of University Toledo
BUAD 2050 - Fall 2011
Practice Exam Final
1. During 2010, Eddy Co. paid $16,000 for direct material, $17,000 in wages for production workers,
and $24,000 in wages for sales personnel. Lease payments and utilities on the production facilities
amounted to $7,000. General, selling, and administrative expenses were $6,000. The company owns
a manufacturing equipment. The original cost of the equipment is $30,000 and has a salvage value
of $5,000 after 5 years. Depreciation on sales car equals $6,000. The company produced 5,000 units
and sold 3,000 units at a price of $10.00 a unit. The cost of goods sold is which of the following
amounts?
A. $64,000
B. $32,000
C. $27,000
D. $45,000
2. What is the effect on the financial statements of recording a $10 ,000 payment for sales personnel in
cash?
A)
B)
C)
D)
3.
Assets = Liab. + Equity
/
n/a
+n/a
n/a
n/a
n/a
n/a
+/-
Rev. - Exp. = Net Inc.
+
n/a
n/a
+
n/a
n/a
n/a
n/a
n/a
n/a
Select the correct statement regarding fixed costs.
a. Because they do not change, fixed costs should be ignored in decision making.
b. The fixed cost per unit decreases when volume increases.
c. The fixed cost per unit increases when volume increases.
d. The fixed cost per unit does not change when volume decreases.
4. Two different costs incurred by Ramirez Company exhibit the following behavior pattern:
Cost # 1 and Cost # 2 exhibit which of the?
a. Fixed / Fixed
b. Variable / Variable
c. Fixed /Variable
d. Variable / Fixed
5. The magnitude of operating leverage for Perkins Corporation is 3.4 when sales are $100,000. If
sales increase to $110,000, profits would be expected to increase by what percent?
a. 2.9%
b. 34%
c. 60%
d. 37%
1
University of Toledo
BUAD 2050 - Fall 2011
Practice Exam Final
6.
The dotted line in the graph below depicts which type of cost per unit?
a. fixed cost
b. variable cost
c. mixed cost
d. none of the above
7.
The following income statement is provided for Barron Company in 2010:
What amount was the company's operating leverage factor?
a. 0.44
b. 2.27
c. 2.36
d. 2.72
Use the following information to answer questions 8 & 9:
Handy Hiking produces backpacks. In 2010, its highest and lowest production levels occurred in
July and January, respectively. In July, it produced 4,000 backpacks at a total cost of $110,000. In
January, it produced 2,500 backpacks at a total cost of $87,500.
8.
Using the high/low method, the average variable cost of producing a backpack was:
a. $15.00
b. $31.25
c. $30.38
d. $0.067
9.
Using the high/low method, the total fixed cost of producing a backpack was:
a. $50,000
b. $1,500
c. $22,500
d. $109,733
2
University of Toledo
BUAD 2050 - Fall 2011
Practice Exam Final
10.
CMA, Inc. produces a product that has a variable cost of $2.50 per unit. The company's fixed costs
are $30,000. The product is sold for $5.00 per unit and the company desires to earn a target profit of
$10,000. What amount of sales that will be necessary to earn the desired profit?
a. $60,000
b. $200,000
c. $80,000
d. $100,000
11.
Berkut Companys variable cost per unit was $25 and total fixed cost was $300,000. Assuming the
company sells its product for $50 per unit, what is its margin of safety if sales total $800,000?
a. 16,000 units
b. 25%
c. 12,000 units
d. 1,000 units
12.
JP Manufacturing Co. produces two products. The products' identified costs are as
follows:
Product A
Product B
Direct Materials
$18,000
$16,000
Direct Labor
$16,000
$28,000
The company's overhead costs of $68,000 are allocated based on direct material cost.
Assume 4,000 units of product A are produced and 5,000 units of Product B are
produced. What amount of production costs would be assigned to Product A?
A) $34,000
B) $36,000
C) $68,000
D) $70,000
13.
Joint products A and B emerge from common processing that costs $2000 and yields
300 units of Product A and 100 units of Product B. Product A can be sold as-is for $10
per unit or processed further and sold later for $12 per unit. Product B can be sold as -is
for $10 per unit or processed further and sold later for $20 per unit. The additional per
unit processing costs for Product A and B total $8 and $5, respectively. How much joint
costs will be assigned to Product B if joint costs are allocated on the basis of units
produced?
A) $ 500
B) $ 360
C) $1,500
D) $1,620
14.
A job cost system would be appro priate for all of the following except
A) Airplane manufacturer
B) Medical profession
C) Breakfast cereal manufacturer
D) Law firm
3
University of Toledo
BUAD 2050 - Fall 2011
Practice Exam Final
15.
The Sukahara Company recorded the following costs of quality during the current
period:
Warranty costs
$12,000
Raw-material inspection
7,000
Quality training
28,000
Customer complaints
2,500
Production stoppages from machine breakdowns
9,800
How much of the costs were external failure costs?
A) $42,500
B) $12,000
C) $14,500
D) $ 2,500
16.
Setup costs for XYZs two products amounted to $2,000. The company used 2,000
direct labor hours to produce product A and 1,200 direct labor hours to produce product
B. Both products required the same number of setups. XYZ u ses a company-wide
overhead rate to allocate overhead based on direct labor hours. Based on this
information
A) Product A is undercosted by $250.
B) Product B is undercosted by $750.
C) Product A is overcosted by $250.
D) Product B is overcosted by $250.
17.
Gleam Clean cleans and waxes floors for commercial customers. The company is
presently working under capacity with equipment and men at times idle. The company
recently received an order from a nonregular customer outside the company's normal
geographical service region for a price of $90,000. The size of the proposed job is
22,000 square feet. The company's normal service costs are as follows:
Unit-level materials
$1.75 per square foot
Unit-level labor
$2.25 per square foot
Unit-level variable overhead
$.50 per square foot
Product-level advertising costs Allocated at $1.50 a square foot
Facility-level overhead
Allocated at $3 per square foot
If the company accepts the special offer,
A) the company will lose $42,000 on the job.
B) the company will lose $9,000 on the job.
C) the company will earn $42,000 on the job.
D) the company will earn $9,000 on the job.
4
University of Toledo
BUAD 2050 - Fall 2011
Practice Exam Final
18.
Tom's Toolery is operating at 80% of its productive capacity. It is currently purchasing
for $20 each a part used in its manufacturing operation. Tom's estimates it could make
the part internally for a total cost of $24 per unit, consisting of $18 of unit -level
production costs and $6 of facility-level costs that are currently attributed to other
products. Toms usually purchases 50,000 units of the part each year. These units
could be manufactured using Toms excess capacity. What is the differential increase or
decrease in cost derived from making the part rather than purchasing it?
A) $100,000 cost decrease
B) $200,000 cost increase
C) $200,000 cost decrease
D) $100,000 cost increase
19.
Select the correct statement regarding relevant costs and revenues.
A) Avoidable costs are also known as sunk costs.
B) Differential revenues are expected future revenues that do not vary between the
alternatives under consideration.
C) Sunk costs are relevant for decision-making purposes.
D) To be relevant, a cost or revenue must be future-oriented and must differ between the
alternatives.
20.
The Mannix Company manufactures and sells two lines of china. During the most
recent accounting period, the Faux line and the Traditional line sold 15,000 and 2,000
units, respectively. The company's most recent financial statements are shown below:
Faux
Traditional
$800,000
$200,000
Sales
Less: cost of goods sold:
Unit-level production cost
500,000
Depreciation production equipment
120,000
Gross margin
180,000
Less: operating expenses:
Unit-level selling and admin. costs
30,000
Corporate-level facility expenses (fixed) 26,000
Net income (loss)
$124,000
120,000
30,000
50,000
25,000
26,000
$ (1,000
)
Based on this information, the company should
A) keep the traditional line because it contributes $55,000 to total profitability.
B) keep the traditional line because it contributes $50,000 to total profitability.
C) eliminate the traditional line since it is operating at a loss.
D) keep the traditional line because it contributes $26,000 to total profitability.
5
University of Toledo
BUAD 2050 - Fall 2011
Practice Exam Final
21.
A)
B)
C)
D)
Hip Duds Company is considering the purchase of new machines on January 1, 20 12. Trail
Power has been using the same machines to make its name brand clothing for the last five
years. A cost efficiency consultant has suggested that production costs may be reduced by
purchasing more technologically advanced machinery. The old machines cost the company
$200,000. The old machines presently have a book value of $120,000 and a market value of
$12,000. They are expected to have a five-year remaining life and zero salvage. The new
machines would cost the company $100,000 and have operating expenses of $8,000 a year.
The new machines are expected to have a 5-year useful life and no salvage. The operating
expenses associated with the old machines are $30,000 a year.
Keeping the old equipment will add $40,000 to total profitability over the next five years.
Replacing the equipment will add $12,000 to total profitability over the next five years.
Replacing the equipment will add $22,000 to total profitability over the next five years.
Keeping the old equipment will add $22,000 to total profitability over the next five years.
22.
A short-term plan that formalizes in financial terms the overall goals of a company is called
A) capital budget.
B) master budget.
C) participative budget.
D) strategic plan.
23.
The beginning inventory is expected to be 2,000 cases. Expected sales are 10,000 ca ses, and the
company wishes to begin the next period with an inventory of 1,000 cases. The number of cases the
company must purchase during the month is
A) 11,000 cases.
B) 10,000 cases.
C) 9,000 cases.
D) 13,000 sales cases.
24.
A budget has been prepared for April. Management wants the amount of ending inventory each
month to be equal to 10% of the next months cost of goods sold. April cost of goods sold is
projected at $80,000 and May cost of goods sold is projected at $60,000. Ending inventory at the end
of March is expected to be $8,000. Based on this information, what would the amount of purchases
be for April?
A) $60,000
B) $86,000
C) $72,000
D) $78,000
25.
Cash receipts for January are expected to total $171,000. Cash disbursements for January are
expected to be $158,000. The companys minimum desired cash balance is $10,000. It started the
period with $35,000. What is the expected cash balance at the end of January?
A) $10,000
B) $38,000
C) $48,000
D) $206,000
6
University of Toledo
BUAD 2050 - Fall 2011
Practice Exam Final
Use the following information to answer questions 26 & 27:
Janus Industries has budgeted the following information for January:
Cash Receipts
$40,000
Beginning Cash Balance
$10,000
Cash Payments
$48,500
Desired Ending Cash Balance
$ 5,000
If there is a cash shortage, the company borrows money from the ba nk. All cash is borrowed at the
beginning of the month in $1,000 increments. Interest is paid monthly on the first day of the
following month. The interest rate is 1% per month. The company had $2,000 outstanding debt on
January 1st.
26.
The ending cash balance for January would be:
A) $5,500
B) $5,000
C) $3,500
D) $1,500
27.
The interest payment on February 1 st would be:
A) $20.
B) $40.
C) $50.
D) $60.
28.
XYZ Company projected unit credit sales for the last four months of the year to be as follows:
September
3,000
October
3,200
November
4,100
December
5,600
The companys past records show collection of credit sales as 60% in the month of sale and the
balance in the following month. If inventory units are sold for $25, the total cash collections on
receivables in November will be
A) $93,500.
B) $37,400.
C) $102,500.
D) $61,500.
29.
Which of the following is correct regarding budgeting?
A) Budgeting participation is crucial for employees to accept the budget.
B) Budget participation can be achieved if decisions are made at the top of the organization with no
input from the bottom.
C) Managers can build slacks in the budget by overestimating revenue and underestimating cost.
D) The first step in preparing the master budget is to prepare Pro forma financial statements.
7
University of Toledo
BUAD 2050 - Fall 2011
Practice Exam Final
Use the following information to answer questions 30 & 31:
Zee Limited provided the following information relevant to its inventory sales for December 20 11
and the first quarter of 2012:
Dec. 2011
Jan. 2012
Feb. 2012
March 2012
(Budgeted)
(Actual)
(Budgeted)
(Budgeted)
$ 9000
$ 6000
Cost of goods sold
$4000
$ 7000
Credit sales
$6000
$14000
$15500
$11000
Cash sales
$1000
$ 2500
$ 3000
$ 1200
Based on the company's collection history, 2% of credit sales are uncollectible, 40% are collected in
month of sale and the remainder is co llected in the following month.
Desired ending inventory levels are 25% of the following month's projected cost of goods sold. The
company purchases all inventory on account. January 2011 budgeted purchases are $7500.
The following schedule of inventory payments was provided:
60% payment in month of purchase
40% payment in month following purchase
30.
Total budgeted cash receipts in February 2012 would be:
A)
$ 8,120
B)
$11,400
C)
$17,320
D)
$ 3,000
31.
Total budgeted cash payments in February 2012 would be:
A)
$7950
B)
$4950
C)
$7630
D)
$6630
32.
National Cookwares cost accountant prepared the following static budget bas ed on expected
activity of 2,000 units for the October 2011 accounting period:
Sales Revenue
Variable Costs
Contribution Margin
Fixed Costs
Net Income
$64,000
34,000
$30,000
18,000
$12,000
If National Cookwares sales manager were to prepare a flexible budget for expected activity of
2,300 units, budgeted net income on this flexible budget would be:
A) $12,000
B) $21,600
C) $16,500
D) $13,800
8
University of Toledo
BUAD 2050 - Fall 2011
Practice Exam Final
33.
National Cookwares cost accountant prepared the following static budget based on expected
activity of 2,000 units for the October 2011 accounting period:
Sales Revenue
$64,000
Variable Costs
34,000
Contribution Margin $30,000
Fixed Costs
18,000
Net Income
$12,000
If National Cookware actually produced and sold 2,300 units for $30 each the sales revenue
activity/volume variance would be:
A) $9,600 U
B) $9,600 F
C) $5,000 U
D) $5,000 F
34.
Draper Co. reported the following master budget and actual results for September 2010
Master Budget
Actual
Activity (units)
14,000
15,800
Revenue
$840,000
$981,600
Fixed Costs
$214,000
$217,600
Variable Costs
$392,000
$604,800
What is the Flexible Budget Variance for Fixed Costs for the month of September 2010?
A) $23,914 F
B) $0
C) $3,600 U
D) $27,514 U
Use the following information to answer questions 35 & 36:
The Springer Company provides the following standard cost data:
35.
The materials usage variance was
A) $15,000 favorable.
B) $15,000 unfavorable
C) $14,700 favorable
D) $14,700 unfavorable
36.
The labor usage variance was
A) $2,375 favorable.
B) $2,375 unfavorable
C) $54,000 favorable
D) $54,000 unfavorable
9
University of Toledo
BUAD 2050 - Fall 2011
Practice Exam Final
37.
Shimano Co. makes a product that is expected to require 2 hours of labor per unit of product. The
standard cost of labor is $5.20. Shimano actually used 1.9 hours of labor per unit of product. Th e
actual cost of labor was $5.10 per hour. Shimano made 1,000 units of product during the period.
Based on this information alone, the labor price variance is
A) $190 favorable
B) $190 unfavorable
C) $ 510 favorable
D) $510 unfavorable
38.
Which of the following is incorrect:
A) Sales activity variance is used to measure effectiveness
B) Flexible budget variance is used to measure efficiency
C) Sales activity variance is the difference between the static budget and actual results
D) Flexible budget variance is the difference between flexible budget and actual results.
39.
The practice of delegating authority and responsibility is referred to as
A) Decentralization.
B) Standard costing.
C) Management by exception.
D) Centralization of authorit y.
40.
Which of the following is NOT considered an advantage of decentralization?
A) Decentralization improves performance evaluation.
B) Decentralization guarantees top managers will be promoted.
C) Decentralization motivates managers to be more productive.
D) Decentralization trains lower level managers for more responsibility
41.
Which is the following is correct:
A) Nonfinancial measures are substitutes to financial measures of performance.
B) Nonfinancial measures include measures such as ROI and RI.
C) Nonfinancial measures are not included in the balanced scorecard.
D) Nonfinancial measures include perspectives such as innovation, customers & internal processes.
42.
Which of the following is incorrect:
A) Managers of cost centers are responsible for cost.
B) Measures such as ROI and RI are used to measure the performance of investment centers.
C) Managers of profit centers are responsible for revenue and investment.
D) Responsibility centers include cost centers, profit centers, and investment centers.
43.
The concept of control is important in a responsibility accounting system. Select the best
explanation of why this is true.
A) Without control, total chaos occurs.
B) Managers need control to fuel their egos.
C) Managers enjoy being in contro l of their own little kingdoms.
D) Managers lose motivation when they are rewarded or punished for events or outcomes that are
beyond their scope of control.
10
University of Toledo
BUAD 2050 - Fall 2011
Practice Exam Final
44.
Picard Company reported the following information for 20 10:
Sales
$800,000
Average Operating Assets $300,000
Desired ROI
12%
Net Income
$ 50,000
The company's residual income for 2010 was
A) $(10,000)
B) $14,000
C) $36,000
D) $24,000
45.
Last year Maxwell Corporation had revenues of $120,000 and expenses o f $70,000. If the company
had $250,000 of equipment and other operating assets last year, its return on investment was:
A) 20%
B) 25%
C) 10%
D) 15%
46.
The management strategy that focuses on significant variances is called:
A) Decentralization.
B) Significance analysis.
C) Deviation management.
D) Management by exception
47.
Apex Company invested $14,400 in new equipment. The more efficient new equipment was
expected to reduce operating cash outflows over the next fiv e years by the following:
Using the averaging method, the payback period for the investment in the oven would be:
A) 3.0 years
B) 2.4 years
C) 2.0 years
D) 1.7 years
48.
Debbie Corporation invested $60,000 in a manufacturing equipment . The salvage value of the asset
after 15 years useful life is expected to be $15,000. The company is expected to make $12,000 per
year in revenue. The unadjusted rate of return on the investment will be
A) 20%.
B) 30%.
C) 15%.
D) None of the above.
11
University of Toledo
BUAD 2050 - Fall 2011
Practice Exam Final
49.
Pamela projects that she can get $100,000 cash per year for 5 years on a real estate investment
project. If Pamela wants to earn a rate of return of 10%, what is the maximum that she should pay
for the investment? (rounded to the nearest dollar).
A) $62,092
B) $310,461
C) $379,079
D) $450,000
50.
Which of the following statements about the time value of money concept is incorrect?
A) The future value of a present dollar is more than one dollar.
B) The present value of a future dollar is less than one dollar.
C) The timing of cash flows is relevant to decision making.
D) None of the above
Key
1. C
2. B
3. B
4. C
5. B
6. B
7. B
8. A
9. A
10. C
11 B
12. D
13. A
14. C
15. C
16. C
17. B
18. A
19. D
20. A
21. C
22. B
23. C
24. D
25. C
26. A
27. D
28. A
29. A
30. C
12
31. A
32. C
33. B
34. C
35. A
36. C
37. A
38. C
39. A
40. B
41. D
42. C
43. D
44. B
45. A
46. D
47. B
48. C
49. C
50. D