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Exam 1: Management Accounting and Corporate Governance

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Question 21

True/False

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Costs associated with holding inventory include hidden costs, such as low employee motivation.

A) True
B) False

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Question 22

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During its first year of operations, Forrest Company paid $30,000 for direct materials and $50,000 in wages for production workers. Lease payments, utility costs, and depreciation on factory equipment totaled $15,000. General, selling, and administrative expenses were $20,000. The average cost to produce one unit was $2.50. How many units were produced during the period?

A) 40,000
B) 46,000
C) 38,000
D) None of these.

E) A) and B)
F) A) and C)

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Question 23

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All of the following are downstream costs except:

With respect to income taxes, managers would prefer to classify costs as assets rather than expenses.

Opportunity, pressure and rationalization are the three elements of the fraud triangle.

A systematic problem-solving philosophy that encourages front line workers to achieve zero defects is known as:

Anton believes his company's overhead costs are driven (affected) by the number of machine hours because the production process is heavily automated. During the period, the company produced 3,000 units of Product A requiring a total of 100 machine hours and 2,000 units of Product B requiring a total of 25 machine hours. What allocation rate should be used if the company incurs overhead costs of $10,000?

All costs incurred prior to delivery of the product to the customer are referred to as upstream costs.

The following information relates to the operations of Cruz Manufacturing during the current year: Based on this information, what is the company's cost of goods sold? $\begin{array} { l c r } \text { Raw materials used } & \text { \$ } & 20,000 \\\text { Direct labor wages } & & 60,000 \\\text { Sales salaries and commissions } & & 50,000 \\\text { Depreciation on production equipment } & & 4,000 \\\text { Rent on manufacturing facilities } & & 30,000 \\\text { Packaging and shipping supplies } & & 6,000 \\\text { Sales revenue } & & 190,000 \\\text { Units produced and sold } & & 10,000 \\\text { Selling price per unit } & \text { \$ } & 20.00\end{array}$

Who are the primary users of financial accounting information? Who are the primary users of managerial accounting information?

Just in time systems can be used by both manufacturing and merchandising companies.

Kirsten believes her company's overhead costs are driven (affected) by the number of direct labor hours because the production process is very labor intensive. During the period, the company produced 5,000 units of Product A requiring a total of 1,600 labor hours and 2,500 units of Product B requiring a total of 400 labor hours. What allocation rate should be used if the company incurs overhead costs of $20,000?

Classify each of the following costs for Harrison Company as a selling or general and administrative period cost or as a direct or indirect product cost by entering the dollar amount(s) in the appropriate column(s): A. Paid $75,000 in wages for employees who assemble the company's products.B. Paid sales commissions of $58,000.C. Paid $38,000 in salaries for factory supervisors.D. Paid $88,000 in salaries for executives (president and vice presidents).E. Recorded depreciation cost of $25,000. $13,000 was depreciation on factory equipment and $12,000 was depreciation on the company headquarters building.F. Paid $4,000 for various supplies that it used in the factory (oil and materials used in machine maintenance).G. Used $10,000 in prepaid corporate liability insurance

Select the term from the list provided that best matches each of the following descriptions. The first is done for you. $\begin{array} { | c | l | l | } \hline \text { Answer } & \text { Description } & \text { List of terms } \\\hline 4 & \begin{array} { l } \text { A. Costs that are incurred after the manufacturing process is } \\\text { complete }\end{array} & \text { 1. Benchmarking } \\\hline & \begin{array} { l } \text { B. The identification of the best practices used by world-class } \\\text { competitors }\end{array} & \text { 2. Cost allocation } \\\hline & \begin{array} { l } \text { C. The linked sequence of activities that create value for the } \\\text { customer }\end{array} & \text { 3. Direct costs } \\\hline & \text { D. Costs that cannot be easily traced to specific products } & \text { 4. Downstream costs } \\\hline & \begin{array} { l } \text { E. All costs related to obtaining or manufacturing a product } \\\text { intended for sale to customers }\end{array} & \text { 5. Financial accounting } \\\hline & \begin{array} { l } \text { F. Work that contributes to a product's abdity to satisfy } \\\text { customer needs }\end{array} & \text { 6. Indirect costs } \\\hline & \begin{array} { l } \text { G. The process of dividing a total cost into parts and } \\\text { assigning the parts to relevant cost objects }\end{array} & \text { 7. Period costs } \\\hline & \begin{array} { l } \text { H. The field of accounting that is designed to meet the } \\\text { information needs of external users }\end{array} & \text { 8. Product costs } \\\hline & \begin{array} { l } \text { I. General, selling, and administrative costs that are expensed } \\\text { in the period in which the economic sacrifice is made }\end{array} & \text { 9. Value-added activity } \\\hline & \begin{array} { l } \text { J. Costs that can easdy and conveniently be traced to } \\\text { products }\end{array} & \text { 10. Value chain } \\\hline\end{array}$

What is the effect on the balance sheet of recording a $200 cash purchase of raw materials?

Most internal users of accounting information need primarily global information that reflects the performance of the company as a whole.

Managerial accounting is designed to satisfy needs of external users including creditors, investors, and governmental agencies.

How do information needs of employees change moving up the organization chart?

The biggest challenge in computing the total cost per unit of a product is determining the amount of overhead cost that should be assigned to each unit.

What is the fraud triangle? Which element of the fraud triangle is most closely connected with internal controls?