Internal Reports Answer Key

1) Internal reports that review the actual impact of decisions are prepared by a. department heads. b. the controller. c. management accountants. d. factory workers. 2) Which of the following will always be a relevant cost? a. Sunk cost b. Fixed cost c. Variable cost d. Opportunity cost 3) Incremental analysis is most useful a. in developing relevant information for management decisions. b. in choosing between capital budgeting methods. c. in evaluating the master budget. d. as a replacement technique for variance analysis. 4) Which of the following is (are) always true about cost behaviors in incremental analysis? 1. Fixed costs will not change between alternatives. 2. Fixed costs may change between alternatives. 3. Variable costs will always change between alternatives. a. 1 b. 2 c. 3 d. 2 and 3 5) Baden Company manufactures a product with a unit variable cost of £100 and a unit sales price of £176. Fixed manufacturing costs were £480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at £140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows: a. Income would decrease by £8,000. b. Income would increase by £8,000. c. Income would increase by £140,000. d. Income would increase by £40,000. 6) Miley, Inc. has excess capacity. Under what situations should the company accept a special order for less than the current selling price? a. Never b. When additional fixed costs must be incurred to accommodate the order c. When the company thinks it can use the cheaper materials without the customer’s knowledge d. When incremental revenues exceed incremental costs 7) A company is within plant capacity. It is contemplating whether a special order should be accepted. The order will not impact regular sales. If the company accepts the special order, what will occur? a. Incremental costs will not be affected. b. Net income will increase if the special sales price per unit exceeds the unit variable costs. c. There are no incremental revenues. d. Both fixed and variable costs will increase. 8) A factory is operating at less than 100% capacity. Potential additional business will not use up the remainder of the plant capacity. Given the following list of costs, which one should be ignored in a decision to produce additional units of product? a. Variable selling expenses b. Fixed factory overhead c. Direct labor d. Contribution margin of additional units 9) A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10,000 units: Direct materials Direct labor Variable overhead Fixed overhead HK$ 4 10 8 6 Another company wants to purchase 2,000 units at a special unit price of HK$25. The normal price per unit is HK$40. In addition, a special stamping machine will have to be purchased for HK$4,000 in order to stamp the other company’s name on the product. The incremental income (loss) from accepting the order is a. HK$ 6,000. b. HK$ 2,000. c. HK$(6,000). d. HK$(2,000). 10) Able Company’s unit manufacturing cost is: Variable Costs £50 Fixed Costs 25 A special order for 2,000 units has been received from a foreign company. The unit price requested is £55. The normal unit price is £80. If the order is accepted, unit variable costs will increase by £2 for additional freight costs. If the order is accepted, incremental profit (loss) will be a. £(46,000). b. £ 6,000. c. £(40,000). d. £10,000. 11) Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent: Direct materials Direct labor Variable overhead Fixed overhead €8,400 11,250 12,600 16,200 An outside supplier has offered to sell Clemente the subcomponent for €2.85 a unit. If Clemente accepts the offer, by how much will net income increase (decrease)? a. € 3,750 b. €19,950 c. €(8,850) d. €(2,850) 12) Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent: Direct materials Direct labor Variable overhead Fixed overhead €8,400 11,250 12,600 16,200 An outside supplier has offered to sell Clemente the subcomponent for €2.85 a unit. If Clemente accepts the offer, it could use the production capacity to produce another product that would generate additional income of €3,600. The increase (decrease) in net income from accepting the offer would be a. € 150. b. € 7,350. c. € (150). d. €(3,600). 13) A revenue that differs between alternatives and makes a difference in decision-making is called a(n) a. sales revenue. b. incremental revenue. c. unavoidable revenue. d. irrelevant revenue. 14) Truckel, Inc. currently manufactures a wicket as its main product. The costs per unit are as follows: Direct materials and direct labor €11 Variable overhead 5 Fixed overhead 8 Total €24 Saran Company has contacted Truckel with an offer to sell it 5,000 of the wickets for €18 each. If Truckel makes the wickets, variable costs are €16 per unit. Fixed costs are €8 per unit; however, €5 per unit is unavoidable. Should Truckel make or buy the wickets? a. Buy; savings = €15,000 b. Buy; savings = €5,000 c. Make; savings = €10,000 d. Make; savings = €5,000 15) An opportunity cost a. should be initially recorded as an asset. b. is the cost of a new product proposal. c. is the potential benefit that may be obtained by following an alternative course of action. d. is classified as manufacturing overhead. 16) 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. 17) Fornelli, Inc. can produce 100 units of a component part with the following costs: Direct Materials €15,000 Direct Labor 6,500 Variable Overhead Fixed Overhead 16,000 11,000 If Fornelli, Inc. can purchase the units externally for €40,000, by what amount will its total costs change? a. An increase of €40,000 b. An increase of €2,500 c. An increase of €8,500 d. A decrease of €11,000 18) Fornelli, Inc. can produce 100 units of a component part with the following costs: Direct Materials €15,000 Direct Labor 6,500 Variable Overhead 16,000 Fixed Overhead 11,000 If Fornelli, Inc. can purchase the component part externally for €44,000 and only €4,000 of the fixed costs can be avoided, what is the correct make-or-buy decision? a. Make and save €500 b. Buy and save €500 c. Make and save €2,500 d. Buy and save €6,500 19) The costs incurred prior to the split-off point are referred to as a. separable costs. b. split-off costs. c. joint product costs. d. joint costs. 20) NF Toy Company is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is €24 and NF Toy would sell it for €52. The cost to assemble the product is estimated at €17 per unit and the company believes the market would support a price of €68 on the assembled unit. What decision should NF Toy make? a. Sell before assembly, the company will be better off by €1 per unit. b. Sell before assembly, the company will be better off by €16 per unit. c. Process further, the company will be better off by €23 per unit. d. Process further, the company will be better off by €11 per unit. 21) A company has a process that results in 24,000 pounds of Product A that can be sold for HK$8 per pound. An alternative would be to process Product A further at a cost of HK$160,000 and then sell it for HK$14 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action? a. Process further, the company will be better off by HK$16,000. b. Sell now, the company will be better off by HK$16,000. c. Process further, the company will be better off by HK$144,000. d. Sell now, the company will be better off by HK$160,000. 22) The decision rule on whether to sell or process further a. varies from situation to situation. b. is process further as long as total revenue exceeds present revenues. c. is process further if incremental revenue from such processing exceeds incremental fixed costs. d. is process further if incremental revenue from such processing exceeds the incremental processing costs. 23) Eddy Company is starting business and is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is €60 and Eddy Company would sell it for €135. The cost to assemble the product is estimated at €27 per unit and Eddy Company believes the market would support a price of €174 on the assembled unit. What is the correct decision using the sell or process further decision rule? a. Sell before assembly, the company will be better off by €27 per unit. b. Sell before assembly, the company will be better off by €39 per unit. c. Process further, the company will be better off by €39 per unit. d. Process further, the company will be better off by €12 per unit. 24) Mallory Company manufactures widgets. Bowden Company has approached Mallory with a proposal to sell the company widgets at a price of £82,000 for 100,000 units. Mallory is currently making these components in its own factory. The following costs are associated with this part of the process when 100,000 units are produced: Direct material £ 31,000 Direct labor 29,000 Manufacturing overhead 40,000 Total £100,000 The manufacturing overhead includes £16,000 of costs that will be eliminated if the components are no longer produced by Mallory. From Mallory’s point of view, how much is the incremental cost or savings if the widgets are bought instead of made? a. £18,000 incremental savings b. £6,000 incremental cost c. £2,000 incremental savings d. £18,000 incremental cost 25) Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period: Sales Value Additional Sales Value after Product at Split-off Variable Costs Further Processing Green lumber €159,600 €24,000 €178,000 Rough lumber 124,000 28,200 173,600 Sawdust 102,000 19,600 130,000 The additional profit that would result from processing rough lumber further is a. €21,400. b. €49,600. c. €145,400. d. €95,800. 26) Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period: Product Green lumber Rough lumber Sawdust Sales Value at Split-off €159,600 124,000 102,000 Additional Variable Costs €24,000 28,200 19,600 Sales Value after Further Processing €178,000 173,600 130,000 What is the increase in profit if the appropriate products are processed further? a. €24,200 b. €29,800 c. €96,000 d. €255,800 27) Chung Inc. is considering the replacement of a piece of equipment with a newer model. The following data has been collected: Old Equipment New Equipment Purchase price HK$225,000 HK$375,000 Accumulated depreciation 90,000 -0Annual operating costs 300,000 240,000 If the old equipment is replaced now, it can be sold for HK$60,000. Both the old equipment’s remaining useful life and the new equipment’s useful life is 5 years. Which of the following amounts is irrelevant to the replacement decision? a. HK$375,000 b. HK$135,000 c. HK$300,000 d. HK$240,000 28) A company is deciding on whether to replace some old equipment with new equipment. Which of the following is not a relevant cost for incremental analysis? a. Annual operating cost of the new equipment b. Annual operating cost of the old equipment c. Net cost of the new equipment d. Accumulated depreciation on the old equipment 29) Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine Price €300,000 Accumulated Depreciation 90,000 Remaining useful life 10 years Useful life -0Annual operating costs €240,000 New Machine €600,000 -0-010 years €180,600 If the old machine is replaced, it can be sold for €24,000. The net advantage (disadvantage) of replacing the old machine is a. €18,000 b. €24,000 c. € (6,000) d. € (60,000) . 30) Abel Company produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows: Sales Variable expenses Contribution margin Wood €500,000 325,000 175,000 Aluminum €200,000 140,000 60,000 Hard Rubber €65,000 58,000 7,000 Total €765,000 523,000 242,000 Fixed expenses Net income (loss) 75,000 €100,000 35,000 € 25,000 22,000 € (15,000) 132,000 €110,000 Assume all of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped? a. €125,000 b. €103,000 c. €105,000 d. €140,000 31) A segment has the following data: Sales Variable expenses Fixed expenses HK$700,000 300,000 550,000 What will be the incremental effect on net income if this segment is eliminated, assuming the fixed expenses will be allocated to profitable segments? a. HK$400,000 increase b. HK$400,000 decrease c. HK$5,000 decrease d. Cannot be determined from the data provided. 32) Corn Crunchers has three product lines. Its only unprofitable line is Corn Nuts, the results of which appear below for 2019: Sales Variable expenses Fixed expenses Net loss £1,400,000 920,000 600,000 £ (120,000) If this product line is eliminated, 30% of the fixed expenses can be eliminated. How much are the relevant costs in the decision to eliminate this product line? a. £180,000 b. £1,520,000 c. £1,340,000 d. £1,100,000 33) North Division has the following information: Sales Variable expenses Fixed expenses €1,200,000 640,000 620,000 If this division is eliminated, the fixed expenses will be allocated to the company’s other divisions. What is the incremental effect on net income if the division is dropped? a. €60,000 increase b. €620,000 decrease c. €560,000 decrease d. €580,000 increase 34) Why are budgets useful in the planning process? a. They provide management with information about the company's past performance. b. They help communicate goals and provide a basis for evaluation. c. They guarantee the company will be profitable if it meets its objectives. d. They enable the budget committee to earn their paycheck. 35) A budget a. is a substitute for management. b. is an aid to management. c. can operate or enforce itself. d. is the responsibility of the accounting department. 36) Budgeting is usually most closely associated with which management function? a. Planning b. Directing c. Motivating d. Controlling 37) It is important that budgets be accepted by a. division managers only. b. department heads only. c. supervisors only. d. division managers, department heads, and supervisors. 38) A budget period should be a. monthly. b. for a year or more. c. long-term. d. long enough to provide an obtainable goal under normal business conditions. 39) Which of the following is not an operating budget? a. Direct labor budget b. Sales budget c. Production budget d. Cash budget 40) The financial budgets include the a. cash budget and the selling and administrative expense budget. b. cash budget and the budgeted statement of financial position. c. budgeted statement of financial position and the budgeted income statement. d. cash budget and the production budget. 41) The starting point in preparing a master budget is the preparation of the a. production budget. b. sales budget. c. purchasing budget. d. personnel budget. . 42) Which one of the following is not needed in preparing a production budget? a. Budgeted unit sales b. Budgeted raw materials c. Beginning finished goods units d. Ending finished goods units 43) Petal Co. reported the following information for 2020: Budgeted sales   October £930,000 November £870,000 December £1,080,000 All sales are on credit. Customer amounts on account are collected 50% in the month of sale and 50% in the following month. How much is the November 30, 2020 budgeted Accounts Receivable? a. £900,000 b. £540,000 c. £465,000 d. £435,000 44) Off-Line Co. has 9,000 units in beginning finished goods. The sales budget shows expected sales to be 36,000 units. If the production budget shows that 42,000 units are required for production, what was the desired ending finished goods? a. 3,000. b. 9,000. c. 15,000. d. 27,000. 45) Lion Industries required production for June is 132,000 units. To make one unit of finished product, three pounds of direct material Z are required. Actual beginning and desired ending inventories of direct material Z are 300,000 and 330,000 pounds, respectively. How many pounds of direct material Z must be purchased? a. 378,000. b. 396,000. c. 408,000. d. 426,000. 46) Which of the following statements about a budgeted income statement is not true? a. The budgeted income statement is prepared after the financial budgets are prepared. b. The budgeted income statement is prepared on the accrual basis of accounting. c. The budgeted income statement can be prepared in a multiple-step format. d. The budgeted income statement is prepared using the individual operating budgets. 47) If there were 60,000 pounds of raw materials on hand on January 1, 120,000 pounds are desired for inventory at January 31, and 410,000 pounds are required for January production, how many pounds of raw materials should be purchased in January? a. 350,000 pounds b. 530,000 pounds c. 290,000 pounds d. 470,000 pounds 48) The direct materials budget shows: Desired ending direct materials Total materials required Direct materials purchases 48,000 pounds 69,000 pounds 63,200 pounds The total direct materials needed for production is a. 21,000 pounds. b. 5,800 pounds. c. 15,200 pounds. d. 132,200 pounds. 49) A company has budgeted direct materials purchases of HK$300,000 in July and $480,000 in August. 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 August, the following items were budgeted: Wages Expense Purchase of office equipment Selling and Administrative Expenses Depreciation Expense HK$150,000 72,000 48,000 36,000 The budgeted cash disbursements for August are a. HK$648,000. b. HK$426,000. c. HK$696,000. d. HK$732,000. 50) Garnett Co. expects to purchase €180,000 of materials in July and €210,000 of materials in August. Three-fourths of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. How much will August's cash disbursements for materials purchases be? a. €135,000 b. €157,500 c. €202,500 d. €210,000 51) Kam Department Store reported the following information for 2019: October Budgeted sales €1,240,000   November €1,160,000 December €1,440,000 All sales are on credit. Customer amounts on account are collected 50% in the month of sale and 50% in the following month. How much cash will Kam receive in November? a. €580,000 b. €1,300,000 c. €1,200,000 d. €1,160,000 52)The following information was taken from Southgate Industry’s cash budget for the month of July: Beginning cash balance £480,000 Cash receipts 304,000 Cash disbursements 544,000 If the company has a policy of maintaining a minimum end of the month cash balance of £400,000, the amount the company would have to borrow is a. £160,000. b. £80,000. c. £240,000. d. £96,000.