Accounting Multiple Choice Questions Test Bank

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59. Tern Corporation, a cash basis taxpayer, has taxable income of $500,000 for the current year. Tern elected $100,000 of § 179 expense. It also had a related party loss of $20,000 and a realized (not recognized) gain from an involuntary conversion of $75,000. It paid Federal income tax of $150,000 and paid a nondeductible fine of $10,000. Tern’s current E & P is:

A. $400,000.

B. $410,000.

C. $320,000.

D. $475,000.

E. None of the above.

60. Platinum Corporation, a calendar year taxpayer, has taxable income of $500,000. Among its transactions for the year are the following:

Collection of proceeds from insurance policy on life of corporate
officer (in excess of cash surrender value) $75,000
Realized gain (not recognized) on an involuntary conversion 10,000
Nondeductible fines and penalties 40,000

Disregarding any provision for Federal income taxes, Platinum Corporation’s current E & P is:

A. $455,000.

B. $535,000.

C. $545,000.

D. $625,000.

E. None of the above.

61. Which of the following statements is incorrect with respect to determining current E & P?

A. All tax-exempt income should be added back to taxable income.

B. Dividends received deductions should be added back to taxable income.

C. Charitable contributions in excess of the 10% of taxable income limit should be subtracted from taxable income.

D. Federal income tax refunds should be added back to taxable income.

E. None of the above statements are incorrect.

62. Ashley and Andrew, equal shareholders in Parrot Corporation, receive $250,000 each in distributions on December 31 of the current year. During the current year, Parrot sold an appreciated asset for $500,000 (basis of $150,000). Payment for the sale of the asset will be made as follows: 50% next year and 50% in the following year, with interest payable at a rate of 7.5%. Before considering the effect of the asset sale, Parrot’s current year E & P is $400,000 and it has no accumulated E & P. How much of Ashley’s distribution will be taxed as a dividend?

A. $0.

B. $200,000.

C. $250,000.

D. $425,000.

E. None of the above.

63. Tracy and Lance, equal shareholders in Macaw Corporation, receive $600,000 each in distributions on December 31 of the current year. Macaw’s current year taxable income is $1 million and it has no accumulated E & P. Last year, Macaw sold an appreciated asset for $1,200,000 (basis of $400,000). Payment for one-half of the sale of the asset was made this year. How much of Tracy’s distribution will be taxed as a dividend?

A. $0.

B. $300,000.

C. $500,000.

D. $600,000.

E. None of the above.

64. Falcon Corporation ended its first year of operations with taxable income of $250,000. At the time of Falcon’s formation, it incurred $50,000 of organizational expenses. In calculating its taxable income for the year, Falcon claimed an $8,000 deduction for the organizational expenses. What is Falcon’s current E & P?

A. $200,000.

B. $208,000.

C. $250,000.

D. $258,000.

E. None of the above.

65. During the current year, Goose Corporation sold equipment for $500,000 (adjusted basis of $260,000). The equipment was purchased a few years ago for $560,000 and $300,000 in MACRS deductions have been claimed. ADS depreciation would have been $200,000. As a result of the sale, the adjustment to taxable income needed to determine current E & P is:

A. No adjustment is required.

B. Subtract $100,000.

C. Add $100,000.

D. Add $80,000.

E. None of the above.

66. On January 2, 2012, Orange Corporation purchased equipment for $300,000 with an ADS recovery period of 10 years and a MACRS useful life of 7 years. Section 179 was not elected. MACRS depreciation properly claimed on the asset, including depreciation in the year of sale, totaled $79,605. The equipment was sold on July 1, 2013, for $290,000. As a result of the sale, the adjustment to taxable income needed to arrive at current E & P is:

A. No adjustment is required.

B. Decrease $49,605.

C. Increase $49,605.

D. Decrease $79,605.

E. None of the above.

67. Tungsten Corporation, a calendar year cash basis taxpayer, made estimated tax payments of $800 each quarter in 2012, for a total of $3,200. Tungsten filed its 2012 tax return in 2013 and the return showed a tax liability $4,200. At the time of filing, March 15, 2013, Tungsten paid an additional $1,000 in Federal income taxes. How does the additional payment of $1,000 impact Tungsten’s E & P?

A. Increase by $1,000 in 2012.

B. Increase by $1,000 in 2013.

C. Decrease by $1,000 in 2012.

D. Decrease by $1,000 in 2013.

E. None of the above.

68. Duck Corporation is a calendar year taxpayer formed in 2006. Duck’s E & P for each of the past 5 years is listed below.

2011 $280,000
2010 $400,000
2009 $390,000
2008 $680,000
2007 $160,000

Duck Corporation made the following distributions in the previous 5 years.

2010 Land (basis of $700,000, fair market value of $800,000)
2007 $200,000 cash

Duck’s accumulated E & P as of January 1, 2012 is:

A. $910,000.

B. $950,000.

C. $1,010,000.

D. $1,050,000.

E. None of the above.

69. Stacey and Andrew each own one-half of the stock in Parakeet Corporation, a calendar year taxpayer. Cash distributions from Parakeet are: $350,000 to Stacey on April 1 and $150,000 to Andrew on May 1. If Parakeet’s current E & P is $60,000, how much is allocated to Andrew’s distribution?

A. $5,000.

B. $10,000.

C. $18,000.

D. $30,000.

E. None of the above.

70. Maria and Christopher each own 50% of Cockatoo Corporation, a calendar year taxpayer. Distributions from Cockatoo are: $750,000 to Maria on April 1 and $250,000 to Christopher on May 1. Cockatoo’s current E & P is $300,000 and its accumulated E & P is $600,000. How much of the accumulated E & P is allocated to Christopher’s distribution?

A. $0.

B. $75,000.

C. $150,000.

D. $300,000.

E. None of the above.

71. Gander, a calendar year corporation, has a deficit in current E & P of $100,000 and a $290,000 positive balance in accumulated E & P. If Gander determines that a $500,000 distribution to its shareholders is appropriate at some point during the year, what is the maximum amount of the distribution that could potentially be treated as a dividend?

A. $0.

B. $190,000.

C. $240,000.

D. $290,000.

E. None of the above.

72. Pheasant Corporation, a calendar year taxpayer, has $400,000 of current E & P and a deficit in accumulated E & P of $180,000. If Pheasant pays a $600,000 distribution to its shareholders on July 1, how much dividend income do the shareholders report?

A. $0.

B. $20,000.

C. $220,000.

D. $400,000.

E. None of the above.

73. Glenda is the sole shareholder of Condor Corporation. She sold her stock to Melissa on October 31 for $150,000. Glenda’s basis in Condor stock was $50,000 at the start of the year. Condor distributed land to Glenda immediately before the sale. Condor’s basis in the land was $20,000 (fair market value of $25,000). On December 31, Melissa received a $75,000 cash distribution from Condor. During the year, Condor has $20,000 of current E & P and its accumulated E & P balance on January 1 is $10,000. Which of the following statements is true?

A. Glenda recognizes a $110,000 gain on the sale of her stock.

B. Glenda recognizes a $100,000 gain on the sale of her stock.

C. Melissa receives $5,000 of dividend income.

D. Glenda receives $20,000 of dividend income.

E. None of the above.

74. Orange Corporation has a deficit in accumulated E & P of $600,000 and has current E & P of $450,000. On July 1, Orange distributes $500,000 to its sole shareholder, Morris, who has a basis in his stock of $105,000. As a result of the distribution, Morris has:

A. Dividend income of $450,000 and reduces his stock basis to $55,000.

B. Dividend income of $105,000 and reduces his stock basis to zero.

C. Dividend income of $450,000 and no adjustment to stock basis.

D. No dividend income, reduces his stock basis to zero, and has a capital gain of $500,000.

E. None of the above.

75. Renee, the sole shareholder of Indigo Corporation, sold her stock to Chad on July 1 for $180,000. Renee’s stock basis at the beginning of the year was $120,000. Indigo made a $60,000 cash distribution to Renee immediately before the sale, while Chad received a $120,000 cash distribution from Indigo on November 1. As of the beginning of the current year, Indigo had $26,000 in accumulated E & P, while current E & P (before distributions) was $90,000. Which of the following statements is correct?

A. Renee recognizes a $60,000 gain on the sale of the stock.

B. Renee recognizes a $64,000 gain on the sale of the stock.

C. Chad recognizes dividend income of $120,000.

D. Chad recognizes dividend income of $30,000.

E. None of the above.

76. Tangelo Corporation has an August 31 year-end. Tangelo had $50,000 in accumulated E & P at the beginning of its 2012 fiscal year (September 1, 2011) and during the year, it incurred a $75,000 operating loss. It also distributed $65,000 to its sole shareholder, Cass, on November 30, 2011. If Cass is a calendar year taxpayer, how should she treat the distribution when she files her 2011 income tax return (assuming the return is filed by April 15, 2012)?

A. $65,000 of dividend income.

B. $60,000 of dividend income and $5,000 recovery of capital.

C. $50,000 of dividend income and $15,000 recovery of capital.

D. The distribution has no effect on Cass in the current year.

E. None of the above.

77. As of January 1, Cassowary Corporation has a deficit in accumulated E & P of $100,000. For the tax year, current E & P (accrued ratably) is $240,000 (prior to any distributions). On July 1, Cassowary Corporation distributes $275,000 to its sole shareholder. The amount of the distribution that is a dividend is:

A. $20,000.

B. $140,000.

C. $240,000.

D. $275,000.

E. None of the above.

78. At the beginning of the current year, Doug and Alfred each own 50% of Amaryllis Corporation (a calendar year taxpayer). In July, Doug sold his stock to Kevin for $140,000. At the beginning of the year, Amaryllis Corporation had accumulated E & P of $240,000 and its current E & P is $280,000 (prior to any distributions). Amaryllis distributed $300,000 on February 15 ($150,000 to Doug and $150,000 to Alfred) and distributed another $300,000 on November 1 ($150,000 to Kevin and $150,000 to Alfred). Kevin has dividend income of:

A. $150,000.

B. $140,000.

C. $110,000.

D. $70,000.

E. None of the above.

79. On January 1, Gull Corporation (a calendar year taxpayer) has accumulated E & P of $200,000. During the year, Gull incurs a net loss of $280,000 from operations that accrues ratably. On June 30, Gull distributes $120,000 to Sharon, its sole shareholder, who has a basis in her stock of $75,000. How much of the $120,000 is a dividend to Sharon?

A. $0.

B. $60,000.

C. $75,000.

D. $120,000.

E. None of the above.

80. Which of the following is not a consequence of the double tax on dividends?

A. Corporations have an incentive to retain earnings and structure distributions to avoid dividend treatment.

B. Corporations have an incentive to invest in noncorporate rather than corporate businesses.

C. The cost of capital for corporate investments is increased.

D. Corporations have an incentive to finance operations with debt rather than equity.

E. All of the above are consequences of the double tax on dividends.

81. Which one of the following statements is false?

A. Most countries that trade with the U.S. do not impose a double tax on dividends.

B. Tax proposals that include corporate integration would eliminate the double tax on dividends.

C. The double tax on dividends may make corporations more financially vulnerable during economic downturns.

D. Many of the arguments in support of the double tax on dividends relate to fairness.

E. None of the above.

82. In June of the current year, Marigold Corporation declares a $4 dividend out of E & P on each share of common stock to shareholders of record on August 1. Ellen and Tim each purchase 100 shares of Marigold stock on July 1. On July 15, Ellen also purchases a short position in Marigold. Tim sells 50 of his shares on August 10 and continues to hold the remaining 50 shares through the end of the year. Ellen closes her short position in Marigold on October 15. With respect to the dividends, which of the following is correct?

A. Ellen will have $400 of qualifying dividends subject to reduced tax rates and $400 of ordinary income (from dividends paid on the short position of Marigold stock).

B. Tim will have $200 of qualifying dividends subject to reduced tax rates and $200 of ordinary income.

C. All $800 of Ellen’s dividends will qualify for reduced tax rates.

D. All $400 of Tim’s dividends will qualify for reduced tax rates.

E. None of the above.

83. In the current year, Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations):

Adjusted Fair Market
Basis Value
Pink Corporation stock (held for investment) $150,000 $120,000
Non-LIFO inventory 80,000 110,000

Warbler Corporation is not a member of a controlled group. As a result of the distribution:

A. The shareholders have dividend income of $200,000.

B. The shareholders have dividend income of $260,000.

C. Warbler has a recognized gain of $30,000 and a recognized loss of $30,000.

D. Warbler has no recognized gain or loss.

E. None of the above.

84. Swan Corporation makes a property distribution to its sole shareholder, Matthew. The property distributed is a cottage (fair market value of $135,000; basis of $110,000) that is subject to a $175,000 mortgage that Matthew assumes. Before considering the consequences of the distribution, Swan’s current E & P is $25,000 and its accumulated E & P is 100,000. Swan makes no other distributions during the current year. What is Swan’s taxable gain on the distribution of the cottage?

A. $0.

B. $15,000.

C. $25,000.

D. $65,000.

E. None of the above.

85. Puffin Corporation makes a property distribution to its sole shareholder, Bonnie. The property distributed is a car (basis of $30,000; fair market value of $20,000) that is subject to a $6,000 liability which Bonnie assumes. Puffin has no accumulated E & P and $30,000 of current E & P from other sources during the year. What is Puffin’s E & P after taking into account the distribution of the car?

A. $4,000.

B. $6,000.

C. $10,000.

D. $14,000.

E. None of the above.

86. Navy Corporation has E & P of $240,000. It distributes land with a fair market value of $70,000 (adjusted basis of $25,000) to its sole shareholder, Troy. The land is subject to a liability of $55,000 that Troy assumes. Troy has:

A. A taxable dividend of $15,000.

B. A taxable dividend of $25,000.

C. A taxable dividend of $45,000.

D. A taxable dividend of $70,000.

E. A basis in the machinery of $55,000.

87. Which one of the following statements about property distributions is false?

A. When the basis of distributed property is greater than its fair market value, a deficit may be created in E & P.

B. When the basis of distributed property is less than its fair market value, the distributing corporation recognizes gain.

C. When the basis of distributed property is greater than its fair market value, the distributing corporation does not recognize loss.

D. The amount of a distribution received by a shareholder is measured by using the property’s fair market value.

E. All of the above statements are true.

88. Samantha owns stock in Pigeon Corporation (basis of $80,000) as an investment. Pigeon distributes property (fair market value of $300,000; basis of $150,000) to her during the year. Pigeon has current E & P of $20,000 and accumulated E & P of $80,000 and makes no other distributions during the year. What is Samantha’s capital gain on the distribution?

A. $0.

B. $80,000.

C. $120,000.

D. $150,000.

E. None of the above.

89. Rust Corporation distributes property to its sole shareholder, Andre. The property has a fair market value of $350,000, an adjusted basis of $205,000, and is subject to a liability of $220,000. Current E & P is $500,000. With respect to the distribution, which of the following statements is correct?

A. Rust has a gain of $15,000 and Andre has dividend income of $350,000.

B. Rust has a gain of $145,000 and Andre’s basis in the distributed property is $130,000.

C. Rust has a gain of $130,000 and Andre’s basis in the distributed property is $350,000.

D. Rust has a gain of $145,000 and Andre has dividend income of $130,000.

E. None of the above.

90. Purple Corporation has accumulated E & P of $100,000 on January 1, 2012. In 2012, Purple has current E & P of $130,000 (before any distribution). On December 31, 2012, the corporation distributes $250,000 to its sole shareholder, Cindy (an individual). Purple Corporation’s E & P as of January 1, 2013 is:

A. $0.

B. ($20,000).

C. $100,000.

D. $130,000.

E. None of the above.

112. The adjusted gross estate of Keith, decedent, is $6 million. Included in the gross estate is stock in Gold Corporation (E & P of $750,000), a closely held corporation, valued at $2.4 million as of the date of Keith’s death in 2012. Keith had acquired the stock twelve years ago at a cost of $420,000. Death taxes and funeral and administration expenses for Keith’s estate are $1.2 million. Gold Corporation redeems one-half of the stock from Keith’s estate in a § 303 redemption to pay death taxes using property with a fair market value of $1.2 million (adjusted basis of $950,000). Which of the following is a correct statement regarding the tax consequences of this redemption?

A. The estate will have a basis of $950,000 in the property received from Gold Corporation in redemption of the estate’s stock.

B. Gold Corporation will not reduce its E & P as a result of the distribution of the property to Keith’s estate.

C. The estate will recognize a $990,000 long-term capital gain on the redemption.

D. Gold Corporation will recognize gain of $250,000 on the distribution of the property to Keith’s estate.

E. None of the above.

113. The adjusted gross estate of Debra, decedent, is $8 million. Debra’s estate will incur death taxes and funeral and administration expenses of $1 million. Debra’s gross estate includes stock in Silver Corporation that she had purchased twelve years ago for $600,000 (date of death fair market value of $3 million). At the time of her death in 2012, Debra owned 80% of the stock in Silver Corporation. Silver Corporation (E & P of $4 million) redeems all of the estate’s stock in the corporation for $3 million. Debra’s will names her daughter, Dena, who owns the remaining 20% interest in Silver Corporation, as her sole heir. With respect to this redemption, Debra’s estate has the following income:

A. $0.

B. $2.4 million long-term capital gain.

C. $2 million dividend.

D. $1 million dividend.

E. None of the above.

115. Vulture Corporation distributes land (basis of $250,000, fair market value of $475,000) to Bonita, a shareholder, to carry out a qualifying stock redemption. The land is distributed subject to a $300,000 liability. Bonita had a basis of $25,000 in the shares redeemed. With respect to the redemption:

A. Vulture Corporation will recognize a gain of $50,000.

B. Vulture Corporation will recognize a gain of $225,000.

C. Bonita will recognize a gain of $450,000.

D. Bonita will have a basis of $175,000 in land.

E. None of the above.

117. Canary Corporation has 1,000 shares of stock outstanding. It redeems in a qualifying stock redemption 350 shares for $400,000 at a time when it has paid-in capital of $100,000 and E & P of $1 million. What would be the charge to Canary’s E & P as a result of the redemption?

A. $40,000.

B. $140,000.

C. $350,000.

D. $400,000.

E. None of the above.

118. In the current year, Loon Corporation made a distribution in redemption of some of its shares. Loon incurred expenditures in connection with the redemption totaling $35,000 (accounting fees of $9,000, legal fees of $20,000, and brokerage fees of $6,000). The distribution was a qualifying stock redemption. How much of the $35,000 is deductible in the current year?

A. $6,000.

B. $9,000.

C. $29,000.

D. $35,000.

E. None of the above.

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Accounting Multiple Choice Questions Test Bank

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1. A product requires processing in two departments, the Baking Department and then the Packaging Department, before it is completed. Costs transferred out of the Baking Department will be transferred to:

Cost of Goods

Work in Process—Packaging Department.

Finished Goods Inventory.

Manufacturing Overhead.

2. A process cost accounting system is most appropriate when

the focus of attention is on a particular job or order.

similar products are mass-produced.

a variety of different products are produced, each one requiring different types of materials, labor, and overhead.

individual products are custom made to the specification of customers.

3. In process cost accounting, manufacturing costs are summarized on a

production cost report.

manufacturing cost sheet.

process order cost sheet.

job order cost sheet.

4. Which of these best reflects a distinguishing factor between a job order cost system and a process cost system?

The manufacturing cost elements included.

The detail at which costs are calculated.

The time period each covers.

The number of work in process accounts.

5. When manufacturing overhead costs are assigned to production in a process cost system, they are debited to

a Manufacturing Overhead account.

the Work in Process account.

the Finished Goods Inventory account.

Cost of Goods

6. Which of the following would not appear as a debit in the Work in Process account of a second department in a two stage production process?

Materials used.

Overhead applied.

Cost of products transferred out.

Labor assigned.

7. A characteristic of products that are mass-produced in a continuous fashion is that

their costs are accumulated on job cost sheets.

they are grouped in batches.

they are produced at the time an order is received.

the products are identical or very similar in nature.

8. In Moyer Company, the Cutting Department had beginning work in process of 6,000 units, transferred out 16,000 units, and had an ending work in process of 3,000 units. How many units were started by Moyer during the month?

16,000.

10,000.

13,000.

19,000.

9. Hanker Company had the following department data on physical units:
Work in process, beginning 3,000
Completed and transferred out 12,000
Work in process, ending 2,400
Materials are added at the beginning of the process. What is the total number of equivalent units for materials during the period?

12,600.

14,400.

2,400.

9,000

10. If beginning work in process is 4,000 units, ending work in process is 2,000 units, and the units accounted for equals 12,000 units, what must units started into production be?

10,000.

16,000.

14,000.

8,000.

11. The relevant range of activity refers to the

geographical areas where the company plans to operate.

activity level where all costs are curvilinear.

level of activity where all costs are constant.

levels of activity over which the company expects to operate.

12. An increase in the level of activity will have the following effects on unit costs for variable and fixed costs:
Unit Variable Cost Unit Fixed Cost

Increases Decreases

Increases Decreases

Remains constant Remains constant

Decreases Remains constant

13.
Cost behavior analysis is a study of how a firm’s costs

relate to competitors’ costs.

respond to changes in the gross national product.

relate to general price level changes.

respond to changes in the level of business activity.

14. Which of the following would be the least controllable fixed costs?

Management training programs

Research and development

Property taxes

Ren

15. If Whisper Wings Airlines cuts its domestic fares by 30%,

a profit can be earned either by increasing the number of passengers or by decreasing variable costs.

profit will increase by 30%.

its fixed costs will decrease.

a profit can only be earned by decreasing the number of flights.

16. A mixed cost contains

both retailing and manufacturing costs.

a variable element and a fixed element.

both selling and administrative costs.

both operating and nonoperating costs.

17. Sutton Company produces flash drives for computers, which it sells for $20 each. The variable cost to make each flash drive is $13. During April, 700 drives were sold. Fixed costs for April were $2 per unit for a total of $1,400 for the month. How much is the monthly break-even level of sales in dollars for Sutton Company?

$200

$14,000

$8,400

$4,000

18. A company has total fixed costs of $160,000 and a contribution margin ratio of 20%. The total sales necessary to break even are

$640,000.

$200,000.

$180,000.

$800,000.

19. Keith Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $14 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio?

70%

80%

30%

20%

20. Isakson Company has a contribution margin per unit of $21 and a contribution margin ratio of 60%. How much is the selling price of each unit?

$12.60

Cannot be determined without more information.

$52.50

$35.00

21. Small Tots Toys has actual sales of $400,000 and a break-even point of $300,000. How much is its margin of safety ratio?

75%

33%

25%

133%

22. Brown Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $6 of variable costs to make. During March, 1,000 drives were sold. Fixed costs for March were $4.90 per unit for a total of $4,900 for the month. If variable costs decrease by 10%, what happens to the break-even level of units per month for Brown Company?

It decreases about 35 units.

It depends on the number of units the company expects to produce and sell.

It is 10% higher than the original break-even point.

It decreases about 14 units.

23. The most common budget period is

six months.

one year.

one month.

three months.

24. Which of the following does not appear as a separate section on the cash budget?

Financing

Cash receipts

Cash disbursements

Capital expenditures

25. A master budget consists of

financial budgets and a long-term plan.

interrelated financial budgets and operating budgets.

an interrelated long-term plan and operating budgets.

all the accounting journals and ledgers used by a company.

26. Which is true of budgets?

They are voted on and approved by stockholders.

There is a standard form and structure for budgets.

They are used in performance evaluation.

They are used in the planning, but not in the control, process.

27. Which of the following statements about budget acceptance in an organization is true?

Budgets have a greater chance of acceptance if all levels of management have provided input into the budgeting process.

The most widely accepted budget by the organization is the one prepared by top management.

The most widely accepted budget by the organization is the one prepared by the department heads.

Budgets are hardly ever accepted by anyone except top management.

28. The financial budgets include the

cash budget and the production budget.

cash budget and the budgeted balance sheet.

budgeted balance sheet and the budgeted income statement.

cash budget and the selling and administrative expense budget.

29. Crumine Company budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels are planned for the fiscal year of July 1, 2012 to June 30, 2013:
June 30, 2013 June 30, 2012
Raw Materials 3,000 kilos 2,000 kilos

Three kilos of raw materials are needed to produce each unit of finished product. If Crumine plans to produce 560,000 units during the 2012-2013 fiscal year, how many kilos of materials will the company need to purchase for its production during the year?

1,678,000

1,681,000

1,686,000

1,680,000

30. The direct materials budget shows:
Desired ending direct materials 72,000 pounds
Total materials required 108,000 pounds
Direct materials purchases 94,800 pounds

The total direct materials needed for production is

36,000 pounds.

13,200 pounds.

202,800 pounds.

22,800 pounds.

31. Jacob Manufacturing is planning to sell 1,200 boxes of ceramic tile, with production estimated at 1,160 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.50 per pound and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Jacob has 5,200 pounds of clay mix in beginning inventory and wants to have 6,000 pounds in ending inventory.

What is the total amount to be budgeted for manufacturing overhead for the month?

$19,800

$4,785

$4,950

$19,140

32. Davis Company has 12,000 units in beginning finished goods. The sales budget shows expected sales to be 48,000 units. If the production budget shows that 56,000 units are required for production, what was the desired ending finished goods?

20,000

12,000

36,000

4,

33. The following information is taken from the production budget forthe first quarter:
Beginning inventory in units 1,800
Sales budgeted for the quarter 684,000
Capacity in units of production facility 708,000

How many finished goods units should be produced during the quarter if the company desires 4,800 units available to start the next quarter?

711,000

688,800

681,000

687,000

34. A static budget is not appropriate in evaluating a manager’s effectiveness if a company has

planned activity levels that match actual activity levels.

substantial variable costs.

no variable costs.

substantial fixed costs.

35.

All of the following statements are correct about management by exception except it

means that top management’s review of a budget report is focused primarily on differences between actual results and planned objectives.

requires that there must be some guidelines for identifying an exception.

means that management has to investigate every budget difference.

enables top management to focus on problem areas that need attention.

36. Which one of the following would be the same total amount on a flexible budget and a static budget if the activity level is different for the two types of budgets?

direct labor cost

variable manufacturing overhead

fixed manufacturing overhead

direct materials cost

37. Under management by exception, which differences between planned and actual results should be investigated?

controllable and noncontrollable

material and controllable

All differences should be investigated.

material and noncontrollable

38.

The flexible budget

is a series of static budgets at different levels of activity.

is prepared before the master budget.

is relevant both within and outside the relevant range.

eliminates the need for a master budget.

39. If a company plans to sell 48,000 units of product but sells 60,000, the most appropriate comparison of the cost data associated with the sales will be by a budget based on

60,000 units of activity.

54,000 units of activity.

48,000 units of activity.

the original planned level of activity.

40. The current controllable margin for Stern Division is $124,000. Its current operating assets are $400,000. The division is considering purchasing equipment for $120,000 that will increase annual controllable margin by an estimated $20,000. If the equipment is purchased, what will happen to the return on investment for Stern Division?

a decrease of 7.2%

an increase of 16.1%

a decrease of 13.3%

a decrease of 3.3%

41. Kessler Industries is evaluating its Mountain division, an investment center. The division has a $90,000 controllable margin and $600,000 of sales. How much will Kessler’s average operating assets be when its return on investment is 10%?

$900,000

$510,000

$990,000

$600,000

42. If controllable margin is $600,000 and the average investment center operating assets are $2,000,000, the return on investment is

.33%.

3.33%.

10%.

30%.

43. Kessler Company uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is: $64,000 variable and $180,000 fixed. If Kessler had actual overhead costs of $250,000 for 18,000 units produced, what is the difference between actual and budgeted costs?

$2,000 favorable

$6,000 unfavorable

$8,000 favorable

$2,000 unfavorable

44. Center Industries had average operating assets of $4,000,000 and sales of $2,000,000 in 2012. If the controllable margin was $600,000, the ROI was

50%

60%

30%

15%

45. If an investment center has generated a controllable margin of $150,000 and sales of $600,000, what is the return on investment for the investment center if average operating assets were $1,000,000 during the period?

15%

25%

45%

60%

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