Financial Accounting
Midterm Exam
Course Introduction
Financial Accounting is an introductory course that explores the fundamental principles and practices related to recording, classifying, and reporting financial transactions of businesses and organizations. Students will learn how to prepare, interpret, and analyze essential financial statements such as the balance sheet, income statement, and cash flow statement. The course covers key concepts including the accounting cycle, accrual accounting, asset valuation, liabilities, equity, and the regulatory environment governing financial reporting. Emphasis is placed on understanding how financial information is used by various stakeholders including managers, investors, and regulators to make informed economic decisions.
Recommended Textbook
Cost Accounting A Managerial Emphasis 14th Edition by Charles T. Horngren
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3902 Flashcards
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Chapter 1: The Accountants Role in the Organization
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Sample Questions
Q1) Line management is directly responsible for attaining the goals of the organization.
A)True
B)False
Answer: True
Q2) If a managerial accountant were NOT keeping up with current developments in managerial accounting, that behavior might violate a competence standard of professional ethical behavior.
A)True
B)False
Answer: True
Q3) Which item is NOT an area that customers want to see improved levels of performance in?
A)innovation
B)quality
C)cost and efficiency
D)profit
Answer: D
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Page 3
Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Overtime premium is normally considered as a component of direct labor.
A)True
B)False
Answer: False
Q2) Cost accounting and cost management include calculating various costs, obtaining financial and nonfinancial information, and analyzing relevant information for decision making.
A)True
B)False
Answer: True
Q3) Indirect manufacturing costs:
A)can be traced to the product that created the costs
B)can be easily identified with the cost object
C)generally include the cost of material and the cost of labor
D)may include both variable and fixed costs
Answer: D
Q4) Budgeting often plays a major role in affecting behavior and decisions.
A)True
B)False
Answer: True
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Chapter 3: Cost-Volume-Profit Analysis
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207 Flashcards
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Sample Questions
Q1) If sales increase by $40,000, operating income will increase by:
A)$10,000
B)$20,000
C)$30,000
D)None of these answers are correct.
Answer: C
Q2) The selling price per unit less the variable cost per unit is the:
A)fixed cost per unit
B)gross margin
C)margin of safety
D)contribution margin per unit
Answer: D
Q3) If the contribution margin ratio is 0.25, targeted operating income is $25,000, and targeted sales volume in dollars is $200,000, then total fixed costs are:
A)$50,000
B)$100,000
C)$75,000
D)$25,000
Answer: D
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Page 5
Chapter 4: Job Costing
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Sample Questions
Q1) Using actual costing, the amount of manufacturing overhead costs allocated to jobs during 2010 is:
A)$300,000
B)$250,000
C)$240,000.
D)$200,000
Q2) Work-in-Process Control will be decreased (credited)for the amount of direct-labor costs incurred.
A)True
B)False
Q3) The ________ approach carries the underallocated or overallocated amounts to overhead accounts in the following year.
A)adjusted allocation-rate
B)proration
C)write-off to cost of goods sold
D)None of these answers are correct.
Q4) Process costing is used to assign manufacturing costs to unique batches of a product.
A)True
B)False
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) ABC costing systems are primarily for use in manufacturing and marketing and NOT for design engineering.
A)True
B)False
Q2) Assume a traditional costing system applies the $120,000 of overhead costs based on direct labor hours. What is the total amount of overhead costs assigned to the deluxe model?
A)$49,600
B)$70,400
C)$75,000
D)$45,000
Q3) Under the revised ABC system, total overhead costs allocated to Sweatshirts will be:
A)$ 48,720
B)$ 76,720
C)$224,920
D)None of these answers are correct.
Q4) Direct costs plus indirect costs equal total costs.
A)True
B)False
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) St. Claire Manufacturing expects to produce and sell 6,000 units of Big, its only product, for $20 each. Direct material cost is $2 per unit, direct labor cost is $8 per unit, and variable manufacturing overhead is $3 per unit. Fixed manufacturing overhead is $24,000 in total. Variable selling and administrative expenses are $1 per unit, and fixed selling and administrative costs are $3,000 in total. According to generally accepted accounting principles, inventoriable cost per unit of Big would be:
A)$13.00 per unit
B)$14.00 per unit
C)$17.00 per unit
D)$18.50 per unit
Q2) What is budgeted sales for 2011?
A)$1,036,800
B)$1,066,666
C)$933,120
D)$864,000
Q3) Explain what is meant by sensitivity analysis in budgeting, and discuss how managers might use sensitivity analysis in practice.
Q4) Describe the benefits to an organization of preparing an operating budget.
Q5) Describe the concept of kaizen budgeting.
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Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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Sample Questions
Q1) Unfavorable direct material price variances are:
A)always credits
B)always debits
C)credited to the Materials Control account
D)credited to the Accounts Payable Control account
Q2) A standard is attainable through efficient operations but allows for normal disruptions such as machine breakdowns and defective production.
A)True
B)False
Q3) When benchmarking it is best when management accountants simply analyze the costs and allow management to provide the insight as to why the revenues and costs differ between companies.
A)True
B)False
Q4) An unfavorable variance:
A)may suggest investigation is needed
B)is conclusive evidence of poor performance
C)demands that standards be recomputed
D)indicates continuous improvement is needed
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Chapter 8: Flexible Budgets, Overhead Cost Variances, and Management Control
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Sample Questions
Q1) Explain two concerns when interpreting the production-volume variance as a measure of the economic cost of unused capacity.
Q2) Variance analysis of fixed nonmanufacturing costs, such as distribution costs, can also be useful when planning for capacity.
A)True
B)False
Q3) Briefly explain why a favorable variable overhead spending variance may not always be desireable.
Q4) The variable overhead efficiency variance can be interpreted the same way as the efficiency variance for direct-cost items.
A)True
B)False
Q5) Explain why there is no efficiency variance for fixed manufacturing overhead costs.
Q6) What is the variable overhead efficiency variance?
A)$3,937.50 favorable
B)$3,937.50 unfavorable
C)$4,500 favorable
D)$4,500 unfavorable
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) The breakeven point using absorption costing depends on all of the following factors, EXCEPT:
A)the number of units sold during the current period
B)the budgeted level of production
C)the denominator level chosen for the fixed manufacturing overhead rate
D)fulfillment of current production quotas
Q2) Given a constant contribution margin per unit and constant fixed costs, the period-to-period change in operating income under variable costing is driven solely by:
A)changes in the quantity of units actually sold
B)changes in the quantity of units produced
C)changes in ending inventory
D)changes in sales price per unit
Q3) What is the breakeven point in units using absorption costing if the units produced are actually 2,250?
A)1,330 units
B)1,000 units
C)887 units
D)584 units
Q4) Discuss the three methods to dispose of production volume variance.
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) In multiple regression, when two or more independent variables are correlated with one another, the situation is known as:
A)heteroscedasticity
B)homoscedasticity
C)multicollinearity
D)autocorrelation
Q2) An inaccurate cost function with a slope coefficient that is estimated too low may most likely result in:
A)predicting total costs that are too high
B)initiating cost cutting measures when they are unnecessary
C)evaluating a weak manager as having strong performance
D)promoting a product that is actually more profitable than budgeted
Q3) In regression analysis, the term "goodness of fit" indicates the strength of the relationship between the cost driver and the costs.
A)True
B)False
Q4) Explain the difference between the cumulative average-time learning model and the incremental unit-time learning model.
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12
Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) When there is a constraining resource, the firm should attempt to maximize sales of the product or service with the greatest contribution margin per unit.
A)True
B)False
Q2) The cost NOT relevant for this decision is the:
A)acquisition cost of the Trail Blazer
B)acquisition cost of the Grand Cherokee
C)repairs to the Trail Blazer
D)annual operating costs of the Grand Cherokee
Q3) When opportunity costs exist, they are always relevant.
A)True
B)False
Q4) When deciding to lease a new cutting machine or continue using the old machine, the following costs are relevant EXCEPT the:
A)$50,000 cost of the old machine
B)$20,000 cost of the new machine
C)$10,000 selling price of the old machine
D)$3,000 annual savings in operating costs if the new machine is purchased
Q5) Explain what revenues and costs are relevant when choosing among alternatives.
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Chapter 12: Pricing Decisions and Cost Management
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Sample Questions
Q1) To minimize the chances of violating pricing laws, a company should:
A)keep detailed records of variable costs for all value-chain business functions
B)use a variable cost-plus markup method of pricing
C)underprice products on a consistent basis, rather than sporadically
D)use dumping only when a product is at the end of its life cycle
Q2) Life-cycle costing tracks and accumulates business function costs across the entire value chain from a product's initial R&D to its final customer service and support.
A)True
B)False
Q3) Companies that produce high quality products do NOT have to pay attention to the actions of their competitors.
A)True
B)False
Q4) The markup percentage is usually higher if the cost base used is:
A)the full cost of the product
B)the variable cost of the product
C)variable manufacturing costs
D)total manufacturing costs
Q5) What factors may influence the level of markups?
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Chapter 13: Strategy, Balanced Scorecard, and Strategic Profitability Analysis
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Sample Questions
Q1) When analyzing the change in operating income, the strategy component of productivity:
A)calculations are similar to the sales-volume variance calculations
B)compares the change in output price with the changes in input prices
C)will report a large positive amount when a company has successfully pursued the cost leadership strategy
D)isolates the change attributed solely to an increase in the quantity of units sold
Q2) What is the revenue effect of the growth component?
A)$2,500 U
B)$52,500 U
C)$47,500 F
D)$50,000 F
Q3) What is reengineering. Can you contrast a reengineering approach to change with a kaizen approach to change?
Q4) Overall, was Wingard's strategy successful for 2012?
A)No, because the selling price per unit decreased.
B)Yes, because operating income increased.
C)Yes, because less direct materials were used.
D)No, because more units were produced and sold.
Page 15
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Chapter 14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) In general, distribution-channel costs are more easily influenced by customer actions than customer batch-level costs.
A)True
B)False
Q2) A favorable sales-quantity variance would most likely be caused by:
A)a new competitor providing better service in the high-margin product sector
B)a competitor having distribution problems with high-margin products
C)the company offering low-margin products at a higher price
D)the company experiencing quality-control problems that get negative media coverage of low-margin products
Q3) The sales-mix variance will be unfavorable when:
A)the actual sales mix shifts toward the less profitable units
B)the composite unit for the actual mix is greater than for the budgeted mix
C)actual unit sales are less than budgeted unit sales
D)the actual contribution margin is greater than the static-budget contribution margin
Q4) For external reporting, inventoriable costs under GAAP sometimes include R&D costs.
A)True
B)False
Page 16
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Chapter 15: Allocation of Support-Department Costs,
Common Costs, and Revenues
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Sample Questions
Q1) When allocating the revenues between a bundled product offering, there are only two methods which can be used: 1)the stand-alone revenue-method and 2)the incremental revenue-allocation method.
A)True
B)False
Q2) The step-down method allocates support department costs to other support departments and to operating departments in a sequential manner.
A)True
B)False
Q3) Under the incremental method, the first incremental user usually receives the highest allocation of the common costs.
A)True
B)False
Q4) The only choices that a firm has for support department cost allocation rates are to use either a budgeted rate or an actual rate.
A)True
B)False
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) The production method for recognizing byproducts is conceptually correct in that it is consistent with the matching principle.
A)True
B)False
Q2) What are the four methods of allocating joint costs to individual products? Which of these methods is preferred, and what are two advantages of this method?
Q3) Litigation may be a reason that joint costs are allocated to individual products.
A)True
B)False
Q4) Using the sales value at splitoff method, what is the gross-margin percentage for skim goat milk at the splitoff point?
A)21.1%
B)55.1%
C)58.1%
D)38.2%
Q5) What are a joint cost and a splitoff point?
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Chapter 17: Process Costing
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Sample Questions
Q1) Process-costing FIFO is usually applied to both the units entering a department and the units leaving a department.
A)True
B)False
Q2) Transferred-in costs are treated as if they are:
A)conversion costs added at the beginning of the process
B)costs of beginning inventory added at the beginning of the process
C)direct labor costs added at the beginning of the process
D)a separate direct material added at the beginning of the process
Q3) A major advantage of using the FIFO process-costing method is that:
A)FIFO makes the unit cost calculations simpler
B)in contrast with the weighted-average method, FIFO is considered GAAP
C)FIFO provides managers with information about changes in the costs per unit from one period to the next
D)All of these answers are correct.
Q4) What is the conversion cost per equivalent unit in April?
A)$1,250.00
B)$945.76
C)$872.50
D)$1,033.00
Page 19
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Chapter 18: Spoilage, Rework, and Scrap
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Sample Questions
Q1) Spoilage can be considered either normal or abnormal.
A)True
B)False
Q2) What costs would be associated with normal and abnormal spoilage, respectively, using the FIFO method of process costing?
A)$5,890.64; $9,133.20
B)$5,890.64; $5,826.00
C)$6,469.64; $7,690.36
D)$9,133.20; $5,026.80
Q3) Shazam Machines produces numerous types of money change machines. All machines are made in the same production department and many use exactly the same processes. Because customers have such different demands for the machine characteristics, the company uses a job-costing system. Unfortunately, some of the production managers have been upset for the last few months when their jobs were charged with the spoilage that occurred over an entire processing run of several types of machines. Some of the best managers have even threatened to quit unless the accounting system is changed.
Required:
What recommendations can you suggest to improve the accounting for spoilage?
Q4) Distinguish among spoilage, reworked units, and scrap. Give an example of each.
Page 20
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Chapter 19: Balanced Scorecard: Quality, Time, and the
Theory of Constraints
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Sample Questions
Q1) In the banking industry, depositing a customer's check into the wrong bank account is an example of quality of design failure.
A)True
B)False
Q2) How much do external failure costs change if all the changes are as the new prevention procedures anticipated? Assume all units produced are sold and there are no ending inventories.
A)$126,000 decrease
B)$151,200 decrease
C)$100,800 decrease
D)None of these answers is correct.
Q3) What is the net change in the budget of prevention costs if the procedures are automated in 2011? Will management agree with the changes?
A)$100,000 decrease, yes
B)$90,000 decrease, yes
C)$190,000 increase, no
D)$100,000 increase, yes
Q4) The two basic aspects of quality are quality of design and conformance quality. Define and give an example of each.
Page 21
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Chapter 20: Inventory Management, Just-In-Time, and Simplified Costing Methods
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Sample Questions
Q1) A "push-through" system, often described as a just-in-time system, emphasizes simplicity and close coordination among work centers.
A)True
B)False
Q2) The reorder point is simplest to compute when:
A)both demand and purchase-order lead times are known with certainty
B)the number of units sold varies
C)the safety stock amount never varies
D)the relevant ordering costs and the relevant carrying costs are equal
Q3) The costs of preparing, issuing, and paying purchase orders, plus receiving and inspecting the items included in orders is:
A)purchasing costs
B)ordering costs
C)stockout costs
D)carrying costs
Q4) What are the principles of lean accounting? Are there any limitations? Discuss.
Q5) Just-in-time purchasing is guided solely by the economic order quantity.
A)True
B)False
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Chapter 21: Capital Budgeting and Cost Analysis
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Sample Questions
Q1) Crystal Manufacturing Company provides glassware machines for major department store retailers. The company has been investigating a new piece of machinery for its production department. The old equipment has a remaining life of five years and the new equipment has a value of $231,000 with a five-year life. The expected additional cash inflows are $70,000 per year. What is the payback period on this investment?
A)2.5 years
B)3 years
C)3.3 years
D)5 years
Q2) The net present value method accurately assumes that project cash flows can only be reinvested at the company's required rate of return.
A)True
B)False
Q3) The payback method is only useful when the expected cash flows in the later years of the project are highly uncertain.
A)True
B)False
Q4) How is inflation related to capital budgeting? Discuss.
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Chapter 22: Management Control Systems, Transfer
Pricing, and Multinational
Considerations
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Sample Questions
Q1) The goal of a management control system is to improve the collective decisions in an organization in an economically feasible way.
A)True
B)False
Q2) A benefit of using a market-based transfer price is the:
A)profits of the transferring division are sacrificed for the overall good of the corporation B)profits of the division receiving the products are sacrificed for the overall good of the corporation
C)economic viability and profitability of each division can be evaluated individually
D)None of these answers is correct.
Q3) If a computer manufacturer used its common stock price as a Balanced Scorecard control measure, it would represent the ________ perspective.
A)financial
B)customer
C)internal business process
D)learning and growth
Q4) Briefly explain each of the three methods used to determine a transfer price.
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Chapter 23: Performance Measurement, Compensation, and Multinational Considerations
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Sample Questions
Q1) When managers set and measure target levels of performance
A)historical-cost-based accounting measures are usually adequate for evaluating economic returns on new investments.
B)historical-cost ROIs cannot be used to evaluate current performance.
C)the timing of feedback is not dependent on the sophistication of the organization's information technology.
D)the timing of feedback depends on the specific level of management receiving the feedback.
Q2) The ________ method of profitability analysis recognizes the two basic ingredients in profit-making: increasing income per dollar of revenues and using assets to generate more revenues.
A)Balanced Scorecard
B)Residual-Income
C)Dupont
D)Economic Value Added
Q3) To evaluate overall aggregate performance, return on investment and residual income measures are more appropriate than return on sales.
A)True
B)False
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