ACCT 2101 : Accounting 2101 Test 2 Review Questions
Spring 2014 Only
True-False
1. Variable costs may not change under alternative courses of action, while fixed costs may change.
2. When deciding whether to accept an order at a special price, management should make its
decision on the basis of the total cost per unit and the expected revenue.
3. Opportunity cost is the potential benefit that may be obtained by following an alternative course
of action.
4. The basic decision rule in a sell or process further decision is: sell without further processing as
long as the incremental revenue from processing exceeds the incremental processing costs.
5. Sell of process further decisions are particularly applicable to production processes that produce
multiple products simultaneously.
6. During incremental analysis, qualitative features that are not easily measured should be ignored.
7. An example of a qualitative factor is the effect on employees and the community when deciding
whether to use outsourcing.
8. The budget and the administration of the budget are entirely accounting responsibilities.
9. A primary benefit of budgeting is that it provides definite objectives for evaluating subsequent
performance at each level of responsibility.
10. Management acceptance of budgets occurs more frequently when the flow of input data is from
the highest level of responsibility to the lowest level of responsibility.
Multiple-Choice
1. It costs Pineda Company $38 per unit ($25 variable and $13 fixed) to produce its
product, which normally sells for $52 per unit. A foreign wholesaler offers to purchase 4,000
units at $30 each. Pineda would incur special shipping costs of $4 per unit if the order were
accepted. Pineda has sufficient unused capacity to produce the 4,000 units. If the special
order is accepted, what will be the effect on net income?
a. $4,000 increase
b. $2,000 decrease
c. $4,000 decrease
d. $8,000 decrease
2. Geis Company produces 40,000 printers per month, which is 80% of plant
capacity. Variable manufacturing costs are $80 per unit and fixed manufacturing costs are
$30 per unit, or $1,200,000. The printers are normally sold directly to retailers at $150 each.
Geis has an offer from a foreign wholesaler to purchase an additional 4,000 printers at $100
per unit. Acceptance of the offer would not affect normal sales of the product and the
additional units can be manufactured without increasing plant capacity. What is the amount
of increase (decrease) to net income if Geis accepts the offer?
a. ($200,000)
b. ($40,000)
c. $40,000
d. $80,000
3. McAlister Corporation incurs the following annual costs in producing 30,000
floppy drives for computers.
Direct materials
60,000
Direct labor
100,000
Variable manufacturing overhead
80,000
Fixed manufacturing overhead
90,000
Total manufacturing costs
330,000
However, if McAlister purchases the floppy drives from another company at a price of $10, what
is the increase (decrease) in net income for McAlister?
a. ($90,000)
b. ($60,000)
c. $30,000
d. $60,000
4. A cost that cannot be changed by any present or future decision is a (an)
a. Incremental cost
b. Opportunity cost
c. Sunk cost
d. Variable cost
5. If an unprofitable segment is eliminated:
a. It is impossible for net income to decrease.
b. Fixed expenses allocated to the eliminated segment will be eliminated.
c. Variable expenses of the eliminated segment will be eliminated
d. It is impossible for net income to increase
6. The starting point in preparing the master budget is the:
a. Cash budget
b. Budgeted income statement
c. Direct materials budget
d. Sales budget
7. The Turlington Company has 12,000 units in beginning finished goods inventory.
If sales are expected to be 60,000 units and Turlington desires 15,000 units in ending finished
goods inventory, how many units must Turlington produce?
a. 57,000
b. 60,000
c. 63,000
d. 75,000
8. A company has a policy of having sufficient direct materials inventory on hand at
the end of each month equal to 20% of next month's budgeted production needs. The
company has budgeted production of 30,000 units of product in June and 40,000 units in
July. It takes 2 pounds of direct materials to produce one unit of product and 12,000 pounds
of direct materials were on hand on May 31. How many pounds of direct materials should be
purchased in the month of June?
a. 56,000 pounds
b. 60,000 pounds
c. 76,000 pounds
d. 64,000 pounds
9. On Jnauary 1, Ghauri Company has a beginning cash balance of $21,000. During
the year, the company expects cash disbursements of $170,000 and cash receipts of
$145,000. If Ghuari requires an ending cash balance of $20,000, it must borrow:
a. $16,000
b. $20,000
c. $24,000
d. $46,000
10. A company has budgeted direct materials purchases of $150,000 in March and
$240,000 in April. Past experience indicates that the company pays for 70% of its purchases
in the month of purchase and the remaining 30% in the next month. During April, the
following items were budgeted:
Wages Expense $75,000
Purchase of office equipment 36,000
Selling and Administrative Expenses 24,000
Depreciation Expense 18,000
Document Summary
It costs pineda company per unit ( variable and fixed) to produce its product, which normally sells for per unit. A foreign wholesaler offers to purchase 4,000 units at each. Pineda would incur special shipping costs of per unit if the order were accepted. Pineda has sufficient unused capacity to produce the 4,000 units. Geis company produces 40,000 printers per month, which is 80% of plant capacity. Variable manufacturing costs are per unit and fixed manufacturing costs are. The printers are normally sold directly to retailers at each. Geis has an offer from a foreign wholesaler to purchase an additional 4,000 printers at per unit. Acceptance of the offer would not affect normal sales of the product and the additional units can be manufactured without increasing plant capacity. What is the amount of increase (decrease) to net income if geis accepts the offer? (,000) (,000)
