INTRODUCTION TO MANAGEMENT ACCOUNTING 16TH EDITION By HORNGREN TEST BANK

<< Sociology Matters 6th edition by Richard Schaefer Test Bank Society And Technological Change 8th Edition by Rudi Volti Test Bank >>
Product Code: 222
Availability: In Stock
Price: $24.99
Qty:     - OR -   Add to Wish List
Add to Compare

INTRODUCTION TO MANAGEMENT ACCOUNTING 16TH EDITION By HORNGREN TEST BANK

Description

WITH ANSWERS
INTRODUCTION TO MANAGEMENT ACCOUNTING 16TH EDITION By HORNGREN TEST BANK

Introduction to Management Accounting, 16e (Horngren)

Chapter 5   Relevant Information for Decision Making with a Focus on Pricing Decisions

 

5.1   Questions

 

1) Historical or past information has no ________ bearing on a decision made by management. Historical or past information can have a(n) ________ bearing on a decision made by management.

  1. A) indirect; direct
  2. B) direct; indirect
  3. C) measurable; material
  4. D) material; significant

Answer:  B

Diff: 1

LO:  5-1

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

2) Relevant information refers to ________ that will differ among the alternative courses of action.

  1. A) future costs only
  2. B) future revenues only
  3. C) past costs and revenues
  4. D) future costs and revenues

Answer:  D

Diff: 1

LO:  5-1

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

3) Historical or past information can have an indirect bearing on a managers decision because ________.

  1. A) the past decision resulted in a favorable outcome
  2. B) it can help predict the future
  3. C) the past decision resulted in a bonus for the manager
  4. D) the manager wants to repeat the past decisions made some of the time

Answer:  B

Diff: 1

LO:  5-1

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

 

4) When managers make decisions, the accountants primary role is ________.

  1. A) making the decision
  2. B) providing information that may be useful to the manager
  3. C) uncertain because it depends on the decision being made
  4. D) uncertain because it depends on the manager

Answer:  B

Diff: 1

LO:  5-1

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

5) Information is relevant in business decisions if it is a(n) ________.

  1. A) expected future revenue or it differs among alternatives
  2. B) expected future revenue and it differs among alternatives
  3. C) past revenue and it differs among alternatives
  4. D) expected future revenue that differs from past revenue

Answer:  B

Diff: 1

LO:  5-1

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

6) Cantrall Company is trying to decide which product to manufacture. Expected direct materials costs are $4.00 per unit for each product. The expected direct labor costs are $2.00 per unit for one product and $4.00 per unit for another product. In choosing between the two products, the direct materials costs are ________ and the direct labor costs are ________.

  1. A) relevant; irrelevant
  2. B) irrelevant; relevant
  3. C) relevant; relevant
  4. D) irrelevant; irrelevant

Answer:  B

Diff: 2

LO:  5-1

AACSB:  Analytic skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

 

7) A company is trying to decide which product to manufacture. The following information is available:

 

Costs                                         Product A                        Product B

Direct Materials 1                  $2.00 per unit                 $2.20 per unit

Direct Materials 2                  $1.25 per unit                 $1.50 per unit

Direct Materials 3                  $0.50 per unit                 $0.80 per unit

Direct Labor                            $0.70 per unit                 $0.70 per unit

 

Which product cost is irrelevant to the decision?

  1. A) Direct Materials 1
  2. B) Direct Materials 2
  3. C) Direct Materials 3
  4. D) Direct Labor

Answer:  D

Diff: 2

LO:  5-1

AACSB:  Analytic skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

8) Relevant information is the historical costs and revenues that differ due to alternative courses of action.

Answer:  FALSE

Diff: 2

LO:  5-1

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

9) Historical data may have a direct bearing on a decision made today.

Answer:  FALSE

Diff: 2

LO:  5-1

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

10) When managers make decisions, the accountant is seen as the technical expert on financial analysis.

Answer:  TRUE

Diff: 1

LO:  5-1

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

 

5.2   Questions

 

1) When managers make decisions, the decision process used has the following steps in the order of occurrence:

  1. A) Historical and Other Information, Prediction Model, Prediction, Decision Model, Decision, Implementation, Feedback
  2. B) Historical and Other Information, Decision Model, Prediction Method, Implementation, Decision, Feedback
  3. C) Historical and Other Information, Decision Model, Prediction Method, Decision, Implementation, Feedback
  4. D) Historical and Other Information, Prediction Method, Prediction, Decision Model, Decision, Implementation, Feedback

Answer:  D

Diff: 2

LO:  5-2

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

2) When managers use the decision process to make decisions, which information is used to make predictions about the amount of expected sales for Product XYZ?

  1. A) historical data from the accounting system only
  2. B) data outside the accounting system only
  3. C) data outside the organization only
  4. D) A and B

Answer:  D

Diff: 1

LO:  5-2

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

3) A manager is trying to decide which product to emphasize in promotion and advertising efforts. Following the decision process used by managers, predictions about the amounts of future sales of the two products are used as input to the ________.

  1. A) prediction model
  2. B) prediction method
  3. C) decision model
  4. D) evaluation model

Answer:  C

Diff: 2

LO:  5-2

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

 

4) When managers use the decision process to make decisions, what is the output after using the prediction method?

  1. A) decision
  2. B) implementation
  3. C) predictions
  4. D) evaluation

Answer:  C

Diff: 2

LO:  5-2

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

5) If perfectly accurate and relevant information is not available for decision making, the accountant should consider using information that is ________.

  1. A) precise but irrelevant
  2. B) imprecise but irrelevant
  3. C) imprecise but relevant
  4. D) imprecise but timely

Answer:  C

Diff: 1

LO:  5-2

AACSB:  Analytic skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

6) In determining whether to purchase a labor-saving machine, extreme resistance to the machine by employees would be a(n) ________.

  1. A) relevant qualitative factor
  2. B) relevant quantitative factor
  3. C) irrelevant qualitative factor
  4. D) irrelevant quantitative factor

Answer:  A

Diff: 2

LO:  5-2

AACSB:  Analytic skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

7) In considering whether to produce a single product, the associated direct materials and direct labor costs would probably be ________.

  1. A) relevant qualitative factors
  2. B) relevant quantitative factors
  3. C) irrelevant qualitative factors
  4. D) irrelevant quantitative factors

Answer:  B

Diff: 2

LO:  5-2

AACSB:  Analytic skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

8) In decision making situations, ________ aspects may dominate quantitative aspects in many decisions.

  1. A) relevant
  2. B) precision
  3. C) accuracy
  4. D) qualitative

Answer:  D

Diff: 2

LO:  5-2

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

9) What are the qualitative aspects of a decision?

  1. A) those which are not relevant to a decision
  2. B) those with a concrete dollar amount
  3. C) those for which measurement in dollars and cents is difficult and imprecise
  4. D) those which are always relevant to a decision

Answer:  C

Diff: 2

LO:  5-2

AACSB:  Analytic skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

10) Which of the following statements is FALSE about information used for decision making?

  1. A) Precise but irrelevant information is worthless for decision making.
  2. B) Imprecise but relevant information can be useful for decision making.
  3. C) Relevant information must be reasonably accurate but not precisely so.
  4. D) Relevant information must be totally accurate or it is useless.

Answer:  D

Diff: 2

LO:  5-2

AACSB:  Analytic skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

11) Precise but irrelevant information is worthless for decision making.

Answer:  TRUE

Diff: 2

LO:  5-2

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

12) The degree to which information is relevant or precise often depends on the degree to which it is qualitative or quantitative.

Answer:  TRUE

Diff: 2

LO:  5-2

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

13) Accountants are sometimes forced to trade relevant information for accurate information.

Answer:  TRUE

Diff: 2

LO:  5-2

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

14) Imprecise but relevant information can be useful.

Answer:  TRUE

Diff: 2

LO:  5-2

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

15) Qualitative aspects of information are those for which measurement in dollars and cents is easy and precise.

Answer:  FALSE

Diff: 2

LO:  5-2

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

16) Qualitative aspects of information can carry more weight than quantitative aspects in a business decision.

Answer:  TRUE

Diff: 2

LO:  5-2

AACSB:  Reflective thinking skills

Learning Outcome:  Distinguish between relevant and irrelevant costs

 

5.3   Questions

 

1) For internal decision-making purposes, many companies use the income statement using the ________ approach. For external reporting, most companies use the income statement using the ________ approach.

  1. A) absorption; absorption
  2. B) absorption; contribution
  3. C) contribution; absorption
  4. D) full costing; variable costing

Answer:  C

Diff: 1

LO:  5-3

AACSB:  Reflective thinking skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

2) It is misleading to use the absorption costing income statement to predict the effect of changes in sales volume because ________.

  1. A) variable production costs per unit do not change with small changes in sales volume
  2. B) total fixed production costs do not change with small changes in sales volume
  3. C) fixed production costs per unit do not change with small changes in sales volume
  4. D) total variable production costs do not change with small changes in sales volume

Answer:  B

Diff: 3

LO:  5-3

AACSB:  Reflective thinking skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

3) Variable selling expenses affect the calculation of ________ on the contribution income statement. Variable selling expenses do NOT affect the calculation of ________ on the absorption income statement.

  1. A) gross margin; contribution margin
  2. B) operating income; contribution margin
  3. C) contribution margin; gross margin
  4. D) gross margin; operating income

Answer:  C

Diff: 2

LO:  5-3

AACSB:  Reflective thinking skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

4) Fixed selling expenses affect the calculation of ________ on the contribution income statement.

Fixed selling expenses do NOT affect the calculation of ________ on the absorption income statement.

  1. A) contribution margin; gross margin
  2. B) gross margin; contribution margin
  3. C) operating income; gross margin
  4. D) operating income; contribution margin

Answer:  C

Diff: 2

LO:  5-3

AACSB:  Reflective thinking skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

5) Fixed indirect production costs affect the calculation of ________ on the absorption income statement. Fixed indirect production costs do NOT affect the calculation of ________ on the contribution income statement.

  1. A) contribution margin; gross margin
  2. B) gross margin; contribution margin
  3. C) operating income; gross margin
  4. D) contribution margin; operating income

Answer:  B

Diff: 2

LO:  5-3

AACSB:  Reflective thinking skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

6) Variable administrative expenses affect the calculation of ________ on the contribution income

statement. Variable administrative expenses do NOT affect the calculation of ________ on the absorption income statement.

  1. A) gross margin; contribution margin
  2. B) contribution margin; gross margin
  3. C) operating income; contribution margin
  4. D) gross margin; operating income

Answer:  B

Diff: 2

LO:  5-3

AACSB:  Reflective thinking skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

7) Under absorption costing, all ________ costs are product or inventoriable costs.

  1. A) indirect production
  2. B) direct and indirect production
  3. C) direct production
  4. D) selling and administrative

Answer:  B

Diff: 1

LO:  5-3

AACSB:  Reflective thinking skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

 

8) Under the contribution approach to the income statement, the difference between sales and ________ is contribution margin.

  1. A) cost of goods sold
  2. B) manufacturing costs
  3. C) all variable expenses
  4. D) all fixed expenses

Answer:  C

Diff: 2

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

9) The contribution approach to the income statement emphasizes the distinction between ________.

  1. A) value chain functions
  2. B) different functional areas in a firm
  3. C) different business segments
  4. D) variable and fixed costs

Answer:  D

Diff: 1

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

10) Using absorption costing, the primary classifications of costs on the income statement are by ________.

  1. A) cost behavior patterns
  2. B) manufacturing departments
  3. C) major management functions
  4. D) manufacturing segments

Answer:  C

Diff: 2

LO:  5-3

AACSB:  Reflective thinking skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

 

11) Santana Company has no beginning and ending inventories, and reports the following information for its only product:

 

Direct materials used                                             $250,000

Direct labor                                                                $120,000

Fixed indirect manufacturing                                $60,000

Variable indirect manufacturing                          $20,000

Variable selling and administrative                    $50,000

Fixed selling and administrative                          $10,000

 

Units produced and sold                                           40,000

 

Santana Company uses the absorption approach to prepare the income statement. What is the product cost per unit?

  1. A) $11.00
  2. B) $11.25
  3. C) $12.00
  4. D) $12.75

Answer:  B

Diff: 2

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

12) Camile Company has no beginning and ending inventories, and reports the following data about its only product:

 

Direct materials used                                             $100,000

Direct labor                                                                  $80,000

Fixed indirect manufacturing                                $50,000

Fixed selling and administrative                        $220,000

Variable indirect manufacturing                          $20,000

Variable selling and administrative                    $75,000

Selling price(per unit)                                                       $84

 

Units produced and sold                                           10,000

 

Camile Company uses the absorption approach to prepare the income statement. What is the product cost per unit?

  1. A) $20
  2. B) $25
  3. C) $27.50
  4. D) $32.50

Answer:  B

Diff: 2

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

13) The contribution approach to the income statement offers several benefits to decision makers. Which of the following is NOT a benefit of this approach?

  1. A) This approach makes it easier to understand the impact of changes in sales volume on operating income.
  2. B) This approach stresses the role of fixed costs in operating income.
  3. C) This approach is used with CVP analysis.
  4. D) This approach is accepted by U.S. Generally Accepted Accounting Principles.

Answer:  D

Diff: 2

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

14) Sanchez Company has no beginning and ending inventories, and reports the following data about its only product:

 

Direct materials used                                             $100,000

Direct labor                                                                  $80,000

Fixed indirect manufacturing                              $100,000

Fixed selling and administrative                        $170,000

Variable indirect manufacturing                          $20,000

Variable selling and administrative                    $90,000

Selling price(per unit)                                                     $100

 

Units produced and sold                                           12,000

 

Sanchez Company uses the absorption approach to prepare the income statement. What is the manufacturing cost of goods sold?

  1. A) $270,000
  2. B) $300,000
  3. C) $390,000
  4. D) $500,000

Answer:  B

Diff: 2

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

 

15) Gonzalez Company has no beginning and ending inventories, and reports the following data about its only product:

 

Direct materials used                                             $300,000

Direct labor                                                                  $80,000

Fixed indirect manufacturing                              $100,000

Fixed selling and administrative                        $190,000

Variable indirect manufacturing                          $20,000

Variable selling and administrative                    $90,000

Selling price(per unit)                                                       $50

 

Units produced and sold                                           10,000

 

Gonzalez Company uses the absorption approach to prepare the income statement. What is the gross margin?

  1. A) $0
  2. B) $20,000
  3. C) $100,000
  4. D) $120,000

Answer:  A

Diff: 2

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

16) When absorption costing is used for the income statement, the difference between sales and ________ is gross margin.

  1. A) manufacturing cost of goods sold
  2. B) selling expenses
  3. C) selling and administrative expenses
  4. D) variable expenses

Answer:  A

Diff: 2

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

 

17) Garcia Company has no beginning and ending inventories, and reports the following data about its only product:

 

Direct materials used                                             $270,000

Direct labor                                                                $180,000

Fixed indirect manufacturing                              $130,000

Fixed selling and administrative                        $150,000

Variable indirect manufacturing                        $120,000

Variable selling and administrative                    $60,000

Selling price(per unit)                                                       $99

 

Units produced and sold                                           30,000

 

Garcia Company uses the absorption approach to prepare the income statement. What is the operating income?

  1. A) $2,060,000
  2. B) $2,120,000
  3. C) $2,240,000
  4. D) $2,970,000

Answer:  A

Diff: 2

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

18) Gomez Company has no beginning and ending inventories, and reports the following data about its only product:

 

Direct materials used                                             $470,000

Direct labor                                                                $180,000

Fixed indirect manufacturing                              $130,000

Fixed selling and administrative                        $150,000

Variable indirect manufacturing                        $120,000

Variable selling and administrative                    $60,000

Selling price(per unit)                                                     $100

 

Units produced and sold                                           30,000

 

Gomez Company uses the contribution approach to prepare the income statement. What is the operating income?

  1. A) $1,890,000
  2. B) $2,100,000
  3. C) $2,190,000
  4. D) $2,250,000

Answer:  A

Diff: 2

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

19) Under absorption costing, fixed manufacturing costs are used to calculate ________ on the income statement.

  1. A) contribution margin
  2. B) manufacturing cost of goods sold
  3. C) total variable costs
  4. D) total fixed costs

Answer:  B

Diff: 3

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

 

20) The ________ approach is useful for short-run pricing decisions and the ________ approach is useful for long-run pricing decisions.

  1. A) contribution; absorption
  2. B) absorption; contribution
  3. C) full costing; target costing
  4. D) full costing; contribution

Answer:  A

Diff: 1

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

21) On the income statement, the absorption approach separates manufacturing costs from ________.

  1. A) some nonmanufacturing costs
  2. B) all nonmanufacturing costs
  3. C) all variable costs
  4. D) all fixed costs

Answer:  B

Diff: 2

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

 

22) Winter Company has no beginning and ending inventories, and reports the following data about its only product:

 

Direct materials used                                             $200,000

Direct labor                                                                  $80,000

Fixed indirect manufacturing                              $100,000

Fixed selling and administrative                        $300,000

Variable indirect manufacturing                          $20,000

Variable selling and administrative                    $60,000

Selling price(per unit)                                                     $150

 

Units produced and sold                                           10,000

 

Winter Company uses the absorption approach to prepare the income statement. What is the gross margin?

  1. A) $740,000
  2. B) $1,040,000
  3. C) $1,100,000
  4. D) $1,160,000

Answer:  C

Diff: 2

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

23) Latinovich Company has no beginning and ending inventories, and reports the following data about its only product:

 

Direct materials used                                             $200,000

Direct labor                                                                  $80,000

Fixed indirect manufacturing                              $180,000

Fixed selling and administrative                        $150,000

Variable indirect manufacturing                        $130,000

Variable selling and administrative                  $160,000

Selling price(per unit)                                                     $150

 

Units produced and sold                                           10,000

 

Latinovich Company uses the contribution approach to prepare the income statement. What is the contribution margin?

  1. A) $600,000
  2. B) $910,000
  3. C) $930,000
  4. D) $1,090,000

Answer:  C

Diff: 2

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

 

24) Zeman Company has no beginning and ending inventories, and reports the following data about its only product:

 

Direct materials used                                             $200,000

Direct labor                                                                $180,000

Fixed indirect manufacturing                              $100,000

Fixed selling and administrative                        $150,000

Variable indirect manufacturing                        $120,000

Variable selling and administrative                    $60,000

Selling price(per unit)                                                       $75

 

Units produced and sold                                           10,000

 

Zeman Company uses the contribution approach to prepare the income statement. What is the contribution margin?

  1. A) $150,000
  2. B) $190,000
  3. C) $250,000
  4. D) $370,000

Answer:  B

Diff: 2

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

25) Schaefer Company has no beginning and ending inventories, and reports the following data about its only product:

 

Direct materials used                                             $200,000

Direct labor                                                                  $80,000

Fixed indirect manufacturing                              $100,000

Fixed selling and administrative                        $150,000

Variable indirect manufacturing                          $20,000

Variable selling and administrative                    $60,000

Selling price(per unit)                                                       $50

 

Units produced and sold                                           10,000

 

Schaefer Company uses the contribution approach to prepare the income statement. What is the contribution margin?

  1. A) $100,000
  2. B) $140,000
  3. C) $200,000
  4. D) $220,000

Answer:  B

Diff: 2

LO:  5-3

AACSB:  Analytic skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

26) The absorption costing approach to the income statement is used by companies for external financial reporting.

Answer:  TRUE

Diff: 2

LO:  5-3

AACSB:  Reflective thinking skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

27) The absorption approach to the income statement emphasizes the distinction between fixed and variable costs.

Answer:  FALSE

Diff: 2

LO:  5-3

AACSB:  Reflective thinking skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

 

28) On the income statement, the contribution margin is computed using variable manufacturing costs and variable selling and administrative costs.

Answer:  TRUE

Diff: 2

LO:  5-3

AACSB:  Reflective thinking skills

Learning Outcome:  Define basic managerial accounting concepts and prepare an income statement for different types of organizations

 

29) Whitney Company has just completed its first year of operations. The companys accountant has prepared an absorption costing income statement for the year as seen below:

 

Sales (35,000 units at $25)                                                                                                             $875,000

Beginning Inventory                                                                                                          0

Cost of Goods Manufactured (35,000 $12) + $160,000 =                         580,000

Cost of Goods Available                                                                                      580,000

Ending Inventory                                                                                                                0

Cost of Goods Sold                                                                                                                            580,000

Gross Margin                                                                                                                                      295,000

Selling and Administrative Expenses                                                                                         280,000

Net Income                                                                                                                                           $15,000

 

The variable production costs per unit are determined as follows:

Direct materials                                                                                                                $5

Direct labor                                                                                                                           6

Variable production                                                                                                           1

Total variable production costs                                                                                 $12

 

The companys fixed production costs are $160,000 per year. The companys selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per unit in variable expenses.

 

Required:

Prepare the companys income statement in the contribution format.

Answer:  Sales                                                                                                                   $875,000

Variable Expenses:

Production Costs(35,000 $12)                                                   $420,000

Selling and Administrative(35,000 $2)                                      70,000

Total Variable Expenses                                                                                                  490,000

Contribution Margin                                                                                                         385,000

Fixed Expenses:

Production Costs                                                                                160,000

Selling and Administrative                                                            210,000

Total Fixed Expenses                                                                                                        370,000

Net Income                                                        &

Write a review

Your Name:


Your Review: Note: HTML is not translated!

Rating: Bad           Good

Enter the code in the box below:



 

Once the order is placed, the order will be delivered to your email less than 24 hours, mostly within 4 hours. 

If you have questions, you can contact us here