financial and managerial accounting mcq
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Quiz questionsTRANSCRIPT
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
4. None of the above
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
4. None of the above
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
4. None of the above
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
4. None of the above
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
4. None of the above
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
4. None of the above
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
4. None of the above
5. -
11. Sale of goods (stock-in-trade) for Rs. 10,000 leads to:
1. Decrease in equity by Rs. 10,000
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
4. None of the above
5. -
12. Payment of Rs. 5,000 towards salaries and wages results in:
1. Increase in equity by Rs. 5,000
3
2. Decrease in equity by Rs. 5,000
3. Decrease in equity by Rs. 5,000 if it does not include any advance payment
of salaries and wages
4. None of the above
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
4. None of the above
5. -
14. Prepaid insurance premium should be classified as a:
1. Current asset
1
2. Fictitious asset
3. Non-current asset
4. None of the above
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
4. None of the above
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. -
Q.No. Question Options Answer
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
4. None of the above
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
4. Positive cash from operations, negative
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:
1. Depreciation expense
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. -
Q.No. Question Options Answer
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
4. None of the above
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:
1. Depreciation expense
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)
4. None of the above
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)
4. None of the above
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
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
4. Positive cash from operations, negative
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. -
Q.No. Question Options Answer
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%
4. None of the above
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
4. None of the above
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. -