1. Why is it important that FINANCIAL accounting provide a common set of standards that are used by all companies in preparing their financial statements?
o So that outsiders can compare financial reports coming from many different companies
o To provide standardized data used in computing government statistics
o So that income taxes can be collected in a fair and equitable fashion
o To serve the competitive needs of companies working to uniquely serve specific customers in specific markets
2. Why don’t all companies use the same MANAGERIAL accounting systems?
o The systems must provide different sets of financial statements; some companies don’t provide outsiders with both an income statement and a balance sheet.
o The systems are based on publicly available data which are posted in different databases for companies in different industries.
o The systems must serve the competitive needs of companies working to uniquely serve specific customers in specific markets.
o The systems are required to provide government data once per year, and the operating cycles of companies are often based on different seasons.
3. Which of the following is a better description of MANAGERIAL accounting than it is of FINANCIAL accounting?
o Emphasizes compliance with generally accepted accounting principles
o Compares planned and actual results
o Used primarily by investors and creditors
o Standardized across companies
o Focuses on the preparation of the balance sheet, income statement, and statement of cash flows
4. Which of the following is more true of MANAGERIAL accounting systems than it is of FINANCIAL accounting systems?
o Primarily based on the statement of cash flows.
o Rules established by the FASB.
o Based on debits and credits.
o Use only historical information.
o Have substantial competitive value.
5. Which ONE of the following questions is related to BREAKEVEN ANALYSIS (also called cost-volume-profit analysis)?
o How much will net income be if sales next year decrease by 20%?
o Was the actual cost higher or lower than the budgeted cost?
o When do product costs appear as an expense on the income statement?
o How large is the manufacturing overhead cost compared to the sum of the direct materials and direct labor costs?
6. Sheryl Company operates a factory in which pickled olives are prepared and packaged. Of course, in making her product, Sheryl must purchase a lot of olives. Sheryl has purchased her olives from the same supplier for 15 years.
For the purpose of doing a cost-volume-profit analysis, what kind of cost is Sheryl’s cost of purchasing olives?
o Period
o Administrative
o Variable
o Fixed
o Indirect
7. Curie Company operates a restaurant. For the purpose of doing a cost-volume-profit analysis, what kind of cost is Curie’s cost of paying monthly rent?
o Implementation
o Fixed
o Control
o Variable
o Labor
8. Rosalind Company manufactures baby car seats. Which of the following is a PERIOD cost?
o Cost of plastic used in the construction of the car seats
o Wages of the janitors in the executive office building
o Cost of the electricity used in the car seat manufacturing building
o Wages of the janitors in the car seat manufacturing building
o Salary of the manufacturing production supervisor
9. Which of the following is MOST LIKELY to be a PERIOD cost?
o Direct labor
o Wages of secretarial staff in administration building
o Factory maintenance worker wages
o Direct materials
10. Product costs are expensed only when the products or services with which they are associated are sold. What are the three general categories of product costs?
o Executive salaries, building and maintenance fees, and indirect labor
o Direct materials, executive salaries, and maintenance
o Direct labor, indirect labor, and materials
o Manufacturing overhead, direct materials, and direct labor
11. Franklin Company manufactures computers. Which of the following is a PRODUCT cost?
o Commissions paid to company salespersons
o Depreciation on the automobiles used by the company salespersons
o Salary of the chief financial officer
o Wages paid to the computer assemblers who work on the production line
o Wages paid to typesetters in the company’s advertising department
12. One category of costs is described as “a cost that is specifically traceable to the segment being analyzed.” What label is given to this category of costs?
o Direct
o Out of pocket
o Capital
o Opportunity
o Indirect
13. Meitner Company is considering shutting down its floor covering manufacturing business and instead using that space, those workers, and those machines to make bookshelves to be sold to university students. In the analysis used in deciding whether to make this change, which label is given to the profits currently being made through the floor covering operations?
o Overhead cost
o Sunk cost
o Opportunity cost
o Capital cost
o Variable cost
14. Lovelace Company is considering remodeling its luxury resort rental property. Lovelace believes that such a remodel will increase the daily rental fees that Lovelace can collect. Part of the remodel will involve removing and replacing all of the existing floor coverings. In the analysis used in deciding whether to do this remodel, which label is given to the original cost of buying and installing the existing floor coverings?
o Variable cost
o Opportunity cost
o Overhead cost
o Managerial cost
o Sunk cost
15. Thatcher Company owns five small supermarkets. Thatcher is currently considering building an additional small supermarket in a new city. In the analysis used in deciding whether to build this new small supermarket, which label is given to the cost of buying the land on which the supermarket will be built?
o Out-of-pocket cost
o Mixed cost
o Direct labor cost
o DuPont cost
o Direct materials cost
o Variable cost
