing and positive cash from financing

3. Positive cash from operations, negative

cash from investing and negative cash from financing


cash from investing and positive cash from financing

5. -

11. Items that are added back to net income in determining cash provided by operations under the indirect method do not

include:


2

2. An increase in inventory

3. Amortization expense

4. Loss on sale of equipment

5. -

11. A trial balance will not balance if:

1. a correct journal entry is posted twice

3

2. the purchase of supplies on account is debited to Supplies and credited to Cash

3. a $100 cash dividend is debited to

Dividends for $1,000 and credited to Cash for $100

4. a $450 payment on account is debited to

Accounts Payable for $45 and credited to Cash for $45.

5. -

12.

The following data are available for Allen Clapp Corporation.

Net Income $200,000

Depreciation

expense 40,000

Dividends

paid 60,000

Gain on sale

of land 10,000

Decrease in

Accounts

Receivable

20,000

Decrease in

Accounts

Payable

30,000

Net cash provided by operating activities is :

1. $160,000

2

2. $220,000

3. $240,000

4. $280,000

5. -

12. Which principle dictates that efforts (expenses) be recorded

with accomplishments (revenues)?

1. Matching principle

1

2. Cost principle

3. Periodicity principle

4. Revenue recognition principle

5. -

13.

Kamal Company has the following units and costs.

Particulars Units Unit Cost

Inventory, Jan 1 8,000 $11

1. 99.000

3 2. 108,000

3. 113,000

Purchase, June 19 13,000 12

Purchase, Nov 8 5,000 13

If 9,000 units are on hand at December 31, what is the cost

of the ending inventory under FIFO?

4. 117,000

5. -

14.

Davidson Electronics has the following :

Particulars Units Unit Cost

Inventory, Jan 1 5,000 $8

Purchase, April 2 15,000 10

Purchase, Nov 8 20,000 12

If Davidson has 7,000 units on hand at December 31, the cost

of ending inventory under the average-cost method is:

1. $84,000

4

2. $70,000

3. $56,000

4. $75,250

5. -

15. The lower of cost or market rule for inventory is an example

of the application of:

1. the conservatism constraint

1

2. the historical cost principle

3. the materiality constraint

4. the economic entity assumption

5. -

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:

1. understated and overstated

2

2. overstated and understated

3. overstated and overstated

4. understated and understated

5. -

17.

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

by Good Stuff Retailers will include a credit to Sales of $50,000 and debit(s) to :

1. Cash $48,000 and Service Charge Expense $2,000

1

2. Accounts Receivable $48,000 and Service Charge Expense $2,000

3. Cash $50,000

4. Accounts Receivable $50,000

5. -

18.

Kant Enterprises purchased a truck for $11,000 on January 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

December 31,2010, can be computed by the following

1. ($11,000/Total estimated activity) x

Units of activity for 2010 4

2. ($10,000/Total estimated activity) x Units of activity for 2010

formula: 3.

($11,000/Total estimated activity) x

Units of activity for 2009 and 2010

4. ($10,000/Total estimated activity) x

Units of activity for 2009 and 2010

5. -

19. If a company reports goodwill as an intangible asset on its

books, what is the one thing you know with certainty?

1. The company is a valuable company

worth investing in

3

2. The company has a well-established brand name

3. The company purchased another company

4. The goodwill will generated a lot of

positive business for the company for many years to come.

5. -

20. Corricten Company borrows $88,500 on September 1, 2010 from Harrington State Bank by signing an $88,500, 12%, one-

year note. What is the accured interest at December 31,2010?

1. $2,655

2

2. $3,540

3. $ 4,425

4. $ 10,620

5. -

21.

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

wants to pay $375,000 of dividends in 2010, common stockholders will receive:

1. $0

4

2. $295,000

3. $215,000

4. $135,000

5. -

22. Preferred stock may have which of the following features?

1. dividend preference

4

2. preference to assets in the event of liquidation

3. cumulative dividends

4. all of the above

5. -

23. Treasury stock may be repurchased: 1. to reissue the shares to officers and employees under bonus and stock

compensation plans 4

2. to signal to the stock market that

management believes the stock is underpriced

3. to have additional shares available for

use in the acquisition of other companies

4. more than one of the above

5. -

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:

1. net income will decrease by $80,000

4

2. retained earnings will decrease by $80,000 and total stockholders equity will

increase by $80,000

3. retained earnings will decrease by $300,000 and total stockholders equity

will increase by $300,000

4. retained earnings will decrease by $300,000 and total paid-in capital will

increase by $300,000

5. -

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?

1. $700

2

2. $686

3. $685

4. $650

5. -

26.

Cuso Company purchased equipment on January 1, 2009 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. What is the amount of accumulated

depreciation at December 31, 2010 if the straight-line method of depreciation is used?

1. 80,000

4

2. 160,000

3. 78,000

4. 156,000

5. -

27.

Able Towing Company purchased a tow truck for $60,000 on

January 1, 2010. It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of

$12,000. On December 31,2012, before adjusting entries had

been made, the company decided to change the remaining estimated life to 4 years (including 2012) and the salvage

value to $2,000. What was the depreciation expense for 2012?

1. 6,000

4

2. 4,800

3. 15,000

4. 12,100

5. -

28.

Sensible Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1. What amount should

Sensible report as a current liability for Unearned Insurance

Premiums at December 31?

1. $0

2

2. $4,500

3. $13,500

4. $18,000

5. -


1.

For 2010 Stoneland Corporation reported net income

$26,000; net sales $400,000; and average shares

outstanding 6,000. There were preferred stock dividends of $2,000. What was the 2010 earnings per

share?

1. $4.00

1

2. $0.06

3. $16.67

4. $66.67

5. -

2. Which of the following would affect the gross profit

rate? (Assume sales remains constant)

1. An increase in advertising expense

3

2. A decrease in depreciation expense

3. An increase in cost of goods sold

4. A decrease in insurance expense

5. -

3. The gross profit rate is equal to:

1. Net income divided by sales

3

2. Cost of goods sold divided by sales

3. Net sales minus cost of goods sold, divided

by net sales

4. Sales minus cost of goods sold, divided by

cost of goods sold

5. -

4. A quality of earnings ratio:

1. Is computed as net income divided by net cash provided by operating activities

2

2. That is less than 1 indicates that a company might by using aggressive

accounting tactics

3. That is greater than 1 indicates that a

company might be using aggressive accounting tactics

4. Is computed as net cash provided by

operating activities divided by total assets.

5. -

5. Which of the following measures provides an

indication of how efficient a company is in employing its assets?

1. Current ratio

4

2. Profit margin ratio

3. Debt to total assets ratio

4. Asset turnover ratio

5. -

6. Which of the following is not a measure of liquidity?

1. Debt to total assets ratio

1

2. Working capital

3. Current ratio

4. Current cash debt coverage

5. -

7. Which of the following is incorrect about the

statement of cash flows?

1. It is a fourth basic financial statement

3

2. It provides information about cash receipts

and cash payments of an entity during a period

3. It reconciles the ending cash account

balance to the balance per the bank statement

4. It provides information about the

operating, investing and financing activities of the business

5. -

8. Which of the following will not be reported in the

statement of cash flows?

1. The net change in plant assets during the

year

1

2. Cash payments for plant assets during the

year

3. Cash receipts from sales of plant assets during the year

4. Sources of financing during the period

5. -

9. Which is an example of cash flow from an operating

activity?

1. Payment of cash to lenders for interest

1

2. Receipt of cash from the sale of capital

stock

3. Payment of cash dividends to the

company,s stock holders


5. -

10. Cash dividends paid to stockholders are classified on the statement of cash flows as:

1. Operating activities

4

2. Investing activities

3. A combination of (a) and (b)

4. Financing activities

5. -

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?

1. $102,000

4

2. $112,000

3. $124,000

4. $136,000

5. -

12. Items that are added back to net income in determining cash provided by operations under the

indirect method do not include:


2

2. An increase in inventory

3. Amortization expense

4. Loss on sale of equipment

5. -

13. The following are data concerning cash received or

paid from various transactions for Orange Peels

Corporation:

1. $120,000

1

2. $130,000

3. $150,000

4. $190,000

Net cash provided by investing activities is:

5. -

14.

The following data are available for Something Strange!:

Net cash provided by financing activities is

1. $90,000

2

2. $130,000

3. $160,000

4. $170,000

5. -

15. In horizontal analysis, each item is expressed as a

percentage of the:

1. Net income amount

4

2. Stockholders, equity amount

3. Total assets amount

4. Base-year amount

5. -

16.

The following schedule is a display of what type of analysis?

1. Horizontal analysis

3

2. Differential analysis

3. Vertical analysis

4. Ratio analysis

5. -

17. In vertical analysis, the base amount for depreciation expense is generally:

1. Net sales

1

2. Depreciation expense in a previous year

3. Gross profit

4. Fixed assets

5. -

18. Which measure is an evaluation of a company,s ability

to pay current liabilities?

1. Current cash debt coverage ratio

3

2. Current ratio

3. Both (a) and (b)


5. -

19. Which measure is useful in evaluating the efficiency in managing inventories?

1. Inventory turnover ratio

3

2. Days in inventory

3. Both (a) and (b)


5. -

20. Which of these is not a liquidity ratio?

1. Current ratio

2

2. Asset turnover ratio

3. Inventory turnover ratio

4. Receivables turnover ratio

5. -

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?

1. 6%

1

2. 12%

3. 40%

4. 200%

5. -

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

1. The same accounting principles are used

each year

3

2. Revenue is recognized when earned

3. Maintenance costs are capitalized and then

depreciated

4. The company,s P-E ratio is high relative to

competitors

5. -

23.

The following ratios are available for Leer Inc. and Stable Inc.

Compared to Stable Inc., Leer Inc. has:

1. Higher liquidity, higher solvency, and

higher profitability

4

2. Lower liquidity, higher solvency, and higher profitability

3. Higher liquidity, lower solvency and higher profitability

4. Higher liquidity and lower solvency, but

profitability cannot be compared based on information provided

5. -

24.

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?

1. 40%

4

2. 60%

3. 20.5%

4. 34.6%

5. -

25.

Carlos Company had beginning inventory of $80,000,

ending inventory of $110,000, cost of goods sold of

$285,000, and sales of $475,000. Carlos,s days in inventory is :

1. 73 days

2

2. 121.7 days

3. 102.5 days

4. 84.5 days

5. -

26.

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

was $100,000 and at the end of the year was $150,000. What was the receivables turnover ratio?

1. 6.4

1

2. 8.0

3. 5.3

4. 4.0

5. -

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)?

1. 2,555

3 2. 30

3. 52

4. 210

5. -

28.

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

was the company,s asset turnover ratio?

1. 0.90

3

2. 0.20

3. 0.72

4. 1.39

5. -

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?

1. 5.00

3

2. 4.00

3. 6.67

4. 7.50

5. -

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

1. Negative cash from operations, negative


1

2. Negative cash from operations, positive



cash from investing, and negative cash from financing


cash from investing and positive cash from financing.

5. -

31.

The following data are available for Allen Clapp Corporation:

Net cash provided by operating activities is:

1. $160,000

2

2. $220,000

3. $240,000

4. $280,000

5. -

32. Adams Corporation reported net sales of $300,000, $330,000, and $360,000 in the years 2008, 2009 and

1. 77% 3

2010, respectively. If 2008 is the base year, what

percentage do 2010 sales represent of the base? 2. 108%

3. 120%

4. 130%

5. -


1. Which of the following costs does not change when the

level of business activity changes?

1. total fixed costs

1

2. total variable costs

3. total direct materials costs

4. fixed costs per unit

5. -

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

1. Out of pocket cost

3

2. Sunk cost

3. Opportunity cost

4. Direct cost

5. -

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 12,000 units. The cost is:

1. fixed

1

2. variable

3. sunk

4. incremental

5. -

2. Relevant costs are

1. All fixed and variable costs

4 2. Costs that would be incurred within the

relevant range of production

3. Past costs that are expected to be different in the future

4. Anticipated future costs that will differ

among various alternatives

5. -

3. A sunk cost is a cost

1. incurred in the past which is not relevant to

present decisions.

1

2. incurred in the current period which changes with changes in production activity.

3. incurred in the current period which remains

constant even though production activity changes.

4. which is estimated to occur in the future.

5. -

3. An increase in sales price

1. Does not affect the break-even point

4

2. Lowers the net profit

3. Increase the break-even point

4. Lowers the break even point

5. -

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?

1. the trip to Europe that you will not be able

to take if you buy the car

1

2. the cost of the car you are trading in

3. the cost of your books for this term

4. the cost of your car insurance last year

5. -

4. Given the following notations, what is the break-even sale in rupees?

1. SP/(FC-VC)

4

2. VC/(SP-FC)

3. FC/(VC-SP)

4. FC/(SP-VC)/SP

5. -

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. 40%

3

2. 80%

3. 60%


5. -

5. Calculating the difference in revenue and the difference

in cost between decision alternatives is called

1. budgeting production.

2

2. incremental analysis.

3. profit planning.

4. systems development.

5. -

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)?

1. 10,000 units

2

2. 15,000 units

3. 20,000 units

4. 45,000 units

5. -

6. Variable costs per unit

1. can be estimated by the high-low method.

4

2. remains the same on a per unit basis when

the level of activity changes.

3. are represented by the slope of the total cost

line.

4. All of the above answers are correct.

5. -

7.

Based on the following data, what is the Degree of

Operating Leverage?

Sales

Rs.

6,0

0,0

00

Less :

Variable

Costs

Rs,

2,4

0,0

00

Contributi

on margin

Rs.

3,6

0,0

1. .8

3

2. 1.2

3. 1.8

4. 4.0

5. -

00

Fixed

Costs

Rs.

1,6

0,0

00

Operating

Income

Rs.

2,0

0,0

00

7. When units produced and total production costs are

graphed, the result is called a(n)

1. incremental analysis.

4

2. resource constraint.

3. contribution margin.

4. scattergraph.

5. -

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.

12,00,000 sales?

1. Rs. 50,000

1

2. Rs. 1,50,000

3. Rs. 2,00,000

4. Rs. 4,00,000

5. -

8. Marro Manufacturing is operating at its break-even point of 10,000 units. Which of the following statements

is not true?

1. The amount of Marro¿s costs equals the amount of its revenues

2

2. Marro,s fixed costs equal its variable costs

3. Marro,s profit equals zero.

4. Assuming no other changes, if Marro sold

more units, it would earn a profit.

5. -

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 company¿s fixed cost?

1. Rs. 16,000

2

2. Rs. 24,000

3. Rs. 80,000

4. Rs. 96,000

5. -

9. Which of the following is not an assumption of C-V-P

analysis?

1. Costs can be accurately separated into fixed

and variable components.

4

2. Fixed costs remain constant within the relevant range.

3. Total variable costs are proportional to the level of activity.

4. Selling price per unit declines after the break-even point is reached.

5. -

10. Which of the following statements regarding the

contribution margin ratio is not true?

1. The contribution margin ratio is equal to the ontribution margin per unit divided by the

selling price.

3

2. The contribution margin ratio is the amount of each sales dollar that goes toward covering

fixed costs and generating a profit.

3. The contribution margin ratio is equal to variable cost per unit divided by fixed cost per

unit.

4. The contribution margin ratio is useful when companies that sell a variety of products

calculate a break-even point.

5. -

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?

1. Rs. 50,000

1

2. Rs. 1,50,000

3. Rs. 2,00,000


5. -

11. -

1. -

0

2. -

3. -

4. -

5. -

11. If a company has fixed costs and is operating above the breakeven point, when sales increase by 15%,

profits will

1. increase by less than 15%.

3

2. increase by 15%.

3. increase by more than 15%.

4. decrease by less than 15%.

5. -

12. When considering a process that involves a resource

constraint, the optimal decision

1. minimizes the break-even point.

2

2. maximizes the contribution margin per unit of the constraint.

3. minimizes the contribution margin per unit of output.

4. minimizes total fixed costs.

5. -

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.

1. $80,115

3

2. $76,000

3. $79,800

4. $91,800

5. -

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?

1. 90,170 units

2

2. 221,250 units

3. 304, 536 units

4. 86,325 units

5. -

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?

1. $24,400

4

2. $26,840

3. $59,780

4. $32,940

5. -

16. Alma,s Used Autos has fixed costs of $7,000 per

month. If each car is sold for $350 more than Alma paid 1. 20 cars 1

for it, how many cars must Alma sell in a month in order

to break even? 2. 50 cars

3. 5 cars

4. 30 cars

5. -

17.

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?

1. $125,000

1

2. $175,000

3. $100,000

4. $5,000

5. -

18.

Canoe Company has two products. In the past, Canoe

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

$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?

1. 1,125

1

2. 225

3. 1,607

4. 511

5. -

19.

Lisa,s Light Lunches sells three soup and salad buffet

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, and a sandwich has variable costs of $4.42. If fixed

costs total $78,860, what is the weighted average contribution margin?

1. $8.80

2

2. $2.20

3. $4.32

4. $7.18

5. -

20. Full costing

1. is the same as absorption costing.

4

2. considers fixed manufacturing overhead as

part of the cost of inventory.

3. often does not provide the information needed for C-V-P analysis.

4. All of the above choices are correct.

5. -

21. Which of the following items appears on a variable costing income statement but not on a full costing

income statement?

1. sales

4

2. gross margin

3. net income

4. contribution margin

5. -

22. Which of the following items on a variable costing

income statement will change in direct proportion to a

change in sales?

1. sales, contribution margin, income

2

2. sales, variable costs, contribution margin

3. sales, variable costs, contribution margin,

fixed costs and income

4. sales, variable costs, and fixed costs

5. -

23. When the number of units sold is equal to the number

of units produced, net income using full costing will be

1. greater than net income using variable

costing.

2

2. equal to net income using variable costing.

3. less than net income using variable costing.

4. None of the above answers is always correct.

5. -

24. If the number of units sold is less than the number of

units produced

1. full costing and variable costing will yield the

same net income.

2

2. full costing will assign some fixed

manufacturing costs to the units in ending inventory.

3. net income will be higher under variable

costing than under full costing.

4. inventory levels will decrease.

5. -

25. Which of the following is not true when units sold

exceed units produced?

1. Full costing and variable costing will yield the

same net income.

1 2. Full costing will assign some fixed manufacturing costs to the units in ending

inventory.

3. Net income will be higher under variable

costing than under full costing.

4. Inventory levels will decrease.

5. -

26. If a company employs JIT inventory techniques:

1. variable and full costing income will differ

little since there is almost no inventory

1

2. variable and full costing income will differ little since there is almost no fixed cost

3. variable and full costing income will differ greatly little since there is much inventory

4. variable and full costing income will differ

greatly since there are high levels of fixed costs.

5. -

27. Indirect costs occur when

1. resources are shared by more than one

product or service.

4

2. costs cannot be directly traced to products

or services.

3. multiple departments share a piece of equipment.

4. All of the above are correct.

5. -

28. From a decision-making standpoint, the allocated cost

should measure the

1. sunk cost of the equipment involved.

3

2. variable costs of the goods purchased.

3. opportunity cost of using a company

resource.

4. product cost of the goods produced.

5. -

29. The cost objective is the

1. reason for allocating the cost.

3

2. calculation based on budgeted amounts.

3. product, service, or department that is to

receive the allocation

4. maximum amount to be allocated to any

single department

5. -

30. The product, service, or department that is to receive

the cost allocation is called the

1. cost-plus recipient.

2

2. cost object.

3. terminal.

4. pool for manufacturing overhead.

5. -

31. A cost pool is

1. not necessary in cost-plus contracts.

3

2. useful when separating mixed costs into their fixed and variable components.

3. allocated using a single allocation base.

4. a method of allocating costs among service departments.

5. -

32. An allocation base

1. is the minimum amount to be allocated to a

cost object.

4

2. coordinates the manufacturing overhead

costs as they are incurred.

3. will always be less than the variable costs for a product.

4. relates the cost pool to the cost objectives.

5. -

33. Which of the following is not a criterion used to

allocate fixed costs?

1. ability to bear costs

3

2. equity

3. feasible outcomes

4. relative benefits

5. -

34. The method of allocation which allocates service

department costs to production departments but not to

other service departments is called the

1. equity method.

2

2. direct method.

3. reciprocal method.

4. sequential or step method.

5. -

35. Service department costs are allocated to producing

departments 1.

so that the costs can be allocated to the

products in the producing departments. 1

2. because the costs of the service

is not material

3. so the service will not be purchased externally

4. all of the above.

5. -

36. The type of costs which are affected by the manager,s decisions and for which the manager should be held

accountable are

1. indirect costs.

2

2. controllable costs.

3. basis costs.

4. pooled costs.

5. -

37. When fixed costs are unitized, they

1. are stated on a per unit basis.

4

2. may appear to be variable costs.

3. may cause managers to make decisions that

are not in the best interest of the company as a whole.

4. All of the above are true.

5. -

38. An allocation of a predetermined amount that

is not affected by changes in the activity level of the organizational unit receiving the allocation is called a(n)

1. allocation base.

3

2. unitized cost.

3. lump-sum allocation.

4. cost driver.

5. -

39. Lump sum allocations

1. should generally be adjusted each month.

3

2. will change when the activity levels of any of

the user departments change.

3. are not impacted by the usage of the allocated resource by other departments.

4. make fixed costs appear variable.

5. -

40. When activity based costing is implemented, the initial

outcome is normally that:

1. the cost of all products will be higher

3

2. The cost of all products will be lower

3. The cost of low volume products will be higher and the cost of high volume products

will be lower

4. The cost of low volume products will be lower and the cost of high volume products

will be higher.

5. -

41. The traditional approach to cost allocation

1. tends to over-cost high volume core products.

1

2. usually requires more cost pools than ABC.

3. attempts to identify the activities that cause

costs.

4. produces more accurate costs than any other

method.

5. -

42. How many distinct activities are used by most

companies that design ABC systems?

1. one or two

4

2. three to ten

3. ten to twenty-five

4. twenty-five to one hundred

5. -

43. Cool Company uses ABC costing. Which of the following is most likely to be the cost driver for the cost of

ordering parts?

1. weight of parts ordered

4

2. direct labor cost

3. depreciation expense

4. number of orders placed

5. -

44. Which of the following is not generally true when a

company compares ABC and traditional costing?

1. ABC uses more cost drivers.

2 2. ABC allocates cost based solely on production

volume.

3. ABC is more expensive.

4. ABC is less likely to undercost complex, low-

volume products.

5. -

45. Activity-based management:

1. is the same as ABC

3

2. requires cost pools to be formed

3. first determines the major activities.

4. all of the above

5. -

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?

1. $5

4

2. $210

3. $150

4. $180

5. -

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 Sterling¿s margin of safety?

1. $468,140

2

2. $124,025

3. $700,975

4. $405,000

5. -

48.

The president of Cummings Corporation

will not receive a bonus next year unless the company¿s 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?

1. 48,750 units

2

2. 39,000 units

3. 29,000 units

4. 21,167 units

5. -

49.

Lightning Company sells 3 types of umbrellas. Umbrella

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

variable costs of $6.00 per unit. Lightning sells in a mix

1. $5.20

1

2. $13.60

of 2 units of A, 3 units of B and 5 units of C. What is the

weighted average contribution margin per unit for Lightning?

3. $10.00

4. $6.33

5. -

50.

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

Louie¿s to earn a profit of $77,520?

1. 57,485

4

2. 42,387

3. 38,509

4. 61,400

5. -

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

1. determine major activities, form cost pools, evaluate the performance of the activities,

identify ways to improve the activities

2

2.

determine major activities, identify resources used by each activity, evaluate the

performance of the activities, identify ways to improve the activities

3.

determine major activities, identify ways to

improve the activities, evaluate the performance of the activities, identify

resources used by each activity

4. determine major activities, evaluate the performance of activities, form cost pools,

identify ways to improve the activities

5. -

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