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managerial accounting
Questions and Answers of
Managerial Accounting
Company B shows that 46 percent of its assets are financed by creditors. Which of the following shows this result? a. Current ratio b. Times-interest-earned c.
A company’s inventory turnover in days is 80 days. Which of the following actions could help to improve that ratio? a. Increase in sales price b. Increase in manufacturing
The measures of the ability of a company to meet its long- and short term obligations are called a. ratios. b. liquidity ratios. c. leverage ratios. d.
Fractions or percentages computed by dividing one account or line-item amount by another are called a. ratios. b. industry averages. c. common-size
An advantage of common-size analysis is that a. the size of dollar amounts impact the analysis. b. larger companies will have higher common-size percentages. c.
A company provided income statements for the past five years. In looking at the percentage columns for each year, you notice that sales are 46 percent higher in year 5 than in year 1. The company has
In a completed worksheet, a. the debit column contains the cash outflows. b. the debit column contains the cash inflows. c. the credit column contains the cash
A worksheet approach to preparing the statement of cash flows a. is a useful aid. b. uses a spreadsheet format. c. offers an efficient and logical way of
Which method calculates operating cash flows by adjusting the income statement on a line-by-line basis? a. The working paper approach b. The indirect method c. The
Which of the following is a financing activity? a. Issuance of a mortgage b. Purchase of land c. Increase in accounts receivable d. Increase in
Which of the following is an investing activity? a. Issuance of a mortgage b. Purchase of land c. Increase in accounts receivable d. Increase in
The gain on sale of equipment is deducted from net income to arrive at operating cash flows because a. the sale of long-term assets is a non-operating activity. b. the gain
An increase in inventories is deducted from net income to arrive at operating cash flow because a. cash payments to customers were larger than the purchases made during the period.
A decrease in accounts receivable is added to net income to obtain operating cash flows because a. cash collections from customers were greater than the revenues reported. b.
Which of the following adjustments to net income is needed to obtain cash flows? a. Elimination of gains on sale of equipment b. Add to net income all noncash expenses (e.g.,
Which of the following adjustments helps to convert accrual income to operating cash flows? a. Add to net income an increase in inventories b. Deduct from net income a
The difference between the beginning and ending cash balances shown on the balance sheet a. is added to net income to obtain total cash inflows. b. is deducted from net income
Uses of cash include a. cash dividends. b. the purchase of long-term assets. c. the sale of old equipment. d. only a and b. e. none of the
Sources of cash include a. profitable operations. b. the issuance of long-term debt. c. the sale of long-term assets. d. the issuance of capital
Raising cash by issuing capital stock is an example of a. an operating activity. b. an investing activity. c. a financing activity. d. a noncash
Cash outflows from operating activities come from a. payment for raw materials. b. collection of sales revenues. c. acquisition of operating equipment.
Cash inflows from operating activities come from a. payment for raw materials. b. collection of sales revenues. c. gains on the sale of operating equipment.
Assume that there are two competing projects, A and B. Project A has a net present value of $1,000 and an internal rate of return of 15 percent; Project B has an NPV of $800 and an IRR of 20 percent.
For competing projects, net present value is preferred to internal rate of return because a. maximizing IRR may not maximize the wealth of the owners. b. in the final
Postaudits of capital projects are useful because a. they are not very costly. b. they help to ensure that resources are used wisely. c. the assumptions underlying
A postaudit a. is a follow-up analysis of a capital project, once implemented. b. compares the actual benefits with the estimated benefits. c. evaluates the
Using internal rate of return, a project is rejected if the IRR a. is less than the required rate of return. b. is equal to the required rate of return. c. is
Which of the following is not true regarding the internal rate of return? a. The IRR is the interest rate that sets the present value of a project’s cash inflows equal to the present
Assume that an investment of $1,000 produces a future cash flow of $1,000. The discount factor for this future cash flow is 0.89. The net present value is a. $0. b.
If the present value of future cash flows is $1,200 for an investmentthat requires an outlay of $1,000, the net present value a. is $200. b. is $1,000. c. is
Using net present value, a project is rejected if it is a. equal to zero. b. positive. c. negative. d. less than the hurdle rate. e.
Net present value is calculated by using a. accounting income. b. the required rate of return. c. the IRR. d. the future value of cash flows.
Net present value measures a. the profitability of an investment. b. the change in wealth. c. the change in firm value. d. the difference in present
If the net present value is positive, it signals a. that the initial investment has been recovered. b. that the required rate of return has been earned. c. that
An investment of $1,000 provides an average net income of $220 with zero salvage value. Depreciation is $20 per year. The accounting rate of return using the original investment is a. 44
The accounting rate of return has one specific advantage not possessed by the payback period in that it a. considers the time value of money. b. measures the value added by a
The payback period suffers from which of the following deficiencies? a. It is a rough measure of the uncertainty of future cash flows. b. It helps control the risk of
An investment of $1,000 produces a net cash inflow of $600 in the first year and $2,000 in the second year. What is the payback period? a. 1.67 years b. 0.50 year c.
An investment of $1,000 produces a net annual cash inflow of $500 for each of five years. What is the payback period? a. Two years b. One-half year c.
Mutually exclusive capital budgeting projects are those that a. if accepted or rejected do not affect the cash flows of other projects. b. if accepted will produce a negative
To make a capital investment decision, a manager must a. estimate the quantity and timing of cash flows. b. assess the risk of the investment. c. consider the
Capital investments should a. earn back their original capital outlay. b. only be analyzed using the ARR. c. always produce an increase in market share.
In the sell-or-process-further decision, a. joint costs are always relevant. b. total costs of joint processing and further processing are relevant. c. all costs
In the keep-or-drop decision, the company will find which of the following income statement formats most useful? a. A segmented income statement in the contribution margin format b.
When a company faces a production constraint or scarce resource (e.g., only a certain ] number of machine hours is available), it is important to a. produce the product with the highest
Jennings Hardware Store marks up its merchandise by 80 percent. If a part costs $1.50, which of the following is true? a. The price is $1.20. b. The markup is $2.70. c.
Carroll Company, a manufacturer of vitamins and minerals, has been asked by a large drugstore chain to provide bottles of vitamin E. The bottles would be labeled with the name of the drugstore chain,
In a make-or-buy decision, a. the company must choose between expanding or dropping a product line. b. the company must choose between accepting or rejecting a special
Which of the following is a true statement? a. Fixed costs are always irrelevant. b. Variable costs are always relevant. c. Step costs may be relevant if an
Please refer to the information in Question 13-3. Suppose that the apartment building was within walking distance to campus and the house was five miles away. Sandy does not own a car. How would that
Please refer to the information in Question 13-3. Which of the following is a qualitative factor? a. House rent of $450 per month b. Utilities for the house of $100 per
Sandy is considering moving from her apartment into a small house with a fenced yard. The apartment is noisy, and she has difficulty studying. In addition, the fenced yard would be great for her dog.
Costs that cannot be affected by any future action are called a. differential costs. b. relevant costs. c. inventory costs. d. sunk costs.
Which of the following is not a step in the short-run decision-making model? a. Defining the problem b. Identifying alternatives c. Identifying the costs and
Refer to the Aulman Inc. company information shown in Exercise 12-27. Also, although the Furniture Division has been operating at capacity (50,000 dressers per year), it expects to produce and sell
Refer to the Aulman Inc. company information shown in Exercise 12-27. Also, assume that the company policy is that all transfer prices are negotiated by the divisions involved.Required: 1.
Refer to the Washington Company information in Exercise 12-25. In addition, Washington Company’s top management has set a minimum acceptable rate of return equal to 8 percent.Required: 1.
(Appendix) The number of units of output that can be produced in a given period of time is called a. velocity. b. cycle time. c. manufacturing cycle
(Appendix) Which of the following is not a perspective of the Balanced Scorecard? a. Learning and growth (infrastructure) b. Internal business process c.
Division A, operating at less than full capacity, manufactures an aircraft engine component with unit variable product cost of $38 and market price of $50. Division A incurs shipping costs of $3 per
Division A, operating at less than full capacity, manufactures an aircraft engine component with unit variable product cost of $38 and market price of $50. Division A incurs shipping costs of $3 per
Division A, operating at less than full capacity, manufactures an aircraft engine component with unit variable product cost of $38 and market price of $50. Division A incurs shipping costs of $3 per
Division A, operating at less than full capacity, manufactures an aircraft engine component with unit variable product cost of $38 and market price of $50. Division A incurs shipping costs of $3 per
Division A, operating at full capacity, manufactures an aircraft engine component with unit variable product cost of $38 and market price of $50. Division A incurs shipping costs of $3 per unit for
If return on investment for a division is 15 percent and the company’s minimum required cost of capital is 18 percent, then a. residual income for the division is negative. b.
The key difference between residual income and economic value added is that EVA a. uses the actual cost of capital for the company rather than a minimum required cost of capital.
If sales and average operating assets for year 2 are identical to their values in year 1, yet operating income is higher, year 2 turnover (compared with year 1 turnover) will a.
If sales and average operating assets for year 2 are identical to their values in year 1, yet operating income is higher, year 2 return on investment (compared with year 1 ROI) will a.
A responsibility center in which a manager is responsible for revenues, costs, and investments is a(n) a. cost center. b. profit center. c. revenue center.
A responsibility center in which a manager is responsible for both revenues and costs is a(n) a. cost center. b. profit center. c. revenue center. d.
Which of the following is a reason for decentralizing? a. Training and motivating managers. b. Unmasking inefficiencies in subdivisions of an overall profitable company.
The practice of delegating authority to division-level managers by top management is a. centralization. b. good business practice. c. decentralization. d.
Refer to the information provided in Problem 11-43.Required: 1. Calculate the direct labor hours required for production that is 10 percent higher than expected. Calculate the direct
Refer to the information provided in Problem 11-43.Required: 1. Calculate the direct labor hours required for production that is 10 percent higher than expected. Calculate the direct
Refer to the information provided in Exercise 11-32. Assume that CHC’s actual production required 156,000 direct labor hours at standard. The actual overhead costs incurred were as follows:
Cohlmia Company produced 32,000 units last year. The information on the actual costs and budgeted costs at actual production of four activities is provided below.Required:Prepare an activity-based
In activity-based budgeting, flexible budget formulas are created a. using only unit-level drivers. b. using only nonunit-level drivers. c. using both unit-level
Activity flexible budgeting makes it possible to a. predict what activity costs will be as activity output changes. b. improve traditional budgetary performance
In activity-based budgeting, costs are classified as variable or fixed with respect to a. the activity driver. b. only the units produced. c. only the units
Responsibility for the volume variance usually is assigned to a. the purchasing department. b. the receiving department. c. the shipping department. d.
An unfavorable volume variance can occur because a. too much finished goods inventory was held. b. the company overproduced. c. the actual output was less than
Because of the nature of fixed overhead items, the difference between the actual fixed overhead cost and the budgeted fixed overhead is a. likely to be small. b. likely to be
The total fixed overhead variance can be expressed as the sum of a. the spending and efficiency variances. b. the spending and volume variances. c. the efficiency
The total fixed overhead variance is a. the difference between actual and budgeted fixed overhead costs. b. the difference between budgeted and applied fixed overhead
In a performance report that details the spending and efficiency variances,which of the following columns will be found? a. A cost formula for each item b. A budget for actual
The total variable overhead variance can be expressed as the sum of a. the underapplied variable overhead and the spending variance. b. the efficiency variance and the
Because the calculation of both variances is based on direct labor hours, an unfavorable labor efficiency variance implies that a. the variable overhead efficiency variance will also be
A variable overhead spending variance can occur because a. prices for individual overhead items have increased. b. prices for individual overhead items have decreased.
The total variable overhead variance is the difference between a. the budgeted variable overhead and the actual variable overhead. b. the actual variable overhead and the
A firm comparing the actual variable costs of producing 10,000 units with the total variable costs of a static budget based on 9,000 units would probably see a. no variances. b.
To help assess performance, managers should use a. a static budget. b. a master budget. c. an after-the-fact flexible budget. d. a before-the-fact
To help deal with uncertainty, managers should use a. a static budget. b. a master budget. c. an after-the-fact flexible budget. d. a before-the-fact
To create a meaningful performance report, actual costs and expected costs should be compared a. at the budgeted level of activity. b. weekly. c. at the actual
For performance reporting, it is best to compare actual costs with budgeted costs using a. flexible budgets. b. static budgets. c. master budgets. d.
Pat James, the purchasing agent for a local plant of the Oakden Electronics Division, was considering the possible purchase of a component from a new supplier. The component’s purchase price,
Goodsmell Company produces a well-known cologne. The standard manufacturing cost of the cologne is described by the following standard cost sheet:Management has decided to investigate only those
The maternity wing of the city hospital has two types of patients: normal and cesarean. The standard quantities of labor and materials per delivery for 2009 are:The standard price paid per pound of
Refer to the data provided in Exercise 10-35.Required: 1. Prepare a journal entry for the purchase of raw materials. 2. Prepare a journal entry for the issuance of raw
Refer to the data provided in Exercise 10-28.Required:Break down the total variance for materials into a price variance and a usage variance using the columnar and formula approaches.Data From
(Appendix) Which of the following is true concerning significantly large labor variances? a. They are prorated among Work in Process, Finished Goods, and Cost of Goods Sold.
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