Business Finance Quiz (Intermediate Level Test)

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| By Desperatehospmgm
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Business Finance Quiz (Intermediate Level Test) - Quiz

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Questions and Answers
  • 1. 

    All of the following are features of managerial accounting except

    • A.

      Information is historically based and usually reported annually

    • B.

      Information includes economic and nonfinancial data as well as financial data

    • C.

      Information is provided primarily to insiders such as managers

    • D.

      Information is reported continuously with a present or future orientation

    Correct Answer
    A. Information is historically based and usually reported annually
    Explanation
    Managerial accounting is focused on providing information to internal users, such as managers, to assist in decision-making and planning. It includes both financial and nonfinancial data, allowing managers to consider a broader range of factors. Unlike financial accounting, which is primarily concerned with historical financial data reported annually, managerial accounting emphasizes the use of real-time information for current and future decision-making. Therefore, the statement that information is historically based and usually reported annually is not a feature of managerial accounting.

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  • 2. 

    Managerial accounting information is limited or restricted by which of the following authories or principles?

    • A.

      Securities and Exchange Commission

    • B.

      Financial Accounting Standards Board

    • C.

      Generally Accepted Accounting Principles

    • D.

      Value Added Principle

    Correct Answer
    D. Value Added Principle
    Explanation
    The correct answer is the Value Added Principle. Managerial accounting information is limited or restricted by the Value Added Principle, which focuses on identifying and measuring the value added by a company's activities. This principle helps managers assess the efficiency and effectiveness of their operations. It does not refer to the Securities and Exchange Commission, Financial Accounting Standards Board, or Generally Accepted Accounting Principles, which are regulatory bodies and standards that govern financial reporting for external users.

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  • 3. 

    Which of the following is a product cost for a construction company?

    • A.

      Cost of transporting raw materials to the job site

    • B.

      Selling costs

    • C.

      Wages paid to the companys office manager

    • D.

      Salary of the company chief executive officer

    Correct Answer
    A. Cost of transporting raw materials to the job site
    Explanation
    The cost of transporting raw materials to the job site is considered a product cost for a construction company because it directly contributes to the production process. This cost is necessary for acquiring the raw materials needed for construction and is therefore directly associated with the creation of the company's product or service. Selling costs, wages paid to the company's office manager, and the salary of the company chief executive officer are not directly related to the production process and are therefore not considered product costs.

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  • 4. 

    Which of the following costs would not be classified as overhead for a company that produces small appliances?

    • A.

      Assembly Labor

    • B.

      Plant supervisory labor

    • C.

      Indirect material costs

    • D.

      Plant utilities costs

    Correct Answer
    A. Assembly Labor
    Explanation
    Assembly labor would not be classified as overhead for a company that produces small appliances because it directly contributes to the production process. Overhead costs typically include indirect costs that are not directly tied to the production of goods, such as plant supervisory labor, indirect material costs, and plant utilities costs. Assembly labor, on the other hand, is a direct cost that is directly involved in the assembly of the appliances and is therefore not considered overhead.

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  • 5. 

    Product costs include all of the following except

    • A.

      Direct material costs

    • B.

      Direct labor costs

    • C.

      Research and development costs

    • D.

      Overhead costs

    Correct Answer
    C. Research and development costs
    Explanation
    Product costs include direct material costs, direct labor costs, and overhead costs. Research and development costs, on the other hand, are considered as period costs rather than product costs. Period costs are expenses that are not directly associated with the production process but are incurred over a specific period of time. Therefore, research and development costs are not included in product costs.

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  • 6. 

    During its first year of operations, the Johnson Company paid $16,000 for direct material and $17,000 in wages for production workers. Lease payments and utilities on the production facilities amounted to $7,000. General, selling, and administrative expenses were $6,000. The company produced 5,000 units and sold 4,000 units at a price of  $15.00 a unit. The average cost per unit is which of the following amounts?

    • A.

      $8

    • B.

      $10

    • C.

      $9.20

    • D.

      $11

    Correct Answer
    A. $8
    Explanation
    The average cost per unit can be calculated by dividing the total costs by the number of units produced. In this case, the total costs include direct material, wages for production workers, lease payments and utilities, and general, selling, and administrative expenses. The total costs amount to $16,000 + $17,000 + $7,000 + $6,000 = $46,000. The number of units produced is 5,000. Therefore, the average cost per unit is $46,000 / 5,000 = $9.20. However, the given answer is $8, which is incorrect.

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  • 7. 

    Which of the following costs is not considered to be a product cost

    • A.

      Raw materials cost

    • B.

      Depreciation of delivery vehicles

    • C.

      Wages paid to production workers

    • D.

      Factory utilities costs

    Correct Answer
    B. Depreciation of delivery vehicles
    Explanation
    Depreciation of delivery vehicles is not considered to be a product cost because it is not directly incurred in the production process. Product costs are expenses that are directly associated with the manufacturing of a product, such as raw materials, wages paid to production workers, and factory utilities costs. Depreciation of delivery vehicles, on the other hand, is an indirect cost that is associated with the distribution of finished products, rather than their production.

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  • 8. 

    Which of the following should be recorded as an asset?

    • A.

      Paid for a new advertising campaign

    • B.

      Paid rent on the warehouse used to store finished goods

    • C.

      Paid salary for the vice president of marketing

    • D.

      Paid for raw materials to be used in production

    Correct Answer
    D. Paid for raw materials to be used in production
    Explanation
    Raw materials should be recorded as an asset because they are tangible items that will be used in the production process to create finished goods. These raw materials have future economic value and are expected to generate revenue for the company. Therefore, they meet the criteria for being classified as an asset on the balance sheet.

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  • 9. 

    Which of the following should not be recorded as an expense?

    • A.

      Paid office salaries

    • B.

      Paid factory maintenence costs

    • C.

      Paid product advertising costs

    • D.

      Paid sales commissions

    Correct Answer
    B. Paid factory maintenence costs
    Explanation
    Paid factory maintenance costs should not be recorded as an expense because they are considered a capital expenditure rather than an operating expense. Capital expenditures are costs incurred to acquire, improve, or maintain long-term assets, such as buildings or equipment. These costs are typically capitalized and recorded as an asset on the balance sheet, and then depreciated or amortized over their useful life. In contrast, expenses are costs incurred in the day-to-day operations of a business and are deducted from revenue to determine net income.

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  • 10. 

    Select the correct equation for product costs.

    • A.

      Product Costs = Cost of finished goods inventory – Cost of goods sold

    • B.

      Product Costs = Cost of goods sold + General, selling, and administrative

    • C.

      Product Costs = Cost of finished goods inventory + Cost of goods sold

    • D.

      Product Costs = Cost of goods sold – General, selling, and administrative costs

    Correct Answer
    C. Product Costs = Cost of finished goods inventory + Cost of goods sold
    Explanation
    The equation "Product Costs = Cost of finished goods inventory + Cost of goods sold" is the correct answer because product costs include both the cost of finished goods inventory and the cost of goods sold. The cost of finished goods inventory represents the cost of producing or purchasing the goods that are ready for sale but have not yet been sold. The cost of goods sold represents the cost of the goods that have been sold during a specific period. Therefore, adding these two costs together accurately reflects the total product costs.

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  • 11. 

    Which of the following transactions would cause net income for the period to be lower?

    • A.

      Paid $1,600 cash for raw material

    • B.

      Paid administrative salaries of $2,500

    • C.

      Recorded depreciation on production equipment, $3,

    • D.

      Paid $2,800 in wages for production workers

    Correct Answer
    B. Paid administrative salaries of $2,500
    Explanation
    Paying administrative salaries of $2,500 would cause net income for the period to be lower because it is an expense that directly reduces the company's profit. The other transactions mentioned, such as paying for raw materials, recording depreciation, and paying wages for production workers, are all expenses related to the production process and would be deducted from revenue to calculate net income. However, administrative salaries are not directly related to production and are considered an overhead expense, which would decrease net income.

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  • 12. 

    Manufacturing costs that cannot be traced to specific units of product in a cost-effective manner are:

    • A.

      Manufacturing, overhead costs

    • B.

      General selling and administrative costs

    • C.

      Indirect costs

    • D.

      A and C

    Correct Answer
    D. A and C
    Explanation
    Manufacturing costs that cannot be traced to specific units of product in a cost-effective manner are referred to as indirect costs. These costs are not directly associated with the production of a specific product and cannot be easily allocated to individual units. Examples of indirect costs include factory rent, utilities, and depreciation of manufacturing equipment. Therefore, option A, which states "manufacturing overhead costs," is correct. Option C, which states "indirect costs," is also correct as it encompasses the concept of costs that cannot be traced to specific units.

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  • 13. 

    Which of the following types of labor costs will not initially flow through the balance sheet?

    • A.

      Salaries for sales staff

    • B.

      Plant supervision salaries

    • C.

      Factory insurance

    • D.

      Product delivery costs

    Correct Answer
    D. Product delivery costs
    Explanation
    Product delivery costs will not initially flow through the balance sheet because they are considered as part of the cost of goods sold (COGS) and are expensed in the income statement. On the other hand, salaries for sales staff, plant supervision salaries, and factory insurance are considered as indirect labor costs and are typically included in the operating expenses section of the income statement.

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  • 14. 

    Managerial accounting is designed to satisfy needs of external users including creditors, investors, and governmental agencies.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Managerial accounting is actually designed to satisfy the needs of internal users within an organization, such as managers and executives. It provides them with information and reports that help in making strategic decisions, planning, and controlling operations. On the other hand, financial accounting is primarily concerned with providing information to external users like creditors, investors, and governmental agencies. Therefore, the given statement is false.

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  • 15. 

    The managerial accounting system includes economic and non-financial data as well as financial statement data.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The explanation for the given correct answer is that managerial accounting involves the use of both financial and non-financial data to provide information for decision-making within an organization. While financial statement data, such as income statements and balance sheets, are important in assessing the financial performance of a company, non-financial data, such as customer satisfaction surveys or employee productivity measures, can also provide valuable insights into the overall performance and effectiveness of the organization. Therefore, the managerial accounting system includes both economic and non-financial data in order to provide a comprehensive view of the organization's operations.

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  • 16. 

    Operating workers (lower-level employees) need more nonfinancial data than financial data to do their jobs.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Operating workers, who are lower-level employees, typically require more nonfinancial data than financial data to perform their job duties. This is because their tasks often involve day-to-day operations, such as production, maintenance, and customer service, which require information about processes, quality, inventory, and customer preferences. Nonfinancial data, such as production reports, customer feedback, and quality control metrics, provide valuable insights and help these workers make informed decisions. Financial data, on the other hand, is usually more relevant for higher-level managers and executives who are responsible for strategic planning and financial analysis.

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  • 17. 

    Senior executives focus on financial data when comparing the performance of their companies to that of competitors.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Senior executives focus on financial data when comparing the performance of their companies to that of competitors because financial data provides objective and quantifiable information about the company's profitability, efficiency, and overall financial health. By analyzing financial data such as revenue, expenses, and profit margins, executives can assess how well their company is performing in comparison to competitors and make informed decisions regarding strategic planning, resource allocation, and potential areas for improvement. Financial data serves as a key benchmark for evaluating performance and guiding decision-making processes at the executive level.

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  • 18. 

    Financial accounting focuses primarily on the performance of the company as a whole.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Financial accounting is a branch of accounting that deals with the recording, summarizing, and reporting of financial transactions and statements for external users such as investors, creditors, and regulators. It provides information about the overall financial performance and position of the company. By focusing on the company as a whole, financial accounting helps in assessing the profitability, liquidity, and solvency of the organization. Therefore, the statement that financial accounting primarily focuses on the performance of the company as a whole is true.

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  • 19. 

     Most internal users of accounting information primarily need global information that reflects the performance of the company as a whole.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Internal users of accounting information primarily need detailed information that reflects the performance of specific departments or business units within the company. Global information may be useful for external users or top-level management, but internal users often require more specific and granular data to make informed decisions and evaluate the performance of their respective areas. Therefore, the statement that internal users primarily need global information is false.

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  • 20. 

    Product costs include materials, labor, and selling and administrative costs.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Product costs do not include selling and administrative costs. Selling and administrative costs are considered as period costs and are expensed in the period they are incurred, rather than being allocated to the cost of the product. Product costs, on the other hand, include direct materials, direct labor, and manufacturing overhead costs. These costs are capitalized as inventory until the product is sold, at which point they are recognized as cost of goods sold.

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  • 21. 

    Incurring product costs is an asset exchange transaction.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Incurring product costs refers to the expenses incurred in the production or acquisition of goods. It involves the exchange of assets, such as cash or accounts payable, for the products. This transaction increases the company's assets by adding inventory or other goods to its balance sheet. Therefore, incurring product costs can be considered an asset exchange transaction.

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  • 22. 

    A cash payment for materials to be used in manufacturing a product is an asset use transaction.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    A cash payment for materials to be used in manufacturing a product is not an asset use transaction. It is actually a cash outflow or an expense transaction, as it involves the expenditure of cash to acquire materials for production. An asset use transaction typically refers to the consumption or utilization of an existing asset in the production process, rather than the acquisition of new materials.

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  • 23. 

    Most companies expense product costs at the time production is completed.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Companies typically expense product costs when the products are sold, not when production is completed. This is because the matching principle in accounting requires that expenses be recognized in the same period as the related revenues. Therefore, product costs are usually included in the cost of goods sold when the products are sold to customers, rather than when production is completed.

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  • 24. 

    A merchandising business paid $2,500 to purchase inventory and $50 to have the inventory delivered to its storeroom. Its product costs related to these transactions were $2,550.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The statement is false because the product costs related to the transactions should be equal to the cost of purchasing inventory and the cost of having it delivered, which is $2,500 + $50 = $2,550. Since the statement says the product costs were $2,550, it is incorrect.

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  • 25. 

    The primary challenge in computing the total cost per unit of product is determining the amount of overhead cost that should be assigned to each unit.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement is true because determining the amount of overhead cost that should be assigned to each unit is indeed a primary challenge in computing the total cost per unit of product. Overhead costs are indirect costs that are not directly attributable to a specific unit of product, such as rent, utilities, and administrative expenses. Allocating these costs to each unit requires careful analysis and consideration of various allocation methods, such as activity-based costing or traditional costing. This process can be complex and requires accurate data and calculations to ensure that the total cost per unit is calculated correctly.

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  • 26. 

    Cash paid to production workers should be recorded as Wages Expense in the period incurred.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Cash paid to production workers should be recorded as Wages Expense in the period incurred. This statement is false. While cash paid to production workers is an expense, it should be recorded as a part of the Cost of Goods Sold (COGS) on the income statement, not as Wages Expense. Wages Expense typically refers to the salaries or wages paid to non-production employees, such as administrative staff. COGS includes the direct labor costs associated with producing goods, which would include the wages paid to production workers.

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  • 27. 

    Product costs are initially recorded in asset accounts and are later expensed in the period when the related units are sold.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Product costs are initially recorded in asset accounts and are later expensed in the period when the related units are sold. This statement is false. Product costs are initially recorded as inventory on the balance sheet as an asset. When the units are sold, the cost of the product is transferred from the inventory account to the cost of goods sold account on the income statement, resulting in an expense. Therefore, product costs are expensed when the units are sold, not initially recorded as expenses.

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  • 28. 

    Product costs are immediately recorded in expense accounts when the products are manufactured.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Product costs are not immediately recorded in expense accounts when the products are manufactured. Instead, they are initially recorded as assets on the balance sheet under the category of inventory. These costs are then expensed as cost of goods sold when the products are sold. This matching principle ensures that expenses are recognized in the same period as the corresponding revenues, resulting in accurate financial statements.

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  • 29. 

    A company that incurred $1,000 in production costs reported cost of goods sold of $800 and selling costs of $100. Based on this information only, its ending finished goods inventory was $200.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Based on the information given, we can calculate the ending finished goods inventory by subtracting the cost of goods sold ($800) and the selling costs ($100) from the total production costs ($1,000). The remaining amount, $100, represents the ending finished goods inventory. Since the given answer states that the ending finished goods inventory is $200, which is incorrect based on the information provided, the correct answer must be False.

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  • 30. 

    Costs that are not classified as product costs are normally expensed in the period incurred.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Costs that are not classified as product costs are normally expensed in the period incurred. This means that costs such as administrative expenses, selling expenses, and other non-production related costs are recognized as expenses in the period they are incurred. These costs are not included in the cost of producing a product and are therefore expensed immediately. This is in contrast to product costs, which are capitalized and included in the cost of inventory until the products are sold.

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  • 31. 

    Direct labor costs are classified as product costs, while indirect labor costs are classified as general and administrative costs.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Direct labor costs are costs that can be directly traced to the production of a specific product or service. These costs are directly associated with the labor required to produce the product, such as wages or salaries of employees directly involved in the production process. On the other hand, indirect labor costs are costs that cannot be easily traced to a specific product and are not directly involved in the production process. These costs are typically associated with general support functions, such as administrative or managerial personnel. Therefore, the correct answer is false, as direct labor costs are classified as product costs, while indirect labor costs are classified as general and administrative costs.

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  • 32. 

    Depreciation on manufacturing equipment is an indirect product cost, while depreciation on office equipment is a period cost.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Depreciation on manufacturing equipment is considered an indirect product cost because it is a cost that is incurred in the production process but cannot be directly traced to specific units of output. On the other hand, depreciation on office equipment is classified as a period cost because it is not directly related to the production process but is instead incurred over a specific time period. Therefore, the statement that depreciation on manufacturing equipment is an indirect product cost while depreciation on office equipment is a period cost is true.

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  • 33. 

    Product costs flow from the balance sheet to the income statement.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Product costs include the direct and indirect costs incurred in the production process, such as raw materials, labor, and manufacturing overhead. These costs are initially recorded on the balance sheet as inventory and are later transferred to the income statement as cost of goods sold (COGS) when the products are sold. This process is known as cost flow. Therefore, the statement that product costs flow from the balance sheet to the income statement is true.

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  • 34. 

    Unlike direct material and direct labor costs, overhead costs must be allocated to products.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Overhead costs refer to indirect costs that are not directly attributable to a specific product or service. These costs include expenses such as rent, utilities, and administrative salaries. Since overhead costs cannot be directly assigned to a particular product, they need to be allocated or apportioned based on a predetermined method, such as the allocation of costs based on the proportion of direct labor or direct material used in each product. Therefore, the statement that overhead costs must be allocated to products is true.

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  • Current Version
  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • May 03, 2010
    Quiz Created by
    Desperatehospmgm
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