Finance, Accounting, and Auditing: Everything You Need to Know

QUESTION 1 

An accounting firm would be classified as a: 

	a.	Manufacturing company.
	b.	Merchandising company.
	c.	Simple company.
	d.	Service company.

2 points    

Accounting firm provides intangible services to their customers such as banking . 

QUESTION 2 

A __________ company's balance sheet reports just one inventory called inventory. 

	a.	service
	b.	merchandising
	c.	manufacturing
	d.	simple

merchandising company keeps records of goods purchased for resale in an inventory. 

QUESTION 3 

The following costs were incurred in August: 

Direct Materials	$18,000
Direct Labor	$21,000
Manufacturing Overhead	$33,000
Selling Expenses	$14,000
Administrative Expenses	$19,000

Conversion costs during the month of August totaled: 

	a.	$39,000.
	b.	$105,000.
	c.	$54,000.
	d.	$51,000.

Conversion cost = direct labor + manufacturing overhead = $21,000 + $33,000 = $54,000 

QUESTION 4 

All of the following would be classified as product costs EXCEPT: 

	a.	Property taxes on production equipment.
	b.	Insurance on factory machinery.
	c.	Salaries of the marketing staff.
	d.	Wages of machine operators.

Product cost are costs that are incurred during manufacturing of products. Since salaries of the marketing staff is not a cost in manufacturing process, it is classified as period costs. 2 points    

QUESTION 5 

Teshoka Corporation makes computer chips. Teshoka Corporation would be classified as a: 

	a.	Manufacturing company
	b.	Merchandising company
	c.	Simple company
	d.	Service company

A manufacturing company makes physical goods that they sell to wholesalers, retailers or directly to customers. A merchandising company is in charge of selling physical goods while a service company provides intangible services to customers. 

QUESTION 6 

Which type of company has three categories of inventory? 

	a.	Manufacturing company
	b.	Merchandising company
	c.	Simple company
	d.	Service company

2 points    

A manufacturing company has raw materials inventory, work in progress inventory and finished goods inventory . 

QUESTION 7 

Fresh Wreath Corporation manufactures wreaths according to customer specifications and ships them to customers using United Parcel Service (UPS). Which two terms below describe the cost of shipping these wreaths? 

	a.	Variable costs and product costs
	b.	Variable costs and period costs
	c.	Fixed costs and product costs
	d.	Fixed costs and period costs

va2 points    

Variable cost because shipping cost varies depending on amount of wreaths and period cost since transportation is not part of wreath manufacturing . 

QUESTION 8 

When making business changes in the short run, management sometimes gets locked in to certain costs arising from previous decisions. This is type of cost is best known as: 

	a.	Controllable.
	b.	Differential.
	c.	Uncontrollable.
	d.	Sunk.

2 points    

Uncontrollable cost because the management has no ability to do anything about this costs. 

QUESTION 9 

Bell Company’s manufacturing overhead is 20% of its total prime costs. If direct labor is $38,000 and direct materials are $23,000, the manufacturing overhead is: 

	a.	$12,200.
	b.	$152,000.
	c.	$5,750.
	d.	$15,250.

2 points    

Prime cost = DL + DM =$38,000 + $23,000 =$61,000 

Manufacturing overhead = 0.2 * 61,000 = $12,200 

QUESTION 10 

Inventoriable costs are known as: 

	a.	Variable costs.
	b.	Conversion costs.
	c.	Product costs.
	d.	Fixed costs.

2 points    

Product costs are costs  used to value the inventory 

QUESTION 11 

Bell Corporation reports that at an activity level of 8,700 units, its total variable cost is $653,109, and its total fixed cost is $658,416. Required: For the activity level of 8,800 units, assume this level is within the relevant range. Compute: 

Variable cost/unit =$653,109 / 8700 = $75.07/unit 

the total variable cost, 

8,800 units x $75.07/unit = $660,616 

the total fixed cost, 

Fixed cost does not change, therefore =$658,416 

the total cost, 

$660,616 + $658,416 = $1,319,032 

the average variable cost per unit, 

$660,616/8800 units =$75.07/unit 

the average fixed cost per unit, and 

$658,416/8800 =$74.82 

The average total cost per unit. 

$1,319,032/8800 =$149.89 

There is not a word length requirement for this question; however, you must show your work 

QUESTION 12 

A partial listing of costs incurred at SueBelle Corporation during October appears below: 

Direct Materials	$195,000
Utilities, Factory	$9,000
Sales Commission	$75,000
Administrative Salaries	$113,000
Indirect Labor	$30,000
Advertising	$119,000
Depreciation of Production Equipment	$28,000
Direct Labor	$105,000
Depreciation of Administrative Equipment	$44,000

Based on the information provided, answer the following questions: 

What is the total amount of product cost listed above? Show your work. 

Product costs consist of direct materials, direct labor, and manufacturing overhead consisting of utilities, factory, indirect labor and Depreciation of Administrative Equipment. 

Product cost = $195,000 + $105,000 + $9000 + $30000 +$28000 =$367,000 

What is the total amount of period cost listed above? Show your work.  

Sales commissions$75,000 

Administrative salaries$113,000 

Advertising$119,000 

Depreciation of administrativeequipment$44,000 

Total period cost =$75000+113000+119000+4400= $351,000 

There is not a word length requirement for this question; however, you must show your work 

QUESTION 13 

Cosgrove Company, Inc. is a wholesaler that distributes a single product. The company's revenues and expenses for the last three months are given below: 

Cosgrove Company  Traditional Format Income Statement  For the Three Months Ended June 30
	April	May	June
Sales in Units	3,000	3,750	4,500
Sales Revenue	420,000	525,000	630,000
Cost of Goods Sold	168,000	210,000	252,000
Gross Margin	252,000	315,000	378,000
Selling and Administrative Expenses:
Shipping Expense	44,000	50,000	56,000
Advertising Expense	70,000	70,000	70,000
Salaries and Commissions	107,000	125,000	143,000
Insurance Expense	9,000	9,000	9,000
Depreciation Expense	42,000	42,000	42,000
Total Selling and Administrative Expenses	272,000	296,000	320,000
Net Operating Income (Loss)	$(20,000)	$19,000	$58,000

Required: 

Identify the fixed and variable costs associated with Cosgrove. 

Fixed costs include insurance expense, depreciation expense, salaries and commission and adversiting expense. Variable costs include shipping expense and cost of goods sold. 

Calculate the average costs per month. 

April total cost = $168000 + $272000 =$440,000 

May total cost= $210000 + $296000 =$506,000 

June total cost =$252000 + $320000=$572000 

Average cost per month= =($440,000 + 506,000 + $572000)/3 =$506,000/month 

There is not a word length requirement for this question; however, you must show your work. 

QUESTION 14 

Explain how sunk costs create a barrier to entry into the market place.    Your response must be at least 200 words in length. 

A sunk cost is the total amount of money that has been spent by a particular business or organization and cannot be recovered. Costs such as the cost of machinery and other equipment and rent expenses are some of the sunk costs that are specific manufacturing firms. The manufacturing firm cannot recover such costs if it decides to leave the market. Sunk costs also prevent the entry of new firms into a specific market. When sunk costs rise, barriers to entry rise as well, thereby making the market less contestable, and new firms find it challenging to match the existing firms in that market. These sunk costs create a barrier to entry in the sense that they make new firms more cautious about entering a specific market for fear of entering the market and later making huge losses should they decide to leave the market. 

Before a firm enters a particular market, it will have to incur huge costs on elements such as advertising, building expenses, and expenses of purchasing new equipment, which is not a sure guarantee of entry into that market. Therefore, if entry into that specific market encounters challenges and entry fails, the firm's sunk costs will be too vast and unrecoverable. This is how sunk costs create a barrier to entry as new firms are not willing to incur such huge losses since the successful entry into the marketplace is not guaranteed. 

QUESTION 15 

As a managerial accountant, you would have the opportunity to work for company that classifies itself as either service, merchandising, or manufacturing.  Based on what you have learned from this unit, and based on your personal preferences, identify which type of company for which you would prefer to work as a managerial accountant. Be sure to provide specific reasoning to support your answer.  Your response must be at least 200 words in length. 

As a managerial accountant, I would prefer to work for a firm operating in the service industry. One specific firm I would like to work in is a tour company. As a managerial accountant in this particular industry, I would be exposed to working with people worldwide. In the service industry, communication and leadership skills are essential for exemplary service to both employees and customers. I believe that working with international co-employees and also international clients would broaden both my leadership and communication skills. As a managerial accountant, part of my tasks would be to control, organize, and coordinate the service delivered to customers. I would be challenged to pay more attention to detail in the service industry since excellent service to customers guarantees ongoing and future business opportunities. 

By working in the service industry, I would also be involved in both the short and long-term decisions that would shape my company's financial direction. Being involved in such decisions helps shape one's character and helps a person to become very decisive. The service industry would also expose me to a host of operational decisions that will help me develop an eye for potential in different markets. By being involved in the firm's long-term investment decisions, such involvement will allow me to be more open-minded and proactive. It will also help me make quality personal investment decisions in the future.