D196 Principles of Financial and Managerial Accounting - Set 3 - Part 2

Correct Answer: Direct materials

Direct materials are controllable because managers can influence the quantity used in production.

Correct Answer: Cash

Cash is considered a current asset, as it is readily available for use by the company.

Correct Answer: Underapplied overhead

Underapplied overhead occurs when the actual overhead costs incurred are greater than the overhead that has been applied to production.

Correct Answer: Variable cost

Variable costs remain the same on a per-unit basis but increase in total as production levels increase.

Correct Answer: Purchasing equipment

Purchasing equipment is an investing activity, as it involves acquiring long-term assets for business operations.

Correct Answer: 4,000 units

The break-even point in units is calculated by dividing fixed costs by the contribution margin per unit. ($20,000 / $5 = 4,000 units).

Correct Answer: Income statement

The income statement shows the company's revenues and expenses, resulting in net income or net loss for a specific period.

Correct Answer: $30

Contribution margin per unit is calculated by subtracting the variable cost from the sales price. ($80 - $50 = $30).

Correct Answer: Direct labor

Direct labor is a direct cost and not part of manufacturing overhead.

Correct Answer: $25,000

Break-even in sales dollars is calculated by dividing fixed costs by the contribution margin ratio. ($10,000 / 0.40 = $25,000).

Correct Answer: Factory rent

Fixed costs, like factory rent, remain constant regardless of the level of production.

Correct Answer: $25,000

Net income is calculated by subtracting total expenses and income tax from sales. ($100,000 - $70,000 - $5,000 = $25,000).

Correct Answer: Process costing

Process costing is used when products are identical and mass-produced, as costs are averaged over all units produced.

Correct Answer: Costs that are expensed when incurred

Period costs are expensed in the period in which they are incurred, such as office rent or administrative expenses.

Correct Answer: Assets increase; liabilities increase

Purchasing equipment on credit increases both assets and liabilities, as the company gains equipment but also incurs debt.

Correct Answer: Sales budget

The sales budget outlines expected sales revenue based on projected sales volume and prices.

Correct Answer: 0.40

Contribution margin ratio is calculated by dividing the contribution margin by the sales price. ($40 / $100 = 0.40).

Correct Answer: Utilities

Mixed costs, such as utilities, have both fixed and variable components.

Correct Answer: Balance sheet

The balance sheet presents the financial position of a company at a specific point in time, including assets, liabilities, and equity.

Correct Answer: Fixed cost

Fixed costs remain constant in total, but the cost per unit decreases as production increases.