Accounting Multiple Choice Questions: 50 MCQs

1. The cost of fire insurance for a manufacturing plant is generally considered to be a:

a. product cost.
b. period cost.
c. variable cost.
d. all of the above.

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2. An opportunity cost is:

a. the difference in total costs which results from selecting one alternative instead of another.
b. the benefit forgone by selecting one alternative instead of another.
c. a cost which may be saved by not adopting an alternative.
d. a cost which may be shifted to the future with little or no effect on current operations.

3. In a job order cost system, the use of direct materials previously purchased usually is recorded as a debit to:

a. Work in Process inventory.
b. Finished Goods inventory.
c. Manufacturing Overhead.
d. Raw Materials inventory.

4. The balance in White Company’s Work in Process inventory account was $15,000 on August 1 and $18,000 on August 31. The company incurred $30,000 in direct labor cost during August and
requisitioned $25,000 in raw materials (all direct material). If the sum of the debits to the Manufacturing Overhead account total $28,000 for the month, and if the sum of the credits totaled $30,000, then:

a. Finished Goods was debited for $82,000 during the month.
b. Finished Goods was credited for $83,000 during the month.
c. Manufacturing Overhead was underapplied by $2,000 at the end of the month.
d. Finished Goods was debited for $85,000 during the month.

5. If the estimated manufacturing overhead for the year was $24,000, and the applied overhead was $26,500, the actual manufacturing overhead cost for the year was:

a. $19,500.
b. $22,000.
c. $28,500.
d. $31,000.

6. Departmental overhead rates may not correctly assign overhead costs due to:

a. the use of direct labor-hours in allocating overhead costs to products rather than machine time or quantity of materials used.
b. the high correlation between direct labor-hours and the incurrence of overhead costs.
c. overreliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production.
d. difficulties associated with identifying cost pools for the first stage of the allocation process.

7. The clerical activity associated with processing purchase orders to produce an order for a standard product is an example of a:

a. Unit-level activity.
b. Batch-level activity.
c. Product-level activity.
d. Facility-level activity.

8. Worker recreational facilities is an example of a cost that would ordinarily be considered to be:

a. Unit-level.
b. Batch-level.
c. Product-level.
d. Facility-level.

9. David Company uses the weighted-average method in its process costing system. The first processing department, the Welding Department, started the month with 20,000 units that were 80% complete with respect to conversion costs. The conversion cost in this beginning work in process inventory was $123,200. An additional 65,000 units were started into production during the month. There were 19,000 units in the ending work in process inventory of the Welding Department that were 10% complete with respect to conversion costs. A total of $389,250 in conversion costs were incurred in the department during the month. What would be the cost per equivalent unit for conversion costs for the month? (Round off to three decimal places.)

a. $7.547
b. $7.700
c. $4.634
d. $5.988

10. Baker Company uses the weighted-average method in its process costing system. The Assembly Department started the month with 8,000 units in its beginning work in process inventory that were 90% complete with respect to conversion costs. An additional 95,000
units were transferred in from the prior department during the month to begin processing in the Assembly Department. There were 11,000 units in the ending work in process inventory of the
Assembly Department that were 90% complete with respect to conversion costs. What were the equivalent units of production for conversion costs in the Assembly Department for the month?

a. 94,700
b. 101,900
c. 98,000
d. 92,000

11. Process costing would be appropriate for each of the following except:

a. custom furniture.
b. oil refining.
c. grain milling.
d. newsprint production.

12. Expense A is a fixed cost; expense B is a variable cost. During the current year the activity level has increased, but is still within the relevant range. In terms of cost per unit of activity, we would expect that:

a. expense A has remained unchanged.
b. expense B has decreased.
c. expense A has decreased.
d. expense B has increased.

13. An increase in the activity level within the relevant range results in:

a. an increase in fixed cost per unit.
b. a proportionate increase in total fixed costs.
c. an unchanged fixed cost per unit.
d. a decrease in fixed cost per unit.

14. In describing the cost formula equation Y = a + bX, which of the following statements is correct?

a. “X” is the dependent variable.
b. “a” is the fixed component.
c. In the high-low method, “b” equals change in activity divided by change in costs.
d. As “X” increases “Y” decreases.

15. Contribution margin is the excess of revenues over:

a. cost of goods sold.
b. manufacturing cost.
c. all direct costs.
d. all variable costs.

16. Given the cost formula Y = $17,500 + $4X, at what level of activity will total cost be $42,500?

a. 10,625 units.
b. 4,375 units.
c. 6,250 units.
d. 5,250 units.

17. Once the break-even point is reached:

a. the total contribution margin changes from negative to positive.
b. net income will increase by the unit contribution margin for each additional item sold.
c. variable expenses will remain constant in total.
d. the contribution margin ratio begins to decrease.

18. Marston Enterprises sells three chemicals: petrol, septine, and tridol. Petrol’s unit contribution margin is higher than septine’s which is higher than tridol’s. Which one of the following events is
most likely to increase the company’s overall break-even point?

a. The installation of new computer-controlled equipment and subsequent lay-off of assembly-line workers.
b. A decrease in tridol’s selling price.
c. An increase in the overall market demand for septine.
d. A change in the relative market demand for the products, with the increase favoring petrol relative to septine and tridol.

19. The break-even point in sales for Rice Company is $360,000 and the company’s contribution margin ratio is 30%. If Rice Company desires an income of $84,000, sales would have to total:

a. $280,000.
b. $640,000.
c. $480,000.
d. $560,000.

20. Which of the following is not a benefit of budgeting?

a. It uncovers potential bottlenecks before they occur.
b. It coordinates the activities of the entire organization by integrating the plans and objectives of the various parts.
c. It ensures that accounting records comply with generally accepted accounting principles.
d. It provides benchmarks for evaluating subsequent performance.

21. The Willsey Merchandise Company has budgeted $40,000 in sales for the month of December. The company’s cost of goods sold is 30% of sales. If the company has budgeted to purchase $18,000 in merchandise during December, then the budgeted change in inventory levels over the month of December is:

a. $6,000 increase.
b. $10,000 decrease.
c. $22,000 decrease.
d. $15,000 increase.

22. The standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times are referred to as:

a. normal standards.
b. practical standards.
c. ideal standards.
d. budgeted standards.

23. Tower Company planned to produce 3,000 units of its single product, Titactium, during November. The standards for one unit of Titactium specify six pounds of materials at $0.30 per pound. Actual production in November was 3,100 units of Titactium. There was a favorable materials price variance of $380 and an unfavorable materials quantity variance of $120. Based on these variances, one could conclude that:

a. more materials were purchased than were used.
b. more materials were used than were purchased.
c. the actual cost per pound for materials was less than the standard cost per pound.
d. the actual usage of materials was less than the standard allowed.

24. Which of the following variances would be useful in calling attention to possible problems in the control of spending on overhead items?
variable fixed
overhead overhead
spending budget
variance variance

a. No No
b. No Yes
c. Yes No
d. Yes Yes

25. The economic impact of the inability to reach a target denominator level of activity would best be measured by:

a. the amount of the volume variance.
b. the contribution margin lost by failing to meet the target
denominator level of activity.
c. the amount of the fixed overhead budget variance.
d. the amount of the variable overhead efficiency variance.

26. Turnover is computed by dividing average operating assets into:

a. invested capital.
b. total assets.
c. net operating income.
d. sales.

27. A company’s return on investment is the:

a. margin divided by turnover.
b. margin multiplied by turnover.
c. turnover divided by average operating assets.
d. turnover multiplied by average operating assets.

28. Largo Company recorded for the past year sales of $750,000 and average operating assets of $375,000. What is the margin that Largo Company needed to earn in order to achieve an ROI of 15%?

a. 2.00%
b. 15.00%
c. 9.99%
d. 7.50%

29. Consider a decision facing a firm of either accepting or rejecting a special offer for one of its products. A cost that is not relevant is:

a. direct materials.
b. variable overhead.
c. fixed overhead that will be avoided if the special offer is accepted.
d. common fixed overhead that will continue if the special offer is not accepted.

30. A plant operating at capacity would suggest that:

a. every machine and person in the plant is working at the maximum possible rate.
b. only some specific machines or processes are operating at the maximum rate possible.
c. fixed costs will need to change to accommodate increased demand.
d. managers should produce those products with the highest contribution margin in order to deal with the constrained resource.

31. A study has been conducted to determine if Product A should be dropped. Sales of the product total $200,000 per year; variable expenses total $140,000 per year. Fixed expenses charged to the product total $90,000 per year. The company estimates that $40,000
of these fixed expenses will continue even if the product is dropped. These data indicate that if Product A is dropped, the company’s overall net operating income would:

a. decrease by $20,000 per year.
b. increase by $20,000 per year.
c. decrease by $10,000 per year.
d. increase by $30,000 per year.

32. Suppose an investment has cash inflows of R dollars at the end of each year for two years. The present value of these cash inflows using a 12% discount rate will be:

a. greater than under a 10% discount rate.
b. less than under a 10% discount rate.
c. equal to that under a 10% discount rate.
d. sometimes greater than under a 10% discount rate and sometimes less; it depends on R.

33. Which one of the following statements about the payback method of capital budgeting is correct?

a. The payback method does not consider the time value of money.
b. The payback method considers cash flows after the payback has been reached.
c. The payback method uses discounted cash flow techniques.
d. The payback method will lead to the same decision as other methods of capital budgeting.

34. The Jason Company is considering the purchase of a machine that will increase revenues by $32,000 each year. Cash outflows for operating this machine will be $6,000 each year. The cost of the machine is $65,000. It is expected to have a useful life of five years with no salvage value. For this machine, the simple rate of return is:

a. 20%.
b. 40%.
c. 49.2%.
d. 9.2%.

35. Which of the following would be considered a “use” of cash for purpose of constructing a statement of cash flows?

a. selling the company’s own common stock to investors.
b. issuing long-term debt.
c. purchasing equipment.
d. amortizing a patent.

36. An increase in the prepaid expenses account of $1,000 over the course of a year would be shown on the company’s statement of cash flows prepared under the indirect method as:

a. an addition to net income of $1,000 in order to arrive at net cash provided by operating activities.
b. a deduction from net income of $1,000 in order to arrive at net cash provided by operating activities.
c. an addition of $1,000 under financing activities.
d. a deduction of $1,000 under financing activities.

37. An increase in the bonds payable account of $200,000 over the course of a year would be shown on the company’s statement of cash flows prepared under the indirect method as:

a. an addition of $200,000 under investing activities.
b. a deduction of $200,000 under investing activities.
c. an addition of $200,000 under financing activities.
d. a deduction of $200,000 under financing activities.

38. The gross margin percentage is most likely to be used to assess:

a. how quickly accounts receivables can be collected.
b. how quickly inventories are sold.
c. the efficiency of administrative departments.
d. the overall profitability of the company’s products.

39. Which of the following is true regarding the calculation of return on total assets?

a. The numerator of the ratio consists only of net income.
b. The denominator of the ratio consists of the balance of total assets at the end of the period under consideration.
c. The numerator of the ratio consists of net income plus interest expense times the tax rate.
d. The numerator of the ratio consists of net income plus interest expense times one minus the tax rate.

40. Sale of a piece of equipment at book value for cash will:

a. increase working capital.
b. decrease working capital.
c. decrease the debt-to-equity ratio.
d. increase net income.

41. The net accounts receivable for Andante Company were $150,000 at the beginning of the most recent year and $190,000 at the end of the year. If the accounts receivable turnover for the year was 8.5, and 15% of total sales were cash sales, then the total sales for the year were:

a. $1,445,000.
b. $1,700,000.
c. $1,900,000.
d. $1,500,000.

42. In job-order costing, all of the following statements are correct with respect to labor time and cost except:

a. time tickets are kept by employees showing the amount of work on specific jobs.
b. the job cost sheet for a job will contain all direct labor charges to that particular job.
c. labor cost that can be traced to a job only with a great deal of effort is treated as part of manufacturing overhead.
d. a machine operator performing routine annual maintenance work on a piece of equipment would charge the maintenance time to a specific job.

43. For the current year, Paxman Company incurred $150,000 in actual manufacturing overhead cost. The Manufacturing Overhead account showed that overhead was over applied in the amount of $6,000 for the year. If the predetermined overhead rate was $8.00 per direct labor hour, how many hours were worked during the year?

a. 19,500 hours
b. 18,000 hours
c. 18,750 hours
d. 17,750 hours

44. Each of the following would be a period cost except:

a. the salary of the company president’s secretary.
b. the cost of a general accounting office.
c. depreciation of a machine used in manufacturing.
d. sales commissions.

45. Which of the following should not be included as part of manufacturing overhead at a company that makes office furniture?

a. sheet steel in a file cabinet made by the company.
b. manufacturing equipment depreciation.
c. idle time for direct labor.
d. taxes on a factory building.

46. Which one of the following costs should not be considered a direct cost of serving a particular customer who orders a customized personal computer by phone directly from the manufacturer?

a. the cost of the hard disk drive installed in the computer.
b. the cost of shipping the computer to the customer.
c. the cost of leasing a machine on a monthly basis that automatically tests hard disk drives before they are installed in computers.
d. the cost of packaging the computer for shipment.

47. Testing a prototype of a new product is an example of a:

a. Unit-level activity.
b. Batch-level activity.
c. Product-level activity.
d. Facility-level activity.

48. Setting up equipment is an example of a:

a. Unit-level activity.
b. Batch-level activity.
c. Product-level activity.
d. Facility-level activity.

49. Overhead allocation based on volume alone:

a. is a key aspect of the activity-based costing model.
b. will systematically overcost high-volume products and undercost low-volume products.
c. will systematically overcost low-volume products and undercost high-volume products.
d. must be used for external financial reporting.

50. Expense A is a fixed cost; expense B is a variable cost. During the current year the activity level has increased, but is still within the relevant range. In terms of cost per unit of activity, we would expect that:

a. expense A has remained unchanged.
b. expense B has decreased.
c. expense A has decreased.
d. expense B has increased.

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