Arch Associates reports the following comparative balance sheets and income statement information.

When would a sales variance be listed as favorable?

Multiple Choice

None of these answers are correct.


When actual sales are equal to budgeted or expected sales


When actual sales are less than budgeted or expected sales


When actual sales exceed budgeted or expected sales Correct
Answer
When actual sales exceed budgeted or expected sales Correct
Explanation
Favorable sales variances occur when actual sales are greater than expected sales. Unfavorable sales variances occur when actual sales are less than expected sales.

All of the following costs are accumulated in the Work in Process Inventory account except:

Multiple Choice

direct labor costs.


manufacturing overhead costs.


direct material costs.


depreciation on factory equipment. Correct
Answer
depreciation on factory equipment. Correct
Explanation
When direct materials are placed in production, the cost is added to the Work in Process Inventory account. Because direct labor is also used to make products, the cost is added to the Work in Process Inventory account. Estimated overhead costs are applied (assigned) to the Work in Process Inventory account at the time goods are produced.

Arch Associates reports the following comparative balance sheets and income statement information.

 


The amount of cash collected from customers during Year 2 was:

Multiple Choice

$90,000. Correct

$94,000.


$86,000.


$98,000.
Answer
$90,000. Correct

Explanation
Beginning balance + Revenue recognized on account − Cash collections from customers = Ending balance
$5,200 + $94,000 − Cash collections from customers = $9,200
Cash collections from customers = $5,200 + $94,000 − $9,200 = $90,000

Wu Company incurred $48,600 of fixed cost and $59,400 of variable cost when 2,200 units of product were made and sold.

If the company's volume doubles, the total cost per unit will:

Multiple Choice
stay the same.
decrease.Correct
increase but will not double.
double as well.

Answer
decrease. Correct
Explanation
Current cost per unit:
Total cost per unit = (Fixed cost + Variable cost) ÷ Number of units
Total cost per unit = ($48,600 + $59,400) ÷ 2,200 units   = $49.09 per unit
Cost per unit when volume doubles:
Total cost per unit = [$48,600 + ($59,400 × 2)] ÷ (2,200 units  × 2) = $38.05 per unit

Financial reporting standards require that joint costs:

Multiple Choice
Be assigned to the product produced in the largest quantity.
Be treated as a period cost and expensed immediately.
Be allocated to the two or more joint products. Correct
Be assigned to the product with the highest sales value.
Answer
Be allocated to the two or more joint products. Correct

Alex brought his lunch today but now a coworker has asked him to go to the deli across the street.

Alex brought his lunch today but now a coworker has asked him to go to the deli across the street.

Multiple Choice
The cost of the lunch Alex already has represents the opportunity cost of dining with his friend.
The cost of the lunch that Alex had brought has nothing to do with his current decision.Correct
The cost of the lunch Alex had brought is relevant to Alex's decision to have lunch with his friend.
The cost to buy lunch at the deli is not relevant because it has not yet been incurred.
Answer
The cost of the lunch that Alex had brought has nothing to do with his current decision. Correct
Explanation
The cost of the lunch Alex had brought is a sunk cost. Since sunk costs have been incurred in past transactions, they cannot be changed and are not relevant for making current decisions.

A chair manufacturer makes custom chairs using hand tools, wood, glue, and varnish. Which of the following statements is true?
Multiple Choice
Wood, glue, and varnish would all be direct materials.
Wood would be accounted for as a direct cost, and glue and varnish as indirect costs. Correct
The costs of wood and glue would be treated as direct costs.
The concepts of direct and indirect costs are not applicable here.
Answer
Wood would be accounted for as a direct cost, and glue and varnish as indirect costs. Correct
Explanation
The cost object is the custom chairs. Direct costs, such as wood, can be traced to the custom chairs in a cost-effective manner. Indirect costs, such as glue and varnish, cannot be traced to the custom chairs in a cost-effective manner.


Bates Company recognized $16,000 of estimated manufacturing overhead costs at the end of the month. As a result of this transaction the:

Multiple Choice

temporary account manufacturing overhead increases and the work in process account decreases.


temporary account manufacturing overhead decreases and the work in process account increases.

Correct

temporary account manufacturing overhead decreases and the wages expense account increases.


none of these answers are correct.

Answer
temporary account manufacturing overhead decreases and the work in process account increases.

Correct

Explanation
When estimated overhead is recognized (that is, applied or assigned to work in process inventory), the temporary account, Manufacturing Overhead, decreases and the Work in Process Inventory account increases.



Phibbs Company prepared the following data for the year.


              
Outflow to purchase treasury stock    $    68,000   
Inflow from sale of machinery         26,500   
Inflow from sale of marketable securities         8,500   
Outflow to purchase building         97,000   
Outflow to purchase land         22,000   
Outflow to pay dividends         17,000   
Outflow to pay interest         47,000   

What is the net cash flow from investing activities?

Multiple Choice

$84,000 outflow

Correct

$55,500 outflow


$174,500 outflow


$209,500 outflow
Answer
$84,000 outflow

Correct

Explanation
The information necessary to identify cash inflows and outflows from investing activities is obtained by reconciling changes in a company’s long-term assets.
Net cash flow from investing activities = $26,500 + $8,500 − $97,000 − $22,000 = ($84,000)


The following balance sheet information is provided for Apex Company for Year 2:


              
Assets             
Cash    $    5,600   
Accounts receivable         11,750   
Inventory         14,800   
Prepaid expenses         1,600   
Plant and equipment, net of depreciation         19,500   
Land         13,400   
Total assets    $    66,650   
Liabilities and stockholders' equity             
Accounts payable    $    2,790   
Salaries payable         8,230   
Bonds payable (due in ten years)         12,000   
Common stock, no par         16,500   
Retained earnings         27,130   
Total liabilities and stockholders' equity    $    66,650   

What is the company's working capital?

Multiple Choice

$22,730

Correct

$22,200


$5,100


$19,600
Answer
$22,730 Correct

Explanation
Working capital = Current assets − Current liabilities
Working capital = ($5,600 + $11,750 + $14,800 + $1,600) − ($2,790 + $8,230) = $33,750 − $11,020 Working capital = $22,730

Mr. J's Bagels invested in a new oven for $22,000. The oven reduced the amount of time for baking which increased production and sales for five years by the following amounts of cash inflows:

Which manager is normally held responsible for fixed cost volume variances?

Multiple Choice

Plant manager


Purchasing agent


Upper-level marketing managers Correct

Production supervisor

Answer
Upper-level marketing managers Correct

Joint products A and B emerge from common processing that costs $118,000 and yields 4,000 units of Product A and 3,000 units of Product B. Product A can be sold for $300 per unit. Product B can be sold for $100 per unit. How much of the joint cost will be assigned to Product A if joint costs are allocated on the basis of relative sales values? (Do not round intermediate calculations.)

Multiple Choice
$89,400
$84,400
$91,900
$94,400 Correct

Answer
$94,400 Correct
Explanation
Allocation rate = Total cost to be allocated ÷ Cost driver (allocation base)
Allocation rate = $118,000 in joint costs ÷ [(4,000 units × $300 per unit) + (3,000 units × $100 per unit)] = 7.867%
Allocation per cost object = Allocation rate × Weight of the cost driver for that cost object
Allocation of joint costs to Product A= 7.867% × (4,000 units × $300 per unit) = $94,400

The income statement for Year 2 of Winter Co. reported wages expense of $70,000. At December 31, Year 1, the balance sheet showed a balance in wages payable of $4,000. At December 31, Year 2, the balance sheet showed a balance in wages payable of $14,000. What amount of cash was paid for wages during the year?

Multiple Choice

$66,000


$60,000 Correct

$80,000


$74,000
Answer
$60,000 Correct

Explanation
Beginning balance of wages payable + Expenses incurred on account − Cash outflow for expenses = Ending balance of wages payable
$4,000 + $70,000 − Cash outflow for expenses = $14,000
Cash outflow for expenses = $4,000 + $70,000 − $14,000 = $60,000

In preparing the statement of cash flows by the indirect method, which of the following is an incorrect statement of one of the general rules to convert net income to a cash-basis equivalent?

Multiple Choice

Increases in current liabilities are subtracted from net income. Correct

Increases in current assets are subtracted from net income.


Noncash revenue and gains are subtracted from net income.


Decreases in current assets are added to net income.
Answer
Increases in current liabilities are subtracted from net income. Correct
Explanation
Net cash flow from operating activities = Net income +/− Adjustments to reconcile net income to net cash flow from operating activities
Net cash flow from operating activities = Net income − Increase in current assets + Decrease in current assets + Increase in current liabilities − Decrease in current liabilities + Depreciation expense − Gain on sale of equipment + Loss on sale of equipment

Mr. J's Bagels invested in a new oven for $22,000. The oven reduced the amount of time for baking which increased production and sales for five years by the following amounts of cash inflows:

Using the averaging method, the payback period for the investment in the oven would be:
Multiple Choice
2.50 years.Correct
5.00 years.
2.00 years.
0.50 years.
Answer
2.50 years.Correct
Explanation
Payback period = Initial investment ÷ Average annual cash inflow
Payback period = $22,000 ÷ [($12,000 + $11,000 + $5,000 + $11,000 + $5,000) ÷ 5] = $22,000 ÷ $8,800 = 2.50


The Bernard Company provided the following information from its financial records:

What is the company's book value per share?

Multiple Choice

$4.96 Correct

$6.95


$2.37


$2.21
Answer
$4.96 Correct

Explanation
Book value per common share = (Stockholders’ equity − Preferred rights) ÷ Outstanding common shares
Book value per common share = ($910,000 − $260,000) ÷ 131,000 = $650,000 ÷ 131,000 = $4.96 per share