Tax Strategies Demystified: Essentials for Every Student
1. Select the graph that matches the numbered manufacturing cost
Select the graph that matches the numbered manufacturing cost data. Indicate by letter which graph best fits the situation or item described.
The vertical axes of the graphs represent total cost and the horizontal axes represent units produced during a calendar year. In each case, the zero point of dollars and production is at the intersection of the two axes. The graphs maybe used more than once.
1. Annual depreciation of equipment where the amount of depreciation charged is computed by the machine-hours method.
2. Electricity bill—a flat fixed charge, plus a variable cost after a certain number of kilowatt-hours are used, in which the quantity of kilowatt-hours used varies proportionately with quantity of units produced.
3. City water bill, which is computed as follows:
The gallons of water used vary proportionately with the quantity of production output.
4. Cost of direct materials, where direct material cost per unit produced decreases with each pound of material used (for example, it 1 pound is used, the cost is $10; if 2 pounds are used, the cost is $19.98; if 3 pounds are used, the cost is $29.94), with a minimum cost per unit of $9.20.
5. Annual depreciation of equipment where the amount is computed by the straight-line method. When the depreciation schedule was prepared, it was anticipated that the obsolescence factor would be greater than the wear-and-tear factor.
6. Rent on a manufacturing plant donated by the city, where the agreement calls for a fixed-fee payment unless 200,000 labor-hours are worked, in which case no rent is paid.
7. Salaries of repair personnel, where one person is needed for every 1,000 machine-hours or less (that is, 0 to 1,000 hours requires one person, 1,001 to 2,000 hours requires two people, and so on)
8. Cost of direct materials used (assume no quantity discounts).
9. Rent on a manufacturing plant donated by the county, where the agreement calls for rent of $100,000 to be reduced by $1 for each direct manufacturing labor-hour worked in excess of 200,000 hours, but a minimum rental fee of $20,000 must bepaid.
2. 4) Which of the following statements is true of activity-based costing? A) In activity-based...
4) Which of the following statements is true of activity-based costing?
A) In activity-based costing, direct labor-hours is always the best allocation base to allocate all non-manufacturing indirect costs.
B) Activity based costing is more suited to companies with high product diversity than companies with single product line.
C) Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services.
D) The main advantage of activity-based costing over peanut-butter costing is the accurate distribution of all direct costs to the products.
5) A single indirect-cost rate distort product costs because ________.
A) there is an assumption that all support activities affect all products
B) it recognizes specific activities that are required to produce a product
C) competitive pricing is ignored
D) it assumes all costs are product costs
6) Extracts from cost information of Hebar Corp.:
| Simple L3 Pack | Complex L7 Pack | Total |
Setup cost allocated using direct labor-hours | $18,750 | $6,250 | $25,000 |
Setup cost allocated using setup-hours | $13,200 | $11,800 | $25,000 |
Which of the following statement is true of Hebar’s setup costs under traditional costing?
A) L3 pack is undercosted by $5,550
B) L7 pack is undercosted by $5,450
C) L3 pack is overcosted by $5,550
D) L7 pack is overcosted by $5,550
7) Which of the following statements is true of activity-based costing?
A) Activity-based costing ignores the allocation of marketing and distribution costs.
B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.
C) Activity-based costing classifies some of the indirect costs as direct costs.
D) Chances of product-cost cross-subsidization are higher in activity-based costing compared to traditional costing systems.
8) Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________.
A) establish a cause-and-effect relationship with the activities performed
B) use single cost pool for all overhead costs, thereby enabling simplicity
C) use a broad average to allocate all overhead costs
D) never consider interactions between different departments in assigning support costs
9) Product lines that produce different variations (models, styles, or colors) often require specialized manufacturing activities that translate into ________.
A) fewer indirect costs for each product line
B) decisions to drop product variations
C) a greater number of direct manufacturing labor cost allocation rates
D) greater overhead costs for each product line
Premium Company provides the following ABC costing information:
ActivitiesTotal CostsActivity-cost drivers
Account inquiry $200,000 10,000 hours
Account billing $140,000 4,000,000 lines
Account verification accounts $75,000 40,000 accounts
Correspondence letters $ 25,000 4,000 letters
Total costs $440,000
The above activities are used by Departments A and B as follows:
Department ADepartment B
Account inquiry hours 2,500 hours 4,000hours
Account billing lines 400,000 lines 250,000lines
Account verification accounts 10,000 accounts 8,000accounts
Correspondence letters 1,200 letters 1,600letters
10) How much of the account inquiry cost will be assigned to Department A?
A) $50,000
B) $200,000
C) $60,000
D) $80,000
11) How much of the account billing cost will be assigned to Department B?
A) $8,500
B) $8,250
C) $8,750
D) $8,540
12) How much of account verification costs will be assigned to Department A?
A) $15,000
B) $18,750
C) $75,000
D) $5,000
13) How much of correspondence costs will be assigned to Department A?
A) $4,000
B) $6,250
C) $7,500
D) $10,000
3. Calculate the net realizable value of accounts receivable at December 31, 2011, and prepare the...
Analysis of accounts receivable and allowance for bad debts—determine ending balances A portion of the current assets section of the December 31, 2010, balance sheet for Gibbs Co. is presented here:
Accounts receivable | $63,000 | |
Less: Allowance for bad debts | (9,000) | $54,000 |
The company’s accounting records revealed the following information for the year ended December 31, 2011:
Sales (all on account) | $480,000 |
Cash collections from customers | 435,000 |
Accounts written off | 10,500 |
Bad debts expense (accrued at 12/31/11) | 16,500 |
Required:
Calculate the net realizable value of accounts receivable at December 31, 2011, and prepare the appropriate balance sheet presentation for Gibbs Co., as of that point in time.
4. The periodic expense created by allocating the cost of plant and equipment to the periods in which..
The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets, is called: a.Accumulated depreciation. b.A contra account. c.The expense recognition (matching) principle. d.Depreciation expense. e.An accrued account
5. Multiple Choice Questions 31. Which of the following transactions would not create a cash flow?...
Multiple Choice Questions
31. Which of the following transactions would not create a cash flow?
A. A company purchased some of its own stock from a stockholder.
B. Amortization of a patent.
C. Payment of a cash dividend.
D. Sale of equipment at book value.
32. Which of the following transactions would not create a cash flow from operating activities?
A. Collecting cash from a customer.
B. Paying cash to a supplier.
C. Paying cash to stockholders for dividends.
D. Paying cash for a utility bill.
33. Which of the following transactions would not be reported as a cash flow from investing activities?
A. Selling a depreciable asset for cash at a loss.
B. Purchasing a patent using cash.
C. Purchasing land in exchange for stock.
D. Purchasing shares of stock of another company using cash.
34. Which of the following transactions would be reported as a cash flow from financing activities?
A. The cash payment of interest expense.
B. Acquiring land by signing a note payable.
C. Paying cash to stockholders for dividends.
D. Purchasing shares of stock of another company using cash.
35. Which of the following statements regarding use of the direct and indirect methods of determining cash flows from operating activities is incorrect?
A. The indirect method starts with net income.
B. The direct method calculates cash collected from customers.
C. The majority of U.S. companies use the indirect method.
D. The FASB recommends use of the indirect method.
36. Which of the following would be deducted from net income when determining cash flows from operating activities under the indirect method?
A. An increase in accounts payable.
B. Depreciation expense.
C. A decrease in prepaid insurance.
D. A gain on the sale of a depreciable asset.
37. Which of the following would be added to net income when determining cash flows from operating activities under the indirect method?
A. A decrease in accounts payable.
B. Patent amortization expense.
C. An increase in prepaid insurance.
D. A gain on the sale of a depreciable asset.
38. Which of the following would be deducted from net income when determining cash flows from operating activities under the indirect method?
A. A decrease in utilities payable.
B. Patent amortization expense.
C. A decrease in prepaid rent.
D. A loss on the sale of a depreciable asset.
39. Rice Company, a retailer, has provided the following information pertaining to its recent year of operation:
? Net income, $100,000;
? Accounts receivable increased $9,000;
? Prepaid insurance decreased $3,000;
? Depreciation expense was $15,000;
? Gain on sale of land, $2,000;
? Wages payable decreased $7,000;
? Unearned revenue increased $11,000.
How much was Rice's net cash inflow from operating activities?
A. $89,000
B. $115,000
C. $125,000
D. $111,000
40. Darwin Company, a manufacturer, has provided the following information pertaining to its recent year of operation:
? Net income, $200,000;
? Accounts receivable increased $18,000;
? Prepaid insurance increased $7,000;
? Depreciation expense was $25,000;
? Loss on sale of a building was $22,000;
? Wages payable increased $14,000;
? Unearned revenue decreased $21,000.
How much was Darwin's net cash inflow from operating activities?
A. $227,000
B. $215,000
C. $171,000
D. $257,000
6. 10.20 Nine experts rated two brands of Colombian coffee in a taste-testing experiment. A rating on a
10.20 Nine experts rated two brands of Colombian coffee in a taste-testing experiment. A rating on a 7- point scale (1 = extremely unpleasing,7=extremely pleasing) is given for each of four characteristics: taste, aroma, richness, and acidity. The following data (stored in ) display the ratings accumulated over all four characteristics. Coffee SELF Test a. At the 0.05 level of significance, is there evidence of a difference in the mean ratings between the two brands? Brand Expert A B C.C. 24 26 S.E. 27 27 E.G. 19 22 B.L. 24 27 C.M. 22 25 C.N. 26 27 G.N. 27 26 R.M. 25 27 P.V. 22 23 b. What assumption is necessary about the population distribution in order to perform this test? c. Determine the p-value in (a) and interpret its meaning. d. Construct and interpret a 95% confidence interval estimate of the difference in the mean ratings between the two brands
7. Elaine's Inflatables earns service revenue by providing party planning services and inflatable pl...
Elaine's Inflatables earns service revenue by providing party planning services and inflatable playscapes. Elaine's Inflatables is organized as a corporation. During the past month, Elaine's Inflatables had the following transactions: Investors contributed $10,000 to the corporation in exchange for common stock. Purchased equipment for $5,000 on account. Paid $400 for office supplies. Earned and received $2,500 cash for service revenue. Paid $400 for wages to employees. Cash dividends of $ 1,000 were paid to stockholders. Earned $ 1,000 for services provided. Customer has not yet paid. Paid $1,000 for rent. Received a bill for $250 for the monthly utilities. The bill has not yet been paid. Indicate the effects of the business transactions on the accounting equation for Elaines Inflatables. Transaction is answered as a guide. Increase asset (Cash); Increase equity (Common Stock)
8. Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., has
Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., has been experiencing difficulty for some time. The company's contribution format income statement for the most recent month is given below:
Sales (19,500 units x $30 per unit) | $585,000 |
Variable expenses | 409,500 |
Contribution margin | 175,500 |
Fixed expenses | 180,000 |
Net operating loss | $(4,500) |
Required:
- Compute the company’s CM ratio and its break-even point in both units and dollars.
- The president believes that a $ 16,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $ 80,000 increase in monthly sales. If the president is right, what will be the effect on the company’s monthly net operating income or loss? (Use the incremental approach in preparing your answer.)
- Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $ 60,000 in the monthly advertising budget, will cause unit sales to double. What will the new contribution format income statement look like if these changes are adopted?
- Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would help sales. The new package would increase packaging costs by 75 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $9,750?
- Refer to the original data. By automating certain operations, the company could reduce variable costs by $ 3 per unit. However, fixed costs would increase by $ 72,000 each month.
- Compute the new CM ratio and the new break-even point in both units and dollars.
- Assume that the company expects to sell 26,000 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. (Show data on a per unit and percentage basis, as well as in total, for alternative.)
- Would you recommend that the company automate its operations? Explain.
9. Valley Company’s adjusted trial balance on August 31, 2013, its fiscal year-end, follows. Debit...
Valley Company’s adjusted trial balance on August 31, 2013, its fiscal year-end, follows.
Debit Credit
Merchandise inventory $ 41,000
Other (noninventory) assets 164,000
Total liabilities $ 47,355
Common stock 55,191
Retained earnings 79,369
Dividends 8,000
Sales 280,440
Sales discounts 4,291
Sales returns and allowances 18,509
Cost of goods sold 108,210
Sales salaries expense 38,420
Rent expense—Selling space 13,181
Store supplies expense 3,365
Advertising expense 23,837
Office salaries expense 35,055
Rent expense—Office space 3,365
Office supplies expense 1,122
Totals $ 462,355 $ 462,355
On August 31, 2012, merchandise inventory was $33,087. Supplementary records of merchandising activities for the year ended August 31, 2013, reveal the following itemized costs.
Invoice cost of merchandise purchases $ 120,540
Purchase discounts received 2,531
Purchase returns and allowances 5,786
Costs of transportation-in 3,900
Prepare a multiple-step income statement that includes separate categories for selling expenses and for general and administrative expenses. Prepare a single-step income statement that includes these expense categories: cost of goods sold, selling expenses, and general and administrative expenses. Compute the company’s total cost of merchandise purchased for the year. |
10. Prince Machine Tool Company produces tools on a job order basis. During May two jobs were completed,...
Overtime Allocation
Prince Machine Tool Company produces tools on a job order basis. During May two jobs were completed, and the following costs were incurred:
Job 401 | Job 402 | |
Direct materials | 28,000 | 37,000 |
Direct labor, regular | 18,000 | 23,000 |
Overtime premium | - | 6,000 |
Other factory costs for the month totaled $16,800. Factory overhead costs are allocated one-third to Job 401 and two-thirds to Job 402.
Required:
a. Describe two alternative methods for assigning the overtime premium cost to Jobs 401 and 402 and explain how the appropriate method would be determined.
b. Compute the cost of Job 401 and Job 402 under each of the two methods described in part a.
11. Convert each of the following estimates of useful
Convert each of the following estimates of useful life to a straight-line depreciation rate, stated as a percentage, assuming that the residual value of the fixed asset is to be ignored: (a) 2 years,
(b) 8 years,
(c) 10 years,
(d) 20 years,
(e) 25 years,
(f) 40 years,
(g) 50 years.
12. 31.The personality type of a person who is analytical, curious, methodical, and precise would be...
31.The personality type of a person who is analytical, curious, methodical, and precise would be _______________.
A.realistic
B.artistic
C.investigative
D.enterprising
32.Applying Holland's personality types, the ___________ individual prefers activities involving the manipulation of machinery or tools.
A.realistic
B.artistic
C.investigative
D.enterprising
33.Applying Holland's personality types, the ___________ individual is expressive, nonconforming, original, and introspective realistic
investigative artistic social
34.Holland suggests that the choice of a career ______________.
A.is an expression of personality
B.may be influenced by chance
C.would ideally be determined through the use of screening test
D.Both A and B are correct.
35.Nurse would be a good job fit for someone who has the _______________ personality type. A. Realistic
B.Social
C.Investigative
D.Conventional
36.Accountant would be a good job fit for someone who has the _______________ personality type. A. Realistic
B.Enterprising
C.Investigative
D.Conventional
37.Applying Holland's personality types, the ___________ individual person enjoys activities that permit him or her to influence others to accomplish goals.
A.realistic
B.investigative
C.enterprising
D.social
38.Holland uses a _________ to illustrate the closeness and distance between the six personality types A. rubric
B.double isosceles
C.cube
D.hexagon
39.Career development programs are most valuable when they are all of the following except: A. Directed primarily toward middle and upper management
B.Open to all employees
C.Modified when evaluation indicates that change is necessary D. Offered regularly
40.Campbell Interest and Skill Survey (CISS) scores are translated into ______ orientations which are further subdivided into ___ areas.
A.six, 12
B.seven, 29
C.eight, 15
D.five, 25