PRE EXAM TEST 4 DT 17/12/24 TOTAL QUESTIONS 35(included 1 essay based question) & TIME ALLOWED 60 MINUTES: questions are examinable & challenging .
Q1 Rainbow Inc. recently appointed Margaret Joyce as vice president of finance and asked her to design a new budgeting system. Joyce has changed to a monthly budgeting system by dividing the company’s annual budget by twelve. Joyce then prepared monthly budgets for each department and asked the managers to submit monthly reports comparing actual to budget. A sample monthly report for Department A is shown below
This monthly budget has been imposed from the top and will create behavior problems.
All of the following are causes of such problems except
a. the use of a flexible budget rather than a fixed budget.
b. top management authoritarian attitude toward the budget process.
c. the inclusion of noncontrollable costs such as depreciation.
d. the lack of consideration for factors such as seasonality
Q2
Q3 Albright Company uses the sum-of-the-years’ digits method of depreciation. On January 1, the company purchased a machine for $50,000, with an estimated life of 5 years and no residual value. Depreciation for the first year would be
a. $10,000.
b. $15,000.
c. $16,667.
d. $20,000.
Q4 Lakeside Electric purchased a truck for $38,600 to transport equipment to various job sites. For this purpose, storage bins were welded to the truck bed at a cost of $1,700.Doug Lombardi, controller of Lakeside, estimates the useful life of the truck to be 5 years and the residual value to be $1,000. Using the double-declining-balance method, the depreciation expense on the truck for its second year of use is
a. $9,024.
b. $9,264.
c. $9,432.
d. $9,672.
Q5 Which one of the following methods of depreciation will result in the lowest reported net income in the early life of a depreciable asset?
a. Composite depreciation method.
b. Group depreciation method.
c. Straight-line depreciation method.
d. Sum-of-the-years’ digits depreciation method.
Q6 Hansen Inc. purchased a patent at the beginning of Year 1 for $22,100 that was to be amortized over 17 years. On July 1 of Year 8, Hansen incurred legal costs of $11,400 to successfully defend the patent. The amount of amortization expense that Hansen should record for Year 8 is
a. $2,500.
b. $1,971.
c. $1,900.
d. $1,300
Q7 A liability arising from a loss contingency should be recorded if the
a. amount of the loss can be reasonably estimated.
b. contingent future events have a reasonably possible chance of occurring.
c. contingent future events have a reasonably possible chance of occurring and the
amount of the loss can be reasonably estimated.
d. contingent future events will probably occur and the amount of the loss can be
reasonably estimated
Q8
*****$
Q9 On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, that mature in five years. The bonds were issued for $96,207 to yield 10%, resulting in a bond discount of $3,793. Evangel uses the effective interest method of amortizing bond discount. Interest on the bonds is payable annually on December 31. What is the amount of interest to be paid at the end of the first year?
*****$
Q10 On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, that mature in five years. The bonds were issued for $96,207 to yield 10%, resulting in a bond discount of $3,793. Evangel uses the effective interest method of amortizing bond discount. Interest is payable annually on December 31. What is the amount of Evangel’s unamortized bond discount at the end of the first year?
*****$
Q11 Which one of the following would most likely cause earnings per share to increase?
a. Issuing stock options when the option price is greater than the market price.
b. Postponing the declaration of dividends.
c. Selling shares of stock at a price greater than the par value.
d. Purchasing treasury stock.
Q12 Bertram Company had a balance of $100,000 in Retained Earnings at the beginning of the year and $125,000 at the end of the year. Net income for this time period was $40,000. Bertram’s Statement of Financial Position indicated that Dividends Payable had decreased by $5,000 throughout the year, despite the fact that both cash dividends and a stock dividend were declared. The amount of the stock dividend was $8,000. When preparing its Statement of Cash Flows for the year, Bertram should show Cash Paid for Dividends as ****$
Q13 A segment is considered significant if its sales, profits, or assets are
a. 5% or more of the respective total company amounts.
b. 10% or more of the respective total company amounts.
c. 15% or more of the respective total company amounts.
d. 51% or more of the respective total company amounts
Q14 A search for unrecorded liabilities provides support for management’s financial statement assertion of
a. existence or occurrence.
b. completeness.
c. rights and obligations.
d. valuation or allocation.
Q15 The annual report would include all of the following information except
a. a description of accounting policies.
b. the auditor’s policy recommendations.
c. management’s discussion and analysis.
d. the number of shares of stock outstanding.
Q16 Securities held primarily for sale in the near term to generate income on short-term price differences are known as
a. available-for-sale securities.
b. equity securities.
c. held-to-maturity securities.
d. trading securities.
Q17 If a company uses off-balance-sheet financing, assets have been acquired
a. for cash.
b. with operating leases.
c. with financing leases.
d. with a line of credit.
Q18
a. a noncurrent Deferred Tax Liability of $40,000.
b. a noncurrent Deferred Tax Liability of $90,000 and a noncurrent Deferred Tax
Asset of $50,000.
c. a current Deferred Tax Asset of $10,000 and a noncurrent Deferred Tax Liability
of $50,000.
d. a current Deferred Tax Asset of $20,000, a noncurrent Deferred Tax Asset of
$30,000, a current Deferred Tax Liability of $10,000, and a noncurrent Deferred
Tax Liability of $80,000
Q19 All of the following are methods used by businesses to identify problems with product quality except
a. statistical process control charts.
b. theory of constraints diagrams.
c. Pareto (frequency) diagrams.
d. cause-and-effect diagrams
Q20 Which one of the following statements about a balanced scorecard is incorrect?
a. It seeks to address the problems associated with traditional financial measures
used to assess performance.
b. The notion of value chain analysis plays a major role in the drawing up of a
balanced scorecard.
c. It relies on the perception of the users with regard to service provided.
d. It is directly derived from the scientific management theories
Q21 With respect to a firm’s transfer pricing policy, an advantage of using a dual pricing arrangement is that it
a. provides an incentive for the supplying subunit to control costs.
b. exposes the supplying subunit to the discipline of market prices.
c. promotes goal congruence between the supplying and buying subunits of the firm.
d. simplifies tax calculations when the buying and supplying subunits are taxed in
different jurisdictions
Q22 Morrison's Plastics Division, a profit center, sells its products to external customers as well as to other internal profit centers. Which one of the following circumstances would justify the Plastics Division selling a product internally to another profit center at a price that is below the market-based transfer price?
a. The buying unit has excess capacity.
b. The selling unit is operating at full capacity.
c. Routine sales commissions and collection costs would be avoided.
d. The profit centers' managers are evaluated on the basis of unit operating income
Q23 Happy Time Industries uses segment reporting for all of its decentralized divisions. It has several products that are transferred from one division to other divisions. Happy Time wants to motivate the manager of the selling division to produce efficiently.
Assuming the following methods are available, the optimal transfer pricing method
should be a
a. cost-based transfer price that uses actual amounts.
b. cost-based transfer price that uses budgeted amounts.
c. variable cost-based transfer price that uses actual amounts.
d. market-based transfer price.
Q24 Vincent Hospital has installed a new computer system. The system was designed and constructed based on the anticipated number of hours of usage required by the various hospital departments according to projections made by the departmental managers.
Virtually all of the operating costs of the system are fixed. What would be the most
systematic and rational manner in which to allocate the new computer system costs to the various hospital departments?
a. To each department equally.
b. By the anticipated number of hours of usage.
c. By actual usage by each department.
d. By the revenue generated in each department
Q25 During the month of May, Tyler Company experienced a significant unfavorable material efficiency variance in the production of its single product at one of Tyler’s plants. Which one of the following reasons would be least likely to explain why the unfavourable variance arose?
a. Inferior materials were purchased.
b. Actual production was lower than planned production.
c. Workers used were less-skilled than expected.
d. Replacement production equipment had just been installed.
Q26 Howard Company produces and sells replacement parts for cotton processing equipment. Which one of the following cost variances are least likely to be controllable by Howard’s production manager?
a. Variable overhead spending variance.
b. Labor efficiency variance.
c. Material quantity variance.
d. Fixed overhead production volume variance
Q27 A company has a fixed overhead volume variance that is $10,000 unfavorable. The most likely cause for this variance is that
a. the production supervisory salaries were greater than planned.
b. the production supervisory salaries were less than planned.
c. more was produced than planned.
d. less was produced than planned
Q28 Highlight Inc. uses a standard cost system and applies factory overhead to products on the basis of direct labor hours. If the firm recently reported a favorable direct labor efficiency variance, then the
a. variable overhead spending variance must be favorable.
b. variable overhead efficiency variance must be favorable.
c. fixed overhead volume variance must be unfavorable.
d. direct labor rate variance must be unfavorable.
Q29 Richter Company has an unfavorable materials efficiency (usage) variance for a
particular month. Which one of the following is least likely to be the cause of this
variance?
a. Inadequate training of the direct labor employees.
b. Poor performance of the shipping employees.
c. Poor design of the production process or product.
d. Poor quality of the raw materials
Q30 Which one of the following will allow a better use of standard costs and variance analysis to help improve managerial decision-making?
a. Set standards with the help of line personnel directly involved in the process.
b. Do not differentiate between variable and fixed overhead in calculating overhead
variances.
c. Use standard costs only for inventory valuation.
d. Use the prior year’s average actual cost as the current year’s standard
Q31 The most commonly used method for calculating and reporting a company’s net cash flow from operating activities on its statement of cash flows is the
a. direct method.
b. indirect method.
c. single-step method.
d. multiple-step method.
Q32 When a fixed asset is sold for less than book value, which one of the following will decrease?
a. Total current assets.
b. Current ratio.
c. Net profit.
d. Net working capital
Q33skipped
Q34 A budgeting approach that requires a manager to justify the entire budget for each budget period is known as
a. performance budgeting.
b. program budgeting.
c. zero-base budgeting.
d. incremental budgeting
CASE STUDY/ESSAY SECTION: A OR B
READ PARA BELOW AND ATTEMPT QUESTIONS:
A
CDE is a manufacturer of almost 100 hundred different automotive components that are
sold in both large and small quantities on a just-in-time (JIT) basis to the major vehicle
assemblers. Business is highly competitive and price sensitive. The company is listed on the
stock exchange but CDE’s share performance has not matched that of its main competitors.
CDE’s management accounting system uses a manufacturing resource planning (MRP II)
system to control production scheduling, inventory movements and inventory control, and
labour and machine utilisation. The accounting department carries out a detailed annual
budgeting exercise, determines standard costs for labour and materials, and allocates
production overhead on the basis of machine utilisation. Strict accounting controls over
labour and material costs are managed by the detailed recording of operator and machine
timesheets and raw material movements, and by calculating and investigating all significant
variances.
While the information from the MRP II system is useful to management, there is an absence
of integrated data about customer requirements and suppliers. Some information is
contained within spreadsheets and databases held by the Sales and Purchasing
departments respectively. One result of this lack of integration is that inventories are higher
than they should be in a JIT environment.
The managers of CDE (representing functional areas of sales, production, purchasing,
finance and administration) believe that, while costs are strictly controlled, the cost of the
accounting department is excessive and significant savings need to be made, even at the
expense of data accuracy. Managers believe that there may not be optimum use of the
production capacity to generate profits and cash flow and improve shareholder value. CDE’s
management wants to carry out sensitivity and other analyses of strategic alternatives, but
this is difficult when the existing management accounting system is focused on control
rather than on decision support.
QUESTIONS:
(a) Outline the different types of information system available to manufacturing firms
like CDE.
(b) Recommend with reasons the information system that would be appropriate to
CDE’s needs.
B
Glam Co is a hairdressing salon which provides both ‘cuts’ and ‘treatments’ to clients. All
cuts and treatments at the salon are carried out by one of the salon’s three senior stylists.
The salon also has two salon assistants and two junior stylists.
Every customer attending the salon is first seen by a salon assistant, who washes their hair;
next, by a senior stylist, who cuts or treats the hair depending on which service the
customer wants; then finally, a junior stylist who dries their hair. The average length of time
spent with each member of staff is as follows:
The salon is open for eight hours each day for six days per week. It is only closed for two
weeks each year. Staff salaries are $40,000 each year for senior stylists, $28,000 each year
for junior stylists and $12,000 each year for the assistants. The cost of cleaning products
applied when washing the hair is $0.60 per client. The cost of all additional products applied
during a ‘treatment’ is $7.40 per client. Other salon costs (excluding labour and raw
materials) amount to $106,400 each year.
Glam Co charges $60 for each cut and $110 for each treatment.
The senior stylists’ time has been correctly identified as the bottleneck activity.
QUESTIONS :
(a) Briefly explain why the senior stylists’ time has been described as the ‘bottleneck
activity’, supporting your answer with calculations. (4 marks)
(b) Calculate the throughput accounting ratio (TPAR) for ‘cuts’ and the TPAR for
‘treatments’ assuming the bottleneck activity is fully utilised. (6 marks)
(Total: 10 marks)
All the Best
www.gmsisuccess.in
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