lesson 5

1.Expenses that are closely related to a particular department and can easily
be assigned to it during an accounting period are called _
expenses.
a.operating
b.indirect
c.allocated
d.direct

2.In a store with several sales departments, departmentalized accounts

would be used for:

a. sales only.
b. sales, purchases, and merchandise inventory.
c. sales and other income items only.
d.all expense accounts.

3.A department probably would be considered for elimination if it had a:

a.positive contribution margin and a net income from
operations.
b. positive contribution margin and a net loss from operations.
c.negative contribution margin and a net loss from operations.
d. net loss, regardless of the contribution margin.

4. The procedure for assigning indirect expenses to departments at the end

of an accounting period is called:
a. valuation.
b. amortization.
c.allocation.
d. distribution.

5.If a segment of business is considered a profit center:

a.it must sell products or services to customers outside the
business.
b.both revenue and cost data must be accumulated for the
segment.
c.no indirect expenses can be allocated to the segment.
d.only revenue is accumulated for the segment.

6.The contribution margin of a department is the difference between its:

a.net sales and the total expenses.
b.net sales and its cost of goods sold.
c.gross profit on sales and its indirect expenses.
d.gross profit on sales and its direct expenses.
7.A transfer price is the:
a.price for which a company sells its products to customers.
b.price at which goods are moved from one department of a company to anot~er
department of the company.
c. basis on \vhich indirect expenses are allocated.
d.price at which a company purchases its products from a
supplier.

8.Department B had net sales of $70,000, gross profit on sales of$35,000,

total direct expenses of $9,000, and total indirect expenses of $6,000.
Department B'g contribution margin is:
a.$20,000.
b.$29,000.
c.$26,000.
d.$35,000.

9.Department A had total sales of $84,000 and Department B had total sales
of$36,000. Other Office Expenses, totaling $2,500, are allocated on the
basis of total sales. The amount allocated to Department B is:
a.$750.
b.$1,750.
c.$1,250.
d.$1,071.

10.One department in a company had a contribution margin of $15,000 and a

net loss from opera'tions of $2,000. The indirect expenses allocated to this
department would have been incurred whether or not the department
existed. If this department had been eliminated, the company's reported
net income would have been:

a.$2,000 higher.
b.$15,000 lower.
c.$13,000 lower.
d. the same with or without the department.

11.The Balance Sheet of a manufacturing firm will include which account

that will NOT be included in the Balance Sheet of a service firm?
a. Cash
b.Accounts Payable
c. Prepaid insurance
d.Work in Process Inventory

12.Closing entries for a manufacturing firm include all of the following

EXCEPT:
a.transferring all manufacturing cost accounts to
Manufacturing Summary.
b.transferring a1l Revenue and Expense account balances to
Income Summary.
c.closing Manufacturing Summary to Income Summary.
d. closing Income Summaryto et Income.

13.Wages paid to the factory maintenance and repair personnel of a

manufacturing business are shown:
a.in the Operating Expenses section of the income statement
b.as Direct Labor on the statement of cost goods
manufactured.
c. as part of Manufacturing Overhead on the statement cost of
goods manu factu red.
d.as a part of the Cost of Goods Sold section of the income
statement.

14. The manufacturing costs incurred during the year are:

__a.shown by the expense accounts such as Wages Expense and
Utilities Expense that are listed in the Operating Expenses
section of the income statement.
__b.shown as Direct Labor, Raw Materials, and Manufacturing
Overhead in the Operating Expenses section of the income
statement.
__c.used in the computation of cost of goods manufactured.
__d.shown in the Cost of Goods Sold section of the income
statement.

15.Indirect labor fo~

a manufacturing business includes the wages of:
a. factory repair and maintenance employees.
__ b. employees who assemble the product.
c.employees who sell the product.
d. office employees.

16. Gross profit for a manufacturing business is computed by deducting:

__a. cost of goods sold from net sales.
__b. cost of goods manufactured from net sales.
__c. the ending finished goods inventory from the total goods
available for sale.
d. operating expenses from the costs of goods sold.

17.The three components of total manufacturing cost are:

a.cost of goods manufactured, cost of goods sold, and work in
process.
b.raw materials used, direct labor, and manufacturing
overhead.
__c.
selling expenses, administrative expenses, and
manufacturing overhead.

__d.raw materials used, direct labor, and cost of goods sold.

18.The cost of goods manufactured for a fiscal period is reported on:

__a. both the statement of cost of goods manufactured and the
income statement.
b. both the statement of the cost of goods manufactured and
the balance sheet.
c.both the income statement and the balance sheet.
d.the statement of cost of goods manufactured only.

19.The balance sheet of a manufacturing business shows:

a.the finished goods inventory and the cost of goods
manufactured.
b.the cost of goods manufactured rather than inventory
figures.
c.a single inventory figure-the amount of the finished goods
inventory.
d.the raw materials inventory, the work in process inventory,
and the finished goods inventory.

20.The Indirect Labor account is closed by crediting it and debiting:

a. Wages Payable.
b. income Summary.
c.Manufacturing Summary.
d.Wages Expense.

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lesson 8

1. Which of the following is NOT a step in the decision-making process?

a. Explore workable alternatives
b. Determine relevant cost and revenue data
c. . Consider appropriate non-financial factors
d. Make a decision

2. Which of the following is NOT a consideration when determining

whether to continue making a part or to buy that part?
a. Timing of the cash receipts and expenditures
b. Opportunity cost
c. Impact on employees
d. Sunk cost

3. Contribution margin is calculated by deducting:

a. variable costs from revenue.
b. variable costs and controllable fixed costs from revenue.
c. variable costs and common costs from revenue.
d. fixed costs from revenue.
A031 Principles of Accounting II -Page 8·11

4. A segment of a business probably should be discontinued if:

__a.
its common costs exceed its contribution margin.
__b.
its contribution margin exceeds its controllable fixed costs
and its common costs.
__c.
it cannot produce a contribution margin.
__d. it has a net loss.

5. When direct costing is used, cost of goods sold reflects:

a. both variable and fixed manufacturing costs.
b.' variable manufacturing costs and variable selling and
administrative expenses.
c. variable manufacturing costs only.
d. fixed manufacturing costs only.

6. On an income statement prepared with a direct costing approach, the

excess of sales over the cost of goods sold, based on variable costs only, is
referred to as the:
a. marginal gross profit on sales.
b. manufacturing margin.
c. marginal income on sales.
d. contribution margin.

7. Fixed manufacturing costs are written off as current expenses of the

period in which they occurred when using costing.
a.direct
b. standard
c. absorption
d. differential

8. Which inventory costing system is NOT acceptable for financial reporting

purposes?

a. Absorption costing
b. Direct costing
c. Standard costing
d. Variable costing

9. Which of the following would NOT be relevant to a decision about

whether to continue making a part or whether to buy it from an outside
supplier?

a. Alternative uses for the plant where the part was produced
if the part is purchased
b. A fee previously spent for design ofthe part
c. The variable costs of making the part
__d. The number of additional employees needed to make the part

10. A company has sales of $100,000, ending finished goods inventory of

$9,000, variable manufacturing costs of $50,000, and fixed manufacturing
costs of $28,000 for the year. Assuming the company uses direct costing,
the manufacturing margin for the year is:
a. $22,000.
b. $31,000.
c $59,000.
d. $13,000.

11. A segment of a business reported a contribution margin of $36,000 and

controllable fixed costs of $12,000. If the segment had been eliminated, the
company-wide net income would have been:
a. $12,000 higher.
b. $24,000 lower.
c $36,000 lower.
d. $24,000 higher.

12. If a decision must be made to close a warehouse, non-refundable prepaid

rent on the warehouse is a(n) cost.

__3. opportunity
__b. common
c. sunk
d. variable

13. When the balance in ending finished goods inventory increases, net
income under absorption costing is:

a. lower than under direct costing.

b. higher than under direct costing.
c. the same under direct costing.
d. unaffected by the increase.

14. Which of the following is the first step in the decision-making process?

a. Evaluate the cost and revenue data

b. Identify workable alternatives
c. Define the problem
d. Consider appropriate nonfinancial factors

15. Which of the following is NOT a consideration regarding a special order?

a. If the company has sufficient capacity
b. If the special order jeopardized sales to existing customers
c. Federal laws regarding the price
d. Whether employee morale would be affected

16. Which of the following cost amounts can be found in a firm's accounting
records?
a. Opportunity costs
b. Differential costs
c. Incremental costs
d. Sunk costs

17. Costs that are not directly traceable to a specific segment of a business are
called costs.

a. sunk
b. common
c. fixed
d. incremental

18. Which of the following is NOT true of the direct costing procedure?
__a. Variable and fixed costs are considered as part of the cost of
goods manufactured.
__b. The cost of goods sold, based solely on variable costs, is
subtracted from net sales to arrive at the manufacturing
margin.
c. Variable selling expenses are deducted from the
manufacturing margin.

d. Variable administrative expenses are deducted from the

manufacturing margin.

19. Data for a firm's first year of operation is given below. The firm uses
absorption costing.
Units produced (no work in process) 6,000
Units sold 5,000
Units in ending inventory of finished goods 1,000
Sales price for each unit $75
Variable manufacturing costs for each unit
manufactured $30
Variable selling and admin. expenses for each unit sold $16
Fixed manufacturing costs for the year $90,000
Fixed selling and admin. expenses for the year $65,000

The cost of the goods sold for the year is:

a. $270,000.
b. $225,000.
c. $150,000.
d. $45,000.

20. Data for a firm's first year of operation is given below. The firm uses
direct costing.
Units produced (no work in process) 6,000
Units sold 5,000
Units in ending inventory of finished goods 1,000
Sales price for each unit $75
Variable manufacturing costs for each unit manufactured $30
Variable selling and admin. expenses for each unit sold $16
Fixed manufacturing costs for the year $90,000
Fixed selling and admin. expenses fOf the year $65,000
The cost of the goods sold for the year is:
__a. $270,000.
__b. $225,000.
__c. $150,000.
__d. $45,000