18.

Equivalent units for a process costing system using the weighted-average method would be
equal to:
A. units completed during the period and transferred out.
B. units started and completed during the period plus equivalent units in the ending work in
process inventory.
C. units completed during the period less equivalent units in the beginning inventory, plus
equivalent units in the ending work in process inventory.
D. units completed during the period plus equivalent units in the ending work in process
inventory.

21. The Assembly Department started the month with 14,000 units in its beginning work in
process inventory. An additional 296,000 units were transferred in from the prior department
during the month to begin processing in the Assembly Department. There were 14,000 units in
the ending work in process inventory of the Assembly Department.
How many units were transferred to the next processing department during the month?
A. 293,000
B. 310,000
C. 324,000
D. 296,000

22. Diston Company uses the weighted-average method in its process costing system. The first
processing department, the Welding Department, started the month with 18,000 units in its
beginning work in process inventory that were 30% complete with respect to conversion costs.
The conversion cost in this beginning work in process inventory was $44,820. An additional
90,000 units were started into production during the month. There were 21,000 units in the
ending work in process inventory of the Welding Department that were 10% complete with
respect to conversion costs. A total of $677,970 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. $8.112
B. $8.300
C. $7.533
D. $6.108
24. The following information pertains to Yap Company's Grinding Department for the month of
April:

All materials are added at the beginning of the process. Using the weighted-average method, the
cost per equivalent unit for materials is closest to:
A. $0.59
B. $0.55
C. $0.45
D. $0.43

25. Hardouin Company uses the weighted-average method in its process costing system. The first
processing department, the Welding Department, started the month with 22,000 units in its
beginning work in process inventory that were 20% complete with respect to conversion costs.
The conversion cost in this beginning work in process inventory was $23,320. An additional
97,000 units were started into production during the month and 101,000 units were completed in
the Welding Department and transferred to the next processing department. There were 18,000
units in the ending work in process inventory of the Welding Department that were 40%
complete with respect to conversion costs. A total of $529,380 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. $5.300
B. $5.458
C. $4.603
D. $5.108
26. Parmentier Company uses the weighted-average method in its process costing system. The
Molding Department is the second department in its production process. The data below
summarize the department's operations in January.

The accounting records indicate that the conversion cost that had been assigned to beginning
work in process inventory was $5,096 and a total of $87,668 in conversion costs were incurred in
the department during January.
What was the cost per equivalent unit for conversion costs for January in the Molding
Department? (Round off to three decimal places.)
A. $1.654
B.$1.752
C. $1.490
D. $1.499

29. Borwan 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 70% complete with respect to conversion costs. An additional 69,000 units
were transferred in from the prior department during the month to begin processing in the
Assembly Department. There were 5,000 units in the ending work in process inventory of the
Assembly Department that were 20% complete with respect to conversion costs.
What were the equivalent units for conversion costs in the Assembly Department for the month?
A. 67,400
B. 73,000
C. 72,000
D. 66,000
31. Fayard Corporation uses the weighted-average method in its process costing system. The
Assembly Department started the month with 5,000 units in its beginning work in process
inventory that were 70% complete with respect to conversion costs. An additional 67,000 units
were transferred in from the prior department during the month to begin processing in the
Assembly Department. During the month 63,000 units were completed in the Assembly
Department and transferred to the next processing department. There were 9,000 units in the
ending work in process inventory of the Assembly Department that were 50% complete with
respect to conversion costs.
What were the equivalent units for conversion costs in the Assembly Department for the month?
A. 71,000
B. 64,000
C. 63,000
D. 67,500

33. Sanchez Corporation uses the weighted-average method in its process costing system. The
Fitting Department is the second department in its production process. The data below summarize
the department's operations in March.

The Fitting Department's cost per equivalent unit for conversion cost for March was $8.66.
How much conversion cost was assigned to the units transferred out of the Fitting Department
during March?
A. $480,630
B. $450,320
C. $444,258
D. $510,940

33. James Company has a margin of safety percentage of 20% based on its actual sales. The
break-even point is $200,000 and the variable expenses are 45% of sales. Given this information,
the actual profit is:
A. $27,500
B. $18,000
C. $22,500
D. $22,000
35. Butteco Corporation has provided the following cost data for last year when 100,000 units
were produced and sold:

All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling
and administrative expense. There are no beginning or ending inventories. If the selling price is
$10 per unit, the net operating income from producing and selling 110,000 units would be:
A. $450,000
B. $385,000
C. $405,000
D. $560,000

41. Gaudy Inc. produces and sells a single product. The company has provided its contribution
format income statement for May.

If the company sells 4,300 units, its net operating income should be closest to:
A. $7,700
B. $25,513
C. $26,700
D. $19,500

43. The contribution margin ratio is 30% for the Honeyville Company and the break-even point
in sales is $150,000. If the company's target net operating income is $60,000, sales would have to
be:
A. $200,000
B.$350,000
C. $250,000
D. $210,000
48. Turner Company's contribution margin ratio is 15%. If the degree of operating leverage is 12
at the $150,000 sales level, net operating income at the $150,000 sales level must equal:
A. $1,500
B. $2,700
C. $2,160
D. $1,875

51. Cindy, Inc. sells a product for $10 per unit. The variable expenses are $6 per unit, and the
fixed expenses total $35,000 per period. By how much will net operating income change if sales
are expected to increase by $40,000?
A. $16,000 increase
B. $5,000 increase
C. $24,000 increase
D. $11,000 decrease
26. Zee Corporation has provided the following data concerning its overhead costs for the coming
year:

The company has an activity-based costing system with the following three activity cost pools
and estimated activity for the coming year:

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of
idle capacity and organization-sustaining costs.
The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Assembly activity cost pool is closest to:
A. $2.70 per labor-hour
B. $4.25 per labor-hour
C. $4.05 per labor-hour
D. $8.10 per labor-hour
27. Tadlock Corporation has provided the following data concerning its overhead costs for the
coming year:

The company has an activity-based costing system with the following three activity cost pools
and estimated activity for the coming year:

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of
idle capacity and organization-sustaining costs.
The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Order Processing activity cost pool is closest to:
A. $420 per order
B. $520 per order
C. $490 per order
D. $780 per order
32. Madson Corporation uses an activity-based costing system with three activity cost pools. The
company has provided the following data concerning its costs:

The distribution of resource consumption across the three activity cost pools is given below:

How much cost, in total, would be allocated in the first-stage allocation to the Order Processing
activity cost pool?
A. $418,000
B. $357,000
C. $304,000
D. $266,000
38. Petitte Corporation has provided the following data from its activity-based costing system:

Data concerning the company's product K54A appear below:

According to the activity-based costing system, the average cost of product K54A is closest to:
A. $112.64 per unit
B. $114.99 per unit
C. $116.98 per unit
D. $76.91 per unit

43. Wecker Corporation uses the following activity rates from its activity-based costing to assign
overhead costs to products:

Data concerning two products appear below:

How much overhead cost would be assigned to Product V09X using the activity-based costing
system?
A. $157.87
B. $91,722.47
C. $10,385.22
D. $5,485.50
14. Which of the following represents the correct order in which the indicated budget documents
for a manufacturing company would be prepared?
A. Sales budget, cash budget, direct materials budget, direct labor budget
B. Production budget, sales budget, direct materials budget, direct labor budget
C. Sales budget, cash budget, production budget, direct materials budget
D. Selling and administrative expense budget, cash budget, budgeted income statement, budgeted
balance sheet

15. National Telephone company has been forced by competition to put much more emphasis on
planning and controlling its costs. Accordingly, the company's controller has suggested initiating
a formal budgeting process. Which of the following steps will NOT help the company gain
maximum acceptance by employees of the proposed budgeting system?
A. Implementing the change quickly.
B. Including in departmental responsibility reports only those items that are under the department
manager's control.
C. Demonstrating top management support for the budgeting program.
D. Ensuring that favorable deviations of actual results from the budget, as well as unfavorable
deviations, are discussed with the responsible managers.

16. A continuous (or perpetual) budget:

A. is prepared for a range of activity so that the budget can be adjusted for changes in activity.
B. is a plan that is updated monthly or quarterly, dropping one period and adding another.
C. is a strategic plan that does not change.
D. is used in companies that experience no change in sales.

18. Budgeted production in units are determined by:

A. adding budgeted sales in units to the desired ending inventory in units and deducting the
beginning inventory in units from this total.
B. adding budgeted sales in units to the beginning inventory in units and deducting the desired
ending inventory in units from this total.
C. adding budgeted sales in units to the desired ending inventory in units.
D. deducting the beginning inventory in units from budgeted sales in units.

19. The budgeted amount of raw materials to be purchased is determined by:

A. adding the desired ending inventory of raw materials to the raw materials needed to meet the
production schedule.
B. subtracting the beginning inventory of raw materials from the raw materials needed to meet
the production schedule.
C. adding the desired ending inventory of raw materials to the raw materials needed to meet the
production schedule and subtracting the beginning inventory of raw materials.
D. adding the beginning inventory of raw materials to the raw materials needed to meet the
production schedule and subtracting the desired ending inventory of raw materials.
23. A company's current ratio and acid-test ratios are both greater than 1. Issuing bonds to finance
purchase of an office building with the first installment of the bonds due in the current year
would:
A. decrease net working capital.
B. decrease the current ratio.
C. decrease the acid-test ratio.
D. affect all of the above as indicated.

28. Higgins Company presently has a current ratio of 0.6. It is currently negotiating a loan, but it
has been informed it must improve its current ratio before the loan will be approved. Which of
the following actions would improve its current ratio?
A. Pay off a portion of its long-term debt.
B. Use cash to pay off some current liabilities.
C. Purchase additional inventory on credit.
D. Collect some of the current accounts receivable.

29. The ratio of cash, trade receivables, and marketable securities to current liabilities is:
A. the working capital of a company.
B. the acid-test ratio.
C. the current ratio.
D. the debt to equity ratio.

33. Ozols Corporation's most recent income statement appears below:

The gross margin percentage is closest to:

A. 33.2%
B. 55.7%
C. 300.8%
D. 125.6%

37. Archer Company had net income of $40,000 last year. The company has 5,000 shares of
common stock and 2,500 shares of preferred stock outstanding. There was no change in the
number of common or preferred shares outstanding during the year. Preferred dividends were $2
per share. The earnings per share of common stock was:
A. $7.00
B. $8.00
C. $5.33
D. $7.50
1. The following journal entry would be made in a processing costing system when units that
have been completed with respect to the work done in Processing Department Z are transferred
from Processing Department Z to Processing Department Y:

TRUE

2. In a process costing system, overhead costs are traced to units of product as they are incurred.
FALSE

3. A process cost system would be used to account for the cost of manufacturing an oil tanker.
FALSE

4. A process costing system would be best suited for production of a large quantity of a
homogeneous product.
TRUE

5. In process costing, costs are accumulated in processing departments, rather than by job.
TRUE

6. Process costing would be used by companies producing the following items: bricks, bolts,
pharmaceutical items, natural gas, and electricity.
TRUE

7. The job cost sheet is used in both job-order and process costing.
FALSE

8. In process costing, the equivalent units computed for materials is generally the same as that
computed for direct labor.
FALSE

9. The weighted-average method of process costing can only be used if materials are added at the
beginning of the production process.
FALSE

10. Under the weighted-average method, the cost of materials in the beginning work in process
inventory is not used in the computation of the cost per equivalent unit for materials.
FALSE
11. When computing the cost per equivalent unit, it is not necessary to consider the percentage
completion of the units in beginning inventory under the weighted-average method.
TRUE

12. When assigning costs to partially completed units in the ending work in process inventory, it
is not necessary to consider the percentage completion of the units under the weighted-average
method.
FALSE

13. In a process costing system, manufacturing overhead applied is usually recorded as a debit
to:
A. Finished goods.
B. Work in process.
C. Manufacturing overhead.
D. Cost of goods sold.

14. A company has two processing departments: A and B. Which of the following entries or sets
of journal entries would be used to record the transfer between processing departments and from
the final processing department to finished goods?

A.

B.

C.

D.
15. A process costing system:
A. uses a separate Work in Process account for each processing department.
B. uses a single Work in Process account for the entire company.
C. uses a separate Work in Process account for each type of product produced.
D. does not use a Work in Process account in any form.

16. A company should use process costing, rather than job order costing, if:
A. production is only partially completed during the accounting period.
B. the product is manufactured in batches only as orders are received.
C. the product is composed of mass-produced homogeneous units.
D. the product goes through several steps of production.

17. Which of the following characteristics applies to process costing, but does not apply to job
order costing?
A. The need for averaging.
B. The use of equivalent units of production.
C. Separate, identifiable jobs.
D. The use of predetermined overhead rates.
18. Equivalent units for a process costing system using the weighted-average method would be
equal to:
A. units completed during the period and transferred out.
B. units started and completed during the period plus equivalent units in the ending work in
process inventory.
C. units completed during the period less equivalent units in the beginning inventory, plus
equivalent units in the ending work in process inventory.
D. units completed during the period plus equivalent units in the ending work in process
inventory.

19. The cost of beginning inventory under the weighted-average method is:
A. added in with current period costs in determining costs per equivalent unit for a given period.
B. ignored in determining the costs per equivalent unit for a given period.
C. considered separately from costs incurred during the current period.
D. subtracted from current period costs in determining costs per equivalent unit for a given
period.

20. The Nichols Company uses the weighted-average method in its process costing system. The
company recorded 29,500 equivalent units for conversion costs for November in a particular
department. There were 6,000 units in the ending work in process inventory on November 30,
75% complete with respect to conversion costs. The November 1 work in process inventory
consisted of 8,000 units, 50% complete with respect to conversion costs. A total of 25,000 units
were completed and transferred out of the department during the month. The number of units
started during November in the department was:
A. 24,500 units
B. 23,000 units
C. 27,000 units
D. 21,000 units

Beginning work in process inventory + Units started into production = Ending work in process
inventory + Units completed and transferred out
Units started into production = Ending work in process inventory + Units completed and
transferred out - Beginning work in process inventory
= 6,000 + 25,000 - 8,000 = 23,000

21. The Assembly Department started the month with 14,000 units in its beginning work in
process inventory. An additional 296,000 units were transferred in from the prior department
during the month to begin processing in the Assembly Department. There were 14,000 units in
the ending work in process inventory of the Assembly Department.
How many units were transferred to the next processing department during the month?
A. 293,000
B. 310,000
C. 324,000
D. 296,000
Beginning work in process inventory + Units started into production or transferred in = Ending
work in process inventory + Units completed and transferred out
Units started into production or transferred in = Ending work in process inventory + Units
completed and transferred out - Beginning work in process inventory
= 14,000 + 296,000 - 14,000 = 296,000
22. Diston Company uses the weighted-average method in its process costing system. The first
processing department, the Welding Department, started the month with 18,000 units in its
beginning work in process inventory that were 30% complete with respect to conversion costs.
The conversion cost in this beginning work in process inventory was $44,820. An additional
90,000 units were started into production during the month. There were 21,000 units in the
ending work in process inventory of the Welding Department that were 10% complete with
respect to conversion costs. A total of $677,970 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. $8.112
B. $8.300
C. $7.533
D. $6.108

Units transferred to the next department = Units in beginning work in process + Units started into
production - Units in ending work in process
= 18,000 + 90,000 - 21,000 = 87,000
23. Loll Company uses the weighted-average method in its process costing system. Operating
data for the first processing department for the month of June appear below:

According to the company's records, the conversion cost in beginning work in process inventory
was $46,915 at the beginning of June. Additional conversion costs of $825,183 were incurred in
the department during the month.
What was the cost per equivalent unit for conversion costs for the month? (Round off to three
decimal places.)
A. $8.420
B. $6.934
C. $8.530
D. $8.322

Units transferred to the next department = Units in beginning work in process + Units started into
production - Units in ending work in process = 11,000 + 98,000 - 21,000 = 88,000
24. The following information pertains to Yap Company's Grinding Department for the month of
April:

All materials are added at the beginning of the process. Using the weighted-average method, the
cost per equivalent unit for materials is closest to:
A. $0.59
B. $0.55
C. $0.45
D. $0.43
25. Hardouin Company uses the weighted-average method in its process costing system. The first
processing department, the Welding Department, started the month with 22,000 units in its
beginning work in process inventory that were 20% complete with respect to conversion costs.
The conversion cost in this beginning work in process inventory was $23,320. An additional
97,000 units were started into production during the month and 101,000 units were completed in
the Welding Department and transferred to the next processing department. There were 18,000
units in the ending work in process inventory of the Welding Department that were 40%
complete with respect to conversion costs. A total of $529,380 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. $5.300
B. $5.458
C. $4.603
D. $5.108
26. Parmentier Company uses the weighted-average method in its process costing system. The
Molding Department is the second department in its production process. The data below
summarize the department's operations in January.

The accounting records indicate that the conversion cost that had been assigned to beginning
work in process inventory was $5,096 and a total of $87,668 in conversion costs were incurred in
the department during January.
What was the cost per equivalent unit for conversion costs for January in the Molding
Department? (Round off to three decimal places.)
A. $1.654
B. $1.752
C. $1.490
D. $1.499
27. Scheney Company uses the weighted-average method in its process costing system. The
company's work in process inventory on March 31 consisted of 20,000 units. The units in the
ending work in process inventory were 100% complete with respect to materials and 70%
complete with respect to labor and overhead. If the cost per equivalent unit for March was $2.50
for materials and $4.75 for labor and overhead, the total cost in the March 31 work in process
inventory was:
A. $145,000
B. $116,500
C. $101,500
D. $78,500
28. The following data were taken from the accounting records of the Hazel Corporation which
uses the weighted-average method in its process costing system:

The equivalent units for conversion costs was:

A. 102,000 units
B. 112,000 units
C. 111,000 units
D. 100,000 units

Units transferred to the next department = Units in beginning work in process + Units started into
production - Units in ending work in process = 30,000 + 90,000 - 20,000 = 100,000
29. Borwan 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 70% complete with respect to conversion costs. An additional 69,000 units
were transferred in from the prior department during the month to begin processing in the
Assembly Department. There were 5,000 units in the ending work in process inventory of the
Assembly Department that were 20% complete with respect to conversion costs.
What were the equivalent units for conversion costs in the Assembly Department for the month?
A. 67,400
B. 73,000
C. 72,000
D. 66,000

Units transferred to the next department = Units in beginning work in process + Units started into
production - Units in ending work in process = 8,000 + 69,000 - 5,000 = 72,000
30. Jastak Company uses the weighted-average method in its process costing system. Operating
data for the Painting Department for the month of April appear below:

What were the equivalent units for conversion costs in the Painting Department for April?
A. 106,100
B. 91,500
C. 98,970
D. 106,270

Units transferred to the next department = Units in beginning work in process + Units started into
production - Units in ending work in process = 1,000 + 98,800 - 8,300 = 91,500
31. Fayard Corporation uses the weighted-average method in its process costing system. The
Assembly Department started the month with 5,000 units in its beginning work in process
inventory that were 70% complete with respect to conversion costs. An additional 67,000 units
were transferred in from the prior department during the month to begin processing in the
Assembly Department. During the month 63,000 units were completed in the Assembly
Department and transferred to the next processing department. There were 9,000 units in the
ending work in process inventory of the Assembly Department that were 50% complete with
respect to conversion costs.
What were the equivalent units for conversion costs in the Assembly Department for the month?
A. 71,000
B. 64,000
C. 63,000
D. 67,500
32. Nguyen Corporation uses the weighted-average method in its process costing system.
Operating data for the Lubricating Department for the month of October appear below:

What were the equivalent units for conversion costs in the Lubricating Department for October?
A. 53,700
B. 52,280
C. 54,080
D. 50,100

33. Sanchez Corporation uses the weighted-average method in its process costing system. The
Fitting Department is the second department in its production process. The data below summarize
the department's operations in March.

The Fitting Department's cost per equivalent unit for conversion cost for March was $8.66.
How much conversion cost was assigned to the units transferred out of the Fitting Department
during March?
A. $480,630
B. $450,320
C. $444,258
D. $510,940
Units transferred to the next department = Units in beginning work in process + Units started into
production - Units in ending work in process = 7,000 + 52,000 - 3,500 = 55,500
34. The Gasson Company uses the weighted-average method in its process costing system. The
company's ending work in process inventory consists of 10,000 units, 100% complete with
respect to materials and 70% complete with respect to labor and overhead. If the costs per
equivalent unit are $4.50 for the materials and $2.00 for labor and overhead, the balance of the
ending work in process inventory account would be:
A. $44,500
B. $50,500
C. $59,000
D. $65,000

35. Ravalt Corporation uses the weighted-average method in its process costing system. The
Molding Department is the second department in its production process. The data below
summarize the department's operations in January.

The Molding Department's cost per equivalent unit for conversion cost for January was $7.90.
How much conversion cost was assigned to the ending work in process inventory in the Molding
Department for January?
A. $27,729
B. $30,810
C. $3,081
D. $5,056
36. In February, one of the processing departments at Carpentier Corporation had beginning work
in process inventory of $14,000 and ending work in process inventory of $29,000. During the
month, $148,000 of costs were added to production and the cost of units transferred out from the
department was $133,000. In the department's cost reconciliation report for February, the total
cost to be accounted for would be:
A. $310,000
B. $162,000
C. $324,000
D. $43,000

37. In February, one of the processing departments at Whisenhunt Corporation had beginning
work in process inventory of $35,000 and ending work in process inventory of $11,000. During
the month, the cost of units transferred out from the department was $410,000. In the
department's cost reconciliation report for February, the total cost to be accounted for would be:
A. $46,000
B. $807,000
C. $842,000
D. $421,000
 Jumper Company uses the weighted-average method in its process costing system. The
following data pertain to operations in the first processing department for a recent month:
38. How many units were in the ending work in process inventory?
A. 600 units
B. 1,000 units
C. 800 units
D. 1,400 units

Units in ending work in process = Units in beginning work in process + Units started into
production - Units transferred to the next department = 400 + 15,000 - 14,400 = 1,000

39. What was the cost per equivalent unit for conversion cost?
A. $5.00
B. $12.30
C. $8.50
D. $14.75
40. How much cost, in total, was transferred to the next department during the month?
A. $315,200
B. $306,000
C. $312,000
D. $317,100
 Atwich Corporation uses the weighted-average method in its process costing system. This
month, the beginning inventory in the first processing department consisted of 600 units. The
costs and percentage completion of these units in beginning inventory were:

A total of 5,100 units were started and 4,400 units were transferred to the second processing
department during the month. The following costs were incurred in the first processing
department during the month:

The ending inventory was 75% complete with respect to materials and 10% complete with
respect to conversion costs.
Note: Your answers may differ from those offered below due to rounding error. In all cases,
select the answer that is the closest to the answer you computed. To reduce rounding error, carry
out all computations to at least three decimal places.
41. What are the equivalent units for conversion costs for the month in the first processing
department?
A. 4,400
B. 4,530
C. 130
D. 5,700

Units in beginning work in process inventory + Units started into production or transferred in =
Units in ending work in process inventory + Units completed and transferred out
600 + 5,100 = Units in ending work in process inventory + 4,400
Units in ending work in process inventory = 600 + 5,100 - 4,400 = 1,300

42. The cost per equivalent unit for materials for the month in the first processing department is
closest to:
A. $21.28
B. $20.07
C. $19.29
D. $18.19

Units in beginning work in process inventory + Units started into production or transferred in =
Units in ending work in process inventory + Units completed and transferred out
600 + 5,100 = Units in ending work in process inventory + 4,400
Units in ending work in process inventory = 600 + 5,100 - 4,400 = 1,300
43. The cost per equivalent unit for conversion costs for the first department for the month is
closest to:
A. $34.18
B. $39.93
C. $43.00
D. $45.15

Units in beginning work in process inventory + Units started into production or transferred in =
Units in ending work in process inventory + Units completed and transferred out
600 + 5,100 = Units in ending work in process inventory + 4,400
Units in ending work in process inventory = 600 + 5,100 - 4,400 = 1,300

44. The total cost transferred from the first processing department to the next processing
department during the month is closest to:
A. $366,430
B. $284,600
C. $309,200
D. $282,858
45. The cost of ending work in process inventory in the first processing department according to
the company's cost system is closest to:
A. $26,342
B. $62,679
C. $8,357
D. $83,572
1. Reynold Enterprises sells a single product for $25. The variable expense per unit is $15 and the
fixed expense per unit is $5 at the current level of sales. The company's net operating income will
increase by $5 if one more unit is sold.
FALSE

2. Incremental analysis is an analytical approach that focuses only on those revenues and costs
that will change as a result of a decision.
TRUE

3. To facilitate decision-making, fixed expenses should be expressed on a per-unit basis.

FALSE

4. On a CVP graph for a profitable company, the total revenue line will be steeper than the total
expense line.
TRUE

5. On a CVP graph for a profitable company, the total expense line will be steeper than the line
representing fixed costs.
TRUE

6. For a given level of sales, a low contribution margin ratio will produce less net operating
income than a high contribution margin ratio.
TRUE

20. The difference between total sales in dollars and total variable expenses is called:
A. net operating income.
B. net profit.
C. the gross margin.
D. the contribution margin.

21. With regard to the CVP graph, which of the following statements is not correct?
A. The CVP graph assumes that volume is the only factor affecting total cost.
B. The CVP graph assumes that selling prices do not change.
C. The CVP graph assumes that variable costs go down as volume goes up.
D. The CVP graph assumes that fixed expenses are constant in total within the relevant range.
22. East Company manufactures and sells a single product with a positive contribution margin. If
the selling price and the variable expense per unit both increase 5% and fixed expenses do not
change, what is the effect on the contribution margin per unit and the contribution margin ratio?

A. Option A
B. Option B
C. Option C
D. Option D

23. Which of the following formulas is used to calculate the contribution margin ratio?
A. (Sales - Fixed expenses)  Sales
B. (Sales - Cost of goods sold)  Sales
C. (Sales - Variable expenses)  Sales
D. (Sales - Total expenses)  Sales
24. Brasher Company manufactures and sells a single product that has a positive contribution
margin. If the selling price and variable expenses both decrease by 5% and fixed expenses do not
change, then what would be the effect on the contribution margin per unit and the contribution
margin ratio?

A. Option A
B. Option B
C. Option C
D. Option D

25. The break-even point in unit sales is found by dividing total fixed expenses by:
A. the contribution margin ratio.
B. the variable expenses per unit.
C. the sales price per unit.
D. the contribution margin per unit.

26. Break-even analysis assumes that:

A. total costs are constant.
B. the average fixed expense per unit is constant.
C. the average variable expense per unit is constant.
D. variable expenses are nonlinear.
27. If Q equals the level of output, P is the selling price per unit, V is the variable expense per
unit, and F is the fixed expense, then the break-even point in units is:
A. Q  (P-V).
B. F  (P-V).
C. V  (P-V).
D. F  [Q(P-V)].
28. The break-even point in unit sales increases when variable expenses:
A. increase and the selling price remains unchanged.
B. decrease and the selling price remains unchanged.
C. decrease and the selling price increases.
D. remain unchanged and the selling price increases.

29. The margin of safety percentage is computed as:

A. Break-even sales  Total sales.
B. Total sales - Break-even sales.
C. (Total sales - Break-even sales)  Break-even sales.
D. (Total sales - Break-even sales)  Total sales.

30. The amount by which a company's sales can decline before losses are incurred is called the:
A. contribution margin.
B. degree of operating leverage.
C. margin of safety.
D. contribution margin ratio.

16. The formula for the gross margin percentage is:

A. (Sales - Cost of goods sold)/Cost of goods sold
B. (Sales - Cost of goods sold)/Sales
C. Net income/Sales
D. Net income/Cost of goods sold

17. 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.

The gross margin percentage is a broad measure of profitability

18. The market price of XYZ Company's common stock dropped from $25 to $21 per share. The
dividend paid per share remained unchanged. The company's dividend payout ratio would:
A. increase.
B. decrease.
C. be unchanged.
D. impossible to determine without more information.

The dividend payout ratio is unaffected by market price (e.g., Dividend payout ratio = Dividends
per share  Earnings per share)

19. A drop in the market price of a firm's common stock will immediately affect its:
A. return on common stockholders' equity.
B. current ratio.
C. dividend payout ratio.
D. dividend yield ratio.

Dividend yield ratio = Dividends per share  Market price per share

20. Financial leverage is negative when:

A. the return on total assets is less than the rate of return on common stockholders' equity.
B. total liabilities are less than stockholders' equity.
C. total liabilities are less than total assets.
D. the return on total assets is less than the rate of return demanded by creditors.

If the rate of return on total assets is less than the rate of return the company pays its creditors,
financial leverage is negative

21. Which of the following is not a potential source of financial leverage?

A. Long-term debt.
B. Common stock.
C. Accounts payable.
D. Interest payable.

Financial leverage is obtained from current and long-term liabilities.

22. Issuing new shares of stock in a five-for-one split of common stock would:
A. decrease the book value per share of common stock.
B. increase the book value per share of common stock.
C. increase total stockholders' equity.
D. decrease total stockholders' equity.
If the number of shares increases the book value per share is decreased as illustrated in the
formula:
Book value per share = (Total stockholders' equity - Preferred stock)  Number of common
shares outstanding

23. A company's current ratio and acid-test ratios are both greater than 1. Issuing bonds to
finance purchase of an office building with the first installment of the bonds due in the current
year would:
A. decrease net working capital.
B. decrease the current ratio.
C. decrease the acid-test ratio.
D. affect all of the above as indicated.

The transaction would be as follows:

Current assets would remain unchanged while current liabilities would increase, therefore all of
the listed ratios would decrease.

24. What is the effect of a purchase of inventory on account on the current ratio and on working
capital, respectively? (Assume a current ratio greater than one prior to this transaction.)

A. Option A
B. Option B
C. Option C
D. Option D
The current ratio would decline; since the same amount is added to the numerator and
denominator the fraction is reduced.
There would be no change to working capital since the increase in current assets and current
liabilities is the same.

25. At the beginning of the year, a company's current ratio is 2.2. At the end of the year, the
company has a current ratio of 2.5. Which of the following could help explain the change in the
current ratio?
A. An increase in inventories.
B. An increase in accounts payable.
C. An increase in property, plant, and equipment.
D. An increase in bonds payable.

An increase in inventory would increase the current ratio. An increase in accounts payable would
decrease the current ratio. The other two changes would have no effect on the current ratio.
26. A company's current ratio and acid-test ratios are both greater than 1. The collection of a
current accounts receivable of $29,000 would:
A. increase the current ratio.
B. decrease the current ratio.
C. not affect the current ratio or the acid-test ratio.
D. decrease the acid-test ratio.

There would be no change in the current ratio or the acid-test ratio as the collection of an account
receivable is exchanging one current asset for another current asset.

27. Assume a company has a current ratio that is greater than 1. Which of the following
transactions will reduce the company's current ratio?
A. Selling office equipment at book value.
B. Paying a cash dividend already declared.
C. Borrowing by taking out a short-term loan.
D. Selling equipment at a loss.

When the current ratio is greater than 1 (e.g., $500  $400 = 1.25) then increasing both portions
of the fraction by an equal amount would reduce the current ratio (e.g., $550  $450 = 1.22.)

28. Higgins Company presently has a current ratio of 0.6. It is currently negotiating a loan, but it
has been informed it must improve its current ratio before the loan will be approved. Which of
the following actions would improve its current ratio?
A. Pay off a portion of its long-term debt.
B. Use cash to pay off some current liabilities.
C. Purchase additional inventory on credit.
D. Collect some of the current accounts receivable.

When the current ratio is less than 1 (e.g., $300  $500 = 0.6) then increasing both portions of the
fraction by an equal amount would increase the current ratio (e.g., $350  $550 = 0.64.)

29. The ratio of cash, trade receivables, and marketable securities to current liabilities is:
A. the working capital of a company.
B. the acid-test ratio.
C. the current ratio.
D. the debt to equity ratio.

Acid-test ratio = (Cash + Marketable securities + Accounts receivable + Short-term notes

receivable)  Current liabilities
30. Wolbers Company has an acid-test ratio of 1.4. Which of the following events will cause this
ratio to decrease?
A. Selling merchandise on account.
B. Paying a cash dividend already declared.
C. Borrowing using a short-term note.
D. Selling equipment at a loss.

When the acid-test ratio is greater than 1 (e.g., $1,400  $1,000 = 1.4) then increasing both
portions of the fraction by an equal amount would reduce the current ratio (e.g., $1,500  $1,100
= 1.36.)
1. Unit-level activities are performed each time a unit is produced.
TRUE

2. Organization-sustaining activities are activities of the general organization that support specific
products.
FALSE

3. Costs classified as batch-level costs should depend on the number of batches processed rather
than on the number of units produced, the number of units sold, or other measures of volume.
TRUE

4. Customer-level activities relate to specific customers and are not tied to any specific products.
TRUE

5. Managing and sustaining product diversity requires many more overhead resources such as
production schedulers and product design engineers than managing and sustaining a single
product. The costs of these resources can be accurately allocated to products on the basis of direct
labor-hours.
FALSE

15. Personnel administration is an example of (an):

A. Unit-level activity.
B. Batch-level activity.
C. Product-level activity.
D. Organization-sustaining activity.

Organization-sustaining activities are carried out regardless of which customers are served, which
products are produced, how many batches are run, or how many units are made.

16. Which of the following activities would be classified as a batch-level activity?

A. Setting up equipment.
B. Designing a new product.
C. Training employees.
D. Milling a part required for the final product.
Batch-level activities are performed each time a batch of goods is handled or processed,
regardless of how many units are in the batch. The amount of resource consumed depends on the
number of batches run rather than on the number of units in the batch.

17. Would the following activities at a manufacturer of canned soup be best classified as unit-
level, batch-level, product-level, or organization-sustaining activities?

A. Option A
B. Option B
C. Option C
D. Option D

Product-level activities relate to specific products that must be carried out regardless of how
many units are produced and sold or batches run. Batch-level activities are performed each time a
batch of goods is handled or processed regardless of how many units are in the batch. The
amount of resource consumed depends on the number of batches run rather than on the number of
units in the batch.

18. A duration driver is:

A. A simple count of the number of times an activity occurs.
B. An activity measure that is used for the life of the company.
C. A measure of the amount of time required to perform an activity.
D. An activity measure that is used for the life of an activity-based costing system.

A duration driver is a measure of the amount of time required to perform an activity.

19. A transaction driver is:
A. An event that causes a transaction to begin.
B. A measure of the amount of time required to perform an activity.
C. An event that causes a transaction to end.
D. A simple count of the number of times an activity occurs.

A transaction driver is a simple count of the number of times an activity occurs.

20. Which of the following is not a limitation of activity-based costing?

A. Maintaining an activity-based costing system is more costly than maintaining a traditional
direct labor-based costing system.
B. Changing from a traditional direct labor-based costing system to an activity-based costing
system changes product margins and other key performance indicators used by managers. Such
changes are often resisted by managers.
C. In practice, most managers insist on fully allocating all costs to products, customers, and other
costing objects in an activity-based costing system. This results in overstated costs.
D. More accurate product costs may result in increasing the selling prices of some products.

An activity-based costing system is more costly to maintain than a traditional costing system.
Activity-based costing produces numbers, such as product margins, that are at odds with the
numbers produced by traditional costing systems.

21. An activity-based costing system that is designed for internal decision-making will not
conform to generally accepted accounting principles because:
A. some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining costs)
will not be assigned to products.
B. some non-manufacturing costs are assigned to products.
C. first-stage allocations may be based on subjective interview data.
D. all of the above are reasons why an activity-based costing system that is designed for internal
decision-making will not conform to generally accepted accounting principles.
An ABC system designed for internal decision-making does not conform to generally accepted
accounting principles (GAAP). Product costs computed for external reports must include all of
the manufacturing costs and only manufacturing costs; but in an ABC system, product costs
exclude some manufacturing costs and include some nonmanufacturing costs. It is possible to
adjust the ABC data at the end of the period to conform to GAAP, but that requires more work.

22. Designing a new product is an example of (an):

A. Unit-level activity.
B. Batch-level activity.
C. Product-level activity.
D. Organization-sustaining activity.

Product-level activities relate to specific products that must be carried out regardless of how
many units are produced and sold or batches run.

23. Property taxes are an example of a cost that would be considered to be:
A. Unit-level.
B. Batch-level.
C. Product-level.
D. Organization-sustaining.

Organization-sustaining activities are carried out regardless of which customers are served, which
products are produced, how many batches are run, or how many units are made.
24. McCaskey Corporation uses an activity-based costing system with the following three activity
cost pools:

The Other activity cost pool is used to accumulate costs of idle capacity and organization-
sustaining costs.
The company has provided the following data concerning its costs:

The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Fabrication activity cost pool is closest to:
A. $1.65 per machine-hour
B. $4.00 per machine-hour
C. $0.80 per machine-hour
D. $2.40 per machine-hour
Allocations to the Fabrication activity cost pool:

Fabrication: $66,000  40,000 machine-hours = $1.65 per machine-hour

25. Christiansen Corporation uses an activity-based costing system with the following three
activity cost pools:

The Other activity cost pool is used to accumulate costs of idle capacity and organization-
sustaining costs.
The company has provided the following data concerning its costs:

The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Order Processing activity cost pool is closest to:
A. $676 per order
B. $780 per order
C. $560 per order
D. $312 per order