Archive for May 2018

Extron, Inc., has only variable costs and fixed costs. A review of the company's records disclosed that when 100,000 units were produced, fixed manufacturing costs amounted to $200,000 and the cost per unit manufactured totaled $5. On the basis of this information, how much cost would the firm anticipate at an activity level of 97,000 units?

Naim 00:11 Add Comment

Extron, Inc., has only variable costs and fixed costs. A review of the company's records disclosed that when 100,000 units were produced, fixed manufacturing costs amounted to $200,000 and the cost per unit manufactured totaled $5. On the basis of this information, how much cost would the firm anticipate at an activity level of 97,000 units? 




A. $485,000.
B. $491,000.
C. $494,000.
D. $500,000.
E. Some other amount not listed above.


Answer: B. $491,000.

Douglas Corporation recently produced and sold 100,000 units. Fixed costs at this level of activity amounted to $50,000; variable costs were $100,000. How much cost would the company anticipate if during the next period it produced and sold 102,000 units?

Naim 00:11 Add Comment

Douglas Corporation recently produced and sold 100,000 units. Fixed costs at this level of activity amounted to $50,000; variable costs were $100,000. How much cost would the company anticipate if during the next period it produced and sold 102,000 units? 



A. $150,000.
B. $151,000.
C. $152,000.
D. $153,000.
E. Some other amount not listed above.



Answer: C. $152,000.

When graphed, a typical fixed cost appears as:

Naim 00:10 Add Comment

When graphed, a typical fixed cost appears as: 



A. a horizontal line.
B. a vertical line.
C. a u-shaped line.
D. a diagonal line that slopes downward to the right.
E. a diagonal line that slopes upward to the right.



Answer: A. a horizontal line.

Norman Company pays a sales commission of 5% on each unit sold. If a graph is prepared, with the vertical axis representing per-unit cost and the horizontal axis representing units sold, how would a line that depicts sales commissions be drawn?

Naim 00:10 Add Comment

Norman Company pays a sales commission of 5% on each unit sold. If a graph is prepared, with the vertical axis representing per-unit cost and the horizontal axis representing units sold, how would a line that depicts sales commissions be drawn? 



A. As a straight diagonal line, sloping upward to the right.
B. As a straight diagonal line, sloping downward to the right.
C. As a horizontal line.
D. As a vertical line.
E. As a curvilinear line.


Answer: C. As a horizontal line.

When graphed, a typical variable cost appears as:

Naim 00:10 Add Comment

When graphed, a typical variable cost appears as: 



A. a horizontal line.
B. a vertical line.
C. a u-shaped line.
D. a diagonal line that slopes downward to the right.
E. a diagonal line that slopes upward to the right.



Answer: E. a diagonal line that slopes upward to the right.

Webster has the following budgeted costs at its anticipated production level (expressed in hours): variable overhead, $150,000; fixed overhead, $240,000. If Webster now revises its anticipated production slightly downward, it would expect:

Naim 00:09 Add Comment

Webster has the following budgeted costs at its anticipated production level (expressed in hours): variable overhead, $150,000; fixed overhead, $240,000. If Webster now revises its anticipated production slightly downward, it would expect: 




A. total fixed overhead of $240,000 and a lower hourly rate for variable overhead.
B. total fixed overhead of $240,000 and the same hourly rate for variable overhead.
C. total fixed overhead of $240,000 and a higher hourly rate for variable overhead.
D. total variable overhead of less than $150,000 and a lower hourly rate for variable overhead.
E. total variable overhead of less than $150,000 and a higher hourly rate for variable overhead.



Answer: B. total fixed overhead of $240,000 and the same hourly rate for variable overhead.

A company observed a decrease in the cost per unit. All other things being equal, which of the following is probably true?

Naim 00:09 Add Comment

A company observed a decrease in the cost per unit. All other things being equal, which of the following is probably true? 




A. The company is studying a variable cost, and total volume has increased.
B. The company is studying a variable cost, and total volume has decreased.
C. The company is studying a fixed cost, and total volume has increased.
D. The company is studying a fixed cost, and total volume has decreased.
E. The company is studying a fixed cost, and total volume has remained constant.



Answer: C. The company is studying a fixed cost, and total volume has increased.

Plaza Corporation observed that when 25,000 units were sold, a particular cost amounted to $70,000, or $2.80 per unit. When volume increased by 15%, the cost totaled $80,500 (i.e., $2.80 per unit). The cost that Plaza is studying can best be described as a:

Naim 00:09 Add Comment

Plaza Corporation observed that when 25,000 units were sold, a particular cost amounted to $70,000, or $2.80 per unit. When volume increased by 15%, the cost totaled $80,500 (i.e., $2.80 per unit). The cost that Plaza is studying can best be described as a:




A. variable cost.
B. fixed cost.
C. semivariable cost.
D. discretionary fixed cost.
E. step-fixed cost.



Answer: A. variable cost.

A company has a 20% contribution margin ratio and a degree of operating leverage of 4. Its fixed costs are $15,000. Assume that sales go up by $30,000 or 30%. Then, the company's profit will go up by:

Naim 00:08 Add Comment

A company has a 20% contribution margin ratio and a degree of operating leverage of 4. Its fixed costs are $15,000. Assume that sales go up by $30,000 or 30%. Then, the company's profit will go up by:



A. 6%
B. 80%
C. 120%
D. $7,200
E. $9,000



Answer: C

Assume that two companies have the same amounts of sales and profit. Which company has the higher operating leverage?

Naim 00:08 Add Comment

Assume that two companies have the same amounts of sales and profit. Which company has the higher operating leverage?



A. the company that has the higher variable cost
B. the company that has the higher fixed cost
C. the company that has the lower gross margin
D. the company that has the lower margin of safety


Answer: B

Which of the following is not true of operating leverage?

Naim 00:07 Add Comment

Which of the following is not true of operating leverage?




A. operating leverage is determined independent of cost structure
B. generally speaking, manufacturing firms have the higher operating leverage than service firms
C. if fixed costs are used more, its operating leverage is higher
D. if operating leverage is higher, for a given sales change, the income change is greater


Answer: A.

When sales go up by 25%:

Naim 00:07 Add Comment

When sales go up by 25%:



A. variable expenses go up by 25%
B. contribution margin will go up by 75%
C. net income will go up by 25%
D. fixed expenses will go up by 75%


Answer: A

A company has many machines. The company needs one maintenance worker for every 10 machines. Each maintenance worker is paid a flat salary of $3,000. With respect to the number of machines, the maintenance cost is a:

Naim 00:06 Add Comment

A company has many machines. The company needs one maintenance worker for every 10 machines. Each maintenance worker is paid a flat salary of $3,000. With respect to the number of machines, the maintenance cost is a:




A. true variable cost
B. fixed cost
C. step cost
D. mixed cost


Answer: C

Maxim Company incurred $70,000 ($30,000 of total fixed cost and $40,000 of total variable cost) when 1,000 units of a given product were produced. If 2,000 units are made, the company's total cost will be:

Naim 00:04 Add Comment

Maxim Company incurred $70,000 ($30,000 of total fixed cost and $40,000 of total variable cost) when 1,000 units of a given product were produced. If 2,000 units are made, the company's total cost will be:



A. $100,000
B. $110,000
C. $130,000
D. $140,000


Answer: B


40,000 / 1,000 = $40 per unit
2,000 * 40 = 80,000
+ 30,000
= 110,000

Webster has the following budgeted costs as its anticipated production level (expressed in hours): variable cost $150,000; fixed cost $240,000. If webster now revises its anticipated production upward, it would expect:

Naim 00:03 Add Comment

Webster has the following budgeted costs as its anticipated production level (expressed in hours): variable cost $150,000; fixed cost $240,000. If webster now revises its anticipated production upward, it would expect:




A. total fixed cost of $240,000; and a lower hourly rate for variable cost
B. total fixed cost of $240,000; and the same hourly rate for variable cost
C. total fixed cost of $240,000; and a higher hourly rate for variable cost
D. total variable cost of more than $150,000; and the same hourly rate for fixed cost



Answer: B

Monaco Company has a variable cost. At the production level of 100 units, the amount of the cost is $200. If the production level increases to 120 units:

Naim 00:03 Add Comment

Monaco Company has a variable cost. At the production level of 100 units, the amount of the cost is $200. If the production level increases to 120 units:




A. the total cost will increase by $20
B. the total cost will increase by 20%
C. the per-unit cost will increase by $20
D. the per-unit cost will increase by 20%



Answer: B

A department had 100 units of beginning work-in-process, which are 100% as to direct materials and 30% complete as to conversion. The department started 700 units during a given period. The department completed and transferred out 500 units. At the end of the period, there are 300 units remaining unfinished with 100% complete as to direct materials and 60% complete as to conversion. The equivalent units as to conversion are:

Naim 00:03 Add Comment

A department had 100 units of beginning work-in-process, which are 100% as to direct materials and 30% complete as to conversion. The department started 700 units during a given period. The department completed and transferred out 500 units. At the end of the period, there are 300 units remaining unfinished with 100% complete as to direct materials and 60% complete as to conversion. The equivalent units as to conversion are:




A. 210
B. 480
C. 680
D. 800


Answer: C

Gorski began operations on January 1 of the current year. The company uses a process-costing system, and conversion cost is incurred evenly throughout manufacturing. By January 31, the firm had completed 56,000 units. Which of the following statements could be true about the ending work-in-process inventory if equivalent units for the conversion costs totaled 59,000 units?

Naim 00:02 Add Comment

Gorski began operations on January 1 of the current year. The company uses a process-costing system, and conversion cost is incurred evenly throughout manufacturing. By January 31, the firm had completed 56,000 units. Which of the following statements could be true about the ending work-in-process inventory if equivalent units for the conversion costs totaled 59,000 units?




A. There is no ending work-in-process inventory
B. The ending work-in-process inventory totaled 3,000 physical units
C. The ending work-in-process inventory of 10,000 units was 30% complete
D. The ending work-in-process inventory of 20,000 physical units was 85% complete



Answer: C

Equivalent units are:

Naim 00:02 Add Comment

Equivalent units are:



A. the number of units that should be produced, if the department operates at a maximum efficiency level
B. the number of units that are either complete or nearly complete
C. the amount of work done, expressed in terms of complete units, on physically complete and incomplete units
D. the amount of work done on incomplete units



Answer: C

Which of the following is true of process costing?

Naim 00:02 Add Comment

Which of the following is true of process costing?




A. a separate finishes goods account is set up for each process or department
B. for the costing purpose, a single production report is made for the entire production process
C. costs are accumulated by job
D. finished units in one department initially become part of Work-In-Process for the next department


Answer: D

Process costing is used when:

Naim 00:01 Add Comment

Process costing is used when:



A. there is a single product that has to go through different processes
B. there are several distinct products to manufacture over a period of time
C. activity-based costing is not desirable
D. the company in question sells services, rather than products, to customers


Answer: A

Executive stock options are outstanding all year that permit executives to buy 12 million common shares at $60. The average market price of the common stock was $50. When calculating diluted earnings per share, the assumed exercise of these options will increase the weighted average number of shares outstanding by:

Naim 23:53 Add Comment

Executive stock options are outstanding all year that permit executives to buy 12 million common shares at $60. The average market price of the common stock was $50. When calculating diluted earnings per share, the assumed exercise of these options will increase the weighted average number of shares outstanding by:



A) zero shares.
B) 2 million shares.
C) 8 million shares.
D) 10 million shares.


Answer: A) zero shares.

Executive stock options are outstanding all year that permit executives to buy 12 million common shares at $50. The average market price of the common stock was $60. When calculating diluted earnings per share, the assumed exercise of these options will increase the weighted average number of shares outstanding by:

Naim 23:53 Add Comment

Executive stock options are outstanding all year that permit executives to buy 12 million common shares at $50. The average market price of the common stock was $60. When calculating diluted earnings per share, the assumed exercise of these options will increase the weighted average number of shares outstanding by:




A) zero shares.
B) 2 million shares.
C) 8 million shares.
D) 10 million shares.



Answer: B) 2 million shares.

When calculating earnings per share, the effect of after-tax interest expense paid on convertible bonds that are dilutive is to:

Naim 23:52 Add Comment

When calculating earnings per share, the effect of after-tax interest expense paid on convertible bonds that are dilutive is to:




A) Increase net income for diluted earnings per share and not for basic earnings per share.
B) Decrease net income for basic earnings per share and not for diluted earnings per share.
C) Increase net income for both basic earnings per share and diluted earnings per share.
D) Decrease net income for both basic earnings per share and diluted earnings per share.


Answer: A) Increase net income for diluted earnings per share and not for basic earnings per share.

At December 31, 2016, the balance sheet of Darwin Corporation included 8 million common shares and 4 million nonconvertible preferred shares. On July 1, 2017, Darwin issued a 5 for 4 stock split on its common shares and paid $10 million cash dividends on the preferred stock. Net income for the year ended December 31, 2017, was $40 million. Darwin's 2017 EPS should be:

Naim 23:52 Add Comment

At December 31, 2016, the balance sheet of Darwin Corporation included 8 million common shares and 4 million nonconvertible preferred shares. On July 1, 2017, Darwin issued a 5 for 4 stock split on its common shares and paid $10 million cash dividends on the preferred stock. Net income for the year ended December 31, 2017, was $40 million. Darwin's 2017 EPS should be:




A) $3.00.
B) $4.00.
C) $5.00.
D) $5.55.



Answer: A) $3.00.

At December 31, 2016, the balance sheet of Goode Corporation included 80 million common shares. On October 1, 2017, Goode retired 4 million shares as part of a share repurchase program. Net income for the year ended December 31, 2017, was $400 million. Goode's 2017 EPS should be:

Naim 23:52 Add Comment

At December 31, 2016, the balance sheet of Goode Corporation included 80 million common shares. On October 1, 2017, Goode retired 4 million shares as part of a share repurchase program. Net income for the year ended December 31, 2017, was $400 million. Goode's 2017 EPS should be:




A) $4.94.
B) $5.00.
C) $5.06.
D) $5.26.




Answer: C) $5.06.

At December 31, 2016 and 2017, First Company had outstanding 50 million common shares and 4 million shares of 10%, $10 par cumulative preferred stock. Net income for 2017 was $20 million. No dividends were declared in 2016 or 2017. EPS for 2017 was:

Naim 23:51 Add Comment

At December 31, 2016 and 2017, First Company had outstanding 50 million common shares and 4 million shares of 10%, $10 par cumulative preferred stock. Net income for 2017 was $20 million. No dividends were declared in 2016 or 2017. EPS for 2017 was:




A) $.32.
B) $.37.
C) $.40.
D) $.48.



Answer: A) $.32.

What amount should Olympic recognize as compensation expense for 2016?

Naim 23:51 Add Comment
On January 1, 2016, Olympic Insurance Company granted 30,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2018, and expire on January 1, 2019. Each option can be exercised to acquire one share of $1 par common stock for $12. An option-pricing model estimates the fair value of the options to be $5 on the date of grant. The market price of Olympic's stock was as follows:


What amount should Olympic recognize as compensation expense for 2016?




A) $10,000
B) $20,000
C) $30,000
D) $50,000



Answer: D) $50,000

Under IFRS, a deferred tax asset for stock options

Naim 23:50 Add Comment

Under IFRS, a deferred tax asset for stock options



A) is created for the cumulative amount of the fair value of the options the company has recorded for compensation expense.
B) is the portion of the options' intrinsic value earned to date times the tax rate.
C) is the tax rate times the amount of compensation.
D) isn't created if the award is "in the money;" that is, it has intrinsic value.


Answer: B) is the portion of the options' intrinsic value earned to date times the tax rate.

Which of the following statements is true regarding diluted earnings per share?

Naim 23:50 Add Comment

Which of the following statements is true regarding diluted earnings per share?




A) It is assumed that stock options are exercised at the beginning of the period (or at the time the options are issued, if later) and the cash proceeds received are used to buy back (as treasury stock) as many of those shares as can be acquired at the closing market price for the period.
B) To incorporate convertible bonds into the calculation, the denominator of the EPS fraction is decreased by the additional common shares assumed.
C) To incorporate convertible securities into the calculation, the numerator is decreased by the interest (after-tax) that would have been avoided in the event of conversion.
D) Contingently issuable shares are considered outstanding in the computation of diluted EPS when any conditions for issuance are currently being met.



Answer: D) Contingently issuable shares are considered outstanding in the computation of diluted EPS when any conditions for issuance are currently being met.

To incorporate the effect of outstanding stock options in the calculation of diluted EPS:

Naim 23:49 Add Comment

To incorporate the effect of outstanding stock options in the calculation of diluted EPS:




A) Would be inappropriate because options are considered only when calculating basic EPS.
B) We would never increase or decrease the numerator of the EPS fraction.
C) We assume common shares are issued at the average market price and repurchased at the exercise price.
D) We assume the options were exercised at mid-year.



Answer: B) We would never increase or decrease the numerator of the EPS fraction.

When calculating the weighted average number of shares outstanding, the number of shares are not time-weighted by the fraction of the reporting period they are (are not) outstanding for:

Naim 23:48 Add Comment

When calculating the weighted average number of shares outstanding, the number of shares are not time-weighted by the fraction of the reporting period they are (are not) outstanding for:




A) Common shares retired.
B) Common shares issued during the period as a stock dividend.
C) Shares obtainable in executive stock options granted in mid-year.
D) New common shares sold during the period.


Answer: B) Common shares issued during the period as a stock dividend.

Which of the following statements is untrue regarding earnings per share?

Naim 23:47 Add Comment

Which of the following statements is untrue regarding earnings per share?




A.) A company has a simple capital structure if it has no outstanding securities that could potentially dilute earnings per share.
B) When shares are retired, they are time-weighted for the fraction of the period they were not outstanding, prior to being subtracted from the number of shares outstanding during the reporting period.
C) Dividends paid on nonconvertible preferred stock outstanding should be subtracted from reported net income.
D) Any new shares issued during the period in a stock dividend or stock split are time-weighted by the fraction of the period they were outstanding and then added to the number of shares outstanding for the period.



Answer: D) Any new shares issued during the period in a stock dividend or stock split are time-weighted by the fraction of the period they were outstanding and then added to the number of shares outstanding for the period.

Subscribe to: Posts (Atom)