Multiple Choice Questions
1. A plan that states the number of units to be manufactured during each future period covered by the budget, based on the budgeted sales for the period and the levels of inventory needed to support future sales, is provided by the:
a. Sales budget
b. Merchandise purchases budget
c. Production budget
d. Cash budget
e. Manufacturing budget
2. Which of the following budgets is not an operating budget?
a. Sales budget
b. Cash budget
c. General and administrative expense budget
d. Production budget
e. Manufacturing budget
3. Northern Company is preparing a cash budget for June. The company has $12,000 cash at the beginning of June and anticipates $30,000 in cash receipts and $34,500 in cash disbursements. Northern Company has an agreement with its bank to maintain a cash balance of at least $10,000. As of May 31, the company owes $15,000 to the bank. During June the company must:
a. Borrow $4,500
b. Borrow $2,500
c. Borrow $10,000
d. Repay $7,500
e. Repay $2,500
4. The difference between the overhead costs that were actually incurred and the overhead budgeted at the actual operating level is the:
a. Production variance
b. Quantity variance
c. Volume variance
d. Price variance
e. Controllable variance
5. The costs that should be incurred under normal conditions to produce a specific product (or component) or to perform a specific service are:
a. Variable costs
b. Fixed costs
c. Standard costs
d. Product costs
e. Period costs
6. OK Corp. produces woodcarvings. It takes 1 hour of direct labor to produce a carving. OK’s standard labor cost is $4.00 per hour. During August, OK produced 10,000 carvings and used 10,520 hours of direct labor at a total cost of $41,028. What is OK’s labor price variance for August?
a. $1,000 favorable
b. $1,052 unfavorable
c. $1,052 favorable
d. $2,080 favorable
e. $1,000 unfavorable
7. An additional cost incurred only if a particular action is taken is a(n):
a. Period cost
b. Out-of-pocket cost
c. Opportunity cost
d. Incremental cost
e. Sunk cost
8. X Company paid $200,000 ten years ago for a specialized machine that has no sales value but that is being depreciated at the rate of $10,000 per year. The company is considering using the machine in a new project that will have incremental revenues of $28,000 per year and annual cash expenses of $20,000. In analyzing the new project the $10,000 depreciation on the machine is an example of a(n):
a. Incremental cost
b. Opportunity cost
c. Variable cost
d. Sunk cost
e. Out-of-pocket cost
9. AAA Corporation is considering purchasing a machine for $75,000. The machine is expected to generate a net after-tax income of $11,250 per year. Depreciation expenses will be $7,500. What is the payback period for this machine?
a. 4.0 years
b. 6.7 years
c. 7.4 years
d. 10.0 years
e. 20.0 years
10. Expenses that would not be incurred if a department were eliminated are called:
a. Uncontrollable expenses
b. Escapable expenses
c. Inescapable expenses
d. Direct expenses
e. Indirect expenses