PRACTICE SET

Encircle the letter of the correct answer.

1. If operating leverage factor is 4, then a 1% change in quantity sold should result in a 4% change in
a. Contribution margin c. Variable costs
b. Revenue d. Net income
2. A cost estimate method in which a cost line is fit using exactly two data points
a. Least-square method c. Scatter diagram method
b. Account analysis method d. High-low method
3. Another way to compute the inventory conversion method?
a. Average inventory ÷ Sales per day c. Average inventory ÷ Accounts receivable
b. Year-end inventory ÷ Sales per day d. Year-end inventory ÷ Cost of sales
4. In deciding how, or which, costs should be assigned to a responsibility center, primarily consideration is
given to the degree of:
a. Avoidability c. Controllability
b. Variability d. Profitability
5. Which of the following is NOT a qualification of a CPA in MAS practice?
a. Familiarity with the client’s financial statement and internal control system
b. Professional independence, objectivity, and integrity
c. Analytical experience in problem solving
d. Auditor of the client
6. In a master budget plan, sales forecast is under the
a. Financial budget c. Performance budget
b. Operating budget d. Capital budget
7. Which of the following is NOT a controller function?
a. In charge of planning and control
b. Protection of assets such as adequate insurance coverage, etc.
c. Interpreting and reporting on effects of external factors on business
d. Arranging short-term financing
8. Which of the following is true about a firm’s float?
a. A firm strives to minimize the float for both cash receipts and cash disbursements
b. A firm strives to maximize the float for both cash receipts and cash disbursements
c. A firm strives to maximize the float for cash receipts and minimize the float for cash disbursements
d. A firm strives to maximize the float for cash disbursements and minimize the float for cash receipts
9. Which variance is LEAST relevant for control purposes
a. Materials use variance c. Fixed overhead budget variance
b. Fixed overhead volume variance d. Labor efficiency variance
10. In a make or buy decision
a. Fixed costs that can be avoided in the future are relevant
b. Fixed costs that will continue regardless of the decision are relevant
c. Irrelevant costs may be included in the analysis
d. Only variable costs are relevant
11. The debt ratio and times interest earned are measures of
a. Solvency b. Liquidity c. Profitability d. Asset activity
12. Which of the following will result in raising the breakeven point?
a. A decrease in the variable cost per unit
b. A decrease in the income tax rates
c. An increase in variable cost per unit
d. An increase in the unit contribution margin
13. Which of the following budgeting systems focuses on improving operations?
a. Responsibility budgeting c. Operational budgeting
b. Activity-based budgeting d. Kaizen budgeting
14. The degree of operating leverage is NOT affected by the change in
a. Interest expense c. Quantity of units sold
 b. Variable cost per unit d. Fixed costs
15. Which one of the following is an advantage of using the variable costing?
a. Variable costing complies with the Internal Revenue Code
b. Variable costing complies with generally accepted accounting principles
c. Variable costing makes cost-volume-profit relationships more easily apparent
d. Variable costing is most relevant to long-run pricing strategies
16. In evaluating the ability to pay a 60 day loan, a creditor would probably be most interested in
a. Debt ratio c. Quick ratio
b. Price earnings ratio d. Number of times interest earned
17. A company employs a system of internal reporting, which furnishes departmental managers with revenue
and cost information on only those items that are subject to their control. Items not subject to the
manager’s control are excluded in the performance reports. This method of accounting is known as
a. Contribution margin reporting c. Absorption costing
b. Segment reporting d. Responsibility accounting
18. Which of the following actions LIKELY to reduce the length of a firm’s conversion cycle?
a. Adopting a new inventory system that increases the inventory conversion period
b. Adopting a new inventory system that reduces the inventory conversion period
c. Increasing the average days sales outstanding on its accounts receivable
d. Reducing the amount of time the firms takes to pay its supplies
19. The length of time between the acquisition of inventory and payment for it is called the
a. Operating cycle c. Accounts receivable period
b. Inventory conversion period d. Accounts payable deferral period
20. In considering whether to replace a major item of machinery now or at the end of its useful life, one should
ignore
a. Opportunity costs c. Sunk costs
b. Fixed costs d. Imputed costs
21. A company develops a budget that is based on the behavior of costs and revenues over a range of sales for
the upcoming year. This is an example of a
a. Production budget c. Capital budget
b. Cash budget d. Flexible budget
22. Which variance is LEAST likely to be affected by hiring workers with less than those already working?
a. Materials use variance c. Materials price variance
b. Labor rate variance d. Variable overhead efficiency variance
23. The amount of cash that a firm keeps on hand in order to take advantage of any bargain purchases that may
arise is referred to as its
a. Transaction balance c. Precautionary balance
b. Compensating balance d. Speculative balance
24. The common fixed costs that appear on this segmented income statement refer to costs that
a. Are due to the production of finished goods
b. Are incurred by each of the individual segments in the conduct of normal business
c. Are incurred at one level for the benefit of two or more segments
d. Can be influenced by a single segment manager over a short-term time period
25. One of the ways managerial accounting varies from financial accounting is that managerial accounting
a. Is bound by generally accepted accounting principles
b. Classifies information in different ways
c. Does not use financial statements
d. Deals only with economic events
26. Which of the following is a manufacturing overhead cost in the production of an automobile?
a. The cost of small tools used in mounting tires on each automobile
b. The cost of the tires in each automobile
c. The cost of the laborers who place tires on each automobile
d. The delivery costs for the tires on each automobile
27. A master budget
a. Shows forecasted and actual results
b. Contains only controllable costs
 c. Can be used to determine manufacturing cost variances
d. Contains the operating budget
28. In assessing the financial prospects for a firm, financial analysts use various techniques. Which of the
following is an example of vertical common-size analysis?
a. An assessment of the relative stability of a firm’s level of vertical integration
b. A comparison in financial ratio from between two or more firms in the same industry
c. A statement that current advertising expense is 2% greater than in the prior year
d. A statement that current advertising expense is 2% of sales
29. Which one of the following considers the impact of fixed overhead costs on units produced?
a. Full absorption costing c. Direct costing
b. Marginal costing d. Variable costing
30. Management services of CPAs cover all of the following, EXCEPT
a. Project feasibility studies
b. System design development and implementation
c. Organizational development and planning
d. Audit, tax and legal services