Test bank for managerial accounting 5th edition

Test Bank for Managerial Accounting 5th Edition

Hanover Binding plans to produce 40,000 books next year at a total cost of
$1,640,000 with a selling price per book of $66.00. The fixed costs total
$280,000. Management is considering lowering the price to $60.00 per book,
and feels that this action will cause sales to climb to 50,000 books. What will
be the incremental costs incurred if 50,000 books are sold?

1. A. $340,000
2. B. $20,000
3. C. $1,700,000
4. D. $1,300,000


Hanover Binding plans to produce 40,000 books next year at a total cost of
$1,640,000 with a selling price per book of $66.00. The fixed costs total
$280,000. Management is considering lowering the price to $60.00 per book,
and feels that this action will cause sales to climb to 50,000 books. What is
the amount of incremental profit if 50,000 books are sold?

1. A. $340,000 profit
2. B. $20,000 profit
3. C. $1,700,000 profit
4. D. $1,300,000 profit
Which of the following terms involves calculating the difference in revenue
and the difference in cost between decision alternatives?

1. A. Budgeting production
2. B. Incremental analysis
3. C. Profit planning
4. D. Systems development

Which of the following statements regarding incremental analysis is true?
Assume that there are no opportunity costs and that the capacity exists to
complete any of the alternatives.

1. A. The preferred alternative will have revenues that are greater than the
revenues of the other alternatives.
2. B. The preferred alternative will have expenses that are greater than the
expenses of the other alternatives.
3. C. The preferred alternative will have fixed expenses that are less than the
fixed expenses of the other alternatives.
4. D. The preferred alternative will have profits that are greater than the profits
of the other alternatives.


Which one of the following will most likely influence the actions of
managers?

1. A. Sunk costs
2. B. Performance measures
3. C. Noncontrollable costs
4. D. GAAP
Which of the following is not a reasonable measure of a plant manager’s
performance?

1. A. Net income
2. B. Cost of insurance for the plant
3. C. Number of orders delivered on time
4. D. Change in market share
“You get what you measure!” refers to the relationship between

1. A. managerial accounting and financial accounting.
2. B. ethical and unethical behavior.
3. C. duties of the CEO and duties of the controller.
4. D. performance measures and actions of managers.
If management informs employees that bonuses will depend solely on
improving the gross profit ratio (gross profit/sales), which of the following
behaviors would most likely be observed?

1. A. Sales people would quit trying to sell high volume, low margin core
products


2. B. Overall sales would fall
3. C. Overall gross profit would fall
4. D. All of these answer choices are correct
Which of the following statements regarding performance measures is
true?

1. A. GAAP requires performance measures for all employees.
2. B. Companies must select from performance measures published by its own
industry when deciding how they want to assess performance.
3. C. Employees tend to direct their attention to what is measured and may
neglect what is not measured.
4. D. Companies need to place emphasis on a single performance measure so
employees know what to expect.
ProLight plans to sell 1,600 white lights that enhance indoor plant growth
next year with total budgeted sales of $48,000 and estimated profit of
$8,000. Variable costs are projected to be $17.50 per unit. Customer A offers
to pay $10,000 to buy 400 lights from ProLight. Total fixed costs are $12,000
per year. This offer does not affect ProLight’s other planned operations. How

much is the incremental revenue associated with the offer from Customer
A?

1. A. $58,000
2. B. $10,000
3. C. $48,000
4. D. $3,000


ProLight plans to sell 1,600 white lights that enhance indoor plant growth
next year with total budgeted sales of $48,000 and estimated profit of
$8,000. Variable costs are projected to be $17.50 per unit. Customer A offers
to pay $10,000 to buy 400 lights from ProLight. Total fixed costs are $12,000
per year. This offer does not affect ProLight’s other planned operations. What
is the incremental cost associated with the offer from Customer A?

1. A. $58,000
2. B. $10,000
3. C. $48,000
4. D. $7,000
ProLight plans to sell 1,600 white lights that enhance indoor plant growth
next year with total budgeted sales of $48,000 and estimated profit of
$8,000. Variable costs are projected to be $17.50 per unit. Customer A offers
to pay $10,000 to buy 400 lights from ProLight. Total fixed costs are $12,000
per year. This offer does not affect ProLight’s other planned operations. How
much is incremental profit associated with the offer from Customer A?

1. A. $3,000
2. B. $10,000
3. C. $48,000

4. D. $7,000
Good Buy Electronics has been offered $21,600 to produce 12,000 external
hard drives for a customer. Good Buy has budgeted sales of 200,000 hard
drives totaling $500,000, with fixed costs of $260,000 and total costs of
$420,000. Assuming that Good Buy has the capacity to produce the additional
units and that accepting this order will not affect any other orders, what
effect will accepting the order have on Good Buy’s profit?

1. A. Incremental profit will increase by $21,600
2. B. Incremental profit will decrease by $9,600


3. C. Incremental profit will increase by $12,000
4. D. Incremental profit will decrease by $3,600
Classic Loungers is in the process of preparing a production cost budget for
August. Actual costs in July for 200 chaise lounge chairs were: Materials cost
$ 6,000 Labor cost 8,000 Rent 2,000 Depreciation 4,000 Other fixed costs
5,000 Total $25,000 Each chair is sold for $140 in July. The company plans to
lower the selling price to $130 per chair at which management estimates that
sales will increase to 230 chairs. Materials and labor are the only variable
costs. How much is the incremental cost of producing an extra 30 chairs?

1. A. $1,900
2. B. $2,100
3. C. $3,750
4. D. $(200)
Classic Loungers is in the process of preparing a production cost budget for
August. Actual costs in July for 200 chaise lounge chairs were: Materials cost
$ 6,000 Labor cost 8,000 Rent 2,000 Depreciation 4,000 Other fixed costs
5,000 Total $25,000 Each chair is sold for $140 in July. The company plans to

lower the selling price to $130 per chair at which management estimates that
sales will increase to 230 chairs. Materials and labor are the only variable
costs. How much is the incremental revenue associated with the price
reduction?

1. A. $200
2. B. $2,100
3. C. $3,750
4. D. $1,900


Classic Loungers is in the process of preparing a production cost budget for
August. Actual costs in July for 200 chaise lounge chairs were: Materials cost
$ 6,000 Labor cost 8,000 Rent 2,000 Depreciation 4,000 Other fixed costs
5,000 Total $25,000 Each chair is sold for $140 in July. The company plans to
lower the selling price to $130 per chair at which management estimates that
sales will increase to 230 chairs. Materials and labor are the only variable
costs. Under what situation should the company lower the price of its chaise
lounge chairs?

1. A. If total revenue exceeds totals costs under the new pricing
2. B. If incremental revenue exceeds the old revenue
3. C. If incremental profit is a positive number
4. D. If incremental costs decrease
Which of the following is true concerning Enterprise Resource Planning (ERP)
systems?

1. A. They grew out of the material requirements planning systems that
preceded them.
2. B. They will allow customers to track their orders.

3. C. They are considered sunk costs.
4. D. All of these answer choices are correct.
Which of the following would most likely be a Customer Relationship
Management System component?

1. A. A system allowing customers to do online banking.
2. B. A system that prepares a master production schedule.
3. C. A system that links the company’s suppliers electronically to its databases.
4. D. A system that manages human resources.


Supply Chain Management (SCM) systems

1. A. computerize inventory control and production planning.
2. B. organize activities between a company and its suppliers.
3. C. automate customer service and support.
4. D. allow customers to track their purchase as it is being produced.
Which of the following should be considered when making ethical
decisions?

1. A. What is right?
2. B. What is standard practice?
3. C. Is the company’s control system is able to detect an irregularity?
4. D. All of these answer choices are correct.
Which of the following is one of the questions you should ask when faced with
an ethical dilemma?

1. A. Will I get caught?
2. B. What decisions alternatives are available?
3. C. Are the actions illegal?

4. D. How big is the effect on the company’s profit?
The Institute of Management Accountants (IMA)

1. A. is the professional organization of managerial accountants.
2. B. administers the comprehensive examination which must be passed before
a person can become a CMA.


3. C. has developed a set of standards of ethical conduct and maintains an
ethics hotline.
4. D. All of these answer choices are correct.
The organization which administers the Certificate in Management Accounting
program is the

1. A. GAAP.
2. B. SCM.
3. C. CRM.
4. D. IMA.
In most companies, the top management accountant is called the

1. A. financial analyst.
2. B. taxation specialist.
3. C. treasurer.
4. D. controller.
Which of the following is not usually a responsibility of the controller?

1. A. Preparing budgets and performance reports
2. B. Filing tax returns
3. C. Managing cash and marketable securities
4. D. Providing information for management decisions

Which of the following skills are needed by those who desire a high-level
career in management accounting?

1. A. Written and oral communication skills
2. B. Interpersonal skills
3. C. Knowledge of the industry in which their firm competes
4. D. All of these answer choices are correct.
For which one of the following is a company’s treasurer typically held
responsible?

1. A. Reporting information to the IRS
2. B. Maintaining relationships with investors and creditors
3. C. Preparing audited financial statements
4. D. Preparing and analyzing budgets
Many companies have a chief financial officer (CFO). Which of these positions
is most likely to report directly to the CFO?

1. A. Controller
2. B. Chief executive officer
3. C. Janitor
4. D. Production supervisor


Sleep Time produces mattresses. Each mattress has a variable cost of $260,
fixed costs of $56,000 per month, and a unit selling price of $500. If the
company produces and sells 400 mattresses in February, how much profit will
the company expect for March assuming that number of mattresses sold and
selling price per mattress remains the same as that of February month?

1. A. $96,000
2. B. $160,000
3. C. $40,000
4. D. $200,000
Sleep Time produces mattresses. Each mattress has a variable cost of $260,
fixed costs of $56,000 per month, and a unit selling price of $500. If the
company produces and sells 400 mattresses in February, how much is the unit
cost per mattress?

1. A. $260
2. B. $400
3. C. $240
4. D. $100
Triatt Resort has 200 rooms. Each room rents at $130 per night and variable
costs total $42 per room per night of occupancy. The fixed costs total $18,700
per month. If 70% of the rooms are occupied each of the 30 nights in June,
how much will total variable costs be for June?

1. A. $546,000
2. B. $369,600
3. C. $176,400
4. D. $252,000


Triatt Resort has 200 rooms. Each room rents at $130 per night and variable
costs total $42 per room per night of occupancy. The fixed costs total $18,700
per month. If Triatt is able to increase occupancy from 70% to 80%, by how
much will total costs increase per day during June?

1. A. $840
2. B. $2,710
3. C. $1,870
4. D. $1,760
Triatt Resort has 200 rooms. Each room rents at $130 per night and variable
costs total $42 per room per night of occupancy. The fixed costs total $18,700
per month. If Triatt spends an additional $30,000 in June on advertising, it
estimates it can expect an occupancy rate of 85%. What would be the
financial impact of spending this additional money on advertising over an
occupancy level of 70% during June?

1. A. Net income will increase by $49,200
2. B. Net income will increase by $7,800
3. C. Total fixed costs will decrease.
4. D. Total costs will increase by $1,260
A company purchases machinery costing $60,000 in October of 2014. Five
years later, management discovers better, more efficient machine that could
be purchased for $80,000 to replace the existing machine. Management has
determined that they are able to sell the original machine for $15,000. In
making the decision about buying the new machine, how much are total sunk
costs?

1. A. $60,000
2. B. $80,000
3. C. $15,000


4. D. $20,000
Leah Berry is entering her senior year as an accounting major and has a
number of options for her summer break. Her options for the 3-month break

follow: (1) Work full time at a local accounting firm making $3,200 per month.
(2) Take a summer class which will cost $600 and work half time making
$1,600 per month. (3) Take two classes at a cost of $1,200 and not work at all
during the summer. Leah’s opportunity cost of taking two classes if she
chooses option 3 over option 1 would be

1. A. $3,200 per month.
2. B. $2,000 per month.
3. C. $1,200 per month.
4. D. $1,600 per month.
Leah Berry is entering her senior year as an accounting major and has a
number of options for her summer break. Her options for the 3-month break
follow: (1) Work full time at a local accounting firm making $3,200 per month.
(2) Take a summer class which will cost $600 and work half time making
$1,600 per month. (3) Take two classes at a cost of $1,200 and not work at all
during the summer. Leah’s incremental revenue if she chooses option 1 over
option 2 would be

1. A. $1,000 per month.
2. B. $2,200 per month.
3. C. $1,600 per month.
4. D. $1,000 per month.


Leah Berry is entering her senior year as an accounting major and has a
number of options for her summer break. Her options for the 3-month break
follow: (1) Work full time at a local accounting firm making $3,200 per month.
(2) Take a summer class which will cost $600 and work half time making
$1,600 per month. (3) Take two classes at a cost of $1,200 and not work at all
during the summer. Leah’s incremental profit or loss if she chooses option 2

over option 1 would be

1. A. ($2,200) per month.
2. B. ($1,600) per month.
3. C. ($1,000) per month.
4. D. $1,000 per month.
Flash Eyes sells mascara. In June, it produced and sold 10,000 tubes of
mascara. For the month, total variable costs were $21,000 and fixed costs
totaled $24,000. In July, the company produced and sold 11,000 tubes of
mascara. Which of the following statements is correct for July?

1. A. Total variable costs will be $21,000
2. B. Variable costs per unit will be $2.10
3. C. Variable costs per unit will be $4.50
4. D. Total fixed costs will be $26,400
Flash Eyes sells mascara. In June, it produced and sold 10,000 tubes of
mascara. Total variable costs were $21,000 and fixed costs totaled $24,000.
Which of the following statements is correct if, Flash Eyes produced and sold
9,000 units in July?

1. A. Fixed cost per unit will be $2.67
2. B. Total fixed costs will be $21,600
3. C. Variable costs in total will be $40,500


4. D. Variable costs per unit will be $2.33
Vita Boost Pets produces a line of cat food. In August, it produced and sold
1,000 bags of food. Total fixed costs were $19,000. In September, it produced
2,000 bags of food. Which of the following statements is true for
September?

1. A. Total fixed costs will be $38,000.
2. B. Total fixed costs will be $9,500
3. C. Fixed cost per unit will be $19.00.
4. D. Fixed costs per unit will be $9.50.
Harrison Carpets incurred the following costs for March when 3,000 square
feet of carpet were produced and sold: • $18,500 for nylon thread used on
carpet • $5,000 for scotch guard for carpet • $7,200 for jute backing to
reinforce the carpet • $6,800 for glue to be used in the manufacturing
process • $13,000 for insurance (half for administrative activities, half for
production activities) • $9,000 for production employees’ wages • $6,500 for
rent and utilities in the factory How much are total fixed costs for April if
3,500 square feet of carpet are produced and sold?

1. A. $19,500
2. B. $32,500
3. C. $77,000
4. D. $22,750


Harrison Carpets incurred the following costs for March when 3,000 square
feet of carpet were produced and sold: • $18,500 for nylon thread used on
carpet • $5,000 for scotch guard for carpet • $7,200 for jute backing to
reinforce the carpet • $6,800 for glue to be used in the manufacturing
process • $13,000 for insurance (half for administrative activities, half for
production activities) • $9,000 for production employees’ wages • $6,500 for
rent and utilities in the factory How much are total variable costs if 3,500
square feet of carpet are produced and sold in April?

1. A. $77,000

2. B. $46,500
3. C. $54,250
4. D. $43,750
Harrison Carpets incurred the following costs for March when 3,000 square
feet of carpet were produced and sold: • $18,500 for nylon thread used on
carpet • $5,000 for scotch guard for carpet • $7,200 for jute backing to
reinforce the carpet • $6,800 for glue to be used in the manufacturing
process • $13,000 for insurance (half for administrative activities, half for
production activities) • $9,000 for production employees’ wages • $6,500 for
rent and utilities in the factory How much are variable costs per unit if 3,500
square feet of carpet are produced and sold in April?

1. A. $22.00
2. B. $15.50
3. C. $12.50
4. D. $18.86

Total Points: 0 correc
Managerial accounting stresses accounting concepts and procedures that are
relevant to preparing reports for

1. A. investors and banks.


2. B. internal users of accounting information.
3. C. shareholders and creditors.
4. D. the Securities and Exchange Commission (SEC).
The goal of managerial accounting is to provide information that managers
need for

1. A. planning, control, and financial reporting.
2. B. control, evaluation, and financial reporting.
3. C. planning, control, and decision making.
4. D. preparing reports for external users.
The financial plans prepared by managerial accountants are referred to
as

1. A. budgets.
2. B. financial statements.
3. C. treasurer’s reports.
4. D. controller’s opinions.
Which of the following is not a reason that current period performance results
may differ from the company’s budget for that period?

1. A. The plan may not have been followed properly.
2. B. The plan may not have been well thought-out.
3. C. Changing circumstances may have made the plan out of date.
4. D. All of the above are reasons that actual results may differ from the
company’s plan.


Which one of the following is true as it relates to the management function of
control?

1. A. It is achieved by evaluating the performance of managers.
2. B. It is achieved by evaluating the operations for which a manager is
responsible.
3. C. It is necessary only when performance is less than expected.
4. D. It is achieved by evaluating the performance of managers and the
operations for which they are responsible.

Which one of the following is the last step in the planning and control
process?

1. A. Implement a plan.
2. B. Construct a plan.
3. C. Make decisions based on the evaluation of the results.
4. D. Compare actual results to the planned results.
Performance reports often compare current performance with

1. A. a competing company’s performance.
2. B. shareholders’ expected level of performance.
3. C. industry standards.
4. D. performance in a prior period or budgeted performance.
When using management by exception, a difference between actual costs and
budgeted costs

1. A. should be investigated if the amount is large.


2. B. indicates that the planned cost was poorly estimated.
3. C. indicates that the manager is doing a poor job.
4. D. should be ignored if it increases profit.
Wilson Company’s managers investigate departures from the budget that
appear to be significant. What principle is being followed?

1. A. Small amounts do not matter
2. B. Management by exception
3. C. Incremental analysis
4. D. You get what you measure
Below is a performance report that compares budgeted and actual profit of

Atlanta Enterprises for the month of June: Budget Actual Difference Sales
$182,000 $180,000 ($2,000) Less: Cost of ingredients 145,000 141,000 4,000
Salaries 24,000 23,000 1,000 Controllable profit $ 13,000 $ 16,000 $ 3,000 In
evaluating the department in terms of its changes in sales and expenses,
what will be most important to investigate?

1. A. Sales
2. B. Cost of ingredients
3. C. Salaries
4. D. Debtors
Managerial accounting

1. A. is primarily directed at external users of accounting information.
2. B. is required by taxing authorities such as the IRS.
3. C. must follow GAAP.


4. D. focuses on future performance.
The fundamental difference between managerial and financial accounting is
that

1. A. all financial accounting information is audited by Certified Public
Accountants whereas managerial accounting information is audited by the
IMA.
2. B. managerial accounting is concerned principally with budgets, whereas
financial accounting is concerned with a wider range of the organization’s
activities.
3. C. managerial accounting provides information for decision-makers within the
organization, whereas financial accounting provides information for
individuals and institutions external to the organization.

4. D. financial accounting information follows U.S. Generally Accepted
Accounting Principles, whereas managerial accounting information generally
follows rules set forth by the Institute of Management Accountants.
Which of the following is a difference between financial accounting and
managerial accounting?

1. A. Managerial accounting is primarily concerned with reporting the past, while
financial accounting is more concerned with future decisions that external
users may need to make.
2. B. Managerial accounting uses monetary and nonmonetary information,
whereas financial accounting reports monetary information.
3. C. Managerial accounting is primarily concerned with providing information
for external users while financial accounting is concerned with internal users.
4. D. Financial accounting is rather detailed, while managerial accounting is
more summarized.
Which one of the following is most likely to make use of Ralston Enterprises’
managerial accounting information?

1. A. The IRS


2. B. An individual contemplating an investment in Ralston Enterprises
3. C. A company that is one of Ralston’s main suppliers
4. D. The production manager of Ralston’s plant in Georgia
Which of the following costs will change when the level of business activity
changes?

1. A. Total fixed costs
2. B. Variable cost per unit
3. C. A company’s total costs

4. D. Sunk cost
Variable cost per unit

1. A. increases when the number of units produced increases.
2. B. does not change when the number of units produced increases.
3. C. decreases when the number of units produced increases.
4. D. decreases when the number of units produced decreases.
Kilwin’s Candies produced and sold 600 boxes of chocolate covered popcorn
last month and had total variable costs of $2,100 that reflected the costs of
chocolate and popcorn (ingredients). Each box of popcorn sells for $12.00. If
production and sales are expected to increase by 10% next month, which of
the following statements is true?

1. A. Total variable costs are expected to be $1,785
2. B. Variable cost per unit is expected to be $3.50
3. C. The incremental cost per unit is costs expected to be $0.35
4. D. Unit variable costs are expected to be $2.10


A company has a cost that is $3.00 per unit at a volume of 9,000 units and
$3.00 per unit at a volume of 11,000 units. What type of cost is this?

1. A. Fixed
2. B. Variable
3. C. Sunk
4. D. Noncontrollable
Which of the following is most likely to be a fixed cost?

1. A. Cost of wheels for a lawn mower manufacturer
2. B. Rent on a factory building

3. C. Cost of labor for cashiers at a retail store
4. D. Supplies used by the housekeeping staff that cleans hotel rooms
Bagel Time produced and sold 2,500 bagels last month and incurred fixed
costs totaling $8,000. If production and sales are expected to decrease by
10% next month, which of the following statements is true?

1. A. Total fixed costs will increase.
2. B. Total fixed costs will decrease.
3. C. Fixed cost per unit will increase.
4. D. Fixed cost per unit will decrease.
Which of the following statements regarding fixed costs is true?

1. A. When production increases, fixed cost per unit increases.
2. B. When production decreases, total fixed costs decrease.


3. C. When production increases, fixed cost per unit decreases.
4. D. When production decreases, total fixed costs increase.
Costs incurred in the past that are not incremental to present decisions
are

1. A. fixed costs.
2. B. sunk costs.
3. C. opportunity costs.
4. D. variable costs.
A sunk cost is a cost

1. A. expected to be incurred in the future which is not relevant to present
decisions.
2. B. incurred in the current period which changes with changes in production

activity.
3. C. incurred in the current period which remains constant even though activity
changes.
4. D. incurred in the past that is not relevant for future decisions.
Sunk costs

1. A. can be incremental or not incremental, depending on the decision to be
made.
2. B. include all incremental costs to management decisions.
3. C. are costs that cannot be directly traded to a product, activity, or
department.
4. D. None of these answer choices are correct.


Opportunity costs are

1. A. considered to be fixed costs in the short-term.
2. B. another term for sunk costs.
3. C. costs that are controlled by most effective managers.
4. D. the value of benefits forgone when one decision alternative is selected
over another.
Which of the following is a benefit given up when one decision alternative is
selected over another?

1. A. Sunk cost
2. B. Controllable cost
3. C. Opportunity cost
4. D. Incremental cost
You own a car and are trying to decide whether to trade it in and buy a new
car. Which of the following costs is an opportunity cost in this situation?

1. A. The trip to Europe that you will not be able to take if you buy the car
2. B. The cost of the car you are trading in
3. C. The cost of toothpaste and soap that you need for the next few months
4. D. The cost of your meals for the last week
A retailer purchased some trendy clothes that have gone out of style and
must be marked down to 60% of the original selling price in order to be sold.
Which of the following is a sunk cost in this situation?

1. A. The current selling price


2. B. The original selling price
3. C. The original purchase price
4. D. The anticipated profit
A cost which is directly traceable to a product, activity, or department is
a(n)

1. A. fixed cost.
2. B. managerial cost.
3. C. opportunity cost.
4. D. direct cost.
Which of the following statements regarding direct and indirect costs is
true?

1. A. Direct costs are always variable and indirect costs are always fixed.
2. B. Sunk costs are always direct, and opportunity costs are always fixed.
3. C. The distinction between a direct and indirect cost depends on the product,
activity, or department to which the cost pertains.
4. D. If a cost is indirect to a department within a plant, it will also be indirect for

the plant as a whole.
Which of the following is a direct cost in relation to the cost of teaching the
managerial accounting course in a college?

1. A. The cost of the paper that is given as handouts in the class
2. B. The cost of the electricity to light the classroom
3. C. The cost of the registration system
4. D. The cost of the financial aid department of the college