Questions

Question 1

Which of the following measures of activity would be the most probable cost driver for Data Processing?

1. Number of transactions processed.
2. Number of calls to toll-free customer telephone line. 
3. Number of new employees hired.
4. Hours of Computer Processing Unit (CPU).

Question 2

Select the incorrect statement:

1. It is possible to use a linear cost equation to predict costs as long as volumes remain within the relevant range.
2. The relevant range is the normal volume of activity.
3. On the relevant range, managers can assume that the total fixed costs is constant.
4. The relevant range refers to the volumes of activity for which a given linear cost equation is valid

Question 3

CoffeeDrop produces and sells bags of coffee. Its management accountant has determined that if the company produces 700 bags in a month, the average operating cost per unit (including both fixed and variable operating expenses) is C4.93 per bag. If the company produces 1,000 bags in a month, the average operating cost per unit is C4.35 per bag instead. What is the variable cost per bag?

1. €4.35
2. €3.00
3. €4.93
4. €4.64

Question 4

Olivia Grey is the management accountant of Paddle, a company producing tablets. She gathered the following information about the total overhead cost over the past four periods:

In addition, Olivia also decomposed the total overhead costs incurred in May between its different subcomponents:

What is the amount of fixed indirect labor costs? Hint: use the high-low method

1. €150,521.67.
2. €151,500.00.
3. €98,501.38.
4. €81,050.13.

Question 5

To estimate the parameters of a cost equation with only one cost driver and using the linear regression, what are the minimum requirements in terms of available information? 

1. At least two periods of historical data are required.
2. At least four periods of historical data are required.
3. At least one period of historical data is required.
4. More than four periods of historical data are required.

Question 6

Yoda Corp. produces and sells light sabers. The company works in “Just-in-Time” (it does not keep inventory) and so far it has sold 440 sabers. You received from Quentin Skywalker, the accountant, the following financial income statement for the current year, 2019, at this volume of activity:
 

Based on this information, what total cost would you forecast for a volume of 485 sabers? (2 points)

1. 54,448.00
2. 57,080.09
3. 51,784.00
4. 54,416.09

Question 7

What is the formula for calculating the contribution margin ratio? 

1. Contribution margin divided by revenues.
2. Contribution margin divided by variable costs.
3. Contribution margin divided by volume.
4. Contribution margin divided by operating income.

Question 8

Paddle produces and sells tablets. The company works in “Just-in-Time” (it does not keep inventory) and so far it sold 1,030 tablets in August and 1,236 tablets in September. You received from Robert Clawson, the accountant, the following financial income statements for these two months:

Assuming the two periods fell within the same relevant range, and using the applicable cost estimation technique, what was the contribution margin of the company last September? 

1. €220,156.32
2. €282,947.40
3. €258,546.70
4. €275,195.40

Question 9

Baglad’s produces backpacks using a very stable and reliable technology. The company breaks even at 2,730 units per month. It sells its products for a unit price of C66.00. Products have a unit variable cost of C46.20. Last month, the company sold 3,500 units. What were the company’s total fixed costs last month? 

1. €161,700.00
2. €180,180.00
3. €69,300.00
4. €54,054.00

Question 10

DoLunch expects to sell 57,510 lunch boxes for C46.80 per unit. The contribution margin ratio is 60.00% and the company will break-even at this volume of activity. What are DoLunch’s fixed costs? 

1. €1,614,880.80
2. €95,850.00
3. €1,076,587.20
4. €2,691,468.00

Question 11

Fashion Victim produces and sells clothes for men. The management accountant of the company, Han Clawson, has provided you with the following data about the two products it currently commercializes, t-shirt and shirt:

What is the weighted average contribution margin per unit? 

1. €37.26
2. €42.90
3. €43.75
4. €16.44

Question 12

VegLover specializes in the production of smoothies. The company charges C11.40 for every smoothie sold and the variable cost per smoothie is C7.98. Sean Skywalker, the CEO of the company, wants to open a new factory. The monthly fixed operating expenses of this factory would be C277,020.00. How many smoothies should the new factory produce and sell every month to generate a profit of C72,400.00?

1. 102,170 smoothies.
2. 307,800 smoothies.
3. 24,300 smoothies.
4. 59,830 smoothies

Question 13

Baglad makes backpacks that sells for C68.50 a unit. The product has a unit variable cost of C41.10 and total fixed costs of C67,815.00. At budgeted sales of 3,300 units, what is the margin of safety ratio? 

1. 25.00%
2. 75.00%
3. 66.67%
4. 50.00%

Question 14

CoffeeDrop sells bags of coffee for a unit price of 27. Variable costs are 60.00% of sales and total fixed costs are C66,484.80. What is the firm’s operating leverage if 8,100 bags are sold? 

1. 4.17
2. 1.97
3. 1.32
4. 3.17

Question 15

Yoda Corp. produces and sells light sabers. The variable cost per saber is C466.65 and the company’s fixed costs are C204,727.77. In addition, at the current volume of production and sales of 687 units, the profit is null. If the variable cost per unit decreases by 32.70, how many units should Yoda Corp. sell to break–even? 

Hint: find first the unit contribution margin before any change.

1. 620.00 units.
2. 687.00 units.
3. 410.00 units.
4. 772.00 units.

Question 16

 Problem Demeter designs, produces, and sells three different kinds of bouquets of flowers: ‘Black Sorrow’, ‘Red Lover’, and ‘White Bride’. Which of the following costs would you not classify as a product cost?

1. Supplies consumed to design the bouquet ‘Red Lover’.
2. Depreciation of the equipment used to produce all three kinds of bouquet.
3. Rent of the buildings used to make any of the bouquets.
4. Wages of the personnel working to make the bouquet ‘Black Sorrow’.

Question 17

Which of the following statements is correct? 

1. The depreciation of productive equipment follows products in an inventory account.
2. Direct labor costs are overhead costs.
3. The purchase of raw materials is expended only when the supplier is paid.
4. Insurance on productive equipment is expended as incurred.

Question 18

Christina Eliasoph is the management accountant of ClearWater, a company producing water containers. Christina must select an allocation base for the cost pool “Quality” which gathers all the costs incurred to test products. After a pre-selection of 5 potential allocation bases, she reported the following correlations (they are all highly significant):
 

Which allocation base would you recommend to allocate the quality costs? 

1. Direct material costs.
2. Machine hours.
3. Direct labor hours.
4. Number of units produced.

Question 19

Fashion Victim produces three kinds of clothes for men: t-shirt, shirt, and sweater. Sean Kahlan, the management accountant of the company, gathered information about the resources consumed by each product:
 

Which allocation rate should Sean apply to allocate the depreciation of the productive equipment, which represent a total amount of C80,000.00? 

1. €25.00 per square meter.
2. €20.00 per hour.
3. €50.00 per hour.
4. €0.20 per €1 of supplies.

Question 20

Barry Potter Corp. produces potteries. It is organized in three operating departments, ‘Molding’, ‘Packaging’, and ‘Delivering’. The three departments operate in a common factory which is maintained in proper working conditions by the service ‘Maintenance’. Andrei Pfeffer, the management accountant of the company, gathered information about the costs accumulated last year, in 2018:
 

In addition, since the work of the Maintenance department is roughly proportional to the surface occupied (in square meters), he also collected the following data:

Using the direct method of allocation, what was the total production cost for ‘Molding’ last year? (2 points)

1. €61,778.00
2. €134,950.40
3. €73,172.40
4. €155,543.07

Question 21

Tea-rvana produces two joint products based on tea leaves: tea fragments and Earl Grey. Last year, 23 tons of tea leaves were bought for C118,234.49 and then processed. Processing this quantity of tea leaves costs C23,232.71 and results in 16.00 tons of tea fragments and 7.00 tons of Earl Grey. To make these joint products marketable, the company incurs additional transformation costs: C185.00 per ton of tea fragments and C2,030.00 per ton of Earl Grey. The tea fragments is sold on the market for a price of C2,355.00 per ton, and the Earl Grey is sold on the market for a price of C11,930.00 per ton. Using the appropriate allocation base for joint costs, what was the total production cost of Earl Grey?

1. €43,055.23
2. €94,248.00
3. €108,458.00
4. €57,265.23

Question 22

In 2018, its first year of operations, SafeGuardian produced 20 vaults and sold 10 of them at an average price of C7,900.00 (there was no inventory at the beginning of the period). The same year, the company consumed C57,654.00 of direct materials and paid C8,320.00 for production workers’ wages (no amount was accrued at the beginning or the end of the year). Lease payments and utilities on the production facilities amounted to C9,768.00 while general, selling, and administrative expenses totaled C12,425.90. Sales people received fixed wages for C6,401.22, plus a commission per unit sold of C356.30. What was the company’s costs of goods sold in 2018?

1. €22,390.12
2. €60,261.12
3. €37,871.00
4. €61,217.00

Question 23

Which of the following costs will go in the inventory before being expended in the income statement? 

1. Salaries for factory supervision.
2. Marketing expenses.
3. Depreciation of sales people’s vehicules.
4. Product delivery costs.

Question 24

Assuming a company’s inventory increased during the period, which of the following misclassifications may decrease operating income? 

1. Recording as an expense of the period the insurance of the factory building.
2. Recording the rent of administrative offices as a product cost.
3. Recording advertising expenses as a product cost.
4. Recording administrative salaries as a production cost.

Question 25

Describe the budgeting process. More specifically, which outputs are prepared during this process, and in which order are they prepared? 

1. sales budget, inventory and production budget, inventory and purchase budget, administrative budget, pro-forma financial statements.
2. inventory and production budget, sales budget, pro-forma financial statements, inventory and purchase budget, administrative budget.
3. inventory and purchase budget, administrative budget, inventory and production budget, pro-forma financial statements, sales budget.
4. inventory and production budget, pro-forma financial statements, administrative budget, inventory and purchase budget, sales budget.

Question 26

The management accountant of Dionysos has estimated the following sales volumes for next year:

The company typically sells each unit for a price of C68.00. Moreover, 35.00% of the revenues earned any given month are collected during the following month. The other 65.00% are collected in the month of the sale itself. What is the total amount of cash receipts in March? (2 points)

1. €112,710.00
2. €51,170.00
3. €163,880.00
4. €173,400.00

Question 27

In the budget for next year, and more specifically for the month of May, the company Cost-Eau inc. plans to buy for C84,157,320.00 of raw materials. It also intends to start this month with C22,722,476.40 worth of inventory and to end it with an inventory value of C15,989,890.80. What is the value of the raw materials the company plans to consume in May 2020? 

1. €45,444,952.80
2. €72,711,924.48
3. €109,067,886.72
4. €90,889,905.60

Question 28

May-Lin Grey is the management accountant of La Croissanterie. She is currently working on the Selling, General, and Administrative (SG&A) budget for next year. Sales volumes are expected to be 59,345 pastries in September 2020 and 46,835 pastries in October 2020. The unit price should be C8.00 and advertising expenses should amount to C1,340.00 each month.

In addition to the unit production costs, each unit sold costs an additional C0.20 paid to a service provider for delivery, and an additional C0.40 of commission for the sales people. The other monthly administrative cost are the following:

• depreciation on administrative offices, C4,020.00;
•  maintenance of administrative offices, C2,680.00;
• wages of administrative personnel, C6,700.00.

Personnel expenses (i.e. wages and commissions) are typically paid the month in which they are incurred. For all the other expenses, 35.00% are paid in the month in which they are incurred, and the rest is paid one month later.
What is the amount recorded in accounts payable at the end of September for SG&A expenses?

1. €12,940.85
2. €11,734.85
3. €30,119.45
4. €10,327.85

Question 29

Julia Menchik works as management accountant for the company Tropical Sunset which produces and sells cocktails. She communicated the following table showing the variances explaning an actual profit of C16,022.45, against C18,415.55 budgeted:
 

How should you interpret the variances displayed in this table? 

1. The static budget variance is favorable. This might have happened mainly because more materials was wasted in production.
2. The static budget variance is favorable. This effect might be essentially driven by employees working at a slower pace.
3. The static budget variance is unfavorable. This might mainly be caused by an increase in employees’ pay.
4. The static budget variance is unfavorable. This might have happened mainly because more materials was wasted in production.

Question 30

DoLunch buys lunch boxes from foreign suppliers and sells them on the local market. Last month, the actual profit was 550,460.00 instead of the 9,400.00 initially budgeted.

Investigating this discrepancy, Anastasia Abernathy, the management accountant of the company, learned from the sales manager that sales people sold an actual volume of 61,300 boxes for a unit selling price of C50.90. This constrasts with the 53,000 boxes at a unit price of C48.00 initially budgeted.

Anastasia also remembers that the budgeted unit contribution margin was C24.00. However, she could not get the necessary information about the actual unit variable cost and the actual (or budgeted) fixed costs.

What is the flexible budget variance? 

1. €341,860.00 (F)
2. €740,260.00 (F)
3. €177,770.00 (U)
4. €177,770.00 (F)

Question 31

Louise Gavin works as management accountant for the company All4Music which produces and sells music instruments. She gathered the following information about budgeted and actual volumes, usages, and prices:
 

What is the material usage variance? 

1. €455.00 (F)
2. €455.00 (U)
3. €409.50 (F)
4. €463.50 (F)

Question 32

George Eliasoph works as management accountant for the company Tropical Sunset which produces and sells cocktails. He gathered the following information about budgeted and actual volumes, usages, and prices:

What is the labor price variance?

1. €13,248.00 (F)
2. €7,820.00 (U)
3. €7,820.00 (F)
4. €11,040.00 (U)

Question 33

Problem When a production manager considers replacing an old equipment with a new one, what kind of cost is the current market value of the old equipment, from a decision making perspective? 

1. An opportunity cost.
2. An avoidable cost.
3. A direct cost.
4. An unavoidable cost.

Question 34

Barry Potter Corp. has a contribution margin ratio of 40.00%. The Chief Marketing Officer has to decide whether the company should invest in an advertising campaign. This campaign would cost C41,805.98 and bring the total fixed cost of the company to C273,703.58. Now, this campaign would also boost revenues, which would reach C893,772.00 instead of the C805,200.00 initially planned. What would be the net economic impact of this advertising campaign?

1. Operating income would increase by C11,337.22
2. Operating income would increase by C35,428.80
3. Operating income would decrease by C6,377.18
4. Operating income would not change.

Question 35

George Kahlan is the sales manager of a small company called Fashion Victim producing and selling clothes for men. He expects the demand in the next period to be of about 2,400 units. Since this demand is low, he considers decreasing the current price of C66.50 by 10.00%. He also estimates the demand elasticity to be -1.25 (i.e. a 1% change in price leads to a –1.25% change in demand), and the unit variable cost to be C39.90. What would be the net economic impact of the change in price (rounding the volume change to the closest unit)?

1. The profit would increase by €21,945.00
2. The profit would increase by €15,960.00
3. The profit would decrease by €15,960.00
4. The profit would decrease by €9,975.00

Question 36

1. The profit would decrease by €276,725.59
2. The profit would increase by €97,924.01
3. The profit would decrease by €6,221.59
4. The profit would decrease by €97,924.01

Question 37

1. The wealth of the cmpany would increase by C104,926.00
2. The wealth of the company would increase by C312,009.00
3. The wealth of the company would decrease by C317,547.00
4. The wealth of the company would increase by C317,547.00

Question 38

1. The profit would decrease by €4,912.67
2. The profit would increase by €3,307.33
3. The profit would decrease by €98,257.33
4. The profit would decrease by €3,307.33

Question 39

Sean Pfeffer is the management accountant of Paddle, a company producing and selling tablets. In 2018, he collected the following information:
 

1. Fixed cost of production are essentially wages of production workers and rent of the productive equipment. All these contracts can be terminated.

These results were obtained for 560 tablets, which is the normal and stable volume of activity. A supplier recently contacted the company with a proposition. Instead of making the tablets, Paddle could buy them from this supplier for a unit purchasing price of C294.00. The company could then save on all the production costs and concentrate on selling the products.
Below which volume of activity should the company buy tablets instead of making them? 

1. 1,034 tablets
2. 560 tablets
3. 230 tablets
4. 230 tablets
    

Question 40

Andrei Menchik is the Chief Executive Officer of Le Breuset, a company which produces and sells high quality stewpans. The division in charge of producing and selling the product PaneM is currently suffering a loss displayed in the 2018 financial income statement (for a total volume of 580 units):

1. The lease on the productive equipment can be terminated with a three month notice. Asa consequence, about 25% of the rent will be paid whether the division is closed or not.
2. Division administrative costs include the rent of administrative offices and the wages of administrative personnel dedicated to the division. Both the lease and the employment contracts can be terminated, but with a 6 month notice. Therefore, 50% of these costs will be.
3. Headquarters’ management fee is the share of headquaters’ costs allocated to the division.

What would be the net economic impact of dropping the division producing and selling the product PaneM?

1. The profit would decrease by C67,413.04
2. The profit would increase by C45,259.00
3. The profit would decrease by C26,594.23
4. The profit would increase by C8,040.04

Question 41

Which if the following situations is a violation of the accountability principle? 

1. The production manager supervises the transformation of raw materials into products. She or he also selects suppliers of raw materials and negotiates prices with them. He or she is evaluated based on material usage, labor usage, and production fixed costs variances.
2. The production manager supervises the transformation of raw materials into products, but he or she does not select suppliers of raw materials and does not negotiate prices with them. She or he is evaluated based on the actual unit cost of production.
3. The production manager supervises the transformation of raw materials into products. She or he does not select suppliers of raw materials and does not negotiate prices with them. He or she is evaluated based on material usage, labor usage, and production fixed costs variances.
4. A manager’s authority is focused on making trade-offs between revenues and operating costs. This manager is evaluated based on Return on Total Assets

Question 42

Following the principles of responsibility accounting, what kind of responsibility center would typically be evaluated based on the cost of production and the cost of financing the inventory? 

1. An investment center.
2. A profit center.
3. A standard cost center.
4. A discretionary cost center.

Question 43

Louise Pfeffer is the sales manager of a business unit (BU) buying and selling cell phones. She is in charge of contacting customers and negotiating prices with them. She also manages shipping cell phones to the customers and decides the sales commissions paid to each member of her team.
Last month, Christina Solo, the BU manager and her direct superior, communicated the following income statement for the whole BU:

On which profit base should Louise be evaluated? 

1. €876,943.00.
2. €405,423.00.
3. €285,823.00.
4. €226,023.00.

Question 44

Select the correct statement: 

1. Return On Investment is used to measure the performance of investment centers.
2. Seeking to maximize Residual Income can result in a conflict between the interest of a particular manager and the interest of the business as a whole.
3. A project with a positive Residual Income always increases the Return On Investment.
4. Return On Investment is used to measure the performance of profit centers.

Question 45

Select the incorrect statement: 

1. Rewards based on Return on Investment may give managers an incentive to reject investments which would create value.
2. Rewards based on Residual Income may give managers an incentive to reject investments which would create value.
3. Seeking to maximize Return On Investment can result in a conflict between the interest of a particular manager and the interest of the business as a whole.
4. Residual Income is used to measure the performance of investment centers.

Question 46

Olivier Clawson manages an investment center. Accordingly, he has total authority over operation management and can make investment decisions. However, he does not make financing decisions and his division has more cash than necessary for operations to run smoothly. Business analysts estimate the “operating cash” for this division to be about C65,640.00. The income statement of last year, 2018, is the following:

The balance sheet of his division at the end of the same year is displayed in the following table:
 

Knowing that the desired rate of return of the company is 20.00%, what is the residual income you should use to evaluate Olivier?

1. €-74,561.80
2. €-52,170.80
3. €42,044.87
4. €9,447.00

Question 47

Sales people explain the merits of the product to the customer. To facilitate the sale, they can also offer discounts and credit terms more favorable to the customers. But they do not decide selling expenses. How would you evaluate the financial performance of these sales people? 

In the following equations, Q is the sales volume, P is the price, COGS refers to the cost of goods sold, and SELLEXP to the Selling expenses. AR refers to Accounts Receivable, and DRR is the desired rate of return on operating assets. The indice A means “actual value” and the indice B means “budgeted value”.

1. Financial Performance = QA × PA
2. Financial Performance = QB × PA − SELLEXPA
3. Financial Performance = QA × PB
4. Financial Performance = QA × PA − ARA × DRR

Question 48

Demeter is composed of two business units (BU) organized as profit centers. The first BU produces and sells bouquets of flowers for a unit price of C182.50. Its unit variable cost of production is C127.75 and an additional C136.69 of fixed cost is allocated to each unit produced to compute the unit cost of production of C264.44. Shipping bouquets to external customers costs an additional C19.20 per unit shipped. The monthly maximum capacity of production is 9,800 bouquets, and the monthly demand in typically 9,800 bouquets.

The second BU would like to diversify its product portfolio and would need every month 1,500 custom made bouquets. An external supplier could deliver them of a unit price of C304.94. However, the first BU could produce them for a unit variable cost of C140.53. Each unit would consume the same amount of capacity as a normal bouquet. The selling price of this new product on the market would be C200.75 and shipping the product to external customers would also cost C19.20. However, there would be no shipping cost for the internal transfers since the divisions are located near each other.

What is the range of acceptable transfer prices? 

1. The range of acceptable transfer prices is from a minimum of 176.08 to a maximum of 181.55.
2. There is a unique acceptable price of 181.55.
3. The range of acceptable transfer prices is from a minimum of 127.75 to a maximum of 181.55.
4. The range of acceptable transfer prices is from a minimum of 176.08 to a maximum of 182.50.

Anwers 

Question 1

D

Question 2

B

Question 3

B

Question  4

C

Question 5

A

Question 6

A

Question 7

A

Question 8

D

Question 9

D

Question 10

A

Question 11

A

Question 12

A

Question 13

A

Question 14

A

Question 15

A

Question 16

A

Question 17

A

Question 18

A

Question 19

B

Question 20

B

Question 21

C

Question 22

C

Question 23

A

Question 24

A

Question 25

A

Question 26

C

Question 27

D

Question 28

D

Question 29

D

Question 30

A

Question 31

B

Question 32

A

Question 33

A

Question 34

C

Question 35

D

Question 36

D

Question 37

D

Question 38

A

Question 39

A

Question 40

C

Question 41

A

Question 42

C

Question 43

A

Question 44

A

Question 45

B

Question 46

D

Question 47

D

Question 48

A