WGU D196 PRINCIPLES OF FINANCIAL AND MANAGERIAL ACCOUNTING COMPLETE TEST BANK: 300+ OA AND PREASSESSMENT QUESTIONS WITH VERIFIED SOLUTIONS |CE 2025/2026 ACTUAL EXAM | WESTERN GOVERNORS UNIVERSITY

What is the effect of a company's accounting department maintaining high ethical standards?

The company can hire fewer accountants to do the same amount of work.

The company's accounting information will decrease in value.

The company can report more favorable results in its financial statements.

The company's accounting information will increase in value.

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 used to record long term liabilities.

Financial statement data provide item-by-item product cost information.

Financial statement data provide detailed internal budget information.

Financial statement data are often used in determining employee bonuses.

Financial statement data are often used in determining employee bonuses.

Which group establishes financial accounting rules in the United States?

American Institute of Certified Public Accountants (AICPA)

Financial Accounting Standards Board (FASB)

International Accounting Standards Board (IASB)

Internal Revenue Service (IRS)

Financial Accounting Standards Board (FASB)

Which report is one of the three primary financial statements?

Statement of the accounting cycle

Statement of management accounting

Statement of cash flows

Statement of stakeholder funds

Statement of cash flows

A company paid $5,000 cash in advertising costs.

How does this transaction affect the paying company's accounting equation?

Assets decrease by $5,000; expenses increase by $5,000.

Assets increase by $5,000; expenses increase by $5,000.

Assets decrease by $5,000; revenues increase by $5,000.

Assets decrease by $5,000; liabilities increase by $5,000.

Assets decrease by $5,000; expenses increase by $5,000.

What is a transaction?

A type of commonly used accounting software

A category of merchandiser or retailer

Two parties exchanging something of value

An example of an online business document

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; owners' equity increases by $80,000.

Assets increase by $80,000; liabilities decrease by $80,000.

Assets increase by $80,000; liabilities increase by $80,000.

Assets increase by $80,000; revenues increase by $80,000.

Assets increase by $80,000; liabilities increase by $80,000.

What is the impact of expenses on the accounting equation?

Expenses increase owners' equity.

Expenses decrease liabilities.

Expenses decrease owners' equity.

Expenses increase liabilities.

Expenses decrease owners' equity.

Which type of account are accounts payable and notes payable both examples of?

Liability

Asset

Expense

Equity

Liability

What is the purpose of the financial accounting cycle?

To collect confidential information for management to use as a competitive tool

To turn information about transactions into financial statements

To gather information related to the expenses and income generated by a company

To produce and analyze a company's monthly bank statement

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 that other amount?

Cash

The sum of revenues and expenses

Assets

The sum of expenses and dividends

Assets

Which item is an expense item?

Cost of goods sold

Loans payable

Accounts receivable

Accounts payable

Cost of goods sold

How is gross profit computed?

Total revenues minus total expenses

Sales minus cost of goods sold

Total assets minus total liabilities

Accounts receivable minus accounts payable

Sales minus cost of goods sold

Which type of account is retained earnings?

Asset

Revenue

Equity

Liability

Equity

For purposes of cash flow classification in the statement of cash flows, which item is an operating activity?

Distributing dividends

Paying employees

Buying equipment

Selling bonds

Paying employees

How does a classified balance sheet provide useful information to a decision maker?

It distinguishes between current and long-term assets.

It provides data that are not publicly disclosed.

It provides data for a period of time instead of as a point in time.

It distinguishes liabilities from expenses.

It distinguishes between current and long-term assets.

What information does a balance sheet provide to a decision maker?

Summary of the operating performance of a company during a period

Summary of the operating performance of a company at a particular date

Summary of the cash flows of a company during a period

Summary of the financial position of a company at a particular date

Summary of the financial position of a company at a particular date

What is an account payable?

The amount to be paid by a company for dividends to shareholders

The amount to be paid by a company in repayment of both loans and dividends

The amount owed to a company that sold goods or services to a customer on credit

The amount owed by a company that purchased goods or services from a supplier on credit

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?

Excessive inventory storage costs

Increased hiring, training, and overtime costs

Delayed cash collections from credit customers

Increased depreciation costs for facilities

Increased hiring, training, and overtime costs

What does a manager have control over in a cost center?

Costs

Assets

Dividends

Revenues

Costs

What should be considered when developing a measure to evaluate the performance of a manager?

Only controllable costs

Only noncontrollable costs

Only indirect costs

Only centralized costs

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?

Direct costs should not be included in the performance evaluation measure of a profit center manager.

Controllable costs should not be included in the performance evaluation measure of a profit center manager.

Uncontrollable costs should not be included in the performance evaluation measure of a profit center manager.

Revenues should not be included in the performance evaluation measure of a profit center manager.

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?

Production budget

Direct materials budget

Sales budget

Administrative expense budget

Administrative expense budget

Which items are uncontrollable, external variables that make it difficult to forecast the level of sales?

Inventory level and product management

Selling price and sales effort

Customer tastes and economic conditions

Direct labor and advertising expenditures

Customer tastes and economic conditions

What is the correct sequence of budgets in a manufacturing business?

Direct materials, sales, production

Sales, production, direct materials

Production, direct materials, sales

Sales, direct materials, production

Sales, production, direct materials

Which type of business organization has a major focus on direct materials, direct labor, and overhead?

Merchandising

Service

Retail

Manufacturing

Manufacturing

What are the three primary functions that company managers use managerial accounting information for?

Operating, investing, and financing

Planning, controlling, and evaluating

Borrowing, repaying, and lending

Reporting, allowing, and negotiating

Planning, controlling, and evaluating

What is the proper accounting for a product cost?

Record immediately as an expense

Record as a liability on the balance sheet

Record as a financing cash flow

Record as an inventory cost until the item is sold

Record as an inventory cost until the item is sold

How could a period cost be reported in an income statement?

As an administrative expense

As cost of goods manufactured

As cost of goods sold

As manufacturing overhead

As an administrative expense

A retail company purchased inventory costing $100,000. By the end of the year, inventory costing $75,000 had been sold.

How is the remaining $25,000 in inventory reported in the financial statements?

As manufacturing overhead in the income statement

As an asset in the balance sheet

As an administrative expense in the income statement

As a liability in the balance sheet

As an asset in the balance sheet

How are the wages of cashiers classified in a merchandising company?

Cost of goods sold

Work-in-process inventory

Selling expense

Manufacturing overhead

Selling expense

How are wages of office staff in a company headquarters building classified?

Manufacturing overhead

Direct labor

Indirect labor

Administrative expense

Administrative expense

Which label is given to the cost of the wood used in the construction of a piece of wooden furniture?

Direct materials

Selling and administrative

Direct labor

Manufacturing overhead

Direct materials

Which label is given to the cost of electricity in a furniture factory?

Administrative expenses

Manufacturing overhead

Direct materials

Direct labor

Manufacturing overhead

What is the sequence of the flow of costs through a manufacturing operation?

Raw materials, work-in-process, finished goods, cost of goods sold

Cost of goods sold, raw materials, work-in-process, finished goods

Work-in-process, raw materials, finished goods, cost of goods sold

Finished goods, cost of goods sold, raw materials, work-in-process

Raw materials, work-in-process, finished goods, cost of goods sold

What is the CVP equation?

Sales - cost of goods sold - fixed costs = profit

Sales - variable costs - overhead costs = profit

Sales - fixed costs - administrative costs = profit

Sales - variable costs - fixed costs = profit

Sales - variable costs - fixed costs = profit

Which cost category is not formally tracked in a company's accounting system?

Out-of-pocket costs

Indirect costs

Direct costs

Opportunity costs

Opportunity costs

A company reports these data:

Total sales revenue = $250,000

Number of units sold = 50,000 units

Variable costs = $100,000

If the company is operating at its break-even point, what is the company's total contribution margin?

$200,000

$50,000

$150,000

$100,000

$150,000

A company reports these data:

Price per unit = $25

Variable costs per unit = $15

Fixed costs = $15,000

Given these data, what is the variable cost ratio?

60%

50%

40%

20%

60%

Why is the concept of relevant range important to a manager?

Inside the relevant range, the variable cost per unit can increase.

Outside the relevant range, the variable cost per unit stays constant.

Inside the relevant range, the total fixed cost can change.

Outside the relevant range, the variable cost per unit can change.

Outside the relevant range, the variable cost per unit can change.

Which statement correctly describes applied manufacturing overhead?

The amount of manufacturing overhead that is assigned to each employee

The total manufacturing costs other than direct labor

The amount of manufacturing overhead that is assigned to the goods produced

The total manufacturing costs other than direct materials

The amount of manufacturing overhead that is assigned to the goods produced

What is the label given to the quantity computed as estimated overhead costs divided by estimated level of activity?

Predetermined overhead rate

Forecasted overhead rate

Indirect overhead rate

Underapplied overhead rate

Predetermined overhead rate

In a job order costing system, what is the proper accounting for a product cost?

It is reported as a part of general expenses.

It is reported as an expense when it occurs.

It is reported as a part of cost of goods sold.

It is reported as a part of administrative expenses.

It is reported as a part of cost of goods sold.

Which item is a period cost?

Wages of maintenance workers in the factory building

Rent on factory robotic equipment in an airplane manufacturer

Wages for factory quality control inspectors

Utility bills to heat the headquarters building

Utility bills to heat the headquarters building

Which statement is true with respect to activity-based costing (ABC) systems?

An ABC system allocates overhead based on multiple activities.

Implementing an ABC system requires very little analysis of the factors that create overhead costs.

An ABC system completely eliminates all overhead costs.

Implementing an ABC system requires only a careful calculation of total direct labor hours.

An ABC system allocates overhead based on multiple activities.

How is overhead allocated in an ABC system?

Sum of materials and labor cost multiplied by number of units

Budgeted overhead multiplied by expected number of direct labor hours

Cost pool multiplied by number of cost driver events

Activity rate multiplied by number of cost driver events

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 pool

Cost metric

Cost system

Cost driver

Cost driver

How are production costs treated in a process costing system?

Costs are assigned to the actual manufacturing overhead account during the period.

Costs are accumulated by process and averaged over all products made during the period.

Costs are assigned to specific jobs or products made during the period.

Costs are assigned to a selling, general, and administrative expense account during the period.

Costs are accumulated by process and averaged over all products made during the period.

How is the production cost per unit computed in a process costing system?

Amount of total production cost divided by the number of units completed during a particular period of time

Amount of direct labor cost divided by the number of direct labor hours used during a particular period of time

Amount of overhead cost divided by the number of units completed during a particular period of time

Amount of direct materials cost divided by the quantity of direct materials used during a particular period of time

Amount of total production cost 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?

Building custom-made furniture

Producing made-to-order industrial equipment

Constructing a high-rise office building

Refining gasoline in a petroleum facility

Refining gasoline in a petroleum facility

Which overhead allocation method should be used for a business that mass-produces breakfast cereal?

Job order costing

Process costing

Product-line costing

ABC costing

Process costing

What is the correct sequence for the flow of costs through a job order costing system?

Raw materials inventory, cost of goods sold, work-in-process inventory, finished goods inventory

Raw materials inventory, finished goods inventory, cost of goods sold, work-in-process inventory

Raw materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold

Raw materials inventory, work-in-process inventory, cost of goods sold, finished goods inventory

Raw materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold

Which type of company cannot use job order costing?

Building construction

Road construction

Tax accountant for wealthy people

Petroleum refining plant

Petroleum refining plant

What is an example of direct materials?

Cost of robotic equipment in making automobiles

Cost of aluminum in making an airplane

Cost of sandpaper in making wood furniture

Cost of saws and hammers in constructing a house

Cost of aluminum in making an airplane

What is an example of direct labor?

Wages for accounting staff in company headquarters

Wages for furniture assemblers in a wood furniture manufacturer

Wages for marketing staff in company headquarters

Wages for factory quality control inspectors

Wages for furniture assemblers in a wood furniture manufacturer

What is an example of manufacturing overhead?

Cost of bricks in making a building

Cost of concrete in making a road

Cost of sandpaper in making wood furniture

Cost of aluminum in making an airplane

Cost of sandpaper in making wood furniture