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web.groovymark@gmail.com
- December 8, 2024
Question 01
Which account is classified as an equity account on the balance sheet?
A. Accounts payable
B. Retained earnings
C. Prepaid expenses
D. Inventory
Answer: B
Explanation: Retained earnings represent the accumulated net income retained by the company and are classified as an equity account.
Question 02
What is the formula for the contribution margin ratio?
A. Fixed costs / Total sales
B. Contribution margin / Sales price
C. Sales price – Variable cost
D. Variable cost / Sales price
Answer: B
Explanation: Contribution margin ratio is calculated by dividing the contribution margin by the sales price.
Question 03
Which of the following is an example of a direct material?
A. Glue used in assembling products
B. Wood used in making furniture
C. Office supplies
D. Cleaning supplies used in the factory
Answer: B
Explanation: Wood used in furniture production is a direct material because it can be directly traced to the final product.
Question 04
Which of the following is considered a period cost?
A. Direct labor
B. Factory rent
C. Office rent
D. Raw materials
Answer: C
Explanation: Period costs, like office rent, are expensed in the period they are incurred and are not tied directly to production.
Question 05
Which cost behavior pattern is associated with costs that vary in total with production level?
A. Fixed costs
B. Variable costs
C. Mixed costs
D. Stepped costs
Answer: B
Explanation: Variable costs change in total as the level of production changes, while remaining constant per unit.
Question 06
What is the primary purpose of the sales budget in a manufacturing company?
A. To estimate production needs
B. To forecast cash inflows
C. To plan inventory purchases
D. To determine total fixed costs
Answer: A
Explanation: The sales budget helps forecast the number of units the company expects to sell, which drives production planning.
Question 07
Which cost is included in manufacturing overhead?
A. Direct materials
B. Depreciation on factory equipment
C. Direct labor
D. Advertising expenses
Answer: B
Explanation: Manufacturing overhead includes indirect costs, such as depreciation on factory equipment, associated with production.
Question 08
Which of the following would appear on a statement of retained earnings?
A. Cash received from customers
B. Dividends paid
C. Total liabilities
D. Inventory turnover
Answer: B
Explanation: Dividends paid reduce retained earnings, and the statement of retained earnings shows changes in equity over a period.
Question 09
What is the journal entry to record direct labor used in production?
A. Debit wages expense; credit accounts payable
B. Debit work-in-process inventory; credit wages payable
C. Debit manufacturing overhead; credit wages payable
D. Debit cash; credit wages expense
Answer: B
Explanation: Direct labor costs are debited to work-in-process inventory, and wages payable is credited when recording labor used in production.
Question 10
Which of the following is classified as a financing activity on the statement of cash flows?
A. Issuing common stock
B. Purchasing raw materials
C. Selling products
D. Paying wages
Answer: A
Explanation: Issuing common stock is a financing activity because it involves raising capital for the business.
Question 11
What is the purpose of a flexible budget?
A. To adjust for variable costs
B. To control fixed costs
C. To reflect changes in production levels
D. To determine the break-even point
Answer: C
Explanation: A flexible budget adjusts based on changes in the level of production or sales activity, allowing for better cost control.
Question 12
Which of the following is an indirect cost?
A. Raw materials
B. Factory maintenance
C. Direct labor
D. Factory supervisor’s salary
Answer: B
Explanation: Indirect costs, like factory maintenance, cannot be traced directly to specific units of production.
Question 13
What is the predetermined overhead rate if estimated overhead is $200,000 and estimated machine hours are 25,000 hours?
A. $6 per machine hour
B. $7 per machine hour
C. $8 per machine hour
D. $9 per machine hour
Answer: C
Explanation: The predetermined overhead rate is calculated by dividing estimated overhead by estimated machine hours. ($200,000 / 25,000 = $8 per machine hour).
Question 14
Which financial statement shows cash flows from operating, investing, and financing activities?
A. Income statement
B. Statement of retained earnings
C. Balance sheet
D. Statement of cash flows
Answer: D
Explanation: The statement of cash flows categorizes cash inflows and outflows into operating, investing, and financing activities.
Question 15
What is the formula to calculate break-even in sales dollars?
A. Fixed costs / Contribution margin ratio
B. Fixed costs / Sales price per unit
C. Sales price per unit / Variable cost per unit
D. Variable costs / Sales price
Answer: A
Explanation: Break-even in sales dollars is calculated by dividing fixed costs by the contribution margin ratio.
Question 16
Which of the following is an example of an operating activity?
A. Borrowing money
B. Paying dividends
C. Purchasing equipment
D. Paying employees
Answer: D
Explanation: Paying employees is classified as an operating activity because it is part of the company’s core business operations.
Question 17
Which of the following would be classified as a long-term liability?
A. Accounts payable
B. Salaries payable
C. Mortgage payable
D. Unearned revenue
Answer: C
Explanation: Mortgage payable is a long-term liability because it is not expected to be settled within one year.
Question 18
Which of the following is an example of a controllable cost?
A. Property taxes
B. Rent expense
C. Direct labor
D. Depreciation expense
Answer: C
Explanation: Direct labor is a controllable cost because management can influence the amount of labor used in production.
Question 19
What is the formula for contribution margin per unit?
A. Sales price per unit – Variable cost per unit
B. Sales price per unit – Fixed cost per unit
C. Fixed costs / Sales price per unit
D. Variable costs / Sales price per unit
Answer: A
Explanation: Contribution margin per unit is calculated by subtracting the variable cost per unit from the sales price per unit.
Question 20
Which account is reported on the income statement?
A. Equipment
B. Retained earnings
C. Wages expense
D. Accounts receivable
Answer: C
Explanation: Wages expense is reported on the income statement as part of the company’s operating expenses.
