WGU D196 PRINCIPLES OF FINANCIAL AND MANAGERIAL ACCOUNTING FINAL EXAM BANK LATEST VERSION 2025

What is the effect of a company's accounting department maintaining high ethical standards? - -The company's accounting information will increase in value. Why might employees be interested in their company's financial accounting information? - -Financial statement data are often used in determining the employee bonuses. Which group establishes financial accounting rules in the US? - -Financial Accounting Standards Board (FASB). A company paid $5000 cash in advertising costs. How does this transaction affect the paying company's accounting equation? - -Assets decrease by $5000; expenses increase by $5000. What is a transaction? - -Two parties exchanging something of value. A company borrowed $80,000 cash from a bank. How does this transaction affect the accounting equation of the borrowing company? - -Assets increase by $80,000; liabilities increase by $80,000. What is the impact of expenses on the accounting equation? - -Expenses decrease owners' equity. Which type of account are accounts payable and notes payable both examples of? - Liability Whiat is the purpose of the financial accounting cycle? - -To turn information about transactions into financial statements. According to the accounting equation, the amount of liabilities and equity must always be equal to another amount. What is the other amount? - -Assets What is an expense item? - -Cost of goods sold. How is gross profit computed? - -Sales (-) COGS WGU D196 WGU D196 Which type of account is retained earnings? - -Equity For the purpose of cash flow classification in the statement of cash flows, what is an operating activity? - -Paying employees How does a classified balance sheet provide useful information to a decision maker? - It distinguishes between current and long-term assets. What information does a balance sheet provide to a decision maker? - -Summary of the financial position of a company at a particular date. What is an account payable? - -The amount owed by a company that purchased goods or services from a supplier on credit. What is an example of a financial cost that would result from poor direct labor budgeting and planning? - -Increased hiring, training and overtime costs. What does a manager have control over in a cost center? - -Costs What should be considered when developing a measure to evaluate the performance of a manager? - -Only controllable costs In some companies, the performance measures for profit center managers are heavily influenced by cost allocations downward from organizational units (such as company headquarters). Why is this a mistake? - -Uncontrollable costs should not be included in the performance evaluation measure of a profit center manager. Which budget should include the expected cost of supplies used by the office staff of the corporate headquarters? - -Administrative expense budget Which items are uncontrollable, external variables that make it difficult to forecast the level of sales? - -Customer tastes and economic conditions What is the correct sequence of budgets in a manufacturing business? - -Sales, production, direct materials Which type of business organization has a major focus on direct materials, direct labor and overhead? - -Manufacturing What are the 3 primary functions that company managers use managerial accounting information for? - -Planning, controlling and evaluating What is the proper accounting for a product cost? - -Record as an inventory cost until the item is sold. WGU D196 WGU D196 How could a period cost be reported in an income statement? - -As an administrative expense. A retail company purchased inventory costing $100,000. By the end of the year, inventory costing $75,000 has been sold. How is the remaining $25,000 in inventory reported in the financial statements? - -As an asset in the balance sheet. How are wages of cashiers classified in a merchandising company? - -Selling expense How are wages of office staff in a company headquarters building classified? - Administrative expense Which label is given to the cost of the wood used in the construction of a piece of wood furniture? - -Direct materials What is the label given to the cost of electricity in a furniture factory? - -Manufacturing overhead. What is the sequence of the flow of costs through a manufacturing operation? - -Raw materials, work-in-progress, finished goods, cost of goods sold What is the CVP equation? - -Sales - variable costs - fixed costs = profit What cost category is not formally tracked in a company's accounting system? - Opportunity costs Why is the concept of relevant range important to a manager? - -Outside the relevant range, the variable cost per unit can change. What is the label given to the quantity computed as estimated overhead costs divided by estimated level of activity? - -Predetermined overhead rate In a job order costing system, what is the proper accounting for a product cost? - -It is reported as part of the cost of goods sold. True or False: Utility bills to heat the headquarters building is a period cost. - -True True or False: An ABC system allocates overhead based on multiple activities. - -True How is overhead allocated in an ABC system? - -Activity rate multiplied by number of cost driver events. In an ABC system, which name is given to a numerical measure reflecting the amount of a cost associated with a particular overhead cost activity? - -Cost driver WGU D196 WGU D196 How are production costs treated in a process costing system? - -Costs are accumulated by process and averaged over all products made during the period. How is the production cost per unity computed in a process costing system? - -Amount of total production costs divided by the number of units completed during a particular period of time. For which production process is process costing the appropriate costing method to use? A. Construction a high-rise office building B. Refining gasoline in a petroleum facility C. Building custom-made furniture D. Producing made-to-order industrial equipment - -B. Refining gasoline in a petroleum facility What overhead allocation method should be used for a business that mass-produces breakfast cereal? - -Process costing What is the correct sequence for the flow of costs through a job order costing system? - -Raw materials inventory, work-in-progress inventory, finished goods inventory, cost of goods sold True or False: A petroleum refining plant can use job order costing. - -False What is an example of direct materials? - -Cost of aluminum in making an airplane What is an example of direct labor? - -Wages for furniture assemblers in a wood furniture manufacturer. What is an example of manufacturing overhead? - -Cost of sandpaper in making wood furniture Is an assembly line worker's wages a period cost or a product cost? For product cost indicate if it is a direct material, direct labor or manufacturing overhead. - -Product cost / direct labor Is rubber for making bicycle tires a period cost or a product cost? For product cost indicate if it is a direct material, direct labor or manufacturing overhead. - -Product cost / direct materials Is depreciation on office copy machine a period cost or a product cost? For product cost indicate if it is a direct material, direct labor or manufacturing overhead. - -Period cost Is depreciation on factory machinery a period cost or a product cost? For product cost indicate if it is a direct material, direct labor or manufacturing overhead. - -Product cost / manufacturing overhead WGU D196 WGU D196 Is sales commission a period cost or a product cost? For product cost indicate if it is a direct material, direct labor or manufacturing overhead. - -Period cost Is indirect materials a period cost or a product cost? For product cost indicate if it is a direct material, direct labor or manufacturing overhead. - -Product cost / manufacturing overhead Is a factory supervisor's salary a period cost or a product cost? For product cost indicate if it is a direct material, direct labor or manufacturing overhead. - -Product cost / manufacturing overhead Is an advertising expense a period cost or a product cost? For product cost indicate if it is a direct material, direct labor or manufacturing overhead. - -Period cost Is factory supplies a period cost or a product cost? For product cost indicate if it is a direct material, direct labor or manufacturing overhead. - -Product cost / manufacturing overhead What is job order costing? - -A method of costing that assigns costs to specific jobs or products. How is activity based costing (ABC) overhead allocated? - -Overhead is allocated based on custom job activity. The 3 general types of overhead cost activities in ABC systems are? - -Unit-level, batch level and product-line What is the formula for calculating activity rates? - -Overhead cost pool divided by cost driver. What is a cost driver? - -Numerical measure used to reflect the amount of a specific cost associated with particular activity. What is a cost pool? - -Total cost being generated by a specific overhead cost activity. What are the basic functions of an accounting system? - -Analysis, bookkeeping and evaluation What is the decision making process? - -Identify the issue, gather information, identify alternatives and select best option. What is the basic accounting equation? - -Assets = liabilities + equity True or False: Revenues decrease owners' equity. - -False - revenues increase owners' equity. WGU D196 WGU D196 True or False: Expenses increase owners' equity. - -False - expenses decrease owners' equity. The Balance Sheet - -A financial statement that reports assets, liabilities, and owner's equity on a specific date. The Income Statement - -A financial statement showing the revenue and expenses for a fiscal period. Owner's Equity - -The amount of the business that belongs to the owners minus any liabilities owed by the business. Liability - -Obligations to pay cash, transfer other assets, or provide services to someone else. Expense - -The amount of assets consumed through business operations; the costs incurred in normal business operations to generate revenues. Revenue - -The amount of assets created through the sale of goods and services. True or False: Revenues = Assets - -False: revenues are 1 source of an asset True or False: Expenses = Liabilities - -False: expenses are 1 use of an asset Formula for contribution margin - -Sales Revenue (or Price) - Variable Cost = Contribution Margin Formula for break-even in units - -Total Fixed Cost / Contribution Margin per Unit = Break-Even in Units Formula for break-even in sales - -Total Fixed Cost / Contribution Margin Ratio = Break Even in Sales ($) Formula for contribution margin ratio - -Contribution Margin / Sales (or Price) = Contribution Margin Ratio Formula for variable cost ratio - -Variable Cost / Sales (or Price) = Variable Cost Ratio Cost-Volume-Profit Analysis (CVP) - -Determining how changes in revenues, costs and level of activity affect the profitability of an organization. Variable costs - -Increase with increase in sales; decrease with decrease in sales Fixed costs - -Remain the same when sales increase/decrease WGU D196 WGU D196 Stepped costs - -Costs that change in total in a stair-step fashion (in large amounts) with changes in volume of activity. What is the meaning of a significant cost variance? - -Corrective action should be taken to eliminate the variance. What is a profit center? - -An organizational unit in which a manager has responsibility for both costs and revenues What is an indirect cost? - -A cost that a segment manager cannot control What is capital budgeting? - -Planning for the acquisition of property, plant, and equipment Projecting accurate sales is very difficult because sales are a function of both uncontrollable external variables and controllable internal variables. Which variable is an uncontrollable external variable? - -Customer tastes There are three important factors to be considered in preparing a production budget. What is one of those factors? - -Desired amount of ending inventory What label is given to a business unit in which the manager is responsible for costs, revenues, and assets? - -Investment center What is the most common sequence of the flow of costs through a job order costing system? - -Purchase raw materials, transfer raw materials to production, add direct labor and manufacturing overhead costs, transfer the cost of completed goods to finished goods inventory, sell goods and transfer co