04 Jun Question Week 7
Question
Week 7
1) Which of the following is an example of the planning function of a budget?
a. A budget demands integrated input from different business units and functions.
b. Employees are motivated to achieve the goals set by the budget.
c. Budget figures are used to evaluate the performance of managers.
d. The budget outlines a specific course of action for the coming period.
2) Opportunity cost(s):
a. of a resource with excess capacity is zero
b. should be maximized by organizations
c. are recorded as an expense in the accounting records
d. are most important to financial accountants
3) Gnome Company is trying to decide whether to continue to manufacture a particular component or tobuythe component from a supplier. Which of the following is relevant to this decision?
a. the potential uses of the facilities that are currently used to manufacture the component
b. the insurance on themanufacturingfacility which will continue regardless of the decision
c. allocated corporate fixed costs which would have to be allocated to other products if the component is no longer manufactured
d. the cost of the equipment that is currently being used to manufacture the component
4) Which of following statements is true of short-term decision making?
a. Fixed costs and variable costs must be analyzed separately.
b. All costs behave in the same way.
c. Unit manufacturing costs are variable costs.
d. All costs involved in a decision are considered relevant.
5) A company is analyzing its month-end results by comparing it to both static and flexible budgets. During the previous month, the actual selling price was higher than the expected price as per the static budget. This difference results in a(n):
a. favorable flexible budget variance for sales revenues.
b. favorable sales volume variance for sales revenues.
c. unfavorable flexible budget variance for sales revenues.
d. unfavorable sales volume variance for sales revenues.
6) When replacing an old asset with a new one, the original purchase price of the old asset represents:
a. relevant cost.
b. differential costs.
c. opportunity cost.
d. sunk cost.
7) Polynesia Companymanufacturessonars for fishing boats. Model 70 sells for $300. Polynesia produces and sells 5,500 of them per year. Cost data are as follows:
Variable manufacturing $100 per unit
Variable marketing $15 per unit
Fixed manufacturing $280,000 per year
Fixed marketing & admin $150,000 per year
The sales manager says he has an opportunity to pitch a special sale to a new Canadian fishing company that is outfitting new boats. He proposes a sale of 40 units at a special price of $150 per unit. He says it will not cannibalize the company’s regular sales and is a one-time transaction. It will require the normal amount of variable costs, both marketing and manufacturing, but will not impact fixed costs in any way. The president of the company has some reservations, but finally agrees to make the deal if and only if it adds a minimum of $1,500 to operating income. Based on the president’s criteria, what will Polynesia decide to do? (show the calculation to support this decision)
8) Mountain Sports Equipment Company projected sales of 78,000 units at a unit sale price of $12 for the year 2015. Actual sales of 2015 were 75,000 units at $14.00 per unit. Variable costs were budgeted at $3 per unit; actual amount was $4 per unit. Budgeted fixed costs totaled $375,000, while actual fixed costs amounted to $400,000. What is the sales volume variance for total revenue?
9) Western Outfitters projected sales of 75,000 units for the year 2015 at a unit sale price of $12.00. Actual sales in 2015 was 72,000 units, at $14.00 per unit. Variable costs were budgeted at $4.00 per unit; actual variable cost was $4.75 per unit. Budgeted fixed costs totaled $375,000 while actual fixed costs amounted to $400,000. What is the flexible budget variance for operating income?
10) Kapital Inc. has prepared the operating budget for the first quarter of 2015. They forecast sales of $50,000 in January, $60,000 in February, and $70,000 in March. Variable and fixed expenses are as follows:
Variable: Power cost (40% of Sales)
Miscellaneous expenses: (5% of Sales)
Fixed: Salary expense: $8,000 per month
Rent expense: $5,000 per month
Depreciation expense: $1,200 per month
Power cost/fixed portion: $800 per month
Miscellaneous expenses/fixed portion: $1,000 per month
Calculate total selling and administrative expenses for the month of January & February.
11) McPherson Company is facing a $6 increase in the variable cost of producing one of its products for the upcoming year. Because of this situation, the sales manager has made a proposal to increase the selling price of theproductwhileincreasingthe advertising budget at the same time. The price increase will lower sales volume, but the other changes may help the company maintain its profit margins. McPherson has provided the following information regarding the current year results and the proposal made by the sales manager:
Current Year Proposal
Unit sales 27,000 18,000
Sales price per unit $48 $58
Variable cost per unit $30 $36
Fixed cost $76,000 $96,000
Relative to the current year, the sales manager’s proposal will do what to Operating Income? (show calculations to support this)
12) Evans Company has estimated the following amounts for its next fiscal year:
Total fixed expenses $832,500
Sale price per unit 40
Variable expenses per unit 25
If the company spends an additional $30,000 on advertising, sales volume wouldincreaseby 2,500 units. What effect will this decision have on the operating income of Evans? (show calculations)
13) Moylan Company has provided the following information:
Sales $777,000
Variable expenses 504,000
Fixed expenses 212,000
What will be the change in variable expenses if the sales volume increases by 10%?
14) On the ________, cash dividends become a liability of a corporation.
a. declaration date
b. date of record
c. end of the fiscal year
d. payment date
15) ________ are equity securities in which the investor owns 20% or more, but less than 50%, of the investee’s voting stock.
a. Held-to-maturity investments
b. Significant interest investments
c. Controlling interest investments
d. Available-for-sale investments
16) Held-to-maturity investments applies only to debt securities because:
a. these securities earn periodic interest.
b. equity securities do not mature on a specific date.
c. these are long-term investments.
d. equity securities are held for a very short period.
17) Equity securities in which the investor owns less than 20% ownership in the voting stock of the investee can be:
a. significant interest investments.
b. controlling interest investments.
c. held-to-maturity investments.
d. either trading investments or available-for-sale investments (security).
18) A bond is issued at premium :
a. when a bond’s stated interest rate is equal to the market interest rate.
b. when a bond’s stated interest rate is less than the effective interest rate.
c. when a bond’s stated interest rate is less than the market interest rate.
d. when a bond’s stated interest rate is higher than the market interest rate.
19) The date on which the principal amount is repaid to the bondholder is known as:
a. issuing date.
b. interest date.
c. maturity date.
d. installment date.
20) The following is summary of information presented on the financial statements of a company on December 31, 2015.
Account 2015 2014
Net Sales Revenue $600,000 $500,000
Cost of Goods Sold 450,000 400,000
Gross Profit $150,000 $100,000
Selling Expenses 50,000 50,000
Net income before income tax expense $100,000 $50,000
Income tax expense 35,000 18,000
Net Income $65,000 $32,000
What would a horizontal analysis report show with respect to net income?
21) The accounts receivable turnover ratio of a merchandiser is 9.8 times. Calculate the days’ sales in receivables for the merchandiser. (Round to the nearest day.)
22) Zebra Inc. cost of goods sold for the year is $1,900,000 and average merchandise inventory for the year is $129,000. Calculate the inventory turnover ratio of the company.
23) A $30,000, three-month, 7% note payable was issued on December 1, 2015. What is the journal entry to record the accrued interest on December 31, 2015?
24) Revival Corporation’s annual report is as follows.
March 31, 2014 March 31, 2015
Net Income $350,000 $423,500
Preferred Dividends 0 0
Total Stockholders’ Equity $4,200,000 $5,082,000
Stockholders’ Equity attributable to Preferred Stock 0 0
Number of Common Shares Outstanding 275,464 192,168
If the current market price is $15 on March 31, 2015, find the price/earnings ratio on March 31, 2015.
25) The Avatar Company uses the direct method to prepare its statement of cash flows. Refer to the following information reported for the
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